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   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997FEBRUARY 10, 1999
    
                                                      REGISTRATION STATEMENT NO. 333-
================================================================================333-39841
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
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                                AMENDMENT NO. 3
    
                                  TO FORM S-3
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
 
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                               HEICO CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                ---------------
                FLORIDA                          65-0341002
          (STATE OR OTHER JURISDICTION        (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION)     IDENTIFICATION NO.)(Exact name of registrant as specified in its charter)
 
                                                  
                   LAURANS A. MENDELSON
                                                                                      CHIEF EXECUTIVE OFFICER
                         3000 TAFT STREET                                                3000 TAFT STREET
                         HOLLYWOOD, FLORIDA                                             33021                                    HOLLYWOOD, FLORIDA 33021
                          (954) 987-6101                                                  (954) 987-6101
         (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,         (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
 INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)          INCLUDING AREA CODE, OF AGENT FOR SERVICE)65-0341002
       (State or other jurisdiction of                              (I.R.S. Employer
        incorporation or organization)                            Identification No.)
---------------3000 TAFT STREET HOLLYWOOD, FLORIDA 33021 (954) 987-6101 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- LAURANS A. MENDELSON CHIEF EXECUTIVE OFFICER 3000 TAFT STREET HOLLYWOOD, FLORIDA 33021 (954) 987-6101 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES OF COMMUNICATIONS TO: BRUCE MACDONOUGH, ESQ. GREENBERG, TRAURIG, HOFFMAN, NEIL A. TORPEY, ESQ. LIPOFF, ROSEN & QUENTEL, P.A. PAUL, HASTINGS, JANOFSKY & WALKER LLP 1221 BRICKELL AVENUE 399 PARK AVENUE MIAMI, FLORIDA 33131 NEW YORK, NEW YORK 10022-4697 BRUCE E. MACDONOUGH, ESQ. ROBERT EVANS III, ESQ. MICHAEL G. TAYLOR, ESQ. SHEARMAN & STERLING GREENBERG TRAURIG, P.A. 599 LEXINGTON AVENUE 1221 BRICKELL AVENUE NEW YORK, NEW YORK 10022 MIAMI, FLORIDA 33131 (212) 848-4000 (305) 579-0500 (212) 318-6000 ---------------
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. --------------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ---------------
CALCULATION OF REGISTRATION FEE ================================================================================================= PROPOSED MAXIMUM TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------- % Convertible Subordinated Notes due 2004 ............ $86,250,000 $26,136.36 - ------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, issuable upon conversion of % Convertible Subordinated Notes due 2004 ............ (3) -- =================================================================================================
(1) Includes $11,250,000 principal of Notes subject to the Underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933. (3) Not currently determinable.--------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION CONTAINED HEREININ THIS PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TONOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES HAS BEENUNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMESCOMMISSION IS EFFECTIVE. THIS PROSPECTUS SHALLIS NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OFTHESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCHWHERE THE OFFER SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.IS NOT PERMITTED. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED NOVEMBER 7, 1997FEBRUARY 10, 1999 PROSPECTUS $75,000,000 [HEICO- ---------------- 4,000,000 SHARES (HEICO CORPORATION LOGO] % CONVERTIBLE SUBORDINATED NOTES DUE 2004 --------------- HEICO CORPORATION ("HEICO" OR THE "COMPANY") IS OFFERING $75,000,000 AGGREGATE PRINCIPAL AMOUNT OF ITS ___% CONVERTIBLE SUBORDINATED NOTES DUE , 2004 (THE "NOTES"). THE NOTES ARE CONVERTIBLE AT ANY TIME PRIOR TO MATURITY, UNLESS PREVIOUSLY REDEEMED OR REPURCHASED, INTO SHARES OFLOGO) CLASS A COMMON STOCK PAR VALUE------------------------ HEICO Corporation is offering 3,700,000 shares of Class A common stock, and the selling shareholder is offering 300,000 shares of Class A common stock. We will not receive any proceeds from the sale of Class A common stock by the selling shareholder. Our authorized capital stock includes common stock, par value $.01 PER SHARE ("COMMON STOCK"), OFper share, and Class A common stock, par value $.01 per share. The rights of the holders of Class A common stock and the holders of the common stock are identical, except that the holders of Class A common stock are entitled to one-tenth of a vote for each share of Class A common stock while the common stock entitles its holders to one vote per share. Immediately after this offering, the outstanding shares of Class A common stock will represent approximately 8.5% of the combined voting power of the outstanding shares of both classes of common stock. Our Class A common stock trades on the New York Stock Exchange under the symbol "HEI.A." On February 9, 1999, the last sale price of the Class A common stock as reported on the New York Stock Exchange was $21 15/16 per share. INVESTING IN THE COMPANY ATCLASS A CONVERSION RATE OF SHARES PER EACH $1,000 PRINCIPAL AMOUNT OF NOTES (EQUIVALENT TO A CONVERSION PRICE OF APPROXIMATELY $ PER SHARE), SUBJECT TO ADJUSTMENT IN CERTAIN CIRCUMSTANCES. SEE "DESCRIPTION OF NOTES--CONVERSION OF THE NOTES." THE COMMON STOCK IS TRADED ON THE AMERICAN STOCK EXCHANGE UNDER THE SYMBOL "HEI." ON , 1997, THE LAST REPORTED SALE PRICE FOR THE COMMON STOCK WAS $ PER SHARE. INTEREST ON THE NOTES IS PAYABLE ON AND OF EACH YEAR, COMMENCING , 1998. THE NOTESINVOLVES RISKS WHICH ARE REDEEMABLE IN WHOLE OR IN PART AT THE COMPANY'S OPTION AT ANY TIME ON OR AFTER , 2000, AT THE REDEMPTION PRICES SET FORTH HEREIN, PLUS ACCRUED INTEREST TO THE DATE OF REDEMPTION. SEE "DESCRIPTION OF NOTES--OPTIONAL REDEMPTION." THE NOTES ARE NOT ENTITLED TO ANY SINKING FUND. THE NOTES WILL MATURE ON , 2004.DESCRIBED IN THE EVENT OF A CHANGE OF CONTROL (AS DEFINED HEREIN), EACH HOLDER OF NOTES MAY REQUIRE THE COMPANY TO REPURCHASE ITS NOTES, IN WHOLE OR IN PART, FOR CASH AT A REPURCHASE PRICE OF 100% OF THE PRINCIPAL AMOUNT OF NOTES TO BE REPURCHASED, PLUS ACCRUED INTEREST TO THE REPURCHASE DATE. SEE "DESCRIPTION OF NOTES --REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL." THE NOTES ARE UNSECURED OBLIGATIONS SUBORDINATED IN RIGHT OF PAYMENT TO ALL EXISTING AND FUTURE SENIOR INDEBTEDNESS (AS DEFINED HEREIN) OF THE COMPANY AND EFFECTIVELY SUBORDINATED IN RIGHT OF PAYMENT TO ALL INDEBTEDNESS AND OTHER LIABILITIES OF THE COMPANY'S SUBSIDIARIES. AS OF OCTOBER 31, 1997, AFTER GIVING EFFECT TO THIS OFFERING AND THE APPLICATION OF NET PROCEEDS THEREFROM, THE COMPANY'S SUBSIDIARIES WOULD HAVE HAD APPROXIMATELY $11 MILLION OF OUTSTANDING INDEBTEDNESS, OF WHICH APPROXIMATELY $6 MILLION IS GUARANTEED BY THE COMPANY AND CONSTITUTES SENIOR INDEBTEDNESS. THE INDENTURE (AS DEFINED HEREIN) WILL NOT RESTRICT THE COMPANY OR ITS SUBSIDIARIES FROM INCURRING ADDITIONAL SENIOR INDEBTEDNESS OR OTHER INDEBTEDNESS. SEE "DESCRIPTION OF NOTES--SUBORDINATION." THE NOTES WILL NOT BE LISTED ON ANY SECURITIES EXCHANGE AND WILL ONLY BE TRADED IN THE OVER-THE-COUNTER MARKET. SEE "RISK FACTORS" SECTION BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL PURCHASERS OF THE NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY10 OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================ PRICE TO DISCOUNT TO PROCEEDS TO PUBLIC(1) UNDERWRITERS(2) COMPANY(3) - -------------------------------------------------------------------------------- Per Note ...... % % % - -------------------------------------------------------------------------------- Total(4) ......------------------------
PER SHARE TOTAL --------- ----- Public Offering Price............................... $ $ Underwriting Discount............................... $ $ Proceeds, before expenses, to HEICO Corporation..... $ $ Proceeds to the selling shareholder................. $ $ $ ================================================================================ (1) Plus accrued interest, if any, from date of issuance. (2)
The Company has agreed to indemnify the Underwriters (as defined herein) against certain liabilities, including liabilities under the Securities Act (as defined herein). See "Underwriting." (3) Before deducting expenses payable by the Company, estimated to be $ . (4) The Company has granted the Underwriters an option for 30 days tounderwriters may also purchase up to an additional $11,250,000 principal amount of Notes, solely for300,000 shares from us and up to an additional 300,000 shares from the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the Price to Public,selling shareholder at the public offering price, shown above, less the Underwriters'underwriting discount, Discountwithin 30 days from the date of this prospectus to Underwriterscover over-allotments. Neither the Securities and ProceedsExchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to Companythe contrary is a criminal offense. The shares of Class A Common Stock will be $ready for delivery in New York, New York on or about , $ and $ , respectively. See "Underwriting." THE NOTES ARE OFFERED BY THE UNDERWRITERS, SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THE UNDERWRITERS' RIGHT TO REJECT ORDERS IN WHOLE OR PART. IT IS EXPECTED THAT DELIVERY OF THE NOTES WILL BE MADE ON OR ABOUT , 1997, AGAINST PAYMENT IN IMMEDIATELY AVAILABLE FUNDS. --------------- FORUM CAPITAL MARKETS L.P.1999. ------------------------ MERRILL LYNCH & CO. RAYMOND JAMES & ASSOCIATES, INC. SOUTHEAST RESEARCH PARTNERS, INC.ING BARING FURMAN SELZ LLC ------------------------ The date of this Prospectusprospectus is , 1997.1999. [RESERVED FOR ART WORK] CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE3 (HEICO CORPORATION LOGO) [picture] [picture] Our Flight Support Group New Product Flight Support Group New Product Development engineers utilize Development engineers work in the sophisticated Computer Aided Design (CAD) Company's Metrology Laboratory. computers and software to re-engineer jet engine replacement parts, such as the parts shown in the foreground of the photograph.
[picture] A Flight Support Group Team Member manufactures aircraft parts. 4 TABLE OF THE NOTES OR THE COMMON STOCK, INCLUDING OVER-ALLOTMENTS, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2CONTENTS
PAGE ---- Prospectus Summary.......................................... 4 Risk Factors................................................ 10 Use of Proceeds............................................. 17 Capitalization.............................................. 18 Price Range of Common Stock and Dividends................... 19 Selected Consolidated Financial Data........................ 20 Selected Pro Forma Consolidated Financial Data.............. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 24 Business.................................................... 32 Management.................................................. 45 Principal and Selling Shareholders.......................... 47 Description of Capital Stock................................ 50 Shares Eligible for Future Sale............................. 53 Certain United States Tax Consequences to Non-United States Holders................................................... 53 Underwriting................................................ 56 Legal Matters............................................... 58 Experts..................................................... 58 Available Information....................................... 58 Incorporation of Certain Documents by Reference............. 59 Index to Financial Statements............................... F-1
--------------------- FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about HEICO Corporation, including, among other things: - Our anticipated growth strategies and ability to integrate acquired businesses, - Our intention to introduce new products, - Product pricing levels, - Product specifications costs and requirements, - Governmental and regulatory demands, - Anticipated trends in our businesses, including trends in the markets for jet engine parts, jet engine overhaul and ground support equipment, - Economic conditions within and outside of the aerospace, aviation and defense industries, and - Our ability to continue to control costs and maintain quality. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in the prospectus might not occur. --------------------- You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. 3 5 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. AS USED HEREIN, THE TERM "COMPANY" REFERS TO HEICO CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES.In this section, we have provided you with an overview of some of the more important information in this Prospectus. However, we caution you that this information is not complete. You should read all of the information in this Prospectus before purchasing any Class A Common Stock. When we refer to "fiscal" or "fiscal year," we mean our fiscal year ended October 31, and when we refer to "pro forma," we include information for McClain International, Inc. and Rogers-Dierks, Inc., two companies that we acquired in 1998. THE COMPANY The CompanyHEICO believes it is one of the world's largest non-OEM manufacturersmanufacturer of FAA-approvedFederal Aviation Administration-approved jet engine replacement parts, other than the original equipment manufacturers and their subcontractors. It is also a market leader in the saleleading manufacturer of certain ground support equipment ("GSE") to the airline and defense industries. The Company'sThrough our Flight Support Group, which currently accounts for approximately 70% of the Company's revenues, operates in the jet engine service market through (i) the research and development,we use proprietary technology to design, manufacture and sale of FAA-approvedsell jet engine replacement parts in direct competition withfor sale at lower prices than those manufactured by original equipment manufacturers ("OEMs"), (ii)manufacturers. These parts are approved by the repair, maintenanceFAA and overhaulare the functional equivalent of parts sold by original equipment manufacturers. In addition, our Flight Support Group repairs, refurbishes and overhauls jet engine and airframeaircraft components for domestic and (iii)foreign commercial air carriers and aircraft repair companies. In fiscal 1998, the manufactureFlight Support Group accounted for 73% of specialty aviation and defense component parts as a subcontractor for OEMs and the U.S. government. The Company'spro forma revenues. Through our Ground Support Group, which currently accounts for approximately 30% of the Company's revenues, manufactureswe manufacture various types of GSE,ground support equipment, including groundelectrical power, air start, and air conditioning and heating units, as well as certainsome electronic equipment for commercial airlines and military agencies. ThroughIn fiscal 1998, the Ground Support Group accounted for 27% of pro forma revenues. We currently sell our products to every major U.S. airline, as well as a combinationgrowing number of airlines throughout the world. We have continuously operated in the aerospace industry for 38 years. Since assuming control in 1990, current management has achieved significant sales and profit growth through expanded product offerings, an expanded customer base, increased research and development expenditures, and the completion of a number of acquisitions. As a result of internal growth and acquisitions, the Company increasedour revenues 35%have grown from $25.6$19.2 million in the year ended October 31, 1995fiscal 1994 to $34.6pro forma revenues of $112.4 million in fiscal 1998, a compound annual growth rate of 56%. During the year endedsame period, net income increased from $1.9 million to pro forma net income of $12.1 million, a compound annual growth rate of 59%. In October 31, 19961997, we formed a strategic alliance with Lufthansa Technik AG, the technical services subsidiary of Lufthansa German Airlines AG. Lufthansa Technik is the world's largest independent provider of engineering and earnings per share from continuing operations 130% from $0.27 per sharemaintenance services for aircraft and aircraft engines and supports over 200 airlines, governments and other customers. As part of the transaction, Lufthansa Technik acquired a 20% minority interest in our Flight Support Group, investing $29 million to date and committing to invest an additional $9 million over the next two years. This includes direct equity investments and the funding of specific research and development projects. In connection with subsequent acquisitions by our Flight Support Group, Lufthansa Technik invested additional amounts pursuant to its option to maintain a 20% equity interest. This strategic alliance should enable us to expand domestically and internationally by enhancing our ability to (i) identify key jet engine replacement parts with significant profit potential by utilizing Lufthansa Technik's extensive operating data on engine parts, (ii) introduce those parts throughout the world in an efficient manner due to Lufthansa Technik's testing and diagnostic resources, and (iii) broaden our customer base by capitalizing on Lufthansa Technik's established relationships and alliances within the airline industry. The Canaan Group, an independent management consulting firm specializing in the year ended October 31, 1995 to $0.62 inaviation and aerospace industries, estimated the year ended October 31, 1996. In addition, the Company increased revenues and earnings per share from continuing operations from $23.0 million and $0.39 per share for the nine months ended July 31, 1996 to $44.5 million and $0.78 per share for the nine months ended July 31, 1997. The Company's core strategy is to provide domestic and foreign commercial air carriers (passenger and cargo) and aircraft repair (airmotive) companies with an FAA-approved alternative source for certain jet engine parts at substantial savings to the prices charged for functionally identical parts by the respective jet engine OEMs which have historically been the sole source for such replacement parts. The Company estimates the1998 worldwide annual marketsales for jet engine repair, refurbishment and overhaul services to be approximately $6.5$7.5 billion, of which approximately $3.5$4 billion reflectsrepresented annual sales of jet engine replacement parts. While we currently supply less than 2% of the market for jet engine replacement parts, we have been adding new products at a rapid rate. According to the Canaan Group, the jet engine replacement parts market is expected to grow at approximately 4-5% over the next three years. 4 6 Historically, the three principal jet engine original equipment manufacturers, Pratt & Whitney, General Electric (including CFM International) and Rolls Royce, have been the sole source for substantially all new replacement parts. We believe that, based on our competitive pricing, reputation for high quality, short lead time requirements, strong relationships with domestic and foreign commercial air carriers and airmotives (companies that overhaul aircraft), relationship with Lufthansa Technik and successful track record of receiving Parts Manufacturer Approvals from the FAA, we are uniquely positioned to continue to increase our product lines and gain market share. According to a 1996 study conducted by GSE TODAY, a leading ground support industry publication, the 1995 annual sales of the worldwide commercial GSEground support equipment market iswere approximately $1.5 billion. The Company believes$1.7 billion and that market was expected to grow at approximately 7% annually over the next five years. We currently supply less than 2% of this market. We believe that the GSEground support equipment market is highly fragmented, with a significant number of participants supplying only one or two types of equipment. We believe that our growth in the ground support equipment market will be driven by our ability to differentiate our product offerings with more technologically advanced and value-added products and services, as well as our ability to acquire complementary businesses. Jet engine maintenance is a highly regulated, ongoing process that typically accounts for approximately 6% of an aircraft's total operating costs. FAA regulations require "cradle-to-grave" documentation of an engine's service life, as well as the individual parts that comprise the engine. We utilize sophisticated computer aided design technologies, advanced engineering, proprietary design and manufacturing capabilities, and our established credibility with the FAA to obtain Parts Manufacturer Approvals from the FAA, allowing us to produce parts which are the functional equivalent of those available from the original equipment manufacturer. We believe that our sophisticated and proprietary design capabilities and experience with the Parts Manufacturer Approval process create a significant barrier to entry for others. We believe that there are several favorable industry trends in the aviation industry that will contribute to the growth in the markets for jet engine replacement parts and ground support equipment products, including: (i) expected strong growth in aircraft traffic and fleet size; (ii) an increase in the number of older aircraft in service; (iii) increased FAA regulations and maintenance and safety requirements that require repair or overhaul of engine and airframe components; and (iv) consolidation of the service and supply chain in the aircraft industry generally. We believe that replacement jet engine products and services are less susceptible than new aircraft purchases to economic cycles of the airline industry because FAA regulations require the regular replacement of jet engine parts. In our experience, demand for replacement jet engine parts typically commences four to seven years after an aircraft is first put into service. Also, many airlines tend to replace parts more frequently than required by the FAA to ensure optimal engine performance and the efficiency of their aircraft. We believe that we are different from most aerospace and defense suppliers because reductions in new aircraft orders should not adversely affect our business. Our business mostly serves companies that operate existing aircraft, not companies that build aircraft. Airline companies are increasingly cost conscious, especially during economic down-cycles, which prompts them to seek more cost effective alternatives to replacement parts manufactured by original equipment manufacturers and prompts them to overhaul accessory components and fuselage structures in greater numbers in order to reduce operating costs. Most of the products sold by our Ground Support Group are not sold specifically to furnish new commercial aircraft, but are more frequently sold to replace existing older equipment, to retrofit airport gates or to service other aerospace applications. 5 7 GROWTH STRATEGIES The Company intendsSTRATEGY We intend to capitalize on itsour reputation for assured quality, itsproprietary research and development and manufacturing capabilities, existing customer relationships, andalliance with Lufthansa Technik, as well as favorable industry trends to continue to achieve profitable growth in a number of niche aerospace markets. Specific components ofutilizing the Company's growth strategy include the following: EXPANSION OF JET ENGINE REPLACEMENT PARTS PRODUCT LINES. The Company intendsfollowing specific strategies: - Expand Jet Engine Replacement Parts Product Lines. We intend to substantially broaden itsour current jet engine replacement parts product lines through the development and receipt of additional Parts Manufacturer Approvals ("PMAs") from the Federal Aviation Administration ("FAA"). The PMA approvalFAA. Since 1991, we have added approximately 200 new Parts Manufacturer Approval parts through internal development and 160 through acquisitions. We currently supply over 700 parts for Pratt & Whitney JT3D, JT8D, JT9D, PW2000 and PW4000 and CFM International CFM56 engines. We intend to increase the number of jet engine parts we offer on most of these engines, as well as expand into new engine types. We select the jet engine replacement parts to design and manufacture through a process requireswhich analyzes industry information to determine which jet engine replacement parts are expected to generate the greatest profitability. Most jet engine replacement parts selected are complex, high value-added and require specific technical expertise. As part of this strategy, we have increased our research and development expenditures from $300,000 in fiscal 1991 to approximately $4.4 million in fiscal 1998. We believe that our sophisticated computer aidedproprietary design technologies, advanced engineering and manufacturing capabilities and depends to a significant extent on the Company'sour established credibility with the FAA. The Company believes thatFAA expedites the PMA approval process createsof obtaining Parts Manufacturer Approvals. - Expand Ground Support Equipment Product Lines. Since entering the ground support equipment industry in fiscal 1996, we have aggressively expanded our ground support equipment lines with new value-added and technologically advanced products. Over the past two years, we have added 16 new ground support equipment products. These offerings include a significant barriernew range of aircraft ground air-conditioning systems, an advanced electronic power supply system replacing existing technology for use with the International Space Station, a ground cooling system for the new F-22 Raptor fighter aircraft and a new commercial continuous-flow pneumatic airstart system. In addition, our Ground Support Group continually redesigns its existing product offerings to entry asreflect changes in technology and differentiate its products from those of its competitors. In November 1998, our Ground Support Group introduced a result of bothground aircraft heating system which has met with strong initial demand. In order to facilitate these new product lines, our Ground Support Group has dramatically improved its technical demandsproduction capabilities by implementing a flow line-based manufacturing protocol and its limits on the rate at which competitors can bring products to market. 3 EXPANSION OF GSE PRODUCT LINES. The Company expects that the plannedadding a new state-of-the-art, 113,000 square foot manufacturing facility in Palmetto, Florida. - Expand Overhaul and Repair Business. Our Flight Support Group has also pursued expansion of its Ground Support Group's manufacturing facility will permitFAA-authorized overhaul and repair business. Northwings' revenues increased 48% from approximately $10 million in the Companytwelve months prior to its acquisition to $14.8 million in fiscal 1998. This growth resulted from the addition of new repair and overhaul services, as well as increased production capability and marketing efforts through an increase in personnel. Northwings' historical customer base has been limited to small passenger airlines and cargo airlines. We are seeking to expand its GSE product lines. The Company believes that continued expansionNorthwings' customer base with these types of its GSE product lines, in combination with its expanding jet engine parts product lines and component overhaul capabilities, will provide increased cross selling and marketing opportunities that will enable the Company to capitalize on its reputation for quality products and the aviation industry's trends toward outsourcing and vendor consolidation. FORM STRATEGIC ALLIANCES. The Company seeks to form strategic alliances that will allow it to accelerate the development of additional PMAs and provide airlines with an alternativecustomers, as well as add larger commercial airline customers. This strategy also applies to the increased costs and occasional availability and delivery problems many airlines have experienced related to OEM sole source replacement parts. Pursuant to this objective,fuselage structures repair business acquired in October 1997 the Company formed a strategic alliance between its Flight Support Group and Lufthansa Technik AG, the technical services subsidiary1998. - Pursue Acquisitions of Lufthansa German Airlines ("Lufthansa"). Lufthansa is the world's largest independent provider of engineering and maintenance services for aircraft and aircraft engines supporting over 200 airlines, governments and other customers on a worldwide basis. The objective of this Lufthansa strategic alliance is to (i) offer a broadened line of FAA-approved jet engine replacement parts to the entire jet engine maintenance market; (ii) offer airlines and airmotives a more responsive and cost effective alternative to OEMs, and (iii) capitalize on Lufthansa's established industry and customer relationships. PURSUE ACQUISITIONS OF COMPLEMENTARY BUSINESSES.Complementary Businesses. A key element of the Company'sour strategy involves growth through acquisitions of other companies, assets or product lines that complement or expandin both the Company's existing Flight Support Group and Ground Support Group businesses. The Company believes thatIn connection with our acquisitions, will enable itwe seek to capitalize on its fixed costsidentify cost savings and production efficiencies, increase research and development and marketing expenditures and improve customer service. Historically, through application of operationsthis strategy, we have achieved significant growth in revenues and further expand the aerospace productsproduct offerings while improving overall profitability. Our Flight Support Group, in December 1998, acquired Rogers-Dierks, Inc., and servicesin July 1998 acquired McClain International, Inc., both of which it can offerare designers and manufacturers of FAA Parts Manufacturer Approval jet engine replacement parts. In September 1997, we acquired Northwings, an FAA-authorized overhaul and repair facility, and, in 6 8 October 1998, Associated Composite, Inc., a Miami, Florida-based aircraft fuselage structure repair and overhaul business, to its worldwide customer base. Accordingly, the Company intends to pursue an aggressive acquisition strategy to gain market share in certain segmentscomplement our Flight Support Group. - Expand Internationally. In fiscal 1998, approximately 23% of our revenues were derived from sales outside of the fragmented aviation serviceUnited States. Our strategy is to increase our international sales, both in the jet engine replacement parts and supply industry. The Company's acquisitionground support equipment businesses, utilizing our relationship with Lufthansa Technik to identify new customers throughout the world. We intend to leverage Lufthansa Technik's established industry presence and participation in alliances, such as the Star Alliance which is currently comprised of Trilectron Industries,six major airlines, to broaden our international exposure and develop relationships which, we believe, will lead to increased sales of our products internationally. RECENT DEVELOPMENTS Effective as of January 31, 1999, our Ground Support Group acquired the Radiant Power products business of Santa Ana, California-based Derlan, Inc. ("Trilectron")for $6.5 million in September 1996 and Northwings Accessories Corp. ("Northwings") in September 1997 exemplify the consolidation opportunitiescash. Derlan has advised us that the Company believes are available.acquired business had revenues of approximately $4.36 million for the 12 months ended December 31, 1998. The Company is continually evaluating acquisition opportunities that meet the Company's criteriaRadiant Power product line includes back-up power supplies and battery packs for a variety of a similarcommercial aircraft applications, including emergency lighting systems, emergency door assist systems, emergency fuel shut-off systems, on-board flight computers, cockpit lighting dimmers and power inverters. Subject to receipt of relevant FAA and customer base, proprietary technologies and the opportunity for consolidation. However, the Company has no current agreements with respect to any acquisition and no assurance can be given that any of the acquisitions currently being consideredapprovals, Radiant will be consummated. The Company'sconsolidated into the Ground Support Group's new 113,000 square foot manufacturing facility in Palmetto, Florida. --------------------- Our principal executive offices are located at 3000 Taft Street, Hollywood, Florida, 33021, and itsour telephone number is (954) 987-4000. RECENT DEVELOPMENTS In September 1997, the Company purchased Northwings, an FAA-authorized repair and overhaul facility that services aircraft engine parts and airframe accessories, including fuel, hydraulic and pneumatic components. The purchase price for Northwings was $10.5 million, consisting7 9 THE OFFERING Class A Common Stock offered by HEICO........ 3,700,000 shares Class A Common Stock offered by the selling shareholder................................ 300,000 shares ---------------- Total............................ 4,000,000 shares Shares outstanding after the Offering: Class A Common Stock....................... 7,836,106 shares (1) Common Stock............................... 8,389,556 shares (2) Use of Proceeds.............................. We estimate that the net proceeds to be received by the Company from this offering will be approximately $73.3 million. We intend to use the net proceeds: - to repay approximately $43 million of existing indebtedness and - for working capital and general corporate purposes, including possible acquisitions. Over-allotment Option........................ The Company and the selling shareholder, the Mendelson Reporting Group or entities controlled by it, have also granted the underwriters an option to purchase up to 600,000 shares of Class A Common Stock. See "Principal and Selling Shareholders" and "Underwriting." Risk Factors................................. See "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of the Class A Common Stock. American Stock Exchange Symbols: Class A Common Stock....................... HEI.A Common Stock............................... HEI Proposed New York Stock Exchange Symbols: Class A Common Stock....................... HEI.A Common Stock............................... HEI
- --------------- (1) As of approximately $7.0 million in cash and 155,000December 31, 1998. Does not include 1,416,536 shares of the Company's Common Stock. In the nine months ended June 30, 1997, Northwings had revenues of approximately $6.4 million and operating income of approximately $1.9 million. On October 30, 1997, the Company entered into a strategic alliance with Lufthansa, whereby Lufthansa invested approximately $26 million in the Company's Flight Support Group, including approximately $16 million to be paid to the Flight Support Group over three years pursuant to a research and development cooperation agreement which will partially fund accelerated development of additional FAA-approved replacement parts for jet engines. In addition, Lufthansa and the Flight Support Group have agreed to cooperate regarding technical services and marketing support for jet engine parts on a worldwide basis. 4 THE OFFERING Notes Offered ............ $75,000,000 aggregate principal amount of % Convertible Subordinated Notes due 2004. The Company has granted the Underwriters a 30-day option to purchase up to an additional $11,250,000 principal amount of Notes, solely for the purpose of covering over-allotments. Maturity Date .......... , 2004. Interest Payment Dates . and , commencing , 1998. Interest Rate .......... % per annum. Conversion Rights ......... The Notes are convertible at the option of the holder into Common Stock at any time prior to maturity, unless previously redeemed or repurchased, at a conversion rate of shares per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $ per share), subject to adjustment in certain circumstances. See "Description of Notes--Conversion of the Notes." Subordination ............ The Notes are unsecured and subordinated to all existing and future Senior Indebtedness. The Notes are also effectively subordinated in right of payment to all indebtedness and liabilities of the Company's subsidiaries. At October 31, 1997, after giving effect to this offering and the application of the net proceeds therefrom, the Company's subsidiaries would have had approximately $11 million of outstanding indebtedness, of which approximately $6 million is guaranteed by the Company and constitutes Senior Indebtedness. The Indenture does not restrict the incurrence of additional indebtedness by the Company or any of its subsidiaries. See "Description of Notes--Subordination." Redemption at the Option of the Company............ The Notes are not redeemable prior to , 2000. Thereafter the Notes are redeemable at any time and from time to time at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accrued and unpaid interest to the date fixed for redemption. See "Description of Notes--Optional Redemption by the Company." Repurchase at Option of Holders Upon a Change of Control................... Upon a Change of Control (as defined herein), the Company will offer to repurchase the Notes at a repurchase price equal to 100% of the principal amount, plus accrued interest to the date of repurchase. See "Description of Notes--Repurchase at Option of Holders Upon a Change of Control." Use of Proceeds............ The Company intends to use the net proceeds of this offering for working capital and general corporate purposes, including possible acquisitions. See "Use of Proceeds." Listing and Trading of Notes.................. The Notes will not be listed on any securities exchange or on the American Stock Exchange and will only be traded in the over-the-counter market. Common Stock............... TheClass A Common Stock issuable upon conversionthe exercise of the Notes will be listed on the Americanoutstanding stock options or 172,310 additional shares of Class A Common Stock Exchangereserved for future grants or awards under the symbol "HEI.Company's existing stock option plans. See "Shares Eligible for Future Sale." 5(2) As of December 31, 1998. Does not include 2,693,203 shares of Common Stock issuable upon the exercise of outstanding stock options or 47,399 additional shares of Common Stock reserved for future grants or awards under the Company's existing stock option plans. See "Shares Eligible for Future Sale." 8 10 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)The following summary consolidated financial data at October 31, 1998 and for the years ended October 31, 1994 through 1998 have been derived from the audited consolidated financial statements of the Company. The pro forma financial data, which are not audited, give effect to our July 1998 acquisition of McClain International, Inc. and our December 1998 acquisition of Rogers-Dierks, Inc. as if such transactions had occurred on the first day of fiscal 1998. Pro forma results are presented for comparative purposes only and are not intended to indicate actual results had the transactions occurred as of such date, or indicate results which may be obtained in the future. The following data should be read with "Selected Consolidated Financial Data," "Selected Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
YEARSYEAR ENDED OCTOBER 31, ------------------------------------------------------------------------------------------------------ PRO FORMA(1)FORMA 1994 1995 1996 1996 --------- --------- ---------1997 1998 1998 ------- ------- ------- ------- ------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA:(3) Net sales ...................................................sales....................................... $19,212 $25,613 $34,565 $ 52,905$63,674 $95,351 $112,421 ------- ------- ------- ------- ------- -------- Gross profit ................................................profit.................................... 5,835 8,116 12,169 17,48320,629 36,104 45,794 Selling, general and administrative expenses.... 5,495 6,405 7,657 11,515 17,140 20,147 ------- ------- ------- ------- ------- -------- Operating income................................ 340 1,711 4,512 9,114 18,964 25,647 Interest expense................................ 59 169 185 477 984 3,215 Income: From continuing operations before cumulative effect of change in accounting principle.... $ 640 $ 1,437 $ 3,665 $ 7,019 $10,509 $ 12,138 From discontinued operations including gain on sale........................................ 830 1,258 6,227 -- -- -- From cumulative effect on prior years of change in accounting principle.............. 381 -- -- -- -- -- ------- ------- ------- ------- ------- -------- Net incomeincome...................................... $ 1,851 $ 2,695 $ 9,892 $ 7,019 $10,509 $ 12,138 ======= ======= ======= ======= ======= ======== Weighted average number of common shares outstanding:(1) Basic......................................... 11,209 11,307 11,680 12,040 12,499 12,499 Diluted....................................... 11,351 11,930 13,282 14,418 15,541 15,541 PER SHARE DATA:(1) Income from continuing operations before cumulative effect of change in accounting principle and minority interest expense .......................................... 640 1,437 3,665 4,534 Minority interest in net income of subsidiary(4) ............ -- -- -- (1,041)principle: Basic......................................... $ .06 $ .13 $ .31 $ .58 $ .84 $ .97 Diluted....................................... .06 .12 .28 .49 .68 .78 Net income from continuing operations before cumulative effect of change in accounting principle .................. 640 1,437 3,665 3,493 Net income from discontinued operations, including gain from sale of discontinued operations ........................ 830 1,258 6,227 6,227 Cumulative effect on prior years of change in accounting principle ....................................... 381 -- -- -- Net income ................................................... 1,851 2,695 9,892 9,720 Weighted average number of common and common equivalent shares(5) ....................................... 5,045 5,302 5,903 6,058 Net income per share from continuing operations before cumulative effect of change in accounting principle(5) ... 0.13 0.27 0.62 0.57 Cumulative effect per share of change in accounting principle(5) .................................... 0.08 -- -- -- Net income per share(5) .................................... 0.37 0.51 1.68 1.60income: Basic......................................... .17 .24 .84 .58 .84 .97 Diluted....................................... .16 .23 .75 .49 .68 .78 Cash dividends per share(5) ................................. 0.07 0.07 0.09 0.09 OTHER FINANCIAL DATA:(3) EBITDA(6) ................................................... 1,657 3,074 6,007 8,539 Depreciation and amortization .............................. 1,317 1,363 1,449 2,019 Capital expenditures ....................................... 645 584 2,296 2,296 Ratio of earnings to fixed charges ........................... 10.00 11.35 23.41 15.15 NINE MONTHS ENDED JULY 31, ------------------------------- PRO FORMA(2) 1996 1997 1997 --------- --------- ----------- OPERATING DATA:(3) Net sales ................................................... $22,979 $44,535 $ 50,945 Gross profit ................................................ 7,935 14,146 17,235 Net income from continuing operations before cumulative effect of change in accounting principle and minority interest expense .......................................... 2,278 4,946 6,041 Minority interest in net income of subsidiary(4) ............ -- -- (1,266) Net income from continuing operations before cumulative effect of change in accounting principle .................. 2,278 4,946 4,775 Net income from discontinued operations, including gain from sale of discontinued operations ........................ 6,227 -- -- Cumulative effect on prior years of change in accounting principle ....................................... -- -- -- Net income ................................................... 8,505 4,946 4,775 Weighted average number of common and common equivalent shares(5) ....................................... 5,847 6,343 6,498 Net income per share from continuing operations before cumulative effect of change in accounting principle(5) ... 0.39 0.78 0.73 Cumulative effect per share of change in accounting principle(5) .................................... -- -- -- Net income per share(5) .................................... 1.45 0.78 0.73 Cash dividends per share(5) ................................. 0.09 0.10 0.10 OTHER FINANCIAL DATA:(3) EBITDA(6) ................................................... 4,064 7,595 9,829 Depreciation and amortization .............................. 1,150 1,170 1,504 Capital expenditures ....................................... 1,177 2,807 2,807 Ratio of earnings to fixed charges ........................... 21.63 19.80 20.01dividends.................................. .030 .032 .038 .045 .050 .050
JULYAT OCTOBER 31, 1997 --------------------------------------------- PRO FORMA1998 ------------------------- ACTUAL PRO FORMA(7) AS ADJUSTED(8) ---------ADJUSTED(2) -------- -------------- ---------------- BALANCE SHEET DATA: Working capital .................................... $29,754 $44,093 $115,718 Net property, plant and equipment .................. 7,734 8,133 8,133capital............................................. $ 40,587 $ 93,887 Total assets .......................................... 70,820 85,446 157,071assets................................................ 133,061 186,361 Long-term debt ....................................... 10,546 10,715 85,715(including current portion).................. 30,520 10,520 Minority interest in consolidated subsidiary(9) ...... -- 3,000 3,000subsidiary................ 14,892 14,892 Shareholders' equity ................................. 47,312 57,738 57,738equity........................................ 67,607 140,907
- ------------------------------- (1) Gives effect to the Company's September 1996 acquisition of Trilectron, its September 1997 acquisition of Northwings and its October 1997 sale to Lufthansa of a 20% minority interest in the Company's Flight Support Group as if each of such transactions hadInformation has been consummated as of November 1, 1995. (2) Gives effect to the Company's September 1997 acquisition of Northwings and its October 1997 sale to Lufthansa of a 20% minority interest in the Company's Flight Support Group as if each of such transactions had been consummated as of November 1, 1995. (3) Adjustedadjusted to reflect MediTek (as defined herein) as a discontinued operation. The Company'sthree-for-two stock splits distributed in April 1996 results reflect a gain of $5.3 million from the sale of MediTek. (4) Represents Lufthansa's 20% minority interest in the net income of the Company's Flight Support Group. (5) Adjusted to reflect alland December 1997, 10% stock dividends paid in July 1995, February 1996, July 1996 and January 1997 and the 50% stock splits. (6) EBITDA is defined as earnings before the effectsdividend, in shares of interest, taxes, depreciation and amortization. EBITDA is presented because it is a widely accepted financial indicator used by many investors and analysts to analyze and compare companies on the basis of operating performance. EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to operating income or as an indicator of operating performance, should not be consideredClass A Common Stock, paid in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles and may not be comparable to similarly titled items of other companies. (7) Gives effect to the Company's September 1997 acquisition of Northwings and its October 1997 sale to Lufthansa of a 20% minority interest in the Company's Flight Support Group as if each of such transactions had occurred as of July 31, 1997. (8)April 1998. (2) Adjusted to give effect to the issuance and sale of the Notes3,700,000 shares of Class A Common Stock offered by the Company at an assumed public offering price of $21 per share (after deduction of the estimated underwriting discount and offering expenses) and the receipt and application of the estimatednet proceeds therefrom. See "Use of Proceeds." (9) Represents9 11 RISK FACTORS In addition to the 20% minority interestother information contained and incorporated by reference in this Prospectus, you should carefully consider the following factors before purchasing any of the Class A Common Stock offered under this Prospectus. This Prospectus (including the information incorporated by reference) contains forward-looking statements within the meaning of Federal securities law. Terminology such as "may," "will," "expect," "anticipate," "estimate," "continue," "predict," or other similar words identify forward-looking statements. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other forward-looking information. Forward-looking statements appear in a number of places in this Prospectus and include statements regarding management's intent, belief or current expectation about, among other things, (i) trends affecting the aviation industry generally and the segments in which we operate and (ii) our business and growth strategies, including our research and development plans, manufacture of additional replacement parts and potential acquisitions. Although management believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those predicted in the Company's Flight Support Group acquired by Lufthansa. 6 RISK FACTORS AN INVESTMENT IN THE NOTES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS, IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY. THIS PROSPECTUS CONTAINS STATEMENTS THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THE WORDS "EXPECT," "ESTIMATE," "ANTICIPATE," "PREDICT," "BELIEVE" AND SIMILAR EXPRESSIONS AND VARIATIONS THEREOF ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS, OR ITS OFFICERS WITH RESPECT TO, AMONG OTHER THINGS: (I) TRENDS AFFECTING THE AVIATION INDUSTRY GENERALLY AND THE SEGMENTS IN WHICH THE COMPANY OPERATES; AND (II) THE COMPANY'S BUSINESS AND GROWTH STRATEGIES, INCLUDING ITS RESEARCH AND DEVELOPMENT PLANS, ITS MANUFACTURE OF ADDITIONAL REPLACEMENT PARTS AND POTENTIAL ACQUISITIONS. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PREDICTED IN THE FORWARD-LOOKING STATEMENTS, AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE RISK FACTORS SET FORTH BELOW AS WELL AS INFORMATION CONTAINED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS," AND THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.forward-looking statements as a result of various factors, including those set forth below. DEPENDENCE ON AVIATION INDUSTRY The Company's operations are focused on the design, manufacture and sale of jet engine replacement parts, repair and overhaul services on certain jet engine and aircraft parts and the design and manufacture of GSE. Because the Company's customers consist of aircraft operators, repair and overhaul facilitiesEconomic factors that service aircraft operators, OEMs and the United States government, the Company's business is impacted by the economic factors which generally affect the aviation industry. When such factors adversely affect the aviation industry they tendalso affect our business. The aviation industry has historically been subject to downward cycles from time to time which reduce the overall demand for jet engine replacement parts causing downward pressure on pricing and increasing theground support equipment, as well as drive prices down, increase competition and increase credit risk associated with conducting business with industry participants. Thererisk. These economic factors can be no assurance that economic and other factors which affect the aviation industry will not have a material adverse effect on the Company'sour business, financial condition and results of operations. See "Industry Overview." A number of the Company's existing and prospective customers are domestic and foreign passenger airlines, freight carriers and aircraft leasing companies, or service providers to such companies, all of which may suffer from the factors which adversely affect the aviation industry. As a result, certain of these customers may pose credit risks to the Company. The Company's inability to collect receivables from a substantial sale could adversely affect the Company's financial position and results of operations for a particular period. Although the Company's bad debt loss was less than 1.0% of sales for the year ended October 31, 1996 and for the nine months ended July 31, 1997, there can be no assurance that the Company will not incur significant bad debt losses in the future. GOVERNMENT REGULATION The repair and overhaul of aircraft engines is highly regulated by governmentalRISK OF LOSS OF GOVERNMENTAL AUTHORIZATIONS AND APPROVALS Governmental agencies throughout the world, including the FAA, highly regulate the repair and is supplemented by guidelinesoverhaul of aircraft engines. Guidelines established by OEMs whichoriginal equipment manufacturers supplement governmental regulation and generally require that aircraft operators overhaul engines be overhauled and certainreplace specified engine parts be replaced after a certainspecified number of flight hours or cycles (take-offs and landings). The jet engineWe include with the replacement parts that the Company sellswe sell to itsour customers must be accompanied by documentation which enables the customer to complycertifying that each part complies with applicable regulatory requirements as well as meet certainand meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies 7 in other countries. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries are generally satisfied by compliance with FAA requirements. Ifcountries. The revocation or suspension of any of our material authorizations or approvals were revoked or suspended, the operationswould have an adverse effect on our business, financial condition and results of the Company would be adversely affected. There can be no assurance that newoperations. New and more stringent government regulations, will not beif adopted in the future or that any such new regulations, ifand enacted, would notcould have an adverse impacteffect on the Company. See "Business--Government Regulation."our business, financial condition and results of operations. DEPENDENCE ON THE JT8D AIRCRAFT ENGINE AFTERMARKET The Company'sPratt & Whitney JT8D aircraft engine and its component engine parts substantially influence our business, financial condition and results of operations are substantially influenced by the JT8D aircraft engine and engine parts.operations. Approximately 74% and 53%48% of the Company'sour net sales during the year ended October 31, 1996 and the nine months ended July 31, 1997, respectively,1998 consisted of sales of replacement parts or repair and overhaul services for the JT8D aircraft engine. TheA significant number of the JT8D aircraft engines in the market are nearing the end of their service lives, at which point they will be withdrawn from operation. These withdrawals will decrease the size of the markets for replacement parts and overhaul services for the JT8D aircraft engine. Supply and demand substantially affect the aftermarket for JT8D aircraft engine parts is substantially influenced by supply and demand.parts. A significant increase in supply asor reduction in demand could have a resultmaterial adverse effect on our business, financial condition and results of anoperations. An unanticipated wind-down or liquidation of an air carrier operating a 10 12 large number of JT8D aircraft engines orcould cause a reduction of demand, as a result of asignificant increase in supply. A change in preferences or the imposition of regulations affecting the use of JT8D aircraft engines could have a material adverse effect on the Company's business, financial condition and resultsreduce demand. The following are examples of operations. For example, thefactors that could decrease demand for JT8D aircraft engines: - Hush-Kits. The FAA and the European Union have implemented noise reduction regulations whichthat reduce the number of older model JT8D aircraft engines whichthat may be operated in the United States and the member nationsstates of the European Union respectively, unless noise reduction equipment, known as "hush-kits," are added to the aircraft, engines.or the aircraft are otherwise modified to Stage 3 compliance. The FAA requires full compliance with the Stage 3 noise levels by December 31, 1999, unless a waiver is received from the FAA. Additional noise restriction quotasreduction rules imposed by communities surrounding certainsome major European cities further restrict the operation of hush-kittednon-Stage 3 compliant aircraft engines in those markets. FailureThe European Union is currently considering a proposed regulation which would bar the registration in a member state of the European Union after March 31, 1999 and, with some exceptions, the operation in the European Union after April 1, 2002, of any older model JT8D aircraft which has reached Stage 3 compliance through hush-kitting or some other means. The failure to hush-kit JT8D aircraft engines could significantly reduce the demand for JT8D aircraft engines, resulting in a potentialan oversupply of JT8D aircraft engines and component engine parts whichparts. This, in turn, could decrease the value of the Company's inventoryour products and have a material adverse effect on the Company'sour business, financial condition and results of operations. There can be no assurance that aircraftAircraft operators will hush-kitmay replace their remaining older model JT8D aircraft engines rather than replace them with newer, quieter aircraft engines. Furthermore, otherengines, rather than hush-kit or otherwise modify them to Stage 3 compliance. - Other Regulations. Other regulations in both the United States and the European Union impose more stringent inspection, upgrading, maintenance and retrofit requirements on aging aircraft and aircraft engines whichthat increase the cost of operating older model aircraft and aircraft engines. In addition, the United States- Passenger Confidence. A decline in passenger confidence in older aircraft and aircraft engines as a result of apparent fatigue could also discourage aircraft operators from using JT8D aircraft engines. - Emissions Standards. The Environmental Protection Agency (the "EPA") and various agencies of the European Union have sought the adoption of stricter standards limiting the emissions of nitrous oxide from aircraft engines. If such measures are adopted, stricter emissions standards could cause the utilizationuse of JT8D aircraft engines couldto become substantially more costly in the event modifications must be made to bring aircraft engines into compliance. See "Business--Government Regulation."NEED TO EXPAND BUSINESS TO OTHER AIRCRAFT ENGINE TYPES As a result of itsour focus on the JT8D aircraft engine, the Company haswe have limited experience with engine parts for other aircraft engine types. ItWe will be necessary for the Companyhave to expand itsour business to other aircraft engine types in preparation for the eventual decline in the JT8D aircraft engine aftermarket. There can be no assurance that the Company willWhile we are currently developing engine parts for other aircraft engines, we may not be able to profitably expand into new markets with other aircraft engines, or that structural differences in those emerging after markets will allow the Companyand we may not be able to achieve acceptable levels of net sales and gross profit.profit in new markets. COMPETITION The Company facesWe face significant competition in each of itsour businesses. The Company's PMAFlight Support Group - For jet engine replacement parts, divisionswe compete primarily with the industry's leading jet engine OEMs. Theoriginal equipment manufacturers, particularly Pratt & Whitney and, to a lesser extent, General Electric. - For the overhaul and repair divisions of the Company's Flight Support Groupjet engine and airframe components, we compete with (i)-- major commercial airlines, many of which operate their own maintenance and overhaul units, (ii) OEMs,-- original equipment manufacturers, which manufacture, repair and overhaul their own parts, and (iii)-- other independent service companies. The Company's11 13 Ground Support Group competes- For the design and manufacture of various types of ground support equipment, we compete in a highly fragmented marketplace with a small number of companies, some of which are well capitalized companies. 8 capitalized. The aviation aftermarket supply industry is highly fragmented, has several highly visible leading companies and is characterized by intense competition. CertainSome of the Company'sour competitors have substantially greater name recognition, complementary lines of business and financial, marketing and other resources than the Company.resources. In addition, OEMs,original equipment manufacturers, aircraft maintenance providers, leasing companies and FAA-certificated repair facilities may vertically integrate into the supply industry, thereby significantly increasing industry competition. Moreover, our smaller competitors of the Company may be in a positionable to offer more attractive pricing of parts as a result of lower labor costs or other factors. A variety of potential actions by any of the Company'sour competitors, including a reduction of product prices or the establishment by competitors of long-term relationships with new or existing customers, could have a material adverse effect on the Company'sour business, financial condition and results of operations. There canCompetition typically intensifies during cyclical downturns in the aviation industry, when supply may exceed demand. We may not be no assurance that the Company willable to continue to compete effectively against present or future competitors, or thatand competitive pressures will notmay have a material and adverse effect on the Company'sour business, financial condition and results of operations. See "Business--Competition." LITIGATION UTC Litigation. In November 1989, the Flight Support Group was named a defendant in a complaint filed by United Technologies Corporation ("UTC") in the United States District court for the Southern District of Florida. Thefiled a complaint as amended in 1995, allegedagainst HEICO alleging infringement of a patent, misappropriation of trade secrets and unfair competition relating to certainsome of the jet engine parts and coatings sold by the Flight Support Groupthat we sell in competition with Pratt & Whitney, a division of UTC andUTC. The complaints sought damages of approximately $30.0$30 million. AlthoughSummary judgment motions filed by the Company believeswere granted, and all allegations against the Company were dismissed. UTC is seeking to challenge these rulings in further court proceedings. A counter-claim that it will prevail and intends to vigorously pursue its counterclaims against UTC, thewe filed is still pending. The ultimate outcome of this litigation is not certain at this time, and thewe have made no provision for litigation costs and/or gain or loss, if any, in our consolidated financial statements. The legal costs, management efforts and other resources that are expected tohave been and continue to be incurred by the Company in defending itself against this action could beare substantial. There can be no assurance that theThe lawsuit will notmay have a material adverse effect on the Company'sour business, results of operations orand financial condition. See "Business--Legal Proceedings."Travelers Litigation. In May 1998, Travelers Casualty & Surety Co., f/k/a The Aetna Casualty and Surety Co., filed a lawsuit against HEICO seeking reimbursement of legal fees and costs totaling in excess of $15 million paid by Travelers in defending us in the aforementioned litigation with UTC. In addition, Travelers seeks a declaratory judgment that we did not and do not have insurance coverage under some of our insurance policies with Travelers and, accordingly, that Travelers did not have and does not have a duty to defend or indemnify us under these policies. Travelers' lawsuit also names UTC and one of the law firms representing us in the UTC litigation. We intend to vigorously defend against Travelers' claim and believe that we have 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 our consolidated financial statements. PRODUCT LIABILITY AND CLAIMS EXPOSURE The Company'sOur jet engine replacement parts and repair and overhaul services expose itour business to potential liabilities for personal injury or death as a result of the failure of an aircraft component that has beenwe have designed, manufactured or serviced by the Company.serviced. The commercial aviation industry is prone tooccasionally has catastrophic losses which oftenthat may exceed policy limits. While the Company believeswe believe that itsour liability insurance is adequate to protect itus from suchthese liabilities, and, while no material claims related to these liabilities have been made against the Company, no assurance can be given thatus, claims will notmay arise in the future or that suchand our insurance coverage willmay not be adequate. An uninsured or partially insured claim, or a claim for which third-party indemnification is not available, could have a material adverse effect upon the Company.on our business, financial condition and results of operations. Additionally, there can be no assurance that insurance coverage can be maintainedmay 12 14 become too expensive in the future at an acceptable cost.future. Any such liabilityof these liabilities not covered by insurance or for which third party indemnification is not available could have a material adverse effect on the business,our financial condition or results of operations of the Company. SUBORDINATION OF THE NOTES The Notes will be unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness of the Company. As a result of such subordination, in the event of the Company's liquidation or insolvency, payment default with respect to Senior Indebtedness, a covenant default with respect to Senior Indebtedness, or upon acceleration of the Notes due to an Event of Default (as defined herein), the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The Company may from time to time incur additional indebtedness constituting Senior Indebtedness. The Notes are also effectively subordinated in right of payment to all indebtedness and other liabilities, including trade payables, of the Company's 9 subsidiaries. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or other indebtedness and other liabilities by the Company or its subsidiaries. The incurrence of additional indebtedness and other liabilities by the Company or its subsidiaries could adversely affect the Company's ability to pay its obligations on the Notes. In addition, the cash flow and ability of the Company to service debt, including the Notes, may in the future become dependent in part upon the earnings from the business conducted by the Company through subsidiaries and distribution of those earnings, or upon loans or other payments of funds by those subsidiaries to the Company. As of October 31, 1997, after giving effect to this offering and the application of the net proceeds therefrom, the Company's subsidiaries wouldcondition. POSSIBLE INABILITY TO MANAGE GROWTH We have had approximately $11 million of outstanding indebtedness, of which approximately $6 million is guaranteed by the Company and constitutes Senior Indebtedness. See "Description of Notes--Subordination." MANAGEMENT OF GROWTH The Company has experienced rapid growth in recent yearsperiods and intendsintend to continue to pursue an aggressive growth strategy, both through acquisitions and internal expansion of its products and services. TheOur growth experienced by the Company to date has placed, and could continue to place, significant demands on the Company'sour administrative and operational resources. There can be no assurance that the Company willWe may not be able to achieve growthgrow effectively or manage any such growth successfully, and the failure to do so could have a material adverse effect on the Company'sour business, financial condition and results of operations. POSSIBLE INABILITY TO IMPLEMENT ACQUISITION STRATEGY A key element of the Company'sour strategy has been, and continues to be,is growth through the acquisition of additional companies engaged incompanies. Our acquisition strategy poses a number of challenges and risks, including the aviation industry. The Company's ability to grow by acquisition is dependent upon, and may be limited by, the availabilityfollowing: - Availability of suitable acquisition candidates, and capital. In addition, growth by acquisitions involves risks that could adversely affect the Company's operating results, including diversion- Availability of capital, - Diversion of management's attention, difficulties in integrating- Integrating the operations and personnel of acquired companies, the potential- Potential amortization of acquired intangible assets, and the potential- Potential loss of key employees of acquired companies. There can be no assurance that the Company will be able to obtain the capital necessary to pursue its acquisition strategy, consummate acquisitions on satisfactory terms or, if any such acquisitions are consummated, satisfactorily integrate such acquired businesses into the Company. In addition, future acquisitions could result in the usecompanies, - Use of a significant portion of the Company'sour available cash, or if such acquisition is- Significant dilution to our shareholders for acquisitions made utilizing our securities, and - Consummation of acquisitions on satisfactory terms We may not be able to successfully execute our acquisition strategy (including the Company's securities,integration of acquired businesses), and the failure to do so could result in significant dilution to the Company's shareholders. See "Management's Discussionhave a material adverse effect on our business, financial condition and Analysisresults of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Growth Strategies."operations. POTENTIAL ENVIRONMENTAL LIABILITIES The Company's businessLIABILITIES; INSURANCE Our operations and facilities are subject to a number of federal, state and local environmental laws and regulations.regulations, which govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage and disposal of hazardous materials. Pursuant to various environmental laws, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous materials. Environmental laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous materials. Although the Companymanagement believes that itsour operations and facilities are in material compliance with suchenvironmental laws and regulations, there can be no assurance that future changes in such laws, regulationsthem or interpretations thereof or the nature of the Company'sour operations will notmay require the Companyus to make significant additional capital or operating expenditures or changes in operational procedures to ensure compliance in the future. The Company doesWe do not maintain environmental liability insurance, and if the Company were required to pay the expenses related to these environmental liabilities, such expensesif we are required to pay them, could have a material adverse effect on theour business, financial condition orand results of operations of the Company. See "Business--Government Regulation."operations. RISK OF CUSTOMER CONCENTRATION AND CONSOLIDATION OF AVIATION INDUSTRY Although no individual customer directly accounted for more than 10% of the Company'sour combined net sales during the fiscal year ended October 31, 1996, the Company's1998, our net sales to itsour five largest customers accounted for approximately 35%32% of total net sales.sales for that period. The continuing consolidation of various segments of the aviation industry, including vertical integration of OEMsoriginal equipment manufacturers and repair and 1013 15 overhaul businesses, could significantly increase the concentration of the Company'sour customer base. The loss of, or significant curtailmentsreduction of purchases by, the Company'sour significant customers could have a material adverse effect on the Company'sour business, financial condition and results of operations. See "Business--Sales, Marketing and Customers." TECHNOLOGICAL DEVELOPMENTSPOSSIBLE INABILITY TO DEVELOP AND MANUFACTURE NEW TECHNOLOGIES AND PRODUCTS The aviation industry is constantly undergoing development and change and, accordingly, it is likely that new products, equipment and methods of repair and overhaul service willare likely to be introduced in the future. In orderaddition to keep pace with any new developments,manufacturing ground support equipment and selected aerospace and defense components for original equipment manufacturers and the CompanyU.S. government and repairing jet engines and airframe components, we re-design sophisticated jet engine replacement parts originally developed by jet engine original equipment manufacturers so that we can offer the replacement parts for sale at substantially lower prices than those manufactured by the original equipment manufacturers. Consequently, we devote substantial resources to research and product development. Technological development poses a number of challenges and risks, including the following: - We may not be able to successfully protect the proprietary interests we have in various jet engine parts, ground support equipment and repair processes. - As original equipment manufacturers continue to develop and improve jet engines, we may not be able to re-design and manufacture replacement parts that perform as well as those offered by original equipment manufacturers or that we can profitably sell at substantially lower prices than the original equipment manufacturers. - We may need to expend significant capital toto: -- purchase new equipment and machines, to-- train its employees in the new methods of production and service, or to conductand -- fund the research and development activities. There can be no assurance that the Company will be successful in developingof new productsproducts. - Development by our competitors of patents or that such capital expenditures will not have a material adverse effect on the Company. In addition, the Company's competitors may develop methodologies that could potentially preclude the Companyus from the design and manufacture of certain jet engine replacement parts could adversely affect our business, financial condition and as a result,results of operations. In addition, we may not be able to successfully develop new products, equipment or methods of repair and overhaul service, and the failure to do so could have a material adverse effect on our business, financial condition and results of operations. CREDIT RISKS Downward cycles may more adversely affect our smaller customers than our larger customers and, as a result, our smaller customers may pose credit risks to us as a result of our inability to collect receivables from a substantial sale to any of them. Although our bad debt loss was less than 1.0% of sales for the Company.year ended October 31, 1998, we may incur significant bad debt losses in the future. IMPACT OF THE YEAR 2000 The Year 2000 problem will impact us and our business partners. The Year 2000 problem results from writing computer programs and other business systems with two digits, rather than four, to represent the year. Some of our time sensitive applications and business systems and those of our business partners may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in system failure or disruption of operations. The failure of one of our major vendor's systems to operate properly with respect to the Year 2000 problem on a timely basis or a Year 2000 conversion that is incompatible with our systems could have a material adverse effect on our business, financial condition and results of operations. We have assessed our Year 2000 exposure and are implementing a compliance program. The assessment included inquiries of management and certification requests from hardware and software 14 16 vendors. We expect to replace some older software applications with newer ones. We have also developed and are implementing a plan of communication with significant business partners to ensure that our operations are not disrupted through these relationships and that the Year 2000 issues are resolved in a timely manner. We believe that we will be able to achieve Year 2000 compliance in a timely manner. We do not expect the related capital expenditures and other costs to be material. DEPENDENCE ON KEY PERSONNEL The Company'sOur success is substantially dependentdepends on the performance, contributions and expertise of itsour senior management team led by Laurans A. Mendelson, our Chairman, President and Chief Executive Officer. In addition, we hire many members of our engineering team from original equipment manufacturers, such as General Electric and Pratt & Whitney. These technical employees are critical to our research and product development, as well as engineering and other technical employees.our ability to continue to re-design sophisticated products of original equipment manufacturers in order to sell competing replacement parts at substantially lower prices than those manufactured by the jet engine original equipment manufacturers. The loss of the services of any of itsour executive officers or other key employees or the Company'sour inability to continue to attract, retain or motivate the necessary personnel could have a material adverse effect on theour business, financial condition and results of operations of the Company. See "Management."operations. CONTROL BY PRINCIPAL SHAREHOLDERS AsSHAREHOLDERS; LIMITED VOTING RIGHTS After this offering, assuming no exercise of the date of this Prospectus, the Company'sunderwriters' over-allotment option, our executive officers and entities controlled by the Company's executive officers, the Company'sthem, our 401(k) Plan and members of the Board of Directors collectively will beneficially own approximately 42%41% of the Company's outstanding Common Stock and approximately 22% of the outstanding Class A Common Stock. Accordingly, such personsthey will be able to substantially influence the election of members of the Company's Board of Directors and the control of theour business, policies and affairs, including the approval of business combinations and defeating any attempted takeover. In addition, the Company. See "Principal Shareholders." DISCRETION IN USE OF PROCEEDS The Company intends to use allClass A Common Stock offered under this prospectus carries only one-tenth of a vote per share, while the net proceeds from this offering for working capital and general corporate purposes, including possible acquisitions. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be added to its working capital. Accordingly, the Company will have broad discretion in the application of such net proceeds. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."Common Stock carries one full vote per share. FACTORS INHIBITING TAKEOVER CertainArticles and Bylaws. Some of the provisions of the Company's Amendedour Articles of Incorporation (the "Articles") and Bylaws (the "Bylaws") may be deemed to have anti-takeover effects and may discourage, delay, defer or prevent a takeover attempt that a shareholder might consider in its best interest. These provisions (i) establish certaindo the following: - Establish advance notice procedures for the nomination of candidates for election as directors and for shareholder proposals to be considered at annual shareholders' meetings, (ii) providemeetings. - Provide that special meetings of the shareholders may be called only by the Chairman of the Board of Directors, (the "Board"), the President of the Company or by a majority of the Board, and (iii) authorizeBoard. - Authorize the issuance of 10,000,000 shares of preferred stock with suchthe designations, rights, preferences and limitations as may be determined from time to time by the Board. - Authorize the issuance of 30,000,000 shares of Class A Common Stock having one-tenth of a vote per share. Accordingly, without shareholder approval, the Board is empowered, without 11 shareholder approval, tocan, among other things, - issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting powers or other rights of holders of the Company'sCommon Stock and Class A Common Stock, and - help maintain existing shareholders' voting power and deter or frustrate takeover attempts that a holder of Common Stock might consider to be in his or her best interest by issuing additional Class A Common Stock instead of Common Stock. 15 17 Rights. In addition, in November 1993, the Company declared a distribution of aone preferred stock purchase right (the "Rights") fortrades with each outstanding share of Common Stock. Such Rights trade with the Common Stock and Class A Common Stock. Each right entitles the registered holder to purchase from us one one-hundredth of a share of a Series A Junior Participating Preferred Stock, at a price which is subject to adjustment in some circumstances. The rights are not exercisable or transferable apart from the Common Stockcommon stock until a person or group acquires 15% or more of the outstanding Common Stockcommon stock or commencecommences, or announceannounces an intention to commence, a tender offer for 30% or more of the outstanding Common Stock.common stock. The Rights,rights, which expire on November 2, 2003, will cause substantial dilution to a person or a group who attempts to acquire the CompanyHEICO on terms not approved by the Board or who acquires 15% or more of the outstanding Common Stockcommon stock without approval of the Board. We can redeem the rights at $.01 per right at any time until the close of business on the tenth day after a person or group has obtained beneficial ownership of 15% or more of the outstanding common stock or until a person commences or announces an intention to commence a tender offer for 30% or more of the outstanding common stock. Subject to adjustment, holders of shares of the Series A Junior Participating Preferred Stock will be entitled to, among other things, (x) receive, when, as and if declared by the Board of Directors, (i) cash dividends in an amount per share equal to 100 times the aggregate per share amount of all cash dividends declared or paid on the common stock, (ii) a quarterly preferential cash dividend of $.75 per share, less cash dividends declared pursuant to clause (i), and (y) 100 votes per share of Series A Junior Participating Preferred Stock on all matters submitted to a vote of the shareholders and the right to vote together with the holders of shares of common stock as a single voting group on all matters submitted to a vote of the shareholders. Florida Law. Furthermore, certainsome of the provisions of the Florida Business Corporation Act may be deemed tocould have the effect of delaying, deferring or preventing a change in control of the Company. See "Description of Capital Stock--Anti-Takeover Effects of Certain Provisions of Florida Law and the Company's Articles of Incorporation and Bylaw." LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL In the event of a Change of Control (as defined in "Description of Notes--Repurchase at the Option of Holders upon Change of Control"), the Company will offer to repurchase the Notes at a repurchase price equal to 100% of the principal amount, plus accrued interest to the date of repurchase. The Company's ability to repurchase the Notes upon a change of control may be limited by the terms of the Company's Senior Indebtedness and the subordination provisions of the Indenture and may be prohibited or limited by, or create an Event of Default (as defined in the Indenture) under, the terms of agreements related to borrowings which the Company may enter into from time to time, including agreements relating to Senior Indebtedness. Further, the ability of the Company to repurchase the Notes upon a change of control will be dependent on the availability of sufficient funds and compliance with applicable securities laws. Accordingly, there can be no assurance that the Company will be able to repurchase the Notes upon a change of control. Failure of the Company to repurchase Notes at the option of the holder upon a change of control would result in an Event of Default (as defined in the Indenture) under the Notes, which could in turn result in acceleration of the payment of other indebtedness of the Company at the time outstanding pursuant to cross-default provisions. The term "change of control" is limited to certain specified transactions and may not include other events that might adversely affect the financial condition of the Company or result in a downgrade of the credit rating of the Notes, nor would the requirement that the Company offer to repurchase the Notes upon a change of control necessarily afford holders of the Notes protection in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving the Company. ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes will be a new issue of securities with no established trading market. The Underwriters have advised the Company that they intend to make a market in the Notes. The Underwriters are not obligated, however, to make a market in the Notes, and any such market making may be discontinued at any time at the sole discretion of the Underwriters without notice. There can be no assurance that an active market for the Notes will develop and continue upon completion of this offering or that the market price of the Notes will not decline. Various factors such as changes in prevailing interest rates or changes in perceptions of the Company's creditworthiness could cause the market price of the Notes to fluctuate significantly. The trading price of the Notes could also be significantly affected by the market price of the Common Stock, which could be subject to wide fluctuations in response to a variety of factors, including quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, general conditions in the aviation industry and general economic and market conditions. The Notes will not be listed on any securities exchange and will only be traded in the over-the-counter market. 1216 18 USE OF PROCEEDS The net proceeds to the Company from the sale of the Notes3,700,000 shares of Class A Common Stock offered hereby, after deducting the estimated underwriting discount and expenses of this offering, will be approximately $$73.3 million ($ million if(assuming an offering share price of $21 per share). The Company will not receive any of the Underwriters' over-allotment option is exercised in full).proceeds from the sale of Class A Common Stock by the selling shareholder. The Company intends to use all of the net proceeds (i) to repay approximately $43 million of existing indebtedness under our revolving credit facility with SunTrust Bank, as agent for a syndicate of banks, and (ii) for working capital and general corporate purposes, including potential acquisitions. Althoughacquisitions within the Company continually reviewsaerospace products and evaluatesservices industries. The approximately $43 million of indebtedness to be repaid bears interest at the weighted average rate of 5.9% per annum and matures July 2001. Such indebtedness was incurred in July 1998, December 1998 and February 1999 and was used to partly finance the acquisitions of McClain, Rogers-Dierks and the Company currently has no agreements with respectRadiant Power products business. Our revolving credit facility allows us to any acquisition. See "Risk Factors--Management of Growth", "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Growth Strategies."reborrow the amounts which we repay. Pending use of the net proceeds from this offering as discussed above, the Company intends to make temporary investments in United States dollar denominated interest-bearing savings accounts, certificates of deposit, United States Government obligations, money market accounts, or other insured short-term, high qualityinterest-bearing investments. 1317 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of JulyOctober 31, 19971998 (i) on an actual basis (ii) on a pro forma basis to give effect to the Company's September 1997 acquisition of Northwings and to Lufthansa's October 1997 acquisition of a 20% interest of the Company's Flight Support Group; and (iii) pro forma(ii) as adjusted to give effect to the issuance and sale of the NotesClass A Common Stock by the Company and the application of the net proceeds therefrom. This table should be read in conjunction with the Consolidated Financial Statements and Notes and Pro Forma Consolidated Condensed Financial Statementsthereto included elsewhere in this Prospectus.
JULYAT OCTOBER 31, 1997 ------------------------------------------------ PRO FORMA1998 ----------------------- ACTUAL PRO FORMA(1) AS ADJUSTED(2)ADJUSTED -------- ----------- --------------- ---------------- (IN THOUSANDS) Current maturities of long-term debt and capital leases ...... $ 342 $ 397 $ 397 ======== ======== ======== Long-term debt, ................................................ 10,546 10,715 10,715 % Convertible Subordinated Notes due 2004 .................. -- -- 75,000 -------- -------- -------- Total long-term debt ....................................... 10,546 10,715 85,715 ======== ======== ========including current maturities(1)............. $ 30,520 $ 10,520 Minority interest in consolidated subsidiary(3) ............... -- 3,000 3,000 ======== ======== ========subsidiary(2)............. 14,892 14,892 Shareholders' equity: Preferred Stock, $.01 par value per share; 10,000,000 shares authorized, 50,000200,000 designated as Series A Junior Participating Preferred Stock, none issued ............... --issued...... -- -- Common Stock, $.01 par value per share; 20,000,00030,000,000 shares authorized, 5,353,9328,323,036 shares issued and outstanding, 5,508,839actual(3).............................................. 83 83 Class A Common Stock, $.01 par value per share; 30,000,000 shares authorized, 4,140,404 issued and outstanding, pro formaactual, and 5,508,839 shares7,840,404 issued and outstanding, pro forma as adjusted(4) ................................................ 54 55 55adjusted(3)............................................ 41 78 Capital in excess of par value .............................. 31,929 35,471 35,471value............................ 34,474 107,737 Unrealized loss on investments............................ (1,142) (1,142) Retained earnings .......................................... 18,271 25,154 25,154 Less--Noteearnings......................................... 36,649 36,649 Less -- Note receivable from Employee Savings and Investment Plan .......................................... (2,942) (2,942) (2,942) --------Plan........................................ (2,498) (2,498) -------- -------- Total shareholders' equity .............................. 47,312 57,738 57,738 --------equity........................ 67,607 140,907 -------- -------- Total capitalization ....................................... $ 57,858 $ 68,453 $143,453 ========capitalization.............................. $113,019 $166,319 ======== ========
- ------------------------------- (1) Adjusted to give effect to the Company's September 1997 acquisitionExcludes $16 million of Northwings and its October 1997 saleactual additional indebtedness outstanding as of December 31, 1998, which will be repaid with a 20% minority interest in the Company's Flight Support Group. See "Pro Forma Consolidated Condensed Financial Statements." (2) Adjusted to give effect to the Company's September 1997 acquisition of Northwings and its October 1997 sale of a 20% minority interest in the Company's Flight Support Group to Lufthansa, as well as issuance and saleportion of the Notes and the application of the estimated net proceeds therefrom. See "Use of Proceeds." (3)from this offering. (2) Represents the 20% minority interest in the Company's Flight Support Group acquired by Lufthansa. (4)Lufthansa Technik. (3) Excludes (i) 1,656,2832,765,932 shares of Common Stock and 1,401,793 shares of Class A Common Stock issuable upon the exercise of outstanding options which have a weighted average exercise price of $8.85$6.98 and $6.97 per share, respectively, and (ii) 110,30641,190 shares of Common Stock and 187,955 shares of Class A Common Stock reserved for future issuance under the Company's 1993 Plan and Non-Qualified Plan. 14existing stock option plans. 18 20 PRICE RANGE OF COMMON STOCK AND DIVIDENDS TheCommencing April 24, 1998, the Class A Common Stock is tradedbegan trading on AMEX under the symbol "HEI.A." On January 29, 1999, the Class A Common Stock and the Common Stock commenced trading on the AmericanNew York Stock Exchange under the symbol "HEI.symbols "HEI.A" and "HEI," respectively, and both classes of stock ceased trading on AMEX. The following table sets forth, for the periods indicated, the high and low closing sales prices for the Class A Common Stock and the Common Stock as reported on the American Stock Exchange,AMEX and NYSE, as applicable, as well as the amount of cash dividends paid per share during such periods. In February 1996 and July 1996 the CompanyLufthansa Technik, as a 20% shareholder of our Flight Support Group, will be entitled to 20% of any dividends paid 10% stock dividends in addition to its semi-annual cash dividends. The Company also distributed a three-for-two stock split in April 1996.by our Flight Support Group. In December 1996, the Company declared anothera 10% stock dividend and, in addition toNovember 1997, declared a semi-annual cashthree-for-two stock split. In April 1998, the Company distributed a 50% stock dividend both payablepaid in January 1997.shares of Class A Common Stock. The quarterly closing sales prices and cash dividend amounts set forth below have been retroactively adjusted for allthe stock splitssplit and stock dividends. CASH DIVIDENDS HIGH LOW PER SHARE --------- --------- ----------- FISCAL 1997: Fourth Quarter ...... $ 39.50 $ 23.75 -- Third Quarter ...... 25,25 21.00 $.05 Second Quarter ...... 27.00 22.25 -- First Quarter ...... 26.33 15.45 .05 FISCAL 1996: Fourth Quarter ...... 17.50 14.55 -- Third Quarter ...... 23.97 11.98 .05 Second Quarter ...... 13.22 8.89 -- First Quarter ...... 9.52 9.08 .04CLASS A COMMON STOCK
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ -------------- FISCAL 1998: Third Quarter (commencing April 24, 1998)................. $29.75 $21.25 $.025 Fourth Quarter............................................ 23.75 12.13 -- FISCAL 1999: First Quarter (through February 9, 1999).................. $24.13 $19.50 $.025
On November 6, 1997,February 9, 1999, the last reported sale price of the Class A Common Stock was $21 15/16, and there were 1,143 holders of record of the Class A Common Stock. COMMON STOCK
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ -------------- FISCAL 1997: First Quarter............................................. $11.72 $ 6.88 $ .022 Second Quarter............................................ 12.00 9.89 -- Third Quarter............................................. 11.22 9.33 .022 Fourth Quarter............................................ 17.56 10.56 -- FISCAL 1998: First Quarter............................................. $19.25 $13.78 $ .025 Second Quarter............................................ 33.50 19.20 -- Third Quarter............................................. 33.75 23.06 .025 Fourth Quarter............................................ 25.63 15.94 -- FISCAL 1999: First Quarter (through February 9, 1999).................. $32.25 $23.25 $ .025
On February 9, 1999, the last reported sale price of the Common Stock was $35-1/2$23 15/16, and there were approximately 1,2651,231 holders of record. 15record of the Common Stock. 19 21 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA) The following selected consolidated financial data as of and for the years ended October 31, 19921994 through 19961998 have been derived from the audited consolidated financial statements of the Company. The selected data as of and for the nine months ended July 31, 1996 and 1997 have been derived from the unaudited financial statements of the Company which, in the opinion of the Company, include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information set forth therein. The results of operations for the nine month period ended July 31, 1997 are not necessarily indicative of the results for the full year. The following data should be read in conjunction with "Selected Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations", the Company's and our Consolidated Financial Statements and Notes thereto and the Company's Pro Forma Consolidated Condensed Financial Statements included or incorporated elsewhere in this Prospectus.Prospectus or incorporated herein by reference.
YEAR ENDED OCTOBER 31, ------------------------------------------------------------- PRO FORMA(1) 1992 1993---------------------------------------------------- 1994 1995 1996 1996 --------- --------- --------- --------- --------- -----------1997 1998 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA:(3) Net sales .............................................$19,852 $19,856 $19,212 $25,613 $34,565sales............................................. $ 52,90519,212 $ 25,613 $ 34,565 $ 63,674 $ 95,351 -------- -------- -------- -------- -------- Gross profit .......................................... 5,993 5,119profit.......................................... 5,835 8,116 12,169 17,48320,629 36,104 Selling, general and administrative expenses ......... 4,750 4,850expenses.......... 5,495 6,405 7,657 11,009 Insurance recovery11,515 17,140 -------- -------- -------- -------- -------- Operating income...................................... 340 1,711 4,512 9,114 18,964 Interest expense...................................... 59 169 185 477 984 Income: From continuing operations before cumulative effect of litigation costs ................ (350) (190)change in accounting principle................. $ 640 $ 1,437 $ 3,665 $ 7,019 $ 10,509 From discontinued operations(1)..................... 830 1,258 963 -- -- From gain on sale of discontinued operations........ -- -- 5,264 -- -- From cumulative effect on prior years of change in accounting principle.............................. 381 -- -- -- -- Non-recurring charges ................................. 1,900 -- -- -- -- -- Interest expense .................................... 183 205 59 169 185 319-------- -------- -------- -------- -------- Net incomeincome............................................ $ 1,851 $ 2,695 $ 9,892 $ 7,019 $ 10,509 ======== ======== ======== ======== ======== Weighted average number of common shares outstanding:(2) Basic........................................... 11,209 11,307 11,680 12,040 12,499 Diluted......................................... 11,351 11,930 13,282 14,418 15,541 PER SHARE DATA:(2) Income from continuing operations before cumulative effect of change in accounting principle and minority interest expense ........................ 332 728 640 1,437 3,665 4,534principle: Basic........................................... $ .06 $ .13 $ .31 $ .58 $ .84 Diluted......................................... .06 .12 .28 .49 .68 Net income: Basic............................................... .17 .24 .84 .58 .84 Diluted............................................. .16 .23 .75 .49 .68 Cash dividends(2)..................................... .030 .032 .038 .045 .050 BALANCE SHEET DATA (AT YEAR END): Working capital....................................... $ 12,691 $ 14,755 $ 25,248 $ 45,131 $ 40,587 Total assets.......................................... 39,020 47,401 61,836 88,639 133,061 Long-term debt (including current portion)............ 5,456 7,870 6,516 10,800 30,520 Minority interest in net income of subsidiary(4) ......consolidated subsidiary.......... -- -- -- -- -- (1,041) Net income (loss) from discontinued operations ......... (912) 256 830 1,258 963 963 Gain on sale of health care operations ............... -- -- -- -- 5,264 5,264 Cumulative effect on prior years of change in accounting principle ................................. -- -- 381 -- -- -- Net income (loss) .................................... (580) 984 1,851 2,695 9,892 9,720 Weighted average number of common and common equivalent shares(5) ................................. 4,971 5,190 5,045 5,302 5,903 6,058 Net income per share from continuing operations before cumulative effect of change in accounting principle(5) .......................................... 0.07 0.14 0.13 0.27 0.62 0.57 Net income (loss) per share from discontinued operations(5) ........................... (0.19) 0.05 0.16 0.24 0.17 0.16 Net income per share from sale of health care operations(5) .................................... -- -- -- -- 0.89 0.87 Cumulative effect per share of change in accounting principle(5) .............................. -- -- 0.08 -- -- -- Net income (loss) per share(5) ........................ (0.12) 0.19 0.37 0.51 1.68 1.60 Cash dividends per share(5) ........................... 0.07 0.07 0.07 0.07 0.09 0.09 OTHER FINANCIAL DATA: EBITDA(6) ............................................. 1,560 2,041 1,657 3,074 6,007 8,539 Depreciation and amortization ........................ 1,867 1,582 1,317 1,363 1,449 2,019 Capital expenditures ................................. 698 1,024 645 584 2,296 2,296 Ratio of earnings to fixed charges .................. 1.37 4.45 10.00 11.35 23.41 15.153,273 14,892 Shareholders' equity.................................. 27,061 30,146 41,488 59,446 67,607
- --------------- (1) Represents income from the discontinued health care operations that were sold in fiscal 1996. (2) Information has been adjusted to reflect three-for-two stock splits distributed in April 1996 and December 1997, 10% stock dividends paid in July 1995, February 1996, July 1996 and January 1997 and the 50% stock dividend, in shares of Class A Common Stock, paid in April 1998. 20 22 SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA The following financial data for the Company for the fiscal year ended October 31, 1998 have been derived from the audited consolidated financial statements of the Company. The following financial data for McClain and Rogers-Dierks have been derived from the unaudited financial statements of McClain and Rogers-Dierks, respectively. The following unaudited pro forma financial data have been adjusted to give effect to (i) the Company's July 1998 acquisition of McClain and the Company's December 1998 acquisition of Rogers-Dierks (but not the Company's acquisition of Associated Composite, Inc., which was not significant), and (ii) certain pro forma adjustments to the historical financial statements as described in the notes below. Pro forma results are presented for comparative purposes only and are neither intended to be indicative of actual results had such transactions occurred as of such date, nor do they purport to indicate results which may be obtained in the future.
TWELVE MONTHS NINE MONTHS TWELVE MONTHS TWELVE MONTHS ENDED OCTOBER 31, ENDED JULY 31, ------------------------------- PRO FORMA(2) 1996 1997 1997 --------- --------- ----------- OPERATING DATA:(3) Net sales ............................................. $22,979 $44,535 $ 50,945 Gross profit .......................................... 7,935 14,146 17,235 Selling, general and administrative expenses ......... 5,067 7,777 8,966 Insurance recovery of litigation costs ............... -- -- -- Non-recurring charges ................................. -- -- -- Interest expense .................................... 129 319 339 Net income from continuing operations before cumulative effect of change in accounting principle and minority interest expense ........................ 2,278 4,946 6,041 Minority interest in net income of subsidiary(4) ...... -- -- (1,266) Net income (loss) from discontinued operations ......... 963 -- -- Gain on sale of health care operations ............... 5,264 -- -- Cumulative effect on prior years of change in accounting principle ................................. -- -- -- Net income (loss) .................................... 8,505 4,946 4,775 Weighted average number of common and common equivalent shares(5) ................................. 5,847 6,343 6,498 Net income per share from continuing operations before cumulative effect of change in accounting principle(5) .......................................... 0.39 0.78 0.73 Net income (loss) per share from discontinued operations(5) ........................... 0.16 -- -- Net income per share from sale of health care operations(5) .................................... 0.90 -- -- Cumulative effect per share of change in accounting principle(5) .............................. -- -- -- Net income (loss) per share(5) ........................ 1.45 0.78 0.73 Cash dividends per share(5) ........................... 0.09 0.10 0.10 OTHER FINANCIAL DATA: EBITDA(6) ............................................. 4,064 7,595 9,829 Depreciation and amortization ........................ 1,150 1,170 1,504 Capital expenditures ................................. 1,177 2,807 2,807 Ratio of earnings to fixed charges .................. 21.63 19.80 20.01
ENDED DECEMBER 31, ENDED OCTOBER 31, JULY 31, -------------------------------------------- -------------------------------1998 1998 1998 1998 ----------------- --------------- ------------------- ----------------- MCCLAIN HEICO INTERNATIONAL, PRO FORMA 1992 1993 1994 1995 1996 1996 1997 1997(7) -------- -------- -------- -------- -------- --------- --------- -----------CORPORATION(1) INC. ROGERS-DIERKS, INC. ADJUSTMENTS PRO FORMA ----------------- --------------- ------------------- ------------ ----------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA: Working capital ................................. 14,633 12,517 12,691 14,755 25,248 27,120 29,754 44,093 Net property, plantsales.............. $95,351 $9,696 $7,374 $ -- $112,421 ------- ------ ------ ------- -------- Operating costs and equipment ............... 8,478 7,734 8,608 9,296 5,845 4,745 7,734 8,133expenses: Cost of sales........ 59,247 4,720 2,460 200(2) 66,627 Selling, general and administrative expenses........... 17,140 1,759 1,727 (479)(3) 20,147 ------- ------ ------ ------- -------- Total assets .................................... 46,425 33,738 39,020 47,401 61,836 53,812 70,820 85,446 Long-term debt ................................. 3,092 2,864 4,402 7,076 6,022 2,645 10,546 10,715 Minority interest in consolidated subsidiary(7)operating costs and expenses.... 76,387 6,479 4,187 (279) 86,774 ------- ------ ------ ------- -------- Operating income....... 18,964 3,217 3,187 279 25,647 Interest expense....... (984) -- (6) (2,225)(4) (3,215) Interest and other income............... 2,062 93 16 (564)(5) 1,607 ------- ------ ------ ------- -------- Income before income taxes and minority interest............. 20,042 3,310 3,197 (2,510) 24,039 Income tax expense..... 6,914 -- -- 1,549(6) 8,463 ------- ------ ------ ------- -------- Income before minority interest............. 13,128 3,310 3,197 (4,059) 15,576 Minority interest...... 2,619 -- -- -- -- -- 3,000 Shareholders' equity ........................... 25,556 25,513 27,061 30,146 41,488 39,871 47,312 57,738819(7) 3,438 ------- ------ ------ ------- -------- Net income............. $10,509 $3,310 $3,197 $(4,878) $ 12,138 ======= ====== ====== ======= ======== Net income per share: Basic................ $ .84 $ .97 ======= ======== Diluted.............. $ .68 $ .78 ======= ======== Weighted average number of common shares outstanding: Basic................ 12,499 12,499 ======= ======== Diluted.............. 15,541 15,541 ======= ========
16 - ------------------------------- (1) Gives effectAmounts include results for McClain for the three months ended October 31, 1998. (2) Represents adjustment to conform the Rogers-Dierks amounts to the Company's September 1996inventory accounting policies. 21 23 (3) Represents the amortization of the excess of costs over the fair value of net assets acquired and elimination of shareholders' compensation as follows:
TWELVE MONTHS ENDED OCTOBER 31, 1998 ----------------- MCCLAIN* Amortization of the excess of costs over the fair value of net assets acquired (over 30 years)**..................... $ 942 Elimination of shareholders' compensation and expenses...... (1,355) ------- (413) ------- ROGERS-DIERKS Amortization of the excess of costs over the fair value of net assets acquired (over 20 years)**..................... $ 685 Elimination of shareholders' compensation and expenses...... (751) ------- (66) ------- $ (479) =======
(4) Represents interest expense incurred at a rate of 6.75% on borrowings under the revolving credit facility as follows:
TWELVE MONTHS ENDED OCTOBER 31, 1998 ----------------- McClain*.................................................... $(1,266) Rogers-Dierks............................................... (959) ------- $(2,225) =======
(5) Represents the elimination of investment income from cash used for the acquisitions and the elimination of interest income on assets not acquired as follows:
TWELVE MONTHS ENDED OCTOBER 31, 1998 ----------------- MCCLAIN* Lost investment income on $10.8 million at a rate of 5.65% at October 31, 1998....................................... $ (459) Elimination of interest income on assets not acquired....... (93) ------- (552) ------- ROGERS-DIERKS Elimination of interest income on assets not acquired....... (12) ------- $ (564) =======
(6) To adjust for the effects of income taxes on (a) the historical earnings of the acquisitions, all of which were S corporations prior to acquisition, as if they had been fully subject to federal and applicable state income taxes and (b) the effect of Trilectron, its September 1997 acquisition of Northwings and its October 1997 sale to Lufthansa of a 20%the pro forma adjustments.
TWELVE MONTHS ENDED OCTOBER 31, 1998 ----------------- McClain*.................................................... $ 741 Rogers-Dierks............................................... 808 ------ $1,549 ======
22 24 (7) Represents the incremental minority interest in the Company's Flight Support Group as if each of such transactions had been consummated as of November 1, 1995. (2) Gives effect to the Company's September 1997 acquisition of Northwings and its October 1997 sale to Lufthansa of a 20% minority interest in the Company's Flight Support Group as if each of such transactions had been consummated as of November 1, 1995. (3) Adjusted to reflect MediTek (as defined herein) as a discontinued operation. The Company's 1996 results reflect a gain of $5.3 million from the sale of MediTek. (4) Represents Lufthansa's 20% minority interestTechnik in the net income of McClain and Rogers-Dierks, respectively.
TWELVE MONTHS ENDED OCTOBER 31, 1998 ----------------- McClain*.................................................... $ 444 Rogers-Dierks............................................... 375 ------ $ 819 ======
- --------------- * Fiscal 1998 McClain pro forma adjustments are calculated for the nine-month period ended July 31, 1998. ** The costs of each acquisition have been allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition as determined by management. The allocation of the costs of acquisitions is preliminary while the Company obtains final information regarding the fair values of all assets acquired; however, management believes that any adjustments to the amounts allocated will not have a material effect on the Company's Flight Support Group. (5) Adjusted to reflect all stock dividends and stock splits. (6) EBITDA is defined as earnings before the effectsfinancial position or results of interest, taxes, depreciation and amortization. EBITDA is presented because it is a widely accepted financial indicator used by many investors and analysts to analyze and compare companies on the basis of operating performance. EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to operating income or as an indicator of operating performance, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles and may not be comparable to similarly titled items of other companies. (7) Gives effect to the Company's September 1997 acquisition of Northwings and its October 1997 sale to Lufthansa of a 20% minority interest in the Company's Flight Support Group as if each of such transactions had occurred as of July 31, 1997. 17operations. 23 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company'sOur Flight Support Group, which currently accounts for approximately 70%73% of the Company'sour pro forma revenues, consists of fourthe following seven operating subsidiaries -- Jet Avion Corporation (PMA replacement parts), LPI Industries Corporation (OEM subcontractor), Aircraft Technology, Inc. (jet engine combustion chambersubsidiaries:
NAME - ---- DESCRIPTION OF PRINCIPAL OPERATIONS Jet Avion Corporation........................ Design and manufacture of FAA-approved jet engine replacement parts LPI Industries Corporation................... Original equipment manufacturer subcontractor Aircraft Technology, Inc..................... Repair and overhaul of jet engine combustion chambers and related parts Northwings Accessories Corp.................. Repair and overhaul of jet engine and airframe components and accessories McClain International, Inc................... Design, manufacture and overhaul of FAA-approved jet engine replacement parts Associated Composite, Inc.................... Repair and overhaul of aircraft fuselage structures Rogers-Dierks, Inc........................... Design and manufacture of FAA-approved jet engine replacement parts repair and overhaul) and Northwings Accessories Corp. (jet engine component and airframe repair and overhaul). The Company's
Our Ground Support Group, which currently accounts for approximately 30%27% of the Company'sour pro forma revenues, consists of onethe following operating subsidiary -- Trilectron Industries, Inc. (ground support equipment). The Company'ssubsidiary:
NAME - ---- DESCRIPTION OF PRINCIPAL OPERATIONS Trilectron Industries, Inc................... Design and manufacture of aircraft ground support equipment
Our results of operations during the current and prior fiscal years have been affected by a number of significant transactions. As a result of the significant impact of these transactions, the Company doeswe do not believe that itsour results of operations are necessarily comparable on a period-to-period basis. This discussion of the Company'sour financial condition and results of operations should be read in conjunction with the Company'sour Consolidated Condensed Financial Statements--Unaudited, Pro Forma Consolidated Condensed Financial Statements--UnauditedStatements and Notes thereto included or incorporated by reference herein. SALE OF DISCONTINUED HEALTHCARE OPERATIONS. In July 1996,For further information regarding the Company sold its wholly owned healthcare subsidiary, MediTek Health Corporation ("MediTek")acquisitions discussed below, see Note 2 to U.S. Diagnosticour 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, Inc. ("USDL"Rogers-Dierks"). The Company received $13.8 for approximately $14.1 million in cash and a $10.0 million, 6-1/2% convertible promissory note (the "Convertible Note"). The sale of MediTek resulted in a fiscal 1996 gain of $5.3 million. In September 1997, the Company sold the Convertible Note to one of the Underwriters for its stated par value of $10.0 million plus accrued interest. ACQUISITION OF TRILECTRON GROUND SUPPORT BUSINESS. In September 1996, the Company acquired Trilectron, a Florida-based manufacturer of GSE, for $7.0approximately $1.1 million in deferred payments over the next two years, with additional consideration of up to approximately $7.3 million payable in cash and the assumptionor shares of approximately $2.3 million of debt. During the ten months ended August 31, 1996 Trilectron had net sales of approximately $13.6 million and income before income taxes of approximately $1.2 million. Approximately $2.8 million of goodwill associated with the Trilectron acquisition is being amortized over a 20-year period using the straight line method. ACQUISITION OF NORTHWINGS REPAIR/OVERHAUL BUSINESS. In September 1997, the Companyour Class A Common Stock. On October 19, 1998, through our Flight Support Group, we acquired Northwings, a Florida-based repair and overhaul facility servicing aircraft engine airframe accessories,Associated Composite, Inc. ("Associated") for approximately $7.0$1.3 million in cash and 155,000 sharescash. On July 31, 1998, we completed the acquisition of the Company's Common Stock. Approximately $8.9McClain International, Inc. ("McClain") for approximately $41.0 million of goodwill associated with the Northwings acquisition is being amortized over a 20-year period using the straight line method. LUFTHANSA INVESTMENT IN FLIGHT SUPPORT GROUP. Inin cash. The Company also acquired McClain's headquarters facility for an additional $2.5 million. On October 30, 1997, the Companywe entered into a strategic alliance with Lufthansa pursuantTechnik AG ("Lufthansa Technik") whereby Lufthansa Technik agreed to which Lufthansa investedinvest approximately $26$26.0 million in the Company'sour Flight Support Group, including $10.0 million paid at closing pursuant to a stock purchase agreement and approximately $16$16.0 million to be paid to theour Flight Support Group over three years pursuant to a research and development cooperation agreement, which will partially fund accelerated development of additional FAA-approved replacement parts for jet engines. As part of the strategic alliance, we sold 20% of the Flight 24 26 Support Group. In connection with subsequent acquisitions, Lufthansa Technik invested an additional $11.9 million to purchase its proportional 20% interest in the acquisitions. The funds received pursuant to the research and development cooperation agreement reduce research and development expenses in the period such expenses are incurred. In addition, Lufthansa Technik and theour Flight Support Group have agreed to cooperate regarding technical services and marketing support for jet engine parts on a worldwide basis. For additionalfurther information with respectregarding the strategic alliance and sale of the 20% minority interest, see Note 2 to the financial impactCompany's Consolidated Financial Statements. Effective September 1, 1997, the Company acquired Northwings Accessories Corp. ("Northwings"). In consideration of this acquisition, the Company paid approximately $6.7 million in cash and 232,360 shares of the Company's Common Stock, having an aggregate fair value of approximately $3.5 million. Effective September 1, 1996, the Company acquired Trilectron NorthwingsIndustries, Inc. ("Trilectron") for $6.6 million in cash and Lufthansa transactions,the assumption of debt aggregating $2.3 million. In July 1996, the Company sold its wholly-owned healthcare subsidiary, MediTek Health Corporation ("MediTek") to U.S. Diagnostic Inc. The Company received $13.8 million in cash and a $10.0 million, 6 1/2% convertible promissory note. The sale of MediTek resulted in a fiscal 1996 gain of $5.3 million, net of taxes. In September 1997, the Company sold the convertible note to an unrelated party for the stated par value of $10.0 million plus accrued interest. For further information regarding the sale of MediTek, see Note 13 to the Pro FormaCompany's Consolidated Condensed Financial Statements appearing elsewhereStatements. The Company paid 10% stock dividends in July 1995, February 1996, July 1996, and January 1997. In addition, the Company distributed 3-for-2 stock splits in April 1996 and December 1997. In April 1998, the Company paid a 50% stock dividend in shares of Class A Common Stock. All net income per share, dividends per share and common stock outstanding information has been adjusted for all years presented in this Prospectus.Prospectus to give effect to the stock dividends and stock splits. RESULTS OF CONTINUING OPERATIONS - NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31, 1996 For the first nine monthsperiods 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 Statements of Operations.
YEAR ENDED OCTOBER 31, ----------------------------- 1996 1997 1998 ------- ------- ------- (DOLLAR AMOUNTS IN THOUSANDS) Net sales Flight Support............................................ $32,240 $41,522 $65,412 Ground Support............................................ 2,325 22,152 29,939 ------- ------- ------- $34,565 $63,674 $95,351 ======= ======= ======= Net sales................................................... 100.0% 100.0% 100.0% Gross profit................................................ 35.2% 32.4% 37.9% Selling, general and administrative expenses................ 22.1% 18.1% 18.0% Operating income............................................ 13.1% 14.3% 19.9% Interest expense............................................ 0.5% 0.8% 1.0% Interest and other income................................... 3.0% 2.7% 2.2% Income tax expense.......................................... 5.0% 5.2% 7.3% Minority interest........................................... --% --% 2.8% Income from continuing operations........................... 10.6% 11.0% 11.0%
COMPARISON OF FISCAL 1998 TO FISCAL 1997 Net Sales Net sales in fiscal 1998 totaled $95.4 million, up 50% when compared to fiscal 1997 net sales of $63.7 million. 25 27 The increase in fiscal 1998 sales reflects an increase of $23.9 million (a 58% increase) to $65.4 million from the Company's Flight Support products (which include repair and net income totaled $44.5overhaul services). This increase includes incremental sales of Northwings (twelve months in fiscal 1998 versus two months in fiscal 1997) and McClain aggregating $15.7 million, and $4.9 million ($.78 per share), respectively, representing a 94% increase overwith 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 $7.8 million (a 35% increase) to $29.9 million in revenues from the Company's Ground Support products principally due to higher demand for the Company's Ground Support products as well as sales of new products. Gross Profits and Operating Expenses The Company's gross profit margins averaged 37.9% in fiscal 1998 as compared to 32.4% in fiscal 1997. This increase reflects improvements in gross margins in both the Flight Support and Ground Support operations. The improvement in gross profit margins in the Flight Support Group reflects an increase resulting from the reimbursement of research and development costs from Lufthansa Technik and higher gross profit margins for Northwings. Fiscal 1998 and 1997 cost of sales amounts include approximately $900,000 and $3.1 million, respectively, of new product research and development expenses. The expenses for fiscal 1998 are net of $3.5 million received from Lufthansa Technik. The improved gross margins in the Ground Support operations resulted principally from manufacturing cost efficiencies and increased sales of products with higher profit margins. Selling, general and administrative ("SG&A") expenses were $17.1 million in fiscal 1998 and $11.5 million in fiscal 1997. As a percentage of net sales, SG&A expenses remained comparable at 18.0% in fiscal 1998 and 18.1% in fiscal 1997, despite higher corporate expenses and the inclusion of a full year of Northwings' SG&A expenses, reflecting continuing efforts to control costs while increasing revenues. As a result of the acquisitions of McClain, Associated and Rogers-Dierks, SG&A expenses will include additional goodwill amortization of approximately $1.8 million annually. Operating Income Operating income increased $9.9 million to $19.0 million (a 108% increase) in fiscal 1998 from $9.1 million in fiscal 1997. The improvement in operating income was due primarily to increases in sales and gross margins of the Flight Support Group and Ground Support operations discussed above as well as the acquisitions of Northwings and McClain. Interest Expense Interest expense increased $507,000 to $984,000 from fiscal 1997 to fiscal 1998. The increase was principally due to increased outstanding debt balances during the period related to borrowings on the Company's $120 million credit facility, used principally to finance the Company's acquisitions. Interest and Other Income Interest and other income increased $340,000 to $2.1 million from fiscal 1997 to fiscal 1998 due principally to the investment of cash received from the sale of a 20% interest in the Flight Support Group to Lufthansa Technik in October 1997. Income Tax Expense The Company's effective tax rate increased 2.3 percentage points to 34.5% in fiscal 1998 from 32.2% in fiscal 1997 due to a decrease in benefits from export sales and a reduction in tax-free investments. For a detailed analysis of the provisions for income taxes, see Note 6 to the Consolidated Financial Statements. 26 28 Minority Interest Minority interest in fiscal 1998 represents the aforementioned 20% minority interest held by Lufthansa Technik. Income from Continuing Operations The Company's income from continuing 18 operations of $23.0totaled $10.5 million, or $.68 per share (diluted), in the first nine months of fiscal 1996 and a 113% increase over net1998, improving 50% (39% per diluted share) from income from continuing operations of $2.3$7.0 million, ($.39or $.49 per share)share (diluted), in the first nine months of fiscal 1996.1997. The Company's improvedimprovement in income from continuing operations in fiscal 1998 over fiscal 1997 operating results areis primarily attributable to increased sales and gross margins as discussed below. Net sales of the newly-acquired Company's Ground Support Group totaled $16.1 million in the first nine months of fiscal 1997, all of which represented sales of Trilectron. The balance of the increases in net sales in the fiscal 1997 nine-month period over the comparable fiscal 1996 period are attributable to the increased sales volumes and improved profit margins within operating entities discussed above as well as the acquisitions of Northwings and McClain, offset by the minority interest in earnings of the Flight Support Group. COMPARISON OF FISCAL 1997 TO FISCAL 1996 Net Sales Net sales in fiscal 1997 totaled $63.7 million, up 84% when compared to fiscal 1996 net sales of $34.6 million. The increase in fiscal 1997 sales reflects an increase of $9.3 million (a 29% increase) to $41.5 million in revenues from the Company's Flight Support Group, which areproducts, including $2.2 million in revenues representing Northwings' sales for the two months since its acquisition; and an increase of $19.8 million to $22.1 million in revenues from the Company's Ground Support products (twelve months of Trilectron's sales for fiscal 1997 compared to two months in fiscal 1996). The increases in sales of Flight Support products in fiscal 1997, exclusive of sales of Northwings, were principally due to increased sales volumes of jet engine replacement parts to the Company's commercial airline industry customers. Gross Profit and Operating Expenses The Company's gross profit margins were 31.8%averaged 32.4% in the first nine months of fiscal 1997 and 34.5%as compared to 35.2% in the first nine months of fiscal 1996. This reflectsThese margins reflect the inclusion of the newly-acquired Ground Support Group,operations beginning in the fourth quarter of fiscal 1996, which sells products that generally carry lower gross profit margins than those of the Company's Flight Support Group. The decrease in gross profit margins attributable to the Ground Support Group wasoperations, partially offset by an improvement in gross profit margins in the Company's Flight Support Group.operations. The improvement in gross profit margins in the Flight Support Group reflects volume increases in sales of higher gross profit margin products and manufacturing cost efficiencies. Selling, general and administrative ("SG&A")&A expenses were $11.5 million in the first nine months of fiscal 1997 increased $2.7 million to $7.8 million from $5.1and $7.7 million in the first nine months of fiscal 1996. As a percentage of net sales, SG&A expenses declined from 22.1% in fiscal 1996 to 18.1% in fiscal 1997, reflecting continuing efforts to control costs while increasing revenues. The $3.9 million increase from fiscal 1996 to fiscal 1997 is due principally to the SG&A expenses of Trilectron and increased selling expenses of the Flight Support Group. AsGroup and a percentagefull year of sales, however, SG&A expenses decreasedof Trilectron since acquisition. Operating Income Operating income increased to 17.5% of consolidated net sales$9.1 million (a 102% increase) in the first nine months of fiscal 1997 from 22.1%$4.5 million in the comparable nine-month period of fiscal 1996. Income from operations forThe improvement in operating income was due primarily to the first nine months of fiscal 1997 increased $3.5 million to $6.4 million from $2.9 million in the first nine months of last year. This increase reflects the increaseincreases in sales and gross profit margins of the Flight Support Group and the acquisition of the Ground Support Group asTrilectron discussed above. 27 29 Interest Expense Interest expense in the first nine months of fiscal 1997 increased $190,000$292,000 to $319,000$447,000 from $129,000 in the comparable fiscal 1996 period. Thisto fiscal 1997. The increase iswas principally due to the interest incurred on theincreases in long-term debt related to equipment financing and industrial development revenue bonds discussed below.bonds. Interest and Other Income Interest and other income in the first nine months of fiscal 1997 increased $683,000$664,000 to $1.3 million from $617,000 in the comparable period in$1,722,000 over fiscal 1996. This increase is1996 due principally due to interest income on the Convertible Noteconvertible note received from the sale of MediTek, in July 1996 and higher cash balances available for investment.as well as the interest income received on the unexpended proceeds of industrial development revenue bonds. Income Tax Expense The Company's effective tax rate of 32.7% for the first nine months of32.2% in fiscal 1997 was comparable with the 32.1%31.9% rate in the first nine months of fiscal 1996. BACKLOGFor a detailed analysis of the provisions for income taxes, see Note 6 to the Consolidated Financial Statements. Income from Continuing Operations The Company's Flight Support Group had a backlog whichincome from continuing operations totaled approximately $28.0$7.0 million, as of July 31, 1997. The backlog includes approximately $16.0 million representing forecasted shipments over the next 12 months for certain contracts pursuant to which customers provide estimated annual usage. The current backlog increased over the October 31, 1996 backlog of approximately $14.0 million 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 the next twelve months. 19 The Company's Ground Support Group had a backlog totaling $12.0 million as of July 31, 1997. This is a 9% increase over the October 31, 1996 backlog balance of $11.0 million and is principally due to receipt of a contract approximating $4.0 millionor $.49 per share (diluted), in the first quarter of fiscal 1997, covering deliveries expectedimproving 92% (75% per diluted share) from income from continuing operations of $3.7 million, or $.28 per share (diluted), in fiscal 1996. The improvement in income from continuing operations in fiscal 1997 over fiscal 1996 is primarily attributable to beginthe increased sales volumes and improved profit margins within operating entities 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 income from continuing operations 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 the issuance of industrial development revenue bonds. In addition, in fiscal 1997 and continue into fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES During1996, the first nine monthsCompany generated cash from the sale of fiscal 1997, netits health care operations. Principal uses of cash used in operating activities was $285,000, reflecting net incomeby the Company will include payments of $4.9 million offset primarily byinterest and principal on debt, capital expenditures, increases in inventories of $2.6 million required to meet increased salesworking capital and faster customer delivery requirements and scheduled payments of trade accounts payable, income taxes, and other current liabilities. The Company's principal investing activities during the first nine months of fiscal 1997 were purchases of property, plant and equipment of $2.8 million, including $1.2 million related to the Series 1996 industrial development revenue bond project. The Company's principal financing activities during the first nine months of fiscal 1997 were $2.3 million in proceeds of long-term debt including $1.3 million in reimbursements for qualified expenditures from the Series 1996 industrial development revenue bonds and $1.0 million representing the receipt of funds from the exercise of stock options. As discussed in Note 3 of the Company's Notes to Consolidated Condensed Financial Statements (unaudited) contained herein, industrial development revenue bonds in the amount of $4.0 million were issued by Manatee County, Florida, to be used to construct and equip the Company's new Trilectron manufacturing facility in Palmetto, Florida. As of July 31, 1997, unexpended bond proceeds of $4.0 million were available for qualified expenditures of the Trilectron facility. In addition, the Company has unexpended bond proceeds of $1.4 million available for qualified expenditures pursuant to its Broward County Series 1996 industrial development revenue bond project. The revolving portion of the Company's $7.0 million credit facility, which was to expire in April 1997, was renewed by mutual agreement until November 30, 1997. The Company expects to seek a further renewal of this facility after this offering. In addition, amounts available under the Company's equipment loan facility were increased to $2.0 million and extended to December 1997.acquisitions. The Company believes that the proceeds of this offering, operating cash flow and available borrowings under the Company's equipment loan facility, revolving credit facility and industrial revenue bond financings will be sufficient to fund the Company's operationscash requirements for the foreseeable future. 20Operating Activities The Company's cash flow from operations aggregated $12.9 million over the last three years, including $9.5 million in fiscal 1998 principally reflecting an increase in net income of $3.5 million and an increase in trade payables and other current liabilities associated with higher levels of operations and deferred reimbursement of research and development costs from Lufthansa Technik aggregating $4.7 million. Net cash provided by operations of $1.7 million in fiscal 1997 was comparable to net cash provided by operations in fiscal 1996. 28 30 Investing Activities The principal cash used in investing activities the past three years was the cash used in the acquisition of businesses totaling $58.9 million, including $45.6 million in fiscal 1998 to acquire McClain and Associated, $6.7 million in fiscal 1997 to acquire Northwings and $6.6 million in fiscal 1996 to acquire Trilectron. Purchases of property, plant and equipment totaled $12.9 million, including $6.2 million in fiscal 1998 principally purchased by the Ground Support Group to expand into a new manufacturing facility and improve its product development and manufacturing capabilities. The Company also purchased short-term investments of $3.9 million in fiscal 1998. During the past three fiscal years, the Company's principal cash proceeds from investing activities were $13.5 million in fiscal 1996 and $10.0 million in fiscal 1997 from the sale of the health care operations. Financing Activities The Company's principal financing activities during the same three-year period included proceeds of long-term debt of $32.1 million including $25.0 million from a new $120 million revolving credit facility in fiscal 1998 primarily to fund business acquisitions and $5.7 million in reimbursements for qualified expenditures related to the industrial development revenue bonds. In addition, the Company received $18.7 million from Lufthansa Technik including $9.7 million in fiscal 1997 from the sale of a 20% minority interest in the Flight Support Group and $9.0 million in fiscal 1998 representing additional minority interest investments in businesses acquired by the Company. The Company also received $3.6 million from the exercise of stock options during the three-year period. The Company used an aggregate of $9.7 million for payments on short-term debt, long-term debt and capital leases, including $5.0 million in fiscal 1998 to reduce the outstanding balance under the revolving credit facility. In addition, the Company used $2.0 million in fiscal 1998 to repurchase common stock. In July 1998, the Company entered into a $120 million revolving credit facility with a bank syndicate, which contains both revolving credit and term loan features. The credit facility may be used for working capital and general corporate needs of the Company and to finance acquisitions (generally not in excess of $25.0 million for any single acquisition nor in excess of an aggregate of $25.0 million for acquisitions during any four fiscal quarter period without the requisite approval of the bank syndicate). Advances under the credit facility accrue interest, at the Company's option, at a premium (based on the Company's ratio of total funded debt to earnings before interest, taxes, depreciation and amortization) over the LIBOR rate or the higher of the prime lending rate and the Federal Funds Rate. The Company is required to maintain certain financial covenants, including minimum net worth, limitations on capital expenditures (excluding expenditures for the acquisition of businesses) and limitations on additional indebtedness. The credit facility matures in July 2001 unless extended by the bank syndicate. The Company also has available unexpended industrial development revenue bond proceeds of $2.3 million available for future qualified expenditures. See Note 4 to the Consolidated Financial Statements for further information regarding credit facilities. 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 29 31 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. 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 In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Adoption of this statement will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. The Company intends to adopt the provisions of this statement in fiscal 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997, with earlier application permitted. Adoption of this statement will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. The Company intends to adopt the provisions of this statement in fiscal 1999. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 standardizes the disclosure requirements of SFAS 87, 88 and 106 to the extent practicable and recommends a parallel format for presenting information about pensions 30 32 and other postretirement benefits. SFAS 132 is effective for fiscal years beginning after December 15, 1997. Adoption of this statement will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. The Company intends to adopt the provisions of this statement in fiscal 1999. 31 33 BUSINESS INDUSTRY OVERVIEW GENERAL The CompanyHEICO Corporation ("HEICO" or the "Company") operates in two distinct but interrelatedrelated aerospace markets -markets: the jet engine aircraft parts and service market and the aircraft ground servicesupport equipment market. THE JET ENGINE SERVICE MARKET.The Jet Engine Parts Manufacturing and Service Market. Jet engine maintenance is a highly regulated, ongoing process that typically accounts for approximately 6% of an aircraft's total operating costs. FAA regulations require "cradle to grave""cradle-to-grave" documentation of an engine's service life, as well as of the individual parts that comprise it.the engine. Maintenance schedules call for the periodic inspection, testing and repair of critical parts, as well as periodic overhauls (a complete disassembly, refurbishment reassembly and testing process) of the entire engine. The maintenance schedule for any given engine depends on the number of flight hours registered and the number of an engine's take-off and landing cycles. The Companycycle. Maintenance activity is accomplished through three principal channels -- (i) internal airline maintenance, (ii) original equipment manufacturers ("OEMs"), and (iii) companies that overhaul aircraft ("airmotives"). Based on industry sources, management believes that the airlines themselves will continue to perform the majority of engine maintenance, but that OEMs and other airmotives will gain market share as airlines continue to rationalize costs and outsource non-revenue producing activities such as maintenance. We believe that the annual market for jet engine repair, refurbishment and overhaul is approximately $6.5$7.5 billion, of which approximately $3.5$4 billion reflects annual sales of jet engine replacement parts. Maintenance activity is accomplished through three primary channels - (i) internal airline maintenance capabilities, (ii) OEMs,We design, manufacture and (iii) independent repair/overhaul facilities service providers ("airmotives"). Based on industry sources, the Company believes that airlines continue to dominate this industry with an estimated two-thirds market share, but also that OEMs and independent airmotives are gaining market share as airlines continue to rationalize costs and reduce non-core practices by outsourcing non-revenue producing activities such as maintenance. The Company designs, manufactures and sellssell jet engine replacement parts in direct competition with the leading industry OEMs, principally Pratt & Whitney and other leading industry OEMsGeneral Electric, and, to a lesser extent, with a number of smaller, independent parts manufacturers.distributors. The Flight Support Group's repair and overhaul services compete with participants in all three of the industry's maintenance channels. THE GROUND SERVICE EQUIPMENT MARKET.The Ground Service Equipment Market. Aircraft require a wide array of mobile and fixed GSEground support equipment ("GSE") to support their operation. According to a 1996 study conducted by GSE TODAY,Today, a leading ground support industry publication, the 1995 annual sales of the worldwide commercial GSE market iswere approximately $1.5$1.7 billion and willthat market was expected to grow at approximately 7.5%7% annually worldwide over the next five years. GSE is sold to support new aircraft and to replace existing equipment. GSE of the type sold by us is replaced every seven to ten years. GSE industry growth depends onis directly related to the healthoverall performance of the commercial aviation industry. The CompanyHEICO believes that the GSE market is highly fragmented, with a significant number of participants supplyingproviding only one or two types of GSE.products. INDUSTRY TRENDS The Company expectsWe expect to capitalize on a number of trends within the aviation industry, including the following: GROWTH IN AIRCRAFT TRAFFIC AND FLEET.- Growth in Aircraft Traffic and Fleet. Continued growth in air transittransportation and aircraft production is expected to increase the demand for engine component purchases and repairs, as well as sales of GSE. According to Boeing's 19961998 Market Outlook,Outlook*, it is estimated that (i) world air travel will grow by 70% by 2005,5.0% per year over the next ten years, (ii) the number of passenger and freight and package delivery aircraft in service will increase 44.1% by 47% by 2005,2007, (iii) the worldwide jet fleet of commercial airplanes is expected to more than double from 11,06612,300 airplanes at the end of 19951997 to 23,08126,200 airplanes by 20152017, and (iv) the worldwide fleet of cargo jet aircraft will increase from 1,2191,434 airplanes in 19951997 to 2,2602,706 airplanes by 2015.2017. Further, the Company believeswe believe that the number of older planes in service for more than 10 years is continuing to increase, and these older planes arerepresent the primary market for jet engine replacement parts and repair and overhaul services. Moreover, because certainsome parts must be replaced after a specified number of flight - --------------- * The information in the Boeing Market Outlook was compiled from many sources. Data presented as historical in such report should be considered estimates based on Boeing analyses. 32 34 hours or cycles, demand in the aftermarket segments served by the Companyus is more predictable and less cyclical than the market for new partaircraft deliveries. Deregulation- Increased Outsourcing of the aviation industry in the United States and the European Community, relatively low barriers to entry, the availability of older aircraft and increased consumer demand for air travel has 21 led to the emergence of several low cost, start-up airlines. Start-up airlines tend to use older aircraft with engines that require a greater number of replacement parts and more frequent servicing. Moreover, because start-up airlines generally do not invest in the infrastructure necessary to service their aircraft, many outsource all or a substantial portion of their jet engine service and replacement parts requirements. Consequently, the Company believes that the growth of start-up airlines is increasing demand for the services of its Flight Support Group. INCREASED OUTSOURCING OF COMMERCIAL ENGINE SERVICES.Commercial Engine Services. Airlines have come under increasing pressure during the last decade to reduce the costs associated with providing air transportation services. While several of the expenditures required to operate an airline are beyond the direct control of airline operators (e.g., the price of fuel and labor costs), the Company believes that the continuing pressure to reduce both the operating and capital costs associated with jet engine service should continue to increase the market share of OEMs and independent service providersindependents such as the Company. The Company believesHEICO. We believe that as a result of this outsourcing trend, the volume of business handled by OEMs and independent service providers, such as the CompanyHEICO, in the jet engine maintenance, repair and overhaul industry should grow faster thancontinue to grow. - Consolidation of the growth in air traffic. CONSOLIDATION OF THE SERVICE AND SUPPLY CHAIN.Service and Supply Chain. In order to reduce purchasing costs and streamline purchasing decisions, airline purchasing departments have been reducing the number of their "approved" suppliers. The Company believesWe believe that the reductions in the supplier base utilized by airline purchasing departments will continue to cause a consolidation in both the jet engine repair and GSE markets for the foreseeable future. The CompanyWe further believesbelieve that only those participants with adequate capital market presence and a reputation for quality and adequate capital resources will continue to be selected as approved suppliers and survive suchthe consolidation. The CompanyHEICO believes that it is well positioned to take advantage of this consolidation trend. INCREASED MAINTENANCE AND SAFETY REQUIREMENTS.- Increased Maintenance and Safety Requirements. Under regulations promulgated by the FAA and similar agencies in other countries, as well asforeign regulations and guidelines established by OEMs and aircraft operators, when an aircraft component fails to perform within certain prescribed limitsmeet performance parameters or after logging a prescribed number of flight hours, the aircraft component must be brought to a repair facility certified by thean FAA or similar agency of a foreign nationsimilarly foreign-certified facility for various types of designated service or replacement. In addition, aircraft components require regular maintenance and inspection and replacement of "life- limited""life-limited" components. The Company believesWe believe that the trend toward more stringent maintenance requirements and more frequent maintenance and overhaul has increased the size of the market for the replacement or repair of jet engine components. The Company believesWe believe that, because of itsour established ability to satisfy the FAA's PMA approvalParts Manufacturer Approval ("PMA") process and itsour long-standing emphasis on quality control, itHEICO will benefit from the evolving maintenance and safety standards. 22 BUSINESS GENERAL The CompanyTHE COMPANY HEICO believes it is one of the world's largest non-OEM manufacturersmanufacturer of FAA-approved jet engine replacement parts, other than the OEMs and their subcontractors. It is also a market leader in the saleleading manufacturer of GSEground support equipment to the airline and defense industries. The Company'sThrough our Flight Support Group, which currently accounts for approximately 70% of the Company's revenues, operates in the jet engine service market through (i) the research and development,we use proprietary technology to design, manufacture and sale of FAA-approvedsell jet engine replacement parts in direct competition with OEMs, (ii)for sale at lower prices than those manufactured by OEMs. These parts are approved by the repair, maintenanceFAA and overhaulare the functional equivalent of parts sold by OEMs. In addition, our Flight Support Group repairs, refurbishes and overhauls jet engine and airframeaircraft components for domestic and (iii)foreign commercial air carriers and aircraft repair companies. In fiscal 1998, the manufactureFlight Support Group accounted for 73% of specialty aviation and defense component parts as a subcontractor for OEMs and the U.S. government. The Company'spro forma revenues. Through our Ground Support Group, which currently accounts for approximately 30% of the Company's revenues, manufactureswe manufacture various types of GSE, including groundelectrical power, air start, and air conditioning and heating units, as well as certainsome electronic equipment for commercial airlines and military agencies.. Throughagencies. In fiscal 1998, the Ground Support Group accounted for 27% of pro forma revenues. We currently sell our products to every major U.S. airline, as well as a combinationgrowing number of airlines throughout the world. We have continuously operated in the aerospace industry for 38 years. Since assuming control in 1990, current management has achieved significant sales and profit growth through expanded product offerings, an expanded customer base, increased research and development expenditures, and the completion of a number of acquisitions. As a result of internal growth and acquisitions, the Company increasedour revenues 35%have grown from $25.6$19.2 million in the year ended October 31, 1995fiscal 1994 to $34.6pro forma revenues of $112.4 million in fiscal 1998, a compound 33 35 annual growth rate of 56%. During the year endedsame period, net income increased from $1.9 million to pro forma net income of $12.1 million, a compound annual growth rate of 59%. In October 31, 19961997, we formed a strategic alliance with Lufthansa Technik, the technical services subsidiary of Lufthansa German Airlines AG. Lufthansa Technik is the world's largest independent provider of engineering and earnings per share from continuing operations 130% from $0.27 per sharemaintenance services for aircraft and aircraft engines and supports over 200 airlines, governments and other customers. As part of the transaction, Lufthansa Technik acquired a 20% minority interest in our Flight Support Group, investing $29 million to date and committing to invest an additional $9 million over the next two years. This includes direct equity investments and the funding of specific research and development projects. In connection with subsequent acquisitions by our Flight Support Group, Lufthansa Technik invested additional amounts pursuant to its option to maintain a 20% equity interest. This strategic alliance should enable us to expand domestically and internationally by enhancing our ability to (i) identify key jet engine replacement parts with significant profit potential by utilizing Lufthansa Technik's extensive operating data on engine parts, (ii) introduce those parts throughout the world in an efficient manner due to Lufthansa Technik's testing and diagnostic resources, and (iii) broaden our customer base by capitalizing on Lufthansa Technik's established relationships and alliances within the airline industry. The Canaan Group, an independent management consulting firm specializing in the year ended October 31,aviation and aerospace industries, estimated the 1998 worldwide annual sales for jet engine repair, refurbishment and overhaul services to be approximately $7.5 billion, of which approximately $4 billion represented annual sales of jet engine replacement parts. While we currently supply less than 2% of the market for jet engine new replacement parts, we have been adding new products at a rapid rate. According to the Canaan Group, the jet engine replacement parts market is expected to grow at approximately 4-5% over the next three years. Historically, the three principal jet engine OEMs, Pratt & Whitney, General Electric (including CFM International) and Rolls Royce, have been the sole source for substantially all replacement parts. We believe that, based on our competitive pricing, reputation for high quality, short lead time requirements, strong relationships with domestic and foreign commercial air carriers and airmotives (companies that overhaul aircraft), relationship with Lufthansa Technik and successful track record of receiving PMAs from the FAA, we are uniquely positioned to continue to increase our product lines and gain market share. According to a 1996 study conducted by GSE TODAY, a leading ground support industry publication, the 1995 annual sales of the worldwide commercial GSE market were approximately $1.7 billion and that market was expected to $0.62grow at approximately 7% annually over the next five years. We currently supply less than 2% of this market. We believe that the GSE market is highly fragmented, with a significant number of participants supplying only one or two types of equipment. We believe that our growth in the year ended October 31, 1996.GSE market will be driven by our ability to differentiate our product offerings with more technologically advanced and value-added products and services, as well as our ability to acquire complementary businesses. Jet engine maintenance is a highly regulated, ongoing process that typically accounts for approximately 6% of an aircraft's total operating costs. FAA regulations require "cradle-to-grave" documentation of an engine's service life, as well as the individual parts that comprise the engine. We utilize sophisticated computer aided design technologies, advanced engineering, proprietary design and manufacturing capabilities, and our established credibility with the FAA to obtain PMAs from the FAA, allowing us to produce parts which are the functional equivalent of those available from the OEM. We believe that our sophisticated and proprietary design capabilities and experience with the PMA process create a significant barrier to entry for others. We believe that there are several favorable industry trends in the aviation industry that will contribute to the growth in the markets for jet engine replacement parts and GSE products, including: (i) expected strong growth in aircraft traffic and fleet size; (ii) an increase in the number of older aircraft in service; (iii) increased FAA regulations and maintenance and safety requirements that require repair or overhaul 34 36 of engine and airframe components; and (iv) consolidation of the service and supply chain in the aircraft industry generally. We believe that replacement jet engine products and services are less susceptible than new aircraft purchases to economic cycles of the airline industry because FAA regulations require the regular replacement of jet engine parts. In addition,our experience, demand for replacement jet engine parts typically commences four to seven years after an aircraft is first put into service. Also, many airlines tend to replace parts more frequently than required by the Company increased revenuesFAA to ensure optimal engine performance and earnings per sharethe efficiency of their aircraft. We believe that we are different from continuing operations from $23.0 millionmost aerospace and $0.39 per share fordefense suppliers because reductions in new aircraft orders should not adversely affect our business. Our business mostly serves companies that operate existing aircraft, not companies that build aircraft. Airline companies are increasingly cost conscious, especially during economic down-cycles, which prompts them to seek more cost effective alternatives to replacement parts manufactured by OEMs and prompts them to overhaul accessory components and fuselage structures in greater numbers in order to reduce operating costs. Most of the nine months ended July 31, 1996products sold by our Ground Support Group are not sold specifically to $44.5 million and $0.78 per share for the nine months ended July 31, 1997.furnish new commercial aircraft, but are more frequently sold to replace existing older equipment, to retrofit airport gates or to service other aerospace applications. GROWTH STRATEGIES The Company intendsSTRATEGY We intend to capitalize on itsour reputation for assured quality, itsproprietary research and development and manufacturing capabilities, existing customer relationships, andalliance with Lufthansa Technik, as well as favorable industry trends to continue to achieve profitable growth in a number of niche aerospace markets. Specific components ofutilizing the Company's growth strategy include the following: EXPANSION OF JET ENGINE REPLACEMENT PARTS PRODUCT LINES. The Company intendsfollowing specific strategies: - Expand Jet Engine Replacement Parts Product Lines. We intend to substantially broaden itsour current jet engine replacement parts product lines through the development and receipt of additional PMAs from the FAA. TheSince 1991, we have added approximately 200 new PMA approvalparts through internal development and 160 through acquisitions. We currently supply over 700 parts for Pratt & Whitney JT3D, JT8D, JT9D, PW2000 and PW4000 and CFM International CFM56 engines. We intend to increase the number of jet engine parts we offer on most of these engines as well as expand into new engine types. We select the jet engine replacement parts to design and manufacture through a process requireswhich analyzes industry information to determine which jet engine replacement parts are expected to generate the greatest profitability. Most jet engine replacement parts selected are complex, high value-added and require specific technical expertise. As part of this strategy, we have increased our research and development expenditures from $300,000 in fiscal 1991 to approximately $4.4 million in fiscal 1998. We believe that our sophisticated computer aidedproprietary design technologies, advanced engineering and manufacturing capabilities and depends to a significant extent on the Company'sour established credibility with the FAA. The Company believes thatFAA expedites the PMA approval process createsof obtaining PMAs. - Expand Ground Support Equipment Product Lines. Since entering the GSE industry in fiscal 1996, we have aggressively expanded our GSE lines with new value-added and technologically advanced products. Over the past two years, we have added 16 new GSE products. These offerings include a significant barriernew range of aircraft ground air-conditioning systems, an advanced electronic power supply system replacing existing technology for use with the International Space Station, a ground cooling system for the new F-22 Raptor fighter aircraft and a new commercial continuous-flow pneumatic airstart system. In addition, our Ground Support Group continually redesigns its existing product offerings to entry asreflect changes in technology and differentiate its products from those of its competitors. In November 1998, our Ground Support Group introduced a result of bothground aircraft heating system which has met with strong initial demand. In order to facilitate these new product lines, our Ground Support Group has dramatically improved its technical demandsproduction capabilities by implementing a flow line-based manufacturing protocol and its limits on the rate at which competitors can bring products to market. EXPANSION OF GSE PRODUCT LINES. The Company expects that the plannedadding a new state-of-the-art, 113,000 square foot manufacturing facility in Palmetto, Florida. - Expand Overhaul and Repair Business. Our Flight Support Group has also pursued expansion of its Ground Support Group's manufacturing facility will permitFAA-authorized overhaul and repair business. Northwings' revenues increased 48% from 35 37 approximately $10 million in the Companytwelve months prior to its acquisition to $14.8 million in fiscal 1998. This growth resulted from the addition of new repair and overhaul services, as well as increased production capability and marketing efforts through an increase in personnel. Northwings' historical customer base has been limited to small passenger airlines and cargo airlines. We are seeking to expand its GSE product lines. The Company believes that continued expansionNorthwings' customer base with these types of its GSE product lines, in combination with its expanding jet engine product lines and component overhaul capabilities, will provide increased cross selling and marketing opportunities that will enable the Company to capitalize on its reputation for quality products and the aviation industry's trends toward outsourcing and vendor consolidation. FORM STRATEGIC ALLIANCES. The Company seeks to form strategic alliances that will allow it to accelerate the development of additional PMAs and provide airlines with an alternativecustomers, as well as add larger commercial airline customers. This strategy also applies to the increased costs and occasional availability and delivery problems many airlines have experienced related to OEM sale source replacement parts. Pursuant to this objective,fuselage structures repair business acquired in October 1997 the Company formed a strategic alliance between its Flight Support Group and Lufthansa. Lufthansa is the world's largest independent provider1998. - Pursue Acquisitions of engineering and maintenance services for aircraft and aircraft engines supporting over 200 airlines, governments andother customers on a worldwide basis. The objective of this Lufthansa strategic alliance is to (i) offer a broadened line of FAA-approved jet engine replacement parts to the entire jet engine maintenance market; (ii) offer airlines and airmotives a more responsive and cost effective alternative to OEMs, and (iii) capitalize on Lufthansa's established industry and customer relationships. 23 PURSUE ACQUISITIONS OF COMPLEMENTARY BUSINESSES.Complementary Businesses. A key element of the Company'sour strategy involves growth through acquisitions of other companies, assets or product lines that complement or expandin both the Company's existing Flight Support Group and Ground Support Group businesses. The Company believes thatIn connection with our acquisitions, will enable itwe seek to capitalize on its fixed costsidentify cost savings and production efficiencies, increase research and development and marketing expenditures and improve customer service. Historically, through application of operationsthis strategy, we have achieved significant growth in revenues and further expand the aerospace productsproduct offerings while improving overall profitability. Our Flight Support Group, in December 1998, acquired Rogers-Dierks, and servicesin July 1998 acquired McClain, both of which it can offerare designers and manufacturers of FAA PMA jet engine replacement parts. In September 1997, we acquired Northwings, an FAA authorized overhaul and repair facility, and, in October 1998, Associated, a Miami, Florida-based aircraft fuselage structure repair and overhaul business, to its worldwide customer base. Accordingly, the Company intends to pursue an aggressive acquisition strategy to gain market share in certain segmentscomplement our Flight Support Group. - Expand Internationally. In fiscal 1998, approximately 23% of our revenues were derived from sales outside of the fragmented aviation serviceUnited States. Our strategy is to increase our international sales, both in the jet engine replacement parts and supply industry. The Company's acquisitionground support equipment businesses, utilizing our relationship with Lufthansa Technik to identify new customers throughout the world. We intend to leverage Lufthansa Technik's established industry presence and participation in alliances, such as the Star Alliance which is currently comprised of Trilectron in September 1996six major airlines, to broaden our international exposure and Northwings in September 1997 exemplify the consolidation opportunities that the Company believes are available. The Company is continually evaluating acquisition opportunities that meet the Company's criteriadevelop relationships which, we believe, will lead to increased sales of a similar customer base, proprietary technologies and the opportunity for consolidation. However, the Company has no current agreements with respect to any acquisition and no assurance can be given that any of the acquisitions currently being considered will be consummated.our products internationally. FLIGHT SUPPORT GROUP The Company'sOur Flight Support Group designs, engineers, manufactures, repairs and/or overhauls jet engine and airframe parts and components such as combustion chambers, gas flow transition ducts and various other engine and airframeair frame parts. The CompanyWe also manufacturesmanufacture specialty aviation and defense components as a subcontractor. The Company servesWe serve a broad spectrum of the aviation industry, including (i) commercial airlines (ii)and air cargo carriers,couriers, (ii) OEMs, (iii) OEMs, (iv) repair and overhaul facilities, and (v)(iv) the U.S. government. JET ENGINE REPLACEMENT PARTS.Jet engine replacement parts can be categorized by their ongoing ability to be repaired and returned to service. The general categories (in all of which we participate) are as follows: (i) rotable; (ii) repairable; and (iii) expendable. A rotable is a part which is removed periodically as dictated by an operator's maintenance procedures or on an as needed basis and is typically repaired or overhauled and re-used an indefinite number of times. An important subset of rotables is "life limited" parts. A life limited rotable has a designated number of allowable flight hours and/or cycles (one take-off and landing generally constitutes one cycle) after which it is rendered unusable. A repairable is similar to a rotable except that it can only be repaired a limited number of times before it must be discarded. An expendable is generally a part which is used and not thereafter repaired for further use. Aircraft spareengine replacement parts conditions are classified within the industry as (i) factory new,factory-new, (ii) new surplus, (iii) overhauled, (iv) serviceable, and (v) as removed. A factory newfactory-new or new surplus part is one that has never been installed or used. Factory newFactory-new parts are purchased from FAA-approved manufacturers (both OEMs and independents such(such as the Company)HEICO or OEMs) or their authorized distributors. New surplus parts are purchased from excess stock of airlines, repair facilities or other redistributors. An overhauled part has been completely repaired and inspected by a licensed repair facility (such as the Company's)ours). An aircraft spare part is classified repairable if it can be repaired by a licensed repair facility under applicable regulations. A part may also be classified serviceablerepairable if it iscan be can be removed by the operator from an aircraft or engine while operating under an approved maintenance program and is airworthy and meets any manufacturer or time and cycle restrictions applicable to the part. A factory new,factory-new, new surplus, overhauled or serviceable part designation indicates that the part can be immediately utilized on an aircraft. A part in "as removed" condition requires inspection 36 38 and possibly functional testing, repair or overhaul by a licensed facility prior to being returned to service in an aircraft. FACTORY-NEW JET ENGINE REPLACEMENT PARTS. The Company'sFactory-New Jet Engine Replacement Parts. Our principal business is the research and development, design, manufacture and sale of FAA-approved jet engine replacement parts that are sold to domestic and foreign commercial air carriers and aircraft repair and overhaul companies. The Company'sOur principal competitor is Pratt & Whitney, a division of UTC.United Technologies Corporation ("UTC"). The Flight Support Group's factory newfactory-new jet engine replacement parts include combustion chambers gas flow transition ducts and various other jet engine replacement parts. A key element of the Company'sour growth strategy is the continued design and development of an increasing number of PMA replacement parts in order to further penetrate itsour existing customer base and obtain new customers. The Company selectsWe select the jet engine replacement parts to design and manufacture through a selection process in which the Company analyzes industry information to determine which jet engine replacement parts are expected to generate the greatest profitability. As part of Lufthansa'sLufthansa Technik's investment in the Flight Support Group, Lufthansa Technik will have the right to select 50% of the engine parts for which the Companywe will seek PMAs, provided that such parts are technologically and economically feasible and substantially comparable with the profitablilityprofitability of the Company'sour other PMAs. 24 PMA parts. The following table sets forth (i) the lines of engines for which the Company provideswe provide jet engine replacement parts and (ii) the approximate number of such engines currently in service as estimated by the Company.us. Although the Company expectswe expect that itsour strategic alliance with Lufthansa Technik will broaden the Company'sour product lines, virtually allmost of the Company'sour current PMA parts are for Pratt & Whitney engines, with a substantial majority for the JT8D. See "Risk Factors--DependenceFactors -- Dependence on JT8D Aircraft Engine Aftermarket." NUMBER IN OEM LINES SERVICE PRINCIPAL ENGINE APPLICATION - ------------------- -------- ---------- ---------------------------------- Pratt & Whitney JT8D 10,300 Boeing 727 and 737 McDonnell Douglas DC-9 and MD-80 JT9D 2,100
NUMBER OEM LINES IN SERVICE PRINCIPAL ENGINE APPLICATION - ---------------------------------- ------ ---------- ---------------------------------- PRATT & WHITNEY JT8D 9,500 Boeing 727 and 737 (100 and 200 series) McDonnell Douglas DC-9 and MD-80 JT9D 2,000 Boeing 747 (100, 200 and 300 series) and 767 (200 series) Airbus A300 and A310 McDonnell Douglas DC-10 PW2000 700 Boeing 757 PW4000 1,800 Boeing 747-400, 767-300 and 777 Airbus A300, A310 and A330 McDonnell Douglas MD-11 CFM INTERNATIONAL (a joint venture CFM56 6,600 Boeing 737 (300, 400, 500, 700, of General Electric and SNECMA) 800 and 900 series) Airbus A320 and A340-200 GENERAL ELECTRIC CF6 4,200 Boeing 747 and 767 Airbus A300 and A310 McDonnell Douglas DC-10 PW2000 700 Boeing 757 PW4000 1,500 Boeing 747, 767 and 777 Airbus A300, A310 and A330 CFM International CFM56 6,500 McDonnell Douglas MD-11 Boeing 737, Airbus A320
Repair and A340 REPAIR AND OVERHAUL SERVICES. The Company providesOverhaul Services. We provide jet engine replacement parts repair and overhaul services for the Pratt & Whitney JT8D, JT3D, JT9D, PW2000 and PW4000, General Electric CF6 and the CFM International CFM56 engines. The Company'sOur repair and overhaul operations require a high level of expertise, advanced technology and sophisticated equipment. The repair and overhaul services offered by the Companyus include the repair, refurbishment and overhaul of numerous accessories and parts mounted on gas turbine engines, aircraft wings and frames or fuselages. Engine accessories include fuel pumps, generators and fuel controls. Parts include pneumatic valves, starters and actuators, turbo compressors and constant speed drives, hydraulic pumps, valves and actuators, electro-mechanical equipment and auxiliary power unit accessories. The Company37 39 We continually evaluatesevaluate new engine lines, models and derivatives to determine whether the potential demand for overhaul services justifies the expenditures required for inventory and modifications to tooling and equipment. The Company believesWe believe that itsour September 1997 acquisition of Northwings and October 1998 acquisition of Associated will provide the Companyus with a well-established platform for additional growth in the repair and overhaul sector of the aviation industry. MANUFACTURE OF SPECIALTY AIRCRAFT/DEFENSE RELATED PARTS. The CompanySubcontracting for OEMs/Manufacture of Specialty Aircraft/Defense Related Parts. We also derivesderive revenue from the sale of specialty components as a subcontractor for OEMs and the U.S. government. GROUND SUPPORT GROUP The CompanyWe currently servesserve the commercial and military GSE markets through itsthe manufacture of electrical ground power units, air start units, and air conditioning and heating units that are sold to both domestic and foreign commercial and military customers. The Company'sOur Ground Support Group also manufactures specialty military electronics such as shipboard power supplies and power converters. Because military and commercial aircraft vary so widely by size and manufacturer, unique equipment is often required for each distinct air frame. Military aircraft frequently require particularly unique equipment arrangements that necessitate custom manufacturing. Examples of the Company'sour GSE products include a sophisticated cooling system for the Air Force's new F-22 fighter aircraft and a combination ground power and air conditioning unit for the F-16 aircraft. MANUFACTURING AND QUALITY CONTROL The Company'sOur manufacturing operations involve a relatively high level of technical expertise and vertical integration, including computer numerical control ("CNC") machining, complex sheet metal 25 fabrication, vacuum heat treating, plasma spraying and laser cutting. The CompanyWe also performsperform all of the design and engineering for itsour products. Specific components of the Company's manufacturing process include: RESEARCH AND DEVELOPMENT. The Company's- Research and Development. Our research and development department uses state-of-the-art equipment such as a scanning electron microscope, CAD/CAM/CAE workstations and finite element analysis and thermal testing software to design and engineer components, as well as to ensure accurate data transfer between the Company'sour new product development and manufacturing departments. The Company'sOur engineers are recruited from OEMs and other aerospace industry participants specialize in a variety of disciplines, including aerodynamics, heat transfer, manufacturing, materials and structures. See "--FAA"-- FAA Approvals and Product Design." MACHINING AND FABRICATION. The Company's- Machining and Fabrication. Our CNC machining capabilities provide cost advantages and dimensional repeatability with a variety of aerospace materials. The Company'sOur lathes are frequently equipped with touch probes to perform critical in-process evaluations and automatically adjust machining parameters. Fabrication capabilities include custom-designed machines used tothat automatically position and spot, fusion and flash weld, combustion chamber liners, mechanical and hydraulic presses, and wire, electronas well as conventional, electrical discharge machining. SPECIAL PROCESSES. The Company believes- Special Processes. We believe that itsour heat treatment, brazing, plasma spraying and other in-house special process capabilities reduce lead times and allow the Companyus to better control the quality of itsour products. For example, the Company'sour robotic systems can apply thermal barrier and wearheat resistant coatings to parts ranging from 0.25"0.25 inches to 60". QUALITY CONTROL. The Company incurs60 inches in dimension. - Quality Control. We incur significant expenses to maintain the most stringent quality control of itsour products and services. In addition to domestic and foreign governmental regulations, OEMs, commercial airlines and other customers require that the Companywe satisfy certain requirements relating to the quality of itsour products and services. The Company performsWe perform testing and certification procedures on all of the products that it designs, engineers, manufactures, repairswe design, engineer, manufacture, repair and overhauls,overhaul, and maintainsmaintain detailed records to ensure traceability of the production of and service on each aircraft component. Management believes that the expenseresources required to institute and maintain the Company'sour quality control procedures represents a barrier to entry byfor competitors. 38 40 FAA APPROVALS AND PRODUCT DESIGN Non-OEM manufacturers of jet engine replacement parts must receive a PMA from the FAA. The PMA process includes the submission of sample parts, drawings and testing data to one of the FAA's Aircraft Certification Offices ("ACOs"), where the submitted materialsdata are analyzed. The Company believesWe believe that an applicant's ability to successfully complete the PMA process is limited by several factors, including (i) the agency's confidence level in the applicant, (ii) the complexity of the part, (iii) the volume of PMAs being filed, and (iv) the resources available to the FAA. The CompanyWe also believesbelieve that companies such as the CompanyHEICO that have demonstrated their manufacturing capabilities and established a track recordrecords with the FAA generally receive a faster turnaround time in the processing of PMA applications. Finally, the Company believeswe believe that the PMA process creates a significant barrier to entry in this market niche as a result ofthrough both its technical demands and its limits on the rate at which competitors can bring products to market. As part of itsour growth strategy, the Company haswe have continued to increase itsour research and development activities. Research and development expenditures increased from approximately $300,000 in fiscal 1991 to $3.1 million in fiscal 1997 and are expected to total over $6approximately $4.4 million in fiscal 1998. Moreover, the Company's newunder our strategic alliance with Lufthansa will provide the Flight Support Group withTechnik, Lufthansa Technik agreed to fund $16 million for research and development projects relating to jet engine replacement parts. The Company believesWe believe that theour Flight Support Group's research and development capabilities are a significant component of itsour historical success and an integral part of itsour growth strategy. The Company benefitsWe benefit from itsour proprietary rights relating to certain designs, engineering, manufacturing processes and repair and overhaul procedures. Customers often rely on the Companyus to 26 provide initial and additional components, as well as to redesign, reengineer,re-engineer, replace or repair and provide overhaul services on such aircraft components at every stage of their useful lives. In addition, for certainsome products, the Company'sour unique manufacturing capabilities are required by the customer's specifications or designs, thereby necessitating reliance on the Companyus for production of such designed products.product. While the Company haswe have developed proprietary techniques, software and manufacturing expertise for the manufacture of jet replacement parts, the Company haswe have no patents for these proprietary techniques and chooseschoose to rely on trade secret protection. The Company believesWe believe that although itsour proprietary techniques, software and manufacturing expertise are subject to misappropriation or obsolescence, development of improved methods and processes and new techniques by the Companyus will continue on an ongoing basis as dictated by the technological needs of the Company'sour business. See "Risk Factors--Technological Developments.Factors -- Possible Inability to Develop and Manufacture New Technologies and Products." SALES, MARKETING AND CUSTOMERS Each of the Company'sour operating divisions and subsidiaries independently conducts sales and marketing efforts directed at their respective customers and industries and, in some cases, collaboratecollaborates with other operating divisions and subsidiaries within its group for cross-marketing efforts. Sales and marketing efforts are conducted primarily by in-house sales personnel and, to a lesser extent, by independent manufacturer's representatives. Generally, the in-house sales personnel receive a base salary plus incentive compensationcommission and manufacturer's representatives receive a commission on sales. The Company believesWe believe that direct relationships are crucial to establishing and maintaining a strong customer base and, accordingly, the Company'sour senior management team isare actively involved in the Company'sour marketing activities, particularly with established customers. The Company isWe are also a member of various trade and business organizations related to the commercial aviation industry. For example, the Company is one of the smallest independent companies inindustry, such as the Aerospace Industries Association ("AIA"), the leading trade association representing the nation's manufacturers of commercial, military and business aircraft, aircraft engines and related components and equipment. Due in large part to itsour established industry presence, the Company believes that it benefits fromwe enjoy strong customer relations, name recognition and repeat business. The Company sells itsWe sell our products to a broad customer base consisting of domestic and foreign commercial and cargo airlines, repair and overhaul facilities, other aftermarket suppliers of aircraft engine and airframe materials, OEMs and military units. No one customer accounted for sales of 10% or more of total consolidated sales from continuing operations during any of the last three fiscal years. However, the Company's net sales to itsour five largest customers accounted for approximately 20%32% of total net sales during the year 39 41 ended October 31, 1996.1998. See "Risk Factors--Customer Concentration."Risks Factors -- Risk of Customer Concentration and Consolidation of Aviation Industry." COMPETITION The aerospace product and service industry is characterized by intense competition and certainsome of our competitors of the Company have substantially greater name recognition, inventories, complementary product and service offerings, financial, marketing and other resources than the Company.us. As a result, such competitors may be able to respond more quickly to customer requirements than the Company.us. Moreover, smaller competitors may be in a position to offer more attractive pricing of engine parts as a result of lower labor costs and other factors. Any expansion of the Company'sour existing products or services could expose the Companyus to new competition. See "Risk Factors--Competition.Factors -- Competition." The Company'sOur jet engine replacement parts business competes primarily with Pratt & Whitney and, to a division of United Technologies Corporation.much lesser extent, General Electric. The competition is principally based on price and service inasmuch as the Company'sour parts are interchangeable with the parts produced by Pratt & Whitney. The Company believesWhitney and General Electric. We believe that it supplieswe supply over 50% of the market for certain JT8D engine parts for which it holdswe hold a PMA from the FAA, with Pratt & Whitney controlling the balance. With respect to other 27 aerospace products and services sold by the Flight Support Group, the Company competeswe compete with both the leading jet engine OEMs and a large number of machining, fabrication and repair companies, some of which have greater financial and other resources than the Company.us. Competition is based mainly on price, product performance, service and technical capability. Competition for the repair and overhaul of jet engine components comes from three primary sources, some with greater financial and other resources than the Company:principal sources: OEMs, major commercial airlines and other independent service companies. CertainSome of these companies have greater financial and other resources than us. Some major commercial airlines own and operate their own service centers. Some major airlines have begun tocenters and sell their repair and overhaul services to other aircraft operators. The repair and overhaul services provided by domestic airlines are primarily for their own components, although these airlines may outsource a limited amount of repair and overhaul services to third parties. Foreign airlines that provide repair and overhaul services typically provide these services for their own components and for third parties. OEMs also maintain service centers that provide repair and overhaul services for the components they manufacture. Other independent service organizations also compete for the repair and overhaul business of other users of aircraft components. The Company believesWe believe that the principal competitive factors in the airmotive market are quality, turnaround time, overall customer service and price. The Company'sOur Ground Support Group competes with several large and small domestic and foreign competitors, some of which have greater financial resources than the Company. The Company believesus. We believe the market for itsour GSE is highly fragmented, with competition based mainly on price, product performance and service. RAW MATERIALS The Company purchasesWe purchase a variety of raw materials, primarily consisting of high temperature alloy sheet metal and castings and forgings, from various vendors. The CompanyWe also purchasespurchase parts, including diesel and gas powered engines, compressors and generators. The materials used by the Company'sour operations are generally available from a number of sources and in sufficient quantities to meet current requirements subject to normal lead times. BACKLOGS Our Flight Support operations had a backlog of unshipped orders as of October 31, 1998 of $28.6 million as compared to $24.0 million as of October 31, 1997. This backlog includes $16.9 million representing forecasted shipments over the next twelve months for some contracts of the Flight Support operations pursuant to which customers provide estimated annual usage. Our Ground Support operations had a backlog of $6.8 million as of October 31, 1998 and $12.5 million as of October 31, 1997. Substantially all of the backlog of orders as of October 31, 1998 are expected to be delivered during fiscal 1999. 40 42 GOVERNMENT REGULATION FAA. The FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States. Its regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to ensure safe operation of the aircraft. Similar rules apply in other countries. All aircraft must be maintained under a continuous condition monitoring program and must periodically undergo thorough inspection and maintenance. The inspection, maintenance and repair procedures for the various types of aircraft and equipment are prescribed by regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians. Certification and conformance is required prior to installation of a part on an aircraft. Aircraft operators must maintain logs concerning the utilization and condition of aircraft engines, life-limited engine parts and airframes. In addition, the FAA requires that various maintenance routines be performed on aircraft engines, certainsome engine parts and airframes at regular intervals based on cycles or flight time. Engine maintenance must also be performed upon the occurrence of certain events, such as foreign object damage in an aircraft engine or the replacement of life-limited engine parts. Such maintenance usually requires that an aircraft engine be taken out of service. TheOur operations of the Company may in the future be subject to new and more stringent regulatory requirements. In that regard, the Companywe closely monitorsmonitor the FAA and industry trade groups in an attempt to understand how possible future regulations might impact the Company.us. See "Risk Factors--Government Regulation.Factors -- Risk of Loss of Governmental Authorizations and Approvals." Because the Company'sour jet engine replacement parts largely consist of older model JT8D aircraft engines and engine parts, we are substantially impacted by the FAA's noise regulations also have a substantial impact upon the Company.regulations. The ability of aircraft operators to utilize such JT8D aircraft engines in domestic flight operations is 28 significantly influenced by regulations promulgated by the FAA governing, among other things, noise emission standards. Pursuant to the Aircraft Noise and Capacity Act, the FAA has required all commercial aircraft operating in the contiguous United States with a maximum weight of more than 75,000 pounds to meet Stage 23 noise restriction levels. The FAA has mandated that all suchlevels by December 31, 1999, unless waived by the FAA. Aircraft which require hush-kits or other modifications to be in compliance with Stage 2 aircraft (such as3 include the non-hush-kitted Boeing 727-200s, Boeing 737-200s and McDonnell Douglas DC-9-30/40/50s) must be phased out of operation in the contiguous United States by December 31, 1999.50s. This ban on operation in the United States of non-hush-kitted Stage 2non-Stage 3 compliant aircraft applies to both domestic and foreign aircraft operators. The European Union has adopted similar restrictions for the operation of Stage 2non-Stage 3 aircraft within member nations of the European Union subject to a variety of exemptions. Various communities surrounding the largerAirports at some European cities also have adopted more stringent local regulations which restrict the operation of hush-kittednon-Stage 3 aircraft at such airports. The European Union is currently considering a proposed regulation which would bar the registration in such jurisdictions.a member state of the European Union after March 31, 1999 and, with some exceptions, the operation in the European Union after April 1, 2002, of any older model JT8D aircraft which has reached Stage 3 compliance through hush-kitting or some other means. See "Risk Factors--DependenceFactors -- Dependence on the JT8D Aircraft Engine Aftermarket." ENVIRONMENTAL. The Company'sENVIRONMENTAL REGULATION Our operations are subject to extensive, and frequently changing, federal, state and local environmental laws and substantial related regulation by government agencies, including the EPA.Environmental Protection Agency (the "EPA"). Among other matters, these regulatory authorities impose requirements that regulate the operation, handling, transportation, and disposal of hazardous materials, the health and safety of workers, and require the Companyus to obtain and maintain licenses and permits in connection with its operationsour operations. This extensive regulatory framework imposes significant compliance burdens and risks on the Company.us. Notwithstanding these burdens, the Company believeswe believe that it iswe are in material compliance with all federal, state, and local environmental laws and regulations governing itsour operations. The principal environmental lawsWe are principally subject to which the Company is subject includerequirements of the Clean Air Act of 1970 (the "CAA"), as amended in 1990; the Clean Water Act of 1977; the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"); the Resource Conservation Recovery Act of 1976 (the "RCRA"); and the Hazardous and Solid Waste Amendments of 1984 ("HSWA").1984. The following is a summary of the material regulations that are applicable to the Company:us. The CAA imposes significant requirements upon owners and operators of facilities that discharge air pollutants into the environment. The CAA mandates that facilities which emit air pollutants comply with 41 43 certain operational criteria and secure appropriate permits. Additionally, authorized states such as Florida may implement various aspects of the CAA and develop their own regulations for air pollution control. The Company'sOur facilities presently hold or have applied for air emission permits and the Company intendswe intend to conduct an air emissions inventory and health and safety audit of itsour facilities and, depending upon the results of such assessments, may find it necessary to secure additional permits and/or to install additional control technology, which could result in the initiation of an enforcement action, the imposition of penalties and the possibility of substantial capital expenditures. CERCLA, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), is designed to respond to the release of hazardous substances. CERCLA's most notable objectives are to provide criteria and funding for the cleanup of sites contaminated by hazardous substances and impose strict liability on parties responsible for such contamination, namely owners and operators of facilities or vessels from which such releases or threatened releases occur, and persons who generated, transported, or arranged for the transportation of hazardous substances to a facility from which such release or threatened release occurs. RCRA and EPA's implementing regulations establish the basic framework for federal regulation of hazardous waste. RCRA governs the generation, transportation, treatment, storage and disposal of hazardous waste through a comprehensive system of hazardous waste management techniques and requirements. RCRA requires facilities such as the Company'sours that treat, store, or dispose of hazardous waste to comply with enumerated operating standards. Many states, including Florida, have created programs similar to RCRA for the purpose of issuing annual operating permits and conducting routine inspections of such facilities to ensure regulatory compliance. The Company believesWe believe that itsour facilities are in material compliance with all currently applicable RCRA and similar state requirements, hold or 29 have applied for all applicable permits required under RCRA, and similar state laws, and are operating in material compliance with the terms of all such permits. In addition, Congress has enacted federal regulations governing the underground storage of petroleum products and hazardous substances. The federal underground storage tank ("UST") regulatory scheme mandates that EPA establish requirements for leak detection, construction standards for new USTs, reporting of releases, corrective actions, on-site practices and record-keeping, closure standards, and financial responsibility. Some states, including Florida, have promulgated their own performance criteria for new USTs, including requirements for spill and overfill protection, UST location, as well as primary and secondary containment. The Company believesWe believe that itsour facilities are in material compliance with the federal and state UST regulatory requirements and performance criteria. OTHER. The Company isOther Regulation. We are also subject to a variety of other regulations including worker-relatedwork-related and community safety laws. The Occupational Safety and Health Act of 1970 ("OSHA") mandates general requirements for safe workplaces for all employees. In particular, OSHA provides special procedures and measures for the handling of certainsome hazardous and toxic substances. In addition, specific safety standards have been promulgated for workplaces engaged in the treatment, disposal or storage of hazardous waste. Requirements under state law, in some circumstances, may mandate additional measures for facilities handling materials specified as extremely dangerous. Although the Company believesWe believe that itsour operations are in material compliance with OSHA's health and safety requirements, the Company anticipates upgrading its facilities at a cost that may exceed $100,000.requirements. 42 44 PROPERTIES The Company ownsWe own or leaseslease the following facilities:
SQUARE OWNED/LEASE LOCATION DESCRIPTION FOOTAGE EXPIRATION - -------------------- ----------------------------------------------- --------- ---------------------------------------------- --------------------------- ------- -------------- Hollywood, Florida Flight Support Group design and140,000 Owned manufacturing 140,000 owned facility and corporate headquarters Palmetto, Florida Ground Support Group design and 35,000 July 1998(1)113,000 Owned manufacturing facility and office Atlanta, Georgia Flight Support Group 38,400(1) Owned engineering and manufacturing facility Miami, Florida Overhaul and repair facility 18,000 month-to-month(2)56,000 Owned facility(2) Miami, Florida ExecutiveOverhaul and repair 9,000 May 1999 facility(3) Miami, Florida Overhaul and repair 18,000 Month-to-month facility(3) Miami, Florida Administrative offices 2,300 December 19981999 Anacortes, Washington Flight support 9,000 June 2003 manufacturing facility
- ------------------------------- (1) The Company has acquired 18.5 acresAfter completion of landcurrent expansion expected by May 1999. (2) We have purchased this facility to replace our existing repair and overhaul facilities in Palmetto,Miami, Florida, on which it plans to develop a new 75,000 square foot Ground Support Group manufacturing facility and office. The Company expects to commence construction in first quarter of fiscal 1998 and complete the facility by July 1998. (2) The Company is currentlyare in the process of negotiating a lease or purchase agreement for a new overhaulrenovations. Occupancy is expected by May 1999. (3) We expect to move out of this facility in May 1999 and repair facility. The Company's current monthly rental expense is approximately $29,000.into the facility referenced in footnote(2) above. For additional information with respect to the Company'sour leases, see Note 65 of Notes to the Company's Auditedour Consolidated Financial Statements. Including the presently planned additionalWe believe that our current capacity, coupled with our plans for facilities described above, the Company believes that it has adequate capacityexpansion, is sufficient to handle itsour anticipated needs for the foreseeable future. INSURANCE The Company isWe are a named insured under policies which include the following coverage: (i) productsproduct liability, including grounding, up to $200$350 million (combined single limit and in the annual aggregate bodily injury and property damage)aggregate); (ii) blanket real and personal property, inventory and business interruptionincome at our facilities with blanket coverage up to approximately $70$134 million; (iii) general liability coverage up to $2 million ($1,000,0001 million limit for each claim); (iv) employment practicesemployee benefit liability up to $1 million for each claim and in the aggregate; (v) international liability and automobile liability of up to $1 million and employer's liability up to $500,000;million; (vi) umbrella liability coverage up to $20 million for each occurrence and in the aggregate; and (vii) various other activities or items subject to certain limits and deductibles. The Company believesWe believe that these coverages are adequate to insure against the various liability risks of itsour business. See "Risk Factors--Product Liability;Factors -- Product Liability and Claims Exposure." 30 EMPLOYEES As of OctoberDecember 31, 1997, the Company1998, we, and itsour subsidiaries, had approximately 480660 full-time employees, of which approximately 330496 were in the Flight Support Group, 140154 were in the Ground Support Group, and approximately 10 were in corporate. None of the Company'sour employees areis represented by a union. The Company believesWe believe that it has excellentour employee relations with its employees.are good. 43 45 LEGAL PROCEEDINGS In November 1989, United Technologies Corporation ("UTC") filed a suit against two of the Company's subsidiaries in its Flight Support Group was named a defendant in the United States District Court for the Southern District of Florida. Thea complaint as amended in fiscal 1995, allegedfiled by UTC alleging infringement of a patent, misappropriation of trade secrets and unfair competition relating to certainsome jet engine parts and coatings sold by a subsidiary in the Flight Support Group in competition with Pratt & Whitney, a division of UTC. UTC, and sought approximately $10 million in damages for the patent infringement andof approximately $30 millionmillion. A summary judgment motion filed on our behalf was granted, and all allegations against us were dismissed. UTC may challenge these rulings in damages for the misappropriation of trade secrets and the unfair competition claims. The aggregate damages referred to in the preceding sentence do not exceed approximately $30 million because a portion of the misappropriation and unfair competition damages duplicate the $10 million patent infringement damages. The complaint 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. In August 1997, a Motion for Summary Judgmentfurther court proceedings. A counter-claim 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. The ruling left pending UTC's claim alleging infringement of a patent that expired in 1992 and the Company's counterclaims against UTC alleging, among other things, malicious prosecution, trade disparagement, tortious interference, unfair competition and antitrust violations. In September 1997, UTC served its Motion for Reconsideration of the Court's Motion for Summary Judgment, whichus is currently pending, and accordingly, the Company filed its response opposing such motion. Based on currently known facts, the Company's legal counsel has advised that it believes that the Company should be able to successfully defend the patent infringement claims alleged in UTC's complaint. With respect to the misappropriation and unfair competition claims, legal counsel to the Company has advised that it believes the likelihood of success of UTC's Motion for Reconsideration is remote. Further, the Company intends to vigorously pursue its counterclaims against UTC.still pending. The ultimate outcome of this litigation is not certain at this time and no provision for litigation costs and/or gain or loss, if any, has been made in the consolidated financial statements included elsewhere in this Prospectus. Although the Companystatements. The legal costs, management efforts and its legal counsel believeother resources that the Company willhave been and continue to be successful in the above matters, thereincurred by us are substantial. There can be no certaintyassurance that the UTC litigationlawsuit will not have a material adverse effect on our business, results of operations and financial condition. In May 1998, we were served with a lawsuit by Travelers Casualty & Surety Co., f/k/a The Aetna 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 us in the Company. See "Risk Factors--Litigation." The Company is from time to time involved in other routineaforementioned litigation related to its business, none of which is expected towith UTC. In addition, Travelers seeks a declaratory judgment that we did not and do not have insurance coverage under certain insurance policies with Travelers and, accordingly, that Travelers did not have and does not have a materialduty to defend or indemnify us under such policies. Also named as defendants in Travelers' lawsuit are UTC and one of the law firms representing us in the UTC litigation. We intend to vigorously defend Travelers' claim and believe that we have 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. 31our consolidated financial statements. See "Risk Factors -- Litigation." 44 46 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The Company's executive officers and directors are as follows:
DIRECTOR NAME AGE POSITION DIRECTORPOSITION(S) SINCE - --------------------------- ----- ----------------------------------------------------- -------------------- --- ----------- -------- Laurans A. Mendelson ...... 5960 Chairman of the Board, President and Chief 1989 Executive Officer Thomas S. Irwin ......... 5152 Executive Vice President and Chief Financial Officer Eric A. Mendelson ......... 3233 Vice President and Director, of the Company; 1992 President of the Company's Flight Support GroupHEICO 1992 Aerospace Holdings Corp. Victor H. Mendelson ...... 2931 Vice President, General Counsel and Director, of the 1996 Company; President of the Company's Ground Support GroupHEICO Aviation Products Corp. James L. Reum ............ 6667 Executive Vice President and Chief Operating Officer of the Company's Flight Support GroupHEICO Aerospace Holdings Corp. Jacob T. Carwile ......... 7576 Director 1975 Samuel L. Higginbottom . 7677 Director 1989 Paul F. Manieri ......... 8081 Director 1985 Albert Morrison, Jr. ...... 6062 Director 1989 Dr. Alan Schriesheim ...... 6768 Director 1984 Guy C. Shafer ............ 7880 Director 1989
MR. LAURANSLaurans A. MENDELSONMendelson has served as Chairman of the Board of the Company since December 1990 and as Co-Chairman of the Board of the Company from January 1990 until December 1990. Mr. Mendelson has also served as Chief Executive Officer of the Company since February 1990, President of the Company since September 1991 and served as President of MediTek Health Corporation from May 1994 until its sale in July 1996. Mr. Mendelson has served as Chairman of the Board of U.S. Diagnostic Inc. since February 1997. Mr. Mendelson also serves on the Board of Governors of the Aerospace Industries Association ("AIA"). Mr. MendelsonHe has been Chairman of the Board of Ambassador Square, Inc. (a Miami, Florida real estate development and management company) since 1980 and President of that company since 1988. He has been Chairman of Columbia Ventures, Inc. (a private investment company) since 1985 and President of that company since 1988. In 1997, Mr. Mendelson served on the board of governors of the AIA. Mr. Mendelson is a Certified Public Accountant. Mr. Mendelson is also a trusteemember of the Board of Trustees of Columbia University New York, New York a trusteeand the Board of Trustees of Mount Sinai Medical Center in Miami Beach, Florida and Chairman of the Hollywood Economic Growth Corporation, Hollywood, Florida. Mr. Mendelson holds an AB degree from Columbia College of Columbia University and an MBA degree from the Columbia University Graduate School of Business. MR. THOMASThomas S. IRWINIrwin has served as Executive Vice President and Chief Financial Officer of the Company since September 1991 and served as Senior Vice President of the Company from 1986 to 1991 and Vice President and Treasurer from 1982 to 1986. Mr. Irwin is a Certified Public Accountant. Mr. Irwin holds a BBA degree from Wake Forest University. MR. ERICEric A. MENDELSONMendelson has served as a Vice President of the Company since March 1992, and has been President of HEICO Aerospace Holdings Corp. ("HEICO Aerospace"), a subsidiary of HEICO, since its formation in 1997 and President of the Flight Support GroupHEICO Aerospace Corporation since April 1993. He also served as President of HEICO's Jet Avion Corporation, a wholly owned subsidiary of HEICO Aerospace, from 1993 to 1996 and served as Jet Avion's Executive Vice President and Chief Operating Officer from 1991 to 1993. From 1990 to 1991, Mr. Mendelson served aswas Director of Planning and Operations of the Company and Executive Vice President of the Flight Support Group from 1990 to March 1992.Company. Mr. Mendelson holds anis a co-founder, and, since 1987, has been Managing Director of Mendelson International Corporation ("MIC"), a private investment company which is a shareholder of HEICO. He received his AB degree from Columbia College of Columbia University and anhis MBA degree from the Columbia University Graduate School of Business. Mr. Mendelson served on the Product Certification and Parts Manufacturing Working Groups of the Aviation Rulemaking Advisory Committee of the FAA and the Civil Aviation Council of the AIA. Eric Mendelson is the son of Laurans Mendelson and the brother of Victor Mendelson. MR. VICTORVictor H. MENDELSONMendelson has served as Vice President of the Ground Support GroupCompany since 1996, as President of HEICO Aviation Products Corp. since September 1996 and as General Counsel of the Company since 1993. Mr. MendelsonHe served as Executive Vice President of MediTek Health Corporation beginning infrom 1994 and its Chief Operating Officer from 1995 32 until its sale in July 1996. Mr. Mendelson served asHe was the Company's Associate General Counsel from 1992 until 1993. From 1990 until 1992, he servedworked on a consulting basis with the Company developing and analyzing various strategic opportunities. Mr. Mendelson is a memberco-founder, and, since 1987, 45 47 has been President, of the American Bar Association and The Florida Bar.Mendelson International Corporation (a private investment company which is a shareholder of HEICO). Mr. Mendelson is a trustee of St. Thomas University, Miami, FL. Mr. Mendelson holds anreceived his AB degree from Columbia College of Columbia University and ahis JD from theThe University of Miami School of Law. Mr. MendelsonHe is a memberTrustee of the Legal and Legislative Committee of the AIA.St. Thomas University, Miami, Florida. Victor Mendelson is the son of Laurans Mendelson and the brother of Eric Mendelson. MR. JAMESJames L. REUM,Reum has served as Executive Vice President of HEICO Aerospace since April 1993 and Chief Operating Officer of the Company's Flight Support GroupHEICO Aerospace since May 1995, has held various executive positions in the Company1995. He also served as President of LPI Industries Corporation from 1991 to 1998 and President of Jet Avion Corporation since March 1996. From January 1990.1990 to August 1991, he served as Director of Research and Development for Jet Avion Corporation. From 1986 to 1989, Mr. Reum was self-employed as a management and engineering consultant to companies primarily within the aerospace industry. From 1957 to 1986, he was employed in various management positions with Chromalloy Gas Turbine Corp., Cooper Airmotive (later named Aviall, Inc.), United Airlines, Inc. and General Electric Company. Mr. Reum is a member of the Product Certification and Parts Manufacturing Working Groups of the Aviation Rulemaking Advisory Committee of the FAA and the Civil Aviation Counsel of the AIA. MR. JACOBJacob T. CARWILECarwile retired as a Lt. Col. from the United States Air Force ("USAF"), and presently serves as an aerospace consultant. During Mr. Carwile's USAF career, Mr. Carwile served as a command pilot and procurement officer, working extensively in the development, testing, and production of many aircraft, helicopters, and engines. Mr. Carwile also served in special management positions with numerous overhaul and modification facilities in the United States and Spain. From 1972 to 1987 Mr. Carwile served as president of Decar Associates, which provided aviation material to the U.S. government and the aerospace industry. MR. SAMUELSamuel L. HIGGINBOTTOMHigginbottom is a retired executive officer of Rolls Royce, Inc. (an aircraft engine manufacturer), where he served as Chairman, President and Chief Executive Officer from 1974 to 1986. He was the Chairman of the Columbia University Board of Trustees from 1982 until September 1989. Mr. HigginbottomHe was President, Chief Operating Officer and a director of Eastern Airlines, Inc., from 1970 to 1973 and served in various other executive capacities with that company from 1964 to 1969. Mr. Higginbottom iswas a director of British Aerospace Holdings, Inc., an aircraft manufacturer, from 1986 to 1999 and was a director of AmeriFirst Bank from 1986 to 1991. He is also Vice Chairman of St. Thomas University, Miami, Florida. MR. PAULPaul F. MANIERIManieri is a management consultant and retired executive of IBM Corporation, for which he served in various positions for 44 years, including Director of Manufacturing and Engineering for IBM World Trade Corporation and Director of Personnel and Director of Communications for IBM Corporation. MR. ALBERT MORRISON, JR.Albert Morrison, Jr. has served as President of Morrison, Brown, Argiz & Company, a certified public accounting firm located in Miami, Florida, since 1971. Mr. MorrisonHe has served as the Vice Chairman of the Dade County Industrial Development Authority since 1983. Mr. Morrison is the Treasurer of the Florida International University Board of Trustees and has served as a Trustee since 1980. Mr. Morrison also served as a director of Logic Devices, Inc., a computer electronics company and Walnut Financial Services, Inc., a financial services company. DR. ALAN SCHRIESHEIMDr. Alan Schriesheim is retired from the Argonne National Laboratory, where he served as Director from 1984 to 1996. From 1983 to 1984, he served as Senior Deputy Director and Chief Operating Officer of Argonne. From 1956 to 1983, Dr. Schriesheim served in a number of capacities with Exxon Corporation in research and administration, including positions as General Manager of the Engineering Technology Department for Exxon Research and Engineering Co. and Director of Exxon's Corporate Research Laboratories. Dr. Schriesheim is also a director of Rohm and Haas Company, a chemical company, and a member of the Board of the Children's Memorial Hospital of Chicago, Illinois. MR. GUYGuy C. SHAFERShafer is retired from Coltec Industries, Inc., formerly Colt Industries, Inc., (a manufacturer of aviation and automotive equipment), where he served as Advisor to the Chief Executive Officer from 1987 to 1988, Executive Vice President from 1985 to 1986 and Group Vice President from 1969 to 1985. Mr. Shafer has been in the aviation and automotive manufacturing industry since 1946. 3346 48 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certainsome information regarding the beneficial ownership of the Common Stock and Class A Common Stock as of JulyDecember 31, 19971998 by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding Common Stock or Class A Common Stock, (ii) the Chief Executive Officer and the other four most highly compensated executive officers, (iii) the Selling Shareholder, (iv) each of the directors of the Company, and (iv)(v) all directors and executive officers of the Company as a group. Except as set forth below, the shareholders named below have sole voting and investment power with respect to all shares of Common Stock shown as being beneficially owned by them.
SHARES BENEFICIALLY OWNED(2) -------------------------------------------------------------------------- CLASS A COMMON STOCK COMMON STOCK ------------------- ------------------- NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT - -------------------------------------------------------------- --------------------NUMBER PERCENT --------------------------------------- --------- ------- --------- ------- Mendelson Reporting Group(3) ................................. 1,339,160 21.67%(4)........................ 2,109,212 21.83% 1,141,233 23.78% HEICO Savings and Investment Plan(4) ........................ 878,047 16.40Plan(5)................... 1,315,934 15.69 659,614 15.95 Dr. Herbert A. Wertheim(5) ................................. 757,451 14.15Wertheim(6)............................. 1,136,176 13.54 568,088 13.73 Dimensional Fund Advisors, Inc.(6) ........................... 383,775 7.17(7)..................... 503,577 6.00 251,789 6.09 Rene Plessner Reporting Group(7) ........................... 279,979 5.23Group(8)....................... 448,067 5.34 224,034 5.42 Jacob T. Carwile(8) .......................................... 89,875 1.65Carwile(9).................................... 135,013 1.59 67,782 1.61 Samuel L. Higginbottom .................................... 2,366Higginbottom................................. 3,749 * 2,149 * Paul F. Manieri(9) .......................................... 90,203 1.66Manieri(10).................................... 85,505 1.01 67,753 1.61 Eric A. Mendelson(10) ....................................... 265,010 4.81Mendelson(11)(4)............................... 427,223 4.94 209,210 4.91 Laurans A. Mendelson(11) .................................... 1,009,874 17.22Mendelson(12)(4)............................ 1,574,501 17.20 873,579 19.23 Victor H. Mendelson(12) .................................... 261,996 4.75Mendelson(13)(4)............................. 422,052 4.88 206,724 4.85 Albert Morrison, Jr.(13) .................................... 11,249(14)............................... 17,073 * 8,811 * Dr. Alan Schriesheim(14) .................................... 81,966 1.51Schriesheim(15)............................... 122,994 1.45 61,772 1.47 Guy C. Shafer ................................................ 7,517Shafer.......................................... 11,475 * 6,012 * Thomas S. Irwin(15) ....................................... 216,046 3.94Irwin(16).................................... 320,705 3.75 160,353 3.80 James L. Reum(16) .......................................... 74,274 1.37Reum(17)...................................... 113,385 1.33 56,694 1.35 All directors and officers as a group (11 persons)(17) ...... 1,911,728(16) 28.90(18)(4)...................................... 2,919,111 28.53 1,572,559 30.74 All directors, officers, the HEICO Savings and Investment Plan and the Mendelson Reporting Group as a group(18) ......... 2,789,775 42.18group(4)........................................... 4,235,045 41.39 2,232,173 43.64
- ------------------------------- * Represents ownership of less than 1%. (1) Unless otherwise indicated, the address of each Beneficial Ownerbeneficial owner identified is c/o HEICO Corporation, 3000 Taft Street, Hollywood, Florida 33021. Except as otherwise indicated, such Beneficial Ownersbeneficial owners have sole voting and investment power with respect to all shares of Common Stock and Class A Common Stock owned by them, except to the extent such power may be shared with a spouse. (2) The number of shares of Common Stock and Class A Common Stock deemed outstanding prior to this offering includes (i) 5,353,9328,389,556 shares of Common Stock outstanding as of JulyDecember 31, 19971998, (ii) 4,136,106 shares of Class A Common Stock outstanding as of December 31, 1998, and (ii)(iii) shares issued pursuant to options held by the respective person or group which may be exercised within 60 days after JulyDecember 31, 19971998 ("Presently Exercisable Stock Options"presently exercisable stock options") as set forth below. Pursuant to the rules of the Securities and Exchange Commission, presently exercisable stock options are deemed to be outstanding and to be beneficially owned by the person or group for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group. (3) The Mendelson Reporting Group consists of Laurans A. Mendelson; Eric A. Mendelson; Victor H. Mendelson; Mendelson International Corporation ("MIC"),MIC, a corporation whose stock is owned solely by Eric and Victor Mendelson and whose Chairman of the Board is Laurans A. Mendelson; LAM Limited Partners, a partnership whose sole general partner is a corporation controlled by Arlene Mendelson, the wife of Laurans A. Mendelson; LAM Alpha Partnership, a partnership whose sole general partner is a corporation controlled by Laurans A. Mendelson; and the Victor H. Mendelson Revocable Investment Trust, whose Grantor, Trusteegrantor, trustee and sole presently vested beneficiary is Victor H. Mendelson. Includes 826,4581,274,568 shares of Common Stock and 662,285 shares of Class A Common Stock covered by currently exercisable stock options. Also includes 56,815 shares of Common Stock and 90,384 shares of Class A Common Stock held of record by employees and former shareholders of the Company's Northwings Accessories Corp. subsidiary but subject to a voting proxy held by Laurans A. 47 49 Mendelson. See Notes (10)(4), (11) and (12) below. The address of the Mendelson Reporting Group is 825 Brickell Bay Drive, 16th Floor, Miami, Florida 33131. (4) The Mendelson Reporting Group, or entities controlled by it, is offering 300,000 shares of Class A Common Stock in the offering. Assuming no exercise of the Underwriters' over-allotment option, the sale by the Mendelson Reporting Group, of the 300,000 shares of Class A Common Stock in the offering will result in the following after the offering: (i) the Mendelson Reporting Group beneficially owning 841,233 shares of Class A Common Stock (10% of the Class A Common Stock); (ii) all directors and officers as a group beneficially owning 1,272,559 shares of Class A Common Stock (14% of the Class A Common Stock); and (iii) all directors, officers, the HEICO Savings and Investment Plan and the Mendelson Reporting Group as a group beneficially owning 1,932,173 shares of Class A Common Stock (22% of the Class A Common Stock). The Mendelson Reporting Group, or entities controlled by them, also may sell up to 300,000 shares of Class A Common Stock if the Underwriters' over-allotment option is exercised. Full exercise of the option will result in the following after the offering: (i) the Mendelson Reporting Group beneficially owning 541,233 shares of Class A Common Stock (6% of the Class A Common Stock); (ii) all directors and officers as a group beneficially owning 972,559 shares of Class A Common Stock (11% of the Class A Common Stock); and (iii) all directors, officers, the HEICO Savings and Investment Plan and the Mendelson Reporting Group as a group beneficially owning 1,632,173 shares of Class A Common Stock (18% of the Class A Common Stock). (5) Reflects 288,872517,564 shares of Common Stock and 260,429 shares of Class A Common Stock allocated to participant'sparticipants' individual accounts and 589,175798,370 unallocated shares of Common Stock and 399,185 unallocated shares of Class A Common Stock as of June 30, 1997.December 31, 1998. Under the terms of the Plan, all shares allocated to the accounts of participating employees will be voted or not as directed by written instructions from the participating employees, and allocated shares for which no instructions are received and all unallocated shares will be voted in the same proportion as the shares for which instructions are received. The address of HEICO Savings and Investment Plan is c/o NationsBankReliance Trust P. O. Box 1469, Tampa, Florida 33601. (5)Company, 3384 Peachtree Road NE, Suite 900, Atlanta, Georgia 30326. (6) The address of Dr. Wertheim is 191 Leucadendra Drive, Coral Gables, Florida 33156. 34 (6) Reflects 383,775 shares of HEICO Common Stock as of December 31, 1996, based(7) Based on information in a Schedule 13G datedfiled on February 7, 1997,10, 1998, all of which shares are held in portfolios of advisory clients of Dimensional, DFA Investment Dimensions Group Inc., or DFA Investment Trust Company, registered open-end investment companies. The address of Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, Suite 650, Santa Monica, California 90401. (7)(8) Based on information in a Schedule 13D dated January 10,9, 1997 filed by Mr. Plessner individually and as sole Trustee for the Rene Plessner Associates, Inc. Profit Sharing Plan. Reflects 168,088279,979 shares of Common Stock and 139,990 shares of Class A Common Stock held by Mr. Plessner and 111,891168,088 shares of Common Stock and 84,044 shares of Class A Common Stock held by the Rene Plessner Associates, Inc. Profit Sharing Plan, an employee profit sharing plan of Rene Plessner Associates, Inc., an executive search company. The address of Rene Plessner Reporting Group is 375 Park Avenue, New York, New York 10152. (8) Reflects 82,358 shares subject to presently exercisable stock options.NY 10052. (9) Reflects 82,358123,538 shares of Common Stock and 61,770 shares of Class A Common Stock subject to presently exercisable stock options. (10) Reflects 98,86073,538 shares of Common Stock and 61,770 shares of Class A Common Stock subject to presently exercisable stock options. (11) Reflects 157,282 shares of Common Stock and 74,140 shares of Class A Common Stock held by MIC, 158,194254,918 shares of Common Stock and 127,459 shares of Class A Common Stock covered by currently exercisable stock options and 7,02813,181 shares of Common Stock and 6,591 shares of Class A Common Stock held by the HEICO Savings and Investment Plan and allocated to Eric A. Mendelson's account.account and 250 shares of Common Stock and 225 shares of Class A Common Stock owned by Eric Mendelson's children. See Note (2)(3) above. (11)(12) Laurans A. Mendelson disclaims beneficial ownership with respect to 98,860157,282 shares of Common Stock and 74,140 shares of Class A Common Stock, respectively, of these shares, which are held in the name of MIC, 12,50016,050 shares of Common Stock and 8,875 shares of Class A Common Stock which were donated to Laurans A. and Arlene H. Mendelson Charitable Foundation, Inc., of which 48 50 Mr. Mendelson is president. The remaining 898,514president, and 56,815 shares areof Common Stock and 90,384 shares of Class A Common Stock held of record by employees and former shareholders of the Company's Northwings subsidiary but subject to a voting proxy held by Mr. Mendelson. Includes 560,419 shares of Common Stock and 283,211 shares of Class A Common Stock held solely by Mr. Mendelson, LAM Alpha Limited Partnership or LAM Limited PartnersPartners. Also includes 765,105 shares of Common Stock and include 510,069407,554 shares of Class A Common Stock covered by currently exercisable stock options and 10,86418,830 shares of Common Stock and 9,415 shares of Class A Common Stock held by the HEICO Savings and Investment Plan and allocated to Mr. Mendelson's account. See Notes (3), (9)(11) and (11)(13). (12)(13) Reflects 98,860157,282 shares of Common Stock and 74,140 shares of Class A Common Stock held by MIC, 158,195254,545 shares of Common Stock and 127,272 shares of Class A Common Stock covered by currently exercisable stock options, of which 104,322156,485 shares of Common Stock and 78,243 shares of Class A Common Stock are held by the Victor H. Mendelson Revocable Investment Trust, and 4,6119,530 shares of Common Stock and 4,765 shares of Class A Common Stock held by the HEICO Savings and Investment Plan and allocated to Victor H. Mendelson's account.account and 200 shares of Class A Common Stock owned by Victor Mendelson's children. See Note (2)(3) above. (13)(14) Albert Morrison Jr.'s voting and dispositive power with respect to 10,32115,481 and 7,740 shares of Common Stock and Class A Common Stock, respectively, of these shares is held indirectly through Sheridan Ventures, Inc., a corporation of which Mr. Morrison is the President, but not a shareholder. (14)(15) Reflects 74,121111,182 shares of Common Stock and 55,592 shares of Class A Common Stock subject to presently exercisable stock options. (15)(16) Reflects 133,280154,309 shares of Common Stock and 84,516 shares of Class A Common Stock covered by currently exercisable stock options and 15,77926,491 shares of Common Stock and 13,245 shares of Class A Common Stock held by the HEICO Savings and Investment Plan and allocated to Thomas S. Irwin's account. (16)(17) Reflects 62,149106,577 shares of Common Stock and 53,290 shares of Class A Common Stock covered by currently exercisable stock options, 3,293and 6,808 shares held for the benefit of Mr. Reum by a non-qualified deferred compensation plan offered by the Company to selected executive officersCommon Stock and 3,0073,404 shares of Class A Common Stock held by the HEICO Savings and Investment Plan and allocated to James L. Reum's account. (17)(18) Reflects 1,260,7241,843,712 shares of Common Stock and 979,223 shares of Class A Common Stock covered by currently exercisable stock options. The total for all directors and officers as a group (11 persons) also includes 41,28974,840 shares of Common Stock and 37,420 shares of Class A Common Stock held by the HEICO Savings and Investment Plan and allocated to accounts of officers pursuant to the Plan. See Note (3) above. (18) Reflects all shares and options held by all directors and officers (11 persons), the HEICO Savings and Investment Plan and all members of the Mendelson Reporting Group. 3549 DESCRIPTION OF NOTES The Notes will be issued under an indenture (the "Indenture") between the Company and , as trustee (the "Trustee"), the form of which has been filed as an exhibit to the Registration Statement. The following are summaries of certain terms applicable to the Notes and do not purport to be complete. The summaries are subject to, and qualified in their entirety by reference to, the provisions of the Indenture, including the definitions therein of certain terms. Whenever reference is made to defined terms of the Indenture, such defined terms are incorporated herein by reference. GENERAL The Notes will be unsecured general obligations of the Company, subordinate in right of payment to certain other obligations of the Company as described under "-Subordination," and convertible into Common Stock as described under "--Conversion of the Notes." The Notes will be limited to $75.0 million aggregate principal amount ($86.25 million if the Underwriters' over-allotment option is exercised in full) and will mature on , 2004 (the "Maturity Date"). The Notes will bear interest at the rate per annum shown on the cover page hereof from the date of original issue or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, and accrued but unpaid interest will be payable semi-annually in arrears on and of each year, commencing , 1998 (each, an "Interest Payment Date"), or, if any such day is not a business day, on the next succeeding business day. Interest will be paid to Noteholders of record ("Holders") at the close of business on and , respectively, immediately preceding the relevant Interest Payment Date (each, a "Regular Record Date"). Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal and premium, if any, and interest will be payable, and the Notes may be presented for conversion, registration of transfer and exchange, at the office or agency of the Company maintained for those purposes in New York, New York (which will be a corporate trust office designated by the Trustee), except that, at the option of the Company, payment of interest may be made by check mailed to the address of the Holder entitled thereto as it appears on the Register for the Notes (the "Note Register") on the related record date. The Notes will be issued in fully registered form, without coupons, in denominations of $1,000 and any integral multiple thereof. No service charge will be made for any transfer or exchange of Notes, but, subject to certain exceptions set forth in the Indenture, the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Indenture does not contain any restrictions on the payment of dividends or on the repurchase of securities by the Company or any financial covenants, nor does the Indenture require the Company to maintain any sinking fund or other reserve for the payment of the Notes. CONVERSION OF THE NOTES The Notes are convertible at any time prior to the Maturity Date (subject to earlier redemption or repurchase, as described below) into shares of Common Stock at the Conversion Price (as defined above), subject to adjustment under certain circumstances as described below. The right to convert Notes called for redemption will terminate at the close of business on the first business day prior to the date fixed for redemption, unless the Company shall default on payment of the redemption price. The Conversion Price is subject to adjustment as set forth in the Indenture upon the occurrence of certain events, including: (i) the issuance of Common Stock as a dividend or other distribution on any class of capital stock of the Company; (ii) a subdivision or combination of outstanding shares of Common Stock; (iii) the issuance or distribution of capital stock of the Company or the issuance or distribution of options, rights, warrants or convertible or exchangeable securities entitling the holder 36 thereof to subscribe for, purchase, convert into or exchange for capital stock of the Company at less than the current market price of such capital stock on the date of issuance or distribution, but in each case only if such issuance or distribution is made generally to holders of Common Stock or of a class or series of outstanding capital stock convertible into or exchangeable or exercisable for Common Stock (provided that the issuance of capital stock upon the exercise of such options, rights, or warrants or the conversion or exchange of convertible or exchangeable securities will not cause an adjustment in the Conversion Price if no such adjustment would have been required at the time such options, rights or warrants or convertible or exchangeable securities were issued); (iv) the dividend or other distribution to holders of Common Stock, or of a class or series of capital stock convertible into or exchangeable or exercisable for Common Stock, generally of evidences of indebtedness of the Company or assets (including securities, but excluding issuances, dividends and distributions referred to above, dividends and distributions in connection with the liquidation, dissolution or winding up of the Company and distributions of cash referred to below); and (v) distributions of cash (other than in connection with the liquidation or dissolution of the Company) to holders of Common Stock, or of a class or series of capital stock convertible into or exchangeable or exercisable for Common Stock, generally to the extent the amount of such cash, combined with all such cash distributions made within the preceding 12 months with respect to which no adjustment has been made exceeds 10% of the Company's market capitalization (being the product of the current market price of the Common Stock multiplied by the number of shares of Common Stock then outstanding) on the record date for such distribution. Notwithstanding the foregoing, (a) if the options, rights or warrants or convertible or exchangeable securities described in clause (iii) of the preceding paragraph are exercisable only upon the occurrence of certain triggering events, then the Conversion Price will not be adjusted until such triggering events occur and (b) if such options, rights or warrants or convertible or exchangeable securities expire unexercised, the Conversion Price will be readjusted to take into account only the actual number of such options, rights or warrants or convertible or exchangeable securities which were exercised. In addition, the provisions of the preceding paragraph will not apply to the issuance of Common Stock or the issuance or exercise of options to purchase Common Stock under any stock-based employee compensation plan now existing or hereafter adopted. No adjustment will be made to the Conversion Price until cumulative adjustments to the Conversion Price amount to at least 1% of the Conversion Price, as last adjusted. Except as stated above, the Conversion Price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing, or the payment of dividends on the Common Stock. The Company from time to time may reduce the Conversion Price if the Board of Directors of the Company has made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. In the event of (i) any reclassification or change of the Common Stock or (ii) a consolidation, merger or combination to which the Company is a party or a sale or conveyance to another entity of the property and assets of the Company as an entirety or substantially as an entirety, in each case as a result of which holders of Common Stock will be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, each Holder will have the right thereafter to convert such Holder's Notes into the kind and amount of shares of stock, other securities or other property or assets which the Holder would have owned or have been entitled to receive immediately upon such consolidation, merger, combination, sale or conveyance had such Note been converted into Common Stock immediately prior to the effective date of such reclassification, change, consolidation, merger, combination, sale or conveyance. Certain of the foregoing events may also constitute or result in a Change of Control requiring the Company to offer to repurchase the Notes. See "--Repurchase at the Option of Holders Upon Change of Control." In the event of a taxable distribution to holders of Common Stock or in certain other circumstances requiring Conversion Price adjustments, a Holder of Notes may, in certain circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Stock. See "Certain Federal Income Tax Considerations--Constructive Distributions." 37 Fractional shares of Common Stock will not be issued upon conversion. A person otherwise entitled to a fractional share of Common Stock upon conversion will receive cash equal to the equivalent fraction of the current market price of a share of Common Stock on the business day prior to conversion. Except as provided below, a Holder who surrenders a Note (or portion thereof) between the close of business on a Regular Record Date and the next Interest Payment Date will receive interest on such Interest Payment Date with respect to the Note (or portion thereof) so converted through such Interest Payment Date. If, however, such Regular Record Date is on or after , 2000, any Note surrendered for conversion between the Regular Record Date and the related Interest Payment Date must be accompanied by a payment equal to the interest on such Note (or portion thereof converted) payable by the Company on such Interest Payment Date, which payment will be returned to such Holder if the Company defaults in the payment of such interest. Except as otherwise provided, no payment of interest on converted Notes will be payable by the Company on any Interest Payment Date subsequent to the date of conversion, and no adjustment will be made upon conversion of any Note for interest accrued thereon or dividends paid on Common Stock issued. OPTIONAL REDEMPTION BY THE COMPANY The Notes are not redeemable at the option of the Company prior to , 2000. Thereafter, the Notes will be redeemable, in whole or from time to time in part, upon not less than 30 days' nor more than 60 days' prior notice of redemption to each Holder at such Holder's last address as it appears in the Note Register, at the redemption prices established for the Notes, together with accrued but unpaid interest, if any, to the date fixed for redemption. The redemption prices for the Notes (expressed as percentages of principal amount) are as follows: FOR THE 12 MONTHS AFTER PERCENTAGE - --------------------------- ------------ 2000 ..................... % 2001 ..................... % 2002 ..................... % 2003 and thereafter ...... % If less than all the Notes are to be redeemed, the Trustee will select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, by lot or by such method that complies with applicable legal requirements and that the Trustee considers fair and appropriate. The Trustee may select for redemption portions of the principal amount of Notes that have a denomination larger than $1,000. Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. The Trustee will make the selection from Notes outstanding and not previously called for redemption. REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL If a Change of Control occurs, the Company will offer to repurchase each Holder's Notes pursuant to an offer (the "Change of Control Offer") at a purchase price equal to 100% of the principal amount of such Holder's Notes, plus accrued but unpaid interest, if any, to the date of purchase. A "Change of Control" means the occurrence of any of the following events after the date of the Indenture: (i) any person or group (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the direct or indirect beneficial owner of shares of capital stock of the Company representing greater than 50% of the combined voting power of all outstanding shares of capital stock of the Company entitled to vote in the election of directors under ordinary circumstances; (ii) subject to certain exceptions, the Company consolidates with or merges into any other entity and the outstanding Common Stock is changed or exchanged as a result; (iii) the Company conveys, transfers or leases all or substantially all of its assets to any other entity; (iv) at any time Continuing Directors do not constitute a majority of the Board of Directors of 38 the Company; or (v) on any day (a "Calculation Date") the Company makes any distribution or distributions of cash, property or securities (other than regular quarterly dividends, Common Stock, preferred stock which is substantially equivalent to Common Stock or rights to acquire Common Stock or preferred stock which is substantially equivalent to Common Stock) to holders of Common Stock, or the Company or any of its subsidiaries purchases or otherwise acquires Common Stock, and the sum of the fair market value of such distribution or purchase on the Calculation Date, plus the fair market value, when made of all other such distributions and purchases which have occurred during the 12 month period ending on the Calculation Date, in each case expressed as a percentage of the aggregate market price of all of the shares of Common Stock outstanding at the close of business on the last day prior to the date of each such distribution or purchase, exceeds 50%. "Continuing Director" means at any date a member of the Company's Board of Directors (i) who is a member of such Board on the date of the Indenture or (ii) who was nominated or elected by at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least two-thirds of the directors who were Continuing Directors at the time of such election. Under this definition, if the present Board of Directors of the Company were to approve a new director or directors and then resign, no Change of Control would occur even though the present Board of Directors would thereafter cease to be in office. Within 30 days after any Change of Control, unless the Company has previously given a notice of optional redemption by the Company of all of the Notes, the Company will give a notice of the Change of Control Offer to each Holder at such Holder's last address as it appears on the Note Register which will include: (i) a statement that a Change of Control has occurred and that the Company is offering to repurchase all of such Holder's Notes; (ii) a brief description of such Change of Control; (iii) the repurchase price (the "Change of Control Payment"); (iv) the expiration date of the Change of Control Offer, which must be no earlier than 30 days nor later than 60 days from the date such notice is given; (v) the date such purchase will be effected, which must be no later than 30 days after the expiration date of the Change of Control Offer; (vi) a statement that unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (vii) the Conversion Price; (viii) the name and address of the paying agent and conversion agent; (ix) a statement that Notes must be surrendered to the paying agent to collect the Change of Control Payment; and (x) any other information required by applicable law and any other procedures that a Holder must follow in order to have such Notes repurchased. In the event the Company is required to make a Change of Control Offer, the Company will comply with any applicable securities laws and regulations, including, to the extent applicable, Section 14(e) of, and Rule 14e-1 and any other tender offer rules under, the Exchange Act which may then be applicable in connection with any offer by the Company to purchase Notes at the option of Holders. The Company, could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would not constitute a Change of Control, but that would increase the amount of Senior Indebtedness (or any other indebtedness) outstanding at such time. The incurrence of significant amounts of additional indebtedness could have an adverse effect on the Company's ability to service its indebtedness, including the Notes. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds at the time of such event to pay the Change of Control Payment for all Notes tendered by Holders. Certain of the Company's existing and future agreements relating to its indebtedness could prohibit the purchase by the Company of the Notes pursuant to the tender by Holders pursuant to a Change of Control Offer. Depending on the financial circumstances of the Company, such purchase by the Company could cause a breach of certain covenants contained in such agreements. A default by the Company on its obligation to pay the Change of Control Payment could, pursuant to cross-default provisions, result in acceleration of the payment of other indebtedness of the Company outstanding at that time. See "--Subordination." 39 SUBORDINATION The payment of principal of and premium, if any, and interest on the Notes will be, to the extent set forth in the Indenture, subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined). Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshalling of assets, whether voluntary, involuntary or in receivership, bankruptcy, insolvency or similar proceedings, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon before Holders will be entitled to receive any payment on account of principal of and premium, if any, and interest on the Notes or on account of any other monetary claims under or with respect to the Notes, and before the Company may acquire any Notes for cash, property, assets or securities. No payments on account of principal of and premium, if any, and interest on the Notes may be made if at the time thereof: (i) there exists a default in the payment of all or any portion of the obligations under any Senior Indebtedness or (ii) there exists a default in any covenant with respect to the Senior Indebtedness that would permit acceleration of the maturity thereof (other than as specified in clause (i) of this sentence) which has not been cured or waived and is continuing, and the Trustee and the Company receive written notice from any holder of such Senior Indebtedness stating that no payment may be made with respect to the Notes, provided that no such default will prevent any payment on, or with respect to, the Notes for more than 120 days unless the maturity of such Senior Indebtedness is accelerated. The Holders will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made on Senior Indebtedness upon any distribution of assets in any such proceedings out of the distributive share of the Notes. "Senior Indebtedness" means the principal of (and premium, if any) and accrued interest on (a) existing indebtedness of the Company (including indebtedness of others guaranteed by the Company) other than the Notes, which is (i) for money borrowed or (ii) evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, (b) obligations of the Company as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and leases of property or assets made as part of any sale and leaseback transaction to which the Company is a party, (c) amendments, renewals, extensions, modifications and refundings of any such indebtedness or obligation and (d) future indebtedness of the Company described in (a) above, and amendments, renewals, extensions, modifications and refundings thereof, if the instrument creating or evidencing such future indebtedness provides that such indebtedness or obligation is senior in right of payment to the Notes. Senior Indebtedness does not include indebtedness or amounts owed (except to banks or other financial institutions) for compensation to employees, or for goods or materials purchased, or services utilized, in the ordinary course of business of the Company or of any other person from whom such indebtedness or amount was assumed. The Notes are unsecured obligations of the Company, and, accordingly, will rank pari passu with all obligations of the Company that arise by operation of law or are imposed by any judicial or governmental authority. The Notes are obligations exclusively of the Company, and accordingly, will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of its Subsidiaries. The right of the Company, and, therefore, the right of creditors of the Company (including Holders) to receive assets of any such Subsidiary upon the liquidation or reorganization of such Subsidiary or otherwise, as a practical matter, will be effectively subordinated to the claims of such Subsidiary's creditors, except to the extent the Company is itself recognized as a creditor of such Subsidiary or such other creditors have agreed to subordinate their claims to the payment of the Notes, in which case the claims of the Company would still be subordinate to any secured claim on the assets of such Subsidiary and any indebtedness of such Subsidiary senior to that held by the Company. At October 31, 1997, after giving effect to this offering and the application of the net proceeds therefrom, the Company's subsidiaries would have had approximately $11 million of outstanding 40 indebtedness, of which approximately $6 million is guaranteed by the Company and constitutes Senior Indebtedness. The Company expects from time to time to incur additional indebtedness constituting Senior Indebtedness. LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES The Company may not, and may not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction of any kind on the ability of any subsidiary to (a) pay to the Company dividends or make to the Company any other distribution of its capital stock, (b) pay any debt owed to the Company or any other subsidiary, (c) make loans or advances to the Company or any other subsidiary, or (d) transfer any of its property or assets to the Company or any other subsidiary, other than such encumbrances or restrictions existing or created under or by reason of (i) applicable laws, (ii) the Indenture, (iii) covenants or restrictions contained in any instrument governing debt of the Company or any of the subsidiaries existing on the date of the Indenture or thereafter, (iv) customary provisions restricting subletting, assignment and transfer of any lease governing a leasehold interest of the Company or any of the subsidiaries or in any license or other agreement entered into in the ordinary course of business, (v) any agreement governing debt of a person acquired by the Company or any of the subsidiaries in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrances or restrictions are not applicable to any person, or the property or assets of any person, other than the person, or the property or assets of the person, so acquired, or (vi) any restrictions with respect to a subsidiary imposed pursuant to an agreement entered into in accordance with the terms of the Indenture for the sale or disposition of capital stock or property or assets of such subsidiary, pending the closing of such sale of disposition. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company may not, without the consent of the Holders of a majority in aggregate principal amount of Notes then outstanding, consolidate with or merge into any other entity or convey, transfer, sell or lease its assets substantially as an entirety to any entity unless: (i) either (a) the Company is the continuing corporation or (b) the entity formed by such consolidation or into which the Company is merged or the entity to which such assets are sold, leased, transferred, conveyed or disposed is organized under the laws of the United States or any state thereof or the District of Columbia and expressly assumes by supplemental indenture all obligations of the Company under the Notes and the Indenture, (ii) immediately before and immediately after giving effect to such merger, consolidation, conveyance, transfer, sale, lease or disposition no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, under the Indenture has occurred and is continuing, (iii) immediately after giving effect to such merger, consolidation, conveyance, transfer, sale, lease or disposition, the Notes and the Indenture, as supplemented, will be valid and enforceable obligations of the Company or such successor and (iv) the Company has delivered to the Trustee an Officer's Certificate and an opinion of counsel, each stating that such merger, consolidation, conveyance, transfer, sale, lease or disposition and such supplemental indenture comply with the applicable provisions of the Indenture. EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (a) failure to pay principal or premium or repurchase price, if any, of any Note when due and payable, whether at maturity, upon redemption, upon a Change of Control Offer or otherwise, whether or not such payment is prohibited by the subordination provisions of the Indenture; (b) failure to pay any interest on any Note when due, which failure continues for 30 days, whether or not such payment is prohibited by the subordination provisions of the Indenture; (c) failure to perform the other covenants of the Company in the Indenture, which failure continues for 90 days after written notice as provided in the Indenture; (d) failure to pay when due principal of, or acceleration of, any indebtedness for money borrowed by the Company or any of its Subsidiaries in excess of $5.0 million, individually or in the aggregate, if such indebtedness is not discharged, or such acceleration is not annulled, within 10 days after written notice 41 as provided in the Indenture; and (e) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary (as defined in the Indenture). Subject to the provisions of the Indenture relating to the duties of the Trustee in case of the occurrence of an Event of Default, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, Holders of a majority in aggregate principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. If an Event of Default occurs and is continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes by notice to the Company and Trustee may declare the unpaid principal and premium, if any, of and interest on all outstanding Notes due and payable; provided, however, that if an Event of Default under clause (e) above occurs, all unpaid principal and premium, if any, of and interest on all outstanding Notes will automatically become due and payable without any declaration or other act on the part of the Trustee or any Holders. After such acceleration, but before a judgment or decree based on acceleration, Holders of a majority in aggregate principal amount of the then outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal, have been cured or waived as provided in the Indenture. For information as to waiver of defaults, see "--Modifications, Amendments and Waivers." No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder unless (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default, (ii) Holders of at least 25% in aggregate principal amount of the then outstanding Notes have made written request and offered satisfactory indemnity to the Trustee to institute such proceeding as Trustee, (iii) the Trustee failed to institute such proceeding within 60 days after the receipt of such request and offer of indemnity and (iv) during such 60-day period, no direction inconsistent with such request is given to the Trustee by the Holders of a majority in aggregate principal amount of the then outstanding Notes. MODIFICATIONS, AMENDMENTS AND WAIVERS Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes held by persons other than affiliates of the Company; provided however that no such modification or amendment may, without the consent of the Holder of each outstanding Note affected thereby, (i) change the stated maturity of, or any installment of interest on, or waive a default in the payment of principal, premium, if any, or interest on, any Note, (ii) reduce the principal amount of any Note or reduce the rate or extend the time of payment of interest on any Note, (iii) increase the Conversion Price (other than in connection with a reverse stock split as provided in the Indenture), (iv) change the currency of payment of principal or premium or repurchase price, if any, of or interest on, any Note, (v) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (vi) adversely affect the right to exchange or convert Notes, (vii) reduce the vote of Holders necessary to waive certain defaults or compliance with certain provisions of the Indenture, consent to any merger, consolidation or conveyance, sale, transfer or lease of assets, or modify or amend the Indenture, (viii) modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Holders, (ix) except as permitted by the Indenture, consent to the assignment or transfer by the Company of any of its rights and obligations thereunder or (x) modify the provisions of the Indenture with respect to the obligations of the Company to repurchase Notes in a manner adverse to the Holders. Holders of a majority in aggregate principal amount of the then outstanding Notes held by persons other than affiliates of the Company may, on behalf of all Holders, waive any past default under the Indenture or Event of Default, except a default in the payment of principal or premium or repurchase 42 price, if any, of or interest on any of the Notes or a provision which under the Indenture cannot be amended without the consent of the Holder of each outstanding Note. Amendments and supplements of the Indenture may be made by the Company and the Trustee without the consent of any Holder, in part, to: (i) cure any ambiguity, defect or inconsistency (which does not adversely affect the rights of any Holder); (ii) comply with the restriction on mergers, consolidations, and asset sales or with the provisions relating to conversion upon such events; (iii) add to the covenants of the Company further covenants, restrictions, conditions or provisions for the protection of the Holders; (iv) make any change that does not adversely affect the rights of any Holder under the Indenture; (v) comply with requirements of the Securities and Exchange Commission in order to effect or maintain qualification of the Indenture under the Trust Indenture Act; or (vi) to change the place of payment of principal or premium or repurchase price, if any, of or interest on the Notes other than within the 48 contiguous states of the United States. GOVERNING LAW The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to such State's conflict of law principles. 43 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of a Note and of Common Stock into which the Note may be converted. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary and proposed Treasury Regulations, administrative pronouncements and judicial decisions now in effect, all of which are subject to change, possibly retroactively. This summary deals only with a Holder that will hold the Note and the Common Stock into which the Note may be converted as a "capital asset" (within the meaning of section 1221 of the Code) and that is (i) a citizen or resident of the United States, (ii) a domestic corporation or (iii) otherwise subject to U.S. federal income taxation on a net income basis in respect of the Note or Common Stock. This summary does not purport to be a complete analysis of all the potential tax considerations relevant to a particular investor and does not address tax considerations applicable to an investor that may be subject to special tax rules, like a bank, tax-exempt organization, insurance company, dealer in securities or currencies, or a person that will hold a Note or Common Stock as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes. This summary discusses the tax considerations applicable to the initial purchaser of a Note who purchases the Note at an original "issue price" (as defined in section 1273 of the Code) equal to the stated principal amount of the Note. The Company has not sought any ruling from the Internal Revenue Service (the "IRS") with respect to the statements made in this summary, and there can be no assurance that the IRS will agree with these statements. A PROSPECTIVE INVESTOR CONSIDERING THE PURCHASE OF A NOTE SHOULD CONSULT HIS OWN TAX ADVISER WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL TAX LAWS TO HIS PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. PAYMENT OF INTEREST Interest on a Note generally will be includable in the income of a Holder as ordinary income at the time the interest is received or accrued in accordance with the Holder's method of accounting for U. S. federal income tax purposes. SALE, EXCHANGE OR REDEMPTION OF THE NOTES Upon a sale, exchange or redemption of a Note, a Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received (except to the extent attributable to accrued interest income not previously included in income, which will be taxable as ordinary income) and (ii) the Holder's adjusted tax basis in the Note. A Holder's adjusted tax basis in a Note generally will equal the Holder's cost for the Note. Capital gain or loss will be long-term capital gain or loss depending upon the Holder's holding period in the Note at the time of sale, exchange or redemption. Capital gain recognized by certain noncorporate Holders may be taxed at preferential rates that will vary depending on whether the Note has been held for more than one year or 18 months on the date of disposition. CONSTRUCTIVE DISTRIBUTIONS If at any time (i) the Company distributes cash or property to its shareholders or purchases Common Stock, and the distribution or purchase is taxable as a dividend to those shareholders for U.S. federal income tax purposes (e.g., a distribution of cash, evidences of indebtedness or other assets of the Company, but generally not a distribution of stock or rights to subscribe for stock paid on Common Stock) and pursuant to either the anti-dilution provision of the Indenture or at the discretion of the Company the Conversion Price of the Notes is decreased or (ii) under any other circumstances, pursuant to the anti-dilution provision of the Indenture or at the discretion of the Company the Conversion Price of the Notes is decreased, the decrease in Conversion Price may be treated as a 44 constructive distribution to Holders of Notes (pursuant to section 305 of the Code). A constructive distribution will be taxable as a dividend, return of capital or capital gain in accordance with the earnings and profits rules discussed under "--Dividends." A Holder of a Note therefore could have taxable income as a result of an event pursuant to which he receives no cash or property. Moreover, if there is not a full adjustment to the Conversion Price of the Notes to reflect a stock dividend or other event increasing the proportionate interest of the holders of the Common Stock in the assets or earnings and profits of the Company, then that increase in the proportionate interest of the holders of Common Stock generally will be treated as a constructive distribution to them similarly taxable in accordance with the earnings and profits rules discussed under "--Dividends." CONVERSION OF THE NOTES A Holder of a Note generally will not recognize any income, gain or loss upon conversion of a Note into shares of Common Stock except with respect to the receipt of either cash in lieu of a fractional share of Common Stock or cash or Common Stock attributable to accrued interest on the converted Note. A Holder's tax basis in the Common Stock received on conversion of a Note will be the same as the Holder's adjusted tax basis in the Note at the time of conversion (reduced by any basis allocable to a fractional share interest). The holding period for the shares of Common Stock received on conversion generally will include the holding period of the Note converted. Cash received in lieu of a fractional share of Common Stock upon conversion of a Note will be treated as a payment in exchange for the fractional share and generally will result in capital gain or loss (measured by the difference between the cash received for the fractional share and the Holder's adjusted tax basis in the fractional share). DIVIDENDS A cash distribution paid on Common Stock will be treated as a dividend, taxable as ordinary income to the Holders, to the extent of the Company's current and accumulated earnings and profits. To the extent a distribution on Common Stock exceeds the Company's current and accumulated earnings and profits, a Holder will treat the distribution on each share of Common Stock as a nontaxable reduction in the Holder's basis in that share to the extent thereof and thereafter as capital gain. A dividend paid to a Holder that is a U.S. corporation may qualify for a dividends received deduction. SALE OF COMMON STOCK Upon a sale or exchange of Common Stock, a Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received and (ii) the Holder's adjusted tax basis in the Common Stock. That capital gain or loss will be long-term capital gain or loss depending upon the Holder's holding period in the Common Stock at the time of sale, exchange or redemption. Capital gain recognized by certain noncorporate Holders may be taxed at preferential rates that will vary depending on whether the Common Stock has been held for more than one year or 18 months on the date of disposition. A Holder's basis and holding period in Common Stock received upon conversion of a Note are determined as discussed above under "Conversion of the Notes." INFORMATION REPORTING AND BACKUP WITHHOLDING TAX In general, information reporting requirements will apply to payments to certain noncorporate Holders of principal of, premium, if any, and interest on a Note, payments of dividends on Common Stock and payments of the proceeds of a sale of a Note or Common Stock. A 31% backup withholding tax may apply to any of those payments if the Holder (i) fails to furnish or certify his correct taxpayer identification number to the payor in the manner required, (ii) is notified by the IRS that he has failed to report payments of interest or dividends properly or (iii) under certain circumstances fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report 45 interest or dividend payments. A Holder of a Note or Common Stock who does not provide the Company with his or her correct taxpayer identification number may also be subject to penalties imposed by the IRS. Any amounts withheld under the backup withholding rules from a payment to a Holder will be allowed as a credit against the Holder's U.S. federal income tax and may entitle the Holder to a refund provided the required information is furnished to the IRS.51 DESCRIPTION OF CAPITAL STOCK GENERAL The Company is authorized to issue 20,000,00030,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"), 30,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"), and 10,000,000 shares of preferred stock, par value $.01 per share (the "Preferred("Preferred Stock") and 50,000, of which 200,000 shares ofhave been designated as Series A Junior Participating Preferred Stock (the "Series A Preferred Stock"). As of OctoberDecember 31, 1997, 5,522,3291998, (i) 8,389,556 shares of Common Stock were outstanding and such shares were held by approximately 1,2651,231 holders of record and (ii) 4,136,106 shares of Class A Common Stock were outstanding and such shares were held by approximately 1,143 holders of record. None of the Preferred Stock nor the Series A Preferred Stock areis outstanding. The following descriptions of the Common Stock, the Class A Common Stock, the Preferred Stock and the Series A Preferred Stock are based on the Company's Articles and Bylaws and applicable Florida law. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share owned of record on all matters presented to the shareholders. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any, remaining after the payment of all debts and liabilities of the Company and the liquidation preference of any outstanding Preferred Stock. The Common Stock has no preemptive rights, no cumulative voting rights and no redemption, sinking fund or conversion provisions. Currently, 1,742,9192,740,602 shares of Common Stock are reserved for issuance under the Company's stock option plans. Holders of Common Stock are entitled to receive dividends if, as and when declared by the Board out of funds legally available therefor, subject to the dividend and liquidation rights of any Preferred Stock that may be issued and outstanding and subject to any dividend restrictions in the Company's credit facilities. No dividends or other distributions (including redemptions or repurchases of shares of capital stock) may be made if after giving effect to any such dividends or distributions, the Company would not be able to pay its debts as they become due in the usual course of business or the Company's total assets would be less than the sum of its total liabilities plus the amount that would be needed at the time of a liquidation to satisfy the preferential rights of any holders of Preferred Stock. The transfer agent and registrar for the Common Stock is Chase MellonChaseMellon Securities Services, Seattle, Washington. CLASS A COMMON STOCK Each holder of Class A Common Stock is entitled to the identical rights as the holders of Common Stock except that each share of Common Stock will entitle the holder thereof to one vote in respect of matters submitted for the vote of holders of common stock, whereas each share of Class A Common Stock will entitle the holder thereof to one-tenth of a vote on such matters. Currently, 1,588,846 shares of Class A Common Stock are reserved for issuance under the Company's stock option plans. PREFERRED STOCK AND SERIES A PREFERRED STOCK The Board of Directors of the Company is authorized, without further shareholder action, to designate and issue from time to time one or more series of Preferred Stock, including the Series A Preferred Stock. The Board of Directors may fix and determine the designations, preferences and relative rights and qualifications, limitations or restrictions of any series of Preferred Stock so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion privileges. Because the Board of Directors has the power to establish the preferences and rights of each series of Preferred Stock, it may afford the holders of any series of Preferred Stock preferences and rights, voting or otherwise, 50 52 senior to the rights of holders of Common Stock and Class A Common Stock. Holders of the Series A Preferred Stock shall be entitled to receive (i) distributions or cash dividends in an amount per share equal to 100 times the aggregate per share amount of all cash dividends declared or paid on 46 the Common Stock,common stock, (ii) a preferential stockcash dividend, and (iii) in certainsome circumstances to 100 votes per share. As of the date of this Prospectus, the Board of Directors has not issued any Preferred Stock or Series A Preferred Stock, and has no plans to issue any shares of Preferred Stock or Series A Preferred Stock. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW, AND THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS, AND THE PREFERRED STOCK PURCHASE RIGHTS Certain provisions of the Articles and Bylaws of the Company and Florida law summarized in the following paragraphs may be deemed to have an anti-takeover effect and may discourage, delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by shareholders. SPECIAL MEETING OF SHAREHOLDERS.Special Meeting of Shareholders. The Bylaws provide that special meetings of shareholders of the Company may be called only by the Company's Chairman of the Board, the President of the Company or by a majority of the Board. This provision could make it more difficult for shareholders to take actions opposed by the Board. PREFERRED STOCK PURCHASE RIGHTS PLAN.Preferred Stock Purchase Rights Plan. In November 1993, the Company declared a distribution of thePreferred Stock Purchase Rights (the "Rights") for each outstanding share of Common Stock.common stock. Such Rights trade with the Common Stockcommon stock and are not exercisable or transferable apart from the Common Stockcommon stock until a person or group acquires 15% or more of the outstanding Common Stockcommon stock or commence or announce an intention to commence a tender offer for 30% or more of the outstanding Common Stock.common stock. The Rights shall expire on November 2, 2003 and have certainsome anti-takeover effects that will cause substantial dilution to a person or a group who attempts to acquire the Company on terms not approved by the Board or who acquires 15% or more of the outstanding Common Stockcommon stock without approval of the Board. AUTHORIZED BUT UNISSUED SHARES.Advance Notice for Shareholder Proposals and Director Nominations. The Bylaws provide that shareholders seeking to bring business before an annual meeting of shareholders, or to nominate candidates for election as directors at an annual or special meeting of shareholders, must provide timely notice in writing. To be timely with respect to an annual meeting, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Company not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the date of the Company's notice of annual meeting provided with respect to the previous year's meeting. The Bylaws also specify certain requirements for a shareholder's notice to be in proper written form. These provisions may preclude shareholders from bringing matters before or from making nominations for directors at an annual or special meeting. Authorized But Unissued Shares. Subject to the applicable requirements of the American Stock Exchange,exchange on which the Company's shares are listed, the authorized but unissued shares of Common Stock, Class A Common Stock, Preferred Stock and Series A Preferred Stock are available for future issuance without shareholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions or employee benefit plans. The existence of authorized but unissued and unreserved Common Stock.Stock, Class A Common Stock, Preferred SStock and Series A Preferred Stock may enable the Board to issue shares to persons friendly to current management which could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise, and thereby protect the continuity of the Company's management. CERTAIN FLORIDA LEGISLATION.Certain Florida Legislation. The State of Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The Florida Control Share Act generally provides that shares acquired in excess of certainsome specified thresholds will not possess any voting rights unless such voting rights are approved by a majority of a corporation's disinterested shareholders. The Florida Affiliated Transactions Act generally requires supermajority approval by disinterested shareholders of certainsome specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the 51 53 corporation (or their affiliates). Florida law and the Company's Articles also authorize the Company to indemnify the Company's directors, officers, employees and agents under certainsome circumstances and presently limit the personal liability of corporate directors for monetary damages, except where the directors (i) breach their fiduciary duties and (ii) such breach constitutes or includes certain violations of criminal law, a transaction from which the directors derived an improper personal benefit, certainsome unlawful distributions or certainsome other reckless, wanton or willful acts or misconduct. The Company may also indemnify any person who was or is a party to any proceeding by reason of the fact that he is or was a director, officer, employee or agent of such corporation (or is or was serving at the request of such corporation in such a position for another entity) against liability to be in the best interests of such corporation and, with respect to criminal proceedings, had no reasonable cause to believe his conduct was unlawful. 4752 54 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering, the Company will have 8,389,556 shares of Common Stock and 7,836,106 shares of Class A Common Stock outstanding (assuming no exercise of any stock options). All of these shares (including the 4,000,000 offered hereby) are or will be tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act") unless purchased by "affiliates" of the Company, as that term is defined under Rule 144 promulgated under the Securities Act ("Rule 144"). All directors and executive officers of the Company, and the Selling Shareholder, who together, assuming no exercise of the Underwriters' over-allotment option, will own an aggregate of 2,919,111 and 1,272,559 shares of Common Stock and Class A Common Stock, respectively (or options to acquire Common Stock and Class A Common Stock) after the offering, have, subject to certain exceptions, agreed not to sell or otherwise dispose of any shares of Common Stock, Class A Common Stock or any other equity stock of the Company until the expiration of 180 days after the date of this Prospectus without the prior written consent of the Representatives. See "Underwriting." The Company is unable to predict the effect that sales of Common Stock or Class A Common Stock made under Rule 144, pursuant to future registration statements or otherwise, may have on any then-prevailing market price for shares of the Common Stock or Class A Common Stock. Nevertheless, sales of a substantial amount of the Common Stock or Class A Common Stock in the public market, or the perception that such sales could occur, could materially adversely affect the market price of the Common Stock or Class A Common Stock as well as the Company's ability to raise additional capital through the sale of its equity securities. An aggregate of up to 2,740,602 and 1,588,846 shares of Common Stock and Class A Common Stock, respectively, issuable under the Company's stock option plans (consisting of options currently outstanding to purchase 2,693,203 and 1,416,536 shares of Common Stock and Class A Common Stock, respectively, and 47,399 and 172,310 shares of Common Stock and Class A Common Stock, respectively, remaining available for grant or award thereunder) may become eligible for sale without restriction to the extent they are held by persons who are not affiliates of the Company and by affiliates pursuant to Rule 144. See "Principal and Selling Shareholders." CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general discussion of certain United States federal income and estate tax consequences of the ownership and disposition of our Class A Common Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any person who is, for United States federal income tax purposes, a foreign corporation, a non-resident alien individual, a foreign partnership or a foreign estate or trust. This discussion does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state and local consequences that may be relevant to such Non-U.S. Holders in light of their personal circumstances. Furthermore, this discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations promulgated thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change (possibly with retroactive effect). EACH PROSPECTIVE PURCHASER OF OUR CLASS A COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF OUR CLASS A COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION. An individual may, subject to certain exceptions, be deemed to be a resident alien (as opposed to a non-resident alien) by virtue of being present in the United States on at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one-third of the days present in the 53 55 immediately preceding year, and one-sixth of the days present in the second preceding year). Resident aliens are subject to U.S. federal tax as if they were U.S. citizens. DIVIDENDS Dividends paid to a Non-U.S. Holder of our Class A Common Stock generally will be subject to withholding of United States federal income tax either at a rate of 30% of the gross amount of the dividends or at such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the Non-U.S. Holder within the United States and, where a tax treaty applies, are attributable to a United States permanent establishment of the Non-U.S. Holder, are not subject to the withholding tax (provided the Non-U.S. Holder files appropriate documentation with the payor of the dividend), but instead are subject to United States federal income tax on a net income basis at applicable graduated individual or corporate rates. Any such effectively connected dividends received by a foreign corporation may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Under current law, dividends paid to an address outside the United States are presumed to be paid to a resident of such country (unless the payer has knowledge to the contrary) for purposes of the withholding tax discussed above and, under the current interpretation of United States Treasury regulations, for purposes of determining the applicability of a tax treaty rate. Under recently finalized United States Treasury regulations (the "Final Regulations"), a Non-U.S. Holder of our Class A Common Stock who wishes to claim the benefit of an applicable treaty rate (and avoid back-up withholding as discussed below) for dividends paid after December 31, 1999, will be required to satisfy applicable certification and other requirements. A Non-U.S. Holder of our Class A Common Stock eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service (the "IRS"). GAIN ON DISPOSITION OF COMMON STOCK A Non-U.S. Holder will generally not be subject to United States federal income tax with respect to gain recognized on a sale or other disposition of our Class A Common Stock unless (i) the gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States, and, where a tax treaty applies, is attributable to a United States permanent establishment of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and holds our Class A Common Stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions are met or (iii) the Company is or has been a "U.S. real property holding corporation" for United States federal income tax purposes. The Company believes it is not and does not anticipate becoming a "U.S. real property holding corporation" for United States federal income tax purposes. If an individual Non-U.S. Holder falls under clause (i) above, he will be taxed on his net gain derived from the sale under regular graduated United States federal income tax rates. If an individual Non-U.S. Holder falls under clause (ii) above, he will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by certain United States capital losses. If a Non-U.S. Holder that is a foreign corporation falls under clause (i) above, it will be taxed on its gain under regular graduated United States federal income tax rates and may be subject to an additional branch profits tax at a 30% rate, unless it qualifies for a lower rate under an applicable income tax treaty. Special Rules may apply to certain Non-U.S. Holders, such as "controlled foreign corporations," "passive foreign investment companies" and "foreign personal holding companies" that are subject to special treatment under the Code. Such entities should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. 54 56 FEDERAL ESTATE TAX Class A Common Stock held by an individual Non-U.S. Holder at the time of death will be included in such holders' gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX We must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder resides under the provisions of an applicable income tax treaty. A backup withholding tax is imposed at the rate of 31% on certain payments to persons that fail to furnish certain identifying information to the payor. Under current law, backup withholding generally will not apply to dividends paid to a Non-U.S. Holder at an address outside the United States (unless the payer has knowledge that the payee is a U.S. person). Under the Final Regulations, however, a Non-U.S. Holder will be subject to back-up withholding unless applicable certification requirements are met. Payment of the proceeds of a sale of our Class A Common Stock by or through a United States office of a broker is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that it is a Non-U.S. Holder, or otherwise establishes an exemption. In general, backup withholding and information reporting will not apply to a payment of the proceeds of a sale of our Class A Common Stock by or through a foreign office of a broker. If, however, such broker is, for United States federal income tax purposes a U.S. person, a controlled foreign corporation or a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States or, for taxable years beginning after December 31, 1999, a foreign partnership, in which one or more United States persons, in the aggregate, own more than 50% of the income or capital interests in the partnership or if the partnership is engaged in a trade or business in the United States, such payments will not be subject to backup withholding, but will be subject to information reporting, unless (1) such broker has documentary evidence in its records that the beneficial owner is a Non-U.S. Holder and certain other conditions are met or (2) the beneficial owner otherwise establishes an exemption. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against such holder's U.S. federal income tax liability provided the required information is furnished in a timely manner to the IRS. 55 57 UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Raymond James & Associates, Inc. and ING Baring Furman Selz LLC are acting as representatives (the "Representatives") of each of the Underwriters named below (the "Underwriters"). Subject to the terms and conditions of an underwritingset forth in a purchase agreement (the "Underwriting"Purchase Agreement") among the Company, the Selling Shareholder and the Underwriters, named below (the "Underwriters"), the Company hasand the Selling Shareholder severally have agreed to sell to the Underwriters, and each of the Underwriters named below,severally and each of such Underwriters have severallynot jointly has agreed to purchase from the Company and the principal amountSelling Shareholder, the number of Notesshares of Class A Common Stock set forth opposite its name below. UNDERWRITER AMOUNT OF NOTES - ----------------------------------------- ----------------- Forum Capital Markets L.P. ............ $ Raymond James & Associates, Inc. ...... Southeast Research Partners, Inc. ...... ----------- Total ................................. $75,000,000 =========== The Underwriting
NUMBER UNDERWRITER OF SHARES - ----------- --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated ................................... Raymond James & Associates, Inc............................. ING Baring Furman Selz LLC.................................. --------- Total ......................................... 4,000,000 =========
In the Purchase Agreement, provides that the obligations of theseveral Underwriters to purchase the Notes arehave agreed, subject to certain conditions. The Underwriters are committedthe terms and conditions set forth therein, to purchase all of the shares of Class A Common Stock being sold pursuant to such Notesagreement if any of the shares of Class A Common Stock being sold pursuant to such Notesagreement are purchased. In the event of a default by an Underwriter, the Purchase Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Purchase Agreement may be terminated. The Representatives have advised the Company has been advised byand the UnderwritersSelling Shareholder that the Underwriters propose initially to offer the Notesshares of Class A Common Stock to the public initially at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of %$ per share of the principal amount of the Notes.Class A Common Stock. The Underwriters may allow, and such dealers may reallow, a concessiondiscount not in excess of %$ per share of the principal amount of NotesClass A Common Stock to certain other dealers. After thisthe initial public offering, the public offering price, the concession to selected dealersand discount may be changed. The Company and the reallowance to other dealers may be changed by the Underwriters. The Company hasSelling Shareholder have granted an option to the Underwriters, an option, expiringexercisable for 30 days fromafter the date of this Prospectus, to purchase from the Company up to an aggregate of $11,250,000an additional principal amount300,000 shares and 300,000 shares, respectively, of NotesClass A Common Stock at the public offering price less the underwriting discount set forth on the cover page of this Prospectus, less the underwriting discount. The Underwriters may exercise this option solely to cover over-allotments, if any.any, made on the sale of the Class A Common Stock offered hereby. To the extent that the Underwriters exercise suchthis option, each of the UnderwritersUnderwriter will have a firm commitment,be obligated, subject to certain conditions, to purchase approximatelya number of additional shares of Class A Common Stock proportionate to such Underwriter's initial amount reflected in the same percentage thereof thatforegoing table. The following table shows the principal amountper share and total public offering price, underwriting discount to be paid by the Company and the Selling Shareholder to the Underwriters and the proceeds before expenses to the Company and the Selling Shareholder. This information is presented assuming either no exercise or full exercise by the Underwriters of their over-allotment option.
PER WITHOUT WITH SHARE OPTION OPTION ------ ------- ------ Public Offering Price....................................... $ $ $ Underwriting Discount....................................... $ $ $ Proceeds, before expenses, to the Company................... $ $ $ Proceeds to the Selling Shareholder......................... $ $ $
The expenses of the Notesoffering (exclusive of the underwriting discount) are estimated at $500,000 and are payable by the Company. 56 58 The shares of Class A Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. The Company, the Company's executive officers and directors and the Selling Shareholder have agreed, subject to certain exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of Common Stock, Class A Common Stock or other equity stock of the Company or securities convertible into or exchangeable or exercisable for or repayable with Common Stock, Class A Common Stock or other equity stock of the Company, whether now owned or thereafter acquired by the person executing the agreement or with respect to which the person executing the agreement thereafter acquires the power of disposition, or file a registration statement under the Securities Act with respect to the foregoing or (ii) enter into any swap or other agreement that transfers, in whole or in part, the economic consequences of ownership of the Common Stock, Class A Common Stock or other equity stock of the Company, whether any such swap or transaction is to be purchasedsettled by eachdelivery of them shown in the above table bears to the aggregate principal amountCommon Stock, Class A Common Stock, or other equity stock of the Notes offered hereby. The Notes will not be listedCompany or other securities, in cash or otherwise, without the prior written consent of Merrill Lynch on any securities exchange or the Nasdaq National Market. The Underwriters have advised the Company that they intend to make a market in the Notes. The Underwriters are not obligated, however, to make a market in the Notes, and any such market making may be discontinued at any time at the sole discretionbehalf of the Underwriters without notice.for a period of 180 days after the date of this Prospectus. The Company hasand the Selling Shareholder have agreed to indemnify the Underwriters against certain liabilities, including certain liabilities under the Securities Act, andor to contribute to certain payments that the Underwriters may be required to make in respect thereof. In connection with this Offering, certainUntil the distribution of the Class A Common Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and their respective affiliates maycertain selling group members to bid for and purchase the Class A Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize maintain, or otherwise affect the market price of the Notes or theClass A Common Stock. Such transactions may include stabilization transactions effected in accordance with Rule 104consist of Regulation M under the Securities Exchange Act of 1934, as amended, pursuant to which such persons 48 may bid forbids or purchase Notes or the Common Stockpurchases for the purpose of stabilizing their market price. Thepegging, fixing or maintaining the price of the Class A Common Stock. If the Underwriters also may create a short position for their respective accounts by selling more Notes in connection with this Offering than they are committed to purchase from the Issuer, and in such case may purchase Notes in the open market following completion of this Offering to cover all or a portion of such short position. In addition, Forum Capital Markets L.P., on behalf of the Underwriters, may impose "penalty bids" under contractual arrangements between the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in this Offering) for the account of the Underwriters, the selling concession with respect to Notes that are distributed in this Offering but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the price of the Notes or theClass A Common Stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph are required, and, if they are undertaken, they may be discontinued at any time. The Underwriters have in the past performed, and may in the future perform, investment banking or financial advisory services for the Company. In September 1997, Forum Capital Markets L.P. purchased the Convertible Note for its stated par value from the Company. LEGAL MATTERS Certain legal matters in connection with the offering, and salei.e., if they sell more shares of Class A Common Stock than are set forth on the cover page of this Prospectus, the Representatives may reduce that short position by purchasing Class A Common Stock in the open market. The Representatives may also elect to reduce any short position by exercising all or part of the Notesover-allotment options described above. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Class A Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Each Underwriter has agreed that (i) it has not offered or sold and, prior to the expiration of the period of six months from the Closing Date, will not offer to sell any shares of Class A Common Stock to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Class A Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of Class A Common Stock to a person who is of a kind described in 57 59 Article 11(3) of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Class A Common Stock, or the possession, circulation or distribution of this Prospectus or any other material relating to the Company, the Selling Shareholder or shares of Class A Common Stock in any jurisdiction where action for that purpose is required. Accordingly, the shares of Class A Common Stock may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisements in connection with the shares of Class A Common Stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction. Purchasers of the shares offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. LEGAL MATTERS The validity of the Class A Common Stock offered hereby will be passed upon for the Company by Greenberg Traurig, Hoffman Lipoff Rosen & Quentel, P.A., Miami, Florida. The validity ofCertain legal matters relating to the NotesClass A Common Stock offered hereby will be passed upon for the Underwriters by Paul, Hastings, JanofskyShearman & Walker LLP,Sterling, New York, New York. EXPERTS The consolidated financial statements includedappearing in and incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended October 31, 19961998 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is includedappearing in and incorporated herein by reference, and have been so included and incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The financial statements of Northwings asMcClain International, Inc., at December 31, 1996 and 1997, for each of and for the yeartwo years in the period ended December 31, 19961997, incorporated herein by reference in this Prospectus, have been audited by De La OsaPyke & Associates, P.A.,Pierce, independent auditors,certified public accountants, as set forth in their report with respect thereto, and are incorporated herein in reliance upon the authority of such firm as experts in accounting and auditing. The financial statements of Trilectron as of and for the years ended December 31, 1995 and 1994 incorporated herein by reference have been audited by Kerkering, Barberio & Co., independent auditors, as set forth in their report with respect thereto,herein, and are incorporated herein in reliance upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith files periodic reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy and information statements and other information filed by the Company may be inspected and copies may be obtained (at prescribed rates) at the Commission's Public Reference Section, 450 5thFifth Street, N.W., Washington, D.C. 20549, as well as the following Regional Offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 49 10048 and at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained by mail from the Public Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, upon payment of prescribed rates. In addition, electronically filed documents, including reports, proxy and information statements and other information regarding the Company, can be obtained from the Commission's Web site at: http://www.sec.gov. The Company's Common Stock is traded on the American Stock Exchange, and reports, proxy statements and other information concerning the Company can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006. The Company has filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") with respect to the NotesClass A Common Stock offered hereby (the "Registration Statement"). This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the 58 60 Company and such Class A Common Stock offered hereby, reference is made to the Registration Statement and the exhibits, schedules and reports filed as part thereof. Statements contained in the Prospectus with respect to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each such instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference to such exhibit. Copies of all or any part of the Registration Statement, including the documents incorporated by reference therein or exhibits thereto, may be obtained upon payment of the prescribed rates at the offices of the Commission set forth above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission pursuant to the Exchange Act are hereby incorporated by reference in this Prospectus: (1) The Company's Annual Report on Form 10-K for the year ended October 31, 1996;1998; (2) The Company's Quarterly Report on Form 10-Q for the three months ended January 31, for the six months ended April 30, and for the nine months ended July 31, 1997; (3) The description of the Common Stock contained in the Company's Registration Statement on Form 8-A; and8-A dated January 27, 1999; (3) The description of the Class A Common Stock contained in the Company's Registration Statement on Form 8-A dated January 27, 1999; (4) The Company's Current ReportsReport on Form 8-K, dated September 16, 1996December 22, 1998, as amended by the Form 8-K/A, dated January 15, 1999; (5) The description of the Preferred Stock Purchase Rights contained in the Company's Registration Statement on Form 8-A dated January 27, 1999; and (6) Exhibits 99.1 and 99.2 to the Company's Current Report on Form 8-K, dated September 16, 1997.August 4, 1998. All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the NotesClass A Common Stock shall be deemed to be incorporated by reference in this Prospectus. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the information that has been incorporated by reference in this Prospectus (excluding exhibits unless such exhibits are specifically incorporated by reference into such documents). Please direct such requests to the Chief Financial Officer, HEICO Corporation, 3000 Taft Street, Hollywood, Florida, 33021, telephone number (954) 987-4000. 5059 61 HEICO CORPORATION INDEX TO FINANCIAL STATEMENTS PAGE ---- PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Introductory Note ................................................... F-2 Pro Forma Consolidated Condensed Balance Sheet as of July 31, 1997 ... F-3 Pro Forma Consolidated Condensed Statement of Operations for the nine months ended July 31, 1997 .............................. F-4 Pro Forma Consolidated Condensed Statement of Operations for the year ended October 31, 1996 ................................. F-5 Notes to Pro Forma Consolidated Condensed Financial Statements ...... F-6 HISTORICAL FINANCIAL STATEMENTS Independent Auditors' Report .......................................... F-10 Consolidated Balance Sheets as of October 31, 1995 and 1996 ......... F-11 Consolidated Statements of Operations for the years ended October 31, 1994, 1995 and 1996 .................. F-13 Consolidated Statements of Shareholders' Equity for the years ended October 31, 1994, 1995 and 1996 .................. F-14 Consolidated Statements of Cash Flows for the years ended October 31, 1994, 1995 and 1996 .................. F-15 Notes to Consolidated Financial Statements ........................... F-16 Consolidated Condensed Balance Sheet as of July 31, 1997 (Unaudited) .................................... F-32 Consolidated Condensed Statements of Operations for the nine months ended July 31, 1996 and 1997 (Unaudited) ......... F-33 Consolidated Condensed Statements of Cash Flows for the nine months ended July 31, 1996 and 1997 (Unaudited) ......... F-34 Notes to Consolidated Condensed Financial Statements (Unaudited) ...... F-35
PAGE ---- Independent Auditors' Report................................ F-2 Consolidated Balance Sheets at October 31, 1998 and 1997.... F-3 Consolidated Statements of Operations for the years ended October 31, 1998, 1997 and 1996........................... F-4 Consolidated Statements of Shareholders' Equity for the years ended October 31, 1998, 1997 and 1996............... F-5 Consolidated Statements of Cash Flows for the years ended October 31, 1998, 1997 and 1996........................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 HEICO CORPORATION AND SUBSIDIARIES INTRODUCTORY NOTE TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma consolidated condensed balance sheet and statements of operations utilize the historical financial condition and results of operations of HEICO Corporation and subsidiaries (the "Company") as of July 31, 1997, and for the nine months then ended and for the year ended October 31, 1996. The unaudited pro forma consolidated condensed financial statements have been prepared on the basis summarized below: /bullet/ The unaudited pro forma consolidated condensed balance sheet as of July 31, 1997, assumes that the Company's acquisition of Northwings Accessories Corporation and the sale of a 20% minority interest in the Company's Flight Support Group to Lufthansa Technik AG, the technical services subsidiary of Lufthansa German Airlines ("Lufthansa"), had been consummated as of that date. /bullet/ The unaudited pro forma consolidated condensed statement of operations for the nine months ended July 31, 1997, assumes that the Company's acquisition of Northwings Accessories Corporation and the sale of a 20% minority interest in the Company's Flight Support Group to Lufthansa had been consummated as of November 1, 1995. /bullet/ The unaudited pro forma consolidated condensed statement of operations for the year ended October 31, 1996, assumes that the Company's acquisition of Trilectron Industries, Inc., its acquisition of Northwings Accessories Corporation and the sale of a 20% minority interest in the Company's Flight Support Group to Lufthansa had been consummated as of November 1, 1995. The unaudited pro forma consolidated condensed financial statements referenced above do not include any future income to be received from its October 1997 strategic alliance with Lufthansa. Lufthansa invested approximately $26 million in the Flight Support Group, including $16 million to be paid to the Flight Support Group over three years pursuant to a research and development cooperation agreement which will partially fund accelerated development of additional FAA Approved Replacement Parts for jet engines. In addition, Lufthansa and the Flight Support Group have agreed to cooperate with technical services and marketing support for jet engine parts on a worldwide basis. The unaudited pro forma consolidated condensed statements of operations are not necessarily indicative of actual operating results had the acquisitions been made at the beginning of the period presented or of future results of operations. F-2 HEICO CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF JULY 31, 1997 (UNAUDITED)
NORTHWINGS HEICO ACCESSORIES CORPORATION(1) CORPORATION(2) ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents .................. $ 10,330,000 $ 598,000 Accounts receivable, net .................. 8,374,000 1,702,000 Inventories .............................. 17,282,000 441,000 Prepaid expenses and other current assets ................................. 1,582,000 14,000 Deferred income taxes ..................... 2,062,000 -- ------------- ----------- Total current assets ..................... 39,630,000 2,755,000 Note receivable ........................... 10,000,000 -- Property, plant and equipment, net ......... 7,734,000 399,000 Intangible assets, net ..................... 5,156,000 -- Unexpended bond proceeds .................. 5,361,000 -- Other assets .............................. 2,939,000 3,000 ------------- ----------- Total assets .............................. $ 70,820,000 $3,157,000 ============= =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ...... $ 342,000 $ 55,000 Trade accounts payable ..................... 3,780,000 168,000 Accrued expenses and other current liabilities ..................... 5,622,000 165,000 Income taxes payable ..................... 132,000 445,000 Deferred income taxes payable ............ 98,000 ------------- ----------- Total current liabilities ............... 9,876,000 931,000 Long-term debt .............................. 10,546,000 169,000 Deferred income taxes ..................... 796,000 -- Other non-current liabilities ............... 2,290,000 -- ------------- ----------- Total liabilities ........................ 23,508,000 1,100,000 ------------- ----------- Minority interest in consolidated subsidiary .............................. -- -- ------------- ----------- Commitments and contingencies: Shareholders' equity Preferred stock, none issued ............... -- -- Common stock .............................. 54,000 125,000 Capital in excess of par value ............ 31,929,000 -- Retained earnings ........................ 18,271,000 1,932,000 ------------- ----------- 50,254,000 2,057,000 Less: Note receivable from employee savings and investment plan ............ (2,942,000) -- ------------- ----------- Total shareholders' equity .................. 47,312,000 2,057,000 ------------- ----------- Total liabilities and shareholders' equity $ 70,820,000 $3,157,000 ============= =========== PRO FORMA PRO FORMA ADJUSTMENTS COMBINED ----------------- ------------- ASSETS Current assets: Cash and cash equivalents .................. $ 12,580,000 (3) $ 23,508,000 Accounts receivable, net .................. (100,000)(4) 9,976,000 Inventories .............................. 100,000 (4) 17,823,000 Prepaid expenses and other current assets ................................. (54,000)(5) 1,542,000 Deferred income taxes ..................... 39,000 (4) 2,101,000 ----------------- ------------- Total current assets ..................... 12,565,000 54,950,000 Note receivable ........................... (10,000,000)(5) -- Property, plant and equipment, net ......... -- 8,133,000 Intangible assets, net ..................... 8,904,000 (4) 14,060,000 Unexpended bond proceeds .................. -- 5,361,000 Other assets .............................. -- 2,942,000 ----------------- ------------- Total assets .............................. $ 11,469,000 $ 85,446,000 ================= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ...... -- $ 397,000 Trade accounts payable ..................... -- 3,948,000 Accrued expenses and other current liabilities ..................... $ 50,000 (4) 5,837,000 Income taxes payable ..................... -- 577,000 Deferred income taxes payable ............ -- 98,000 ----------------- ------------- Total current liabilities ............... 50,000 10,857,000 Long-term debt .............................. -- 10,715,000 Deferred income taxes ..................... -- 796,000 Other non-current liabilities ............... 50,000 (4) 2,340,000 ----------------- ------------- Total liabilities ........................ 100,000 24,708,000 ----------------- ------------- Minority interest in consolidated subsidiary .............................. 3,000,000 (6) 3,000,000 ----------------- ------------- Commitments and contingencies: Shareholders' equity Preferred stock, none issued ............... -- -- Common stock .............................. (124,000)(7) 55,000 Capital in excess of par value ............ 3,542,000 (7) 35,471,000 Retained earnings ........................ 4,951,000 (7) 25,154,000 ----------------- ------------- 8,369,000 60,680,000 Less: Note receivable from employee savings and investment plan ............ -- (2,942,000) ----------------- ------------- Total shareholders' equity .................. 8,369,000 57,738,000 ----------------- ------------- Total liabilities and shareholders' equity $ 11,469,000 $ 85,446,000 ================= =============
See accompanying notes to unaudited pro forma consolidated financial statements F-3 HEICO CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JULY 31, 1997 (UNAUDITED)
NORTHWINGS HEICO ACCESSORIES PRO FORMA PRO FORMA CORPORATION(1) CORPORATION(8) ADJUSTMENTS COMBINED ---------------- ---------------- --------------------- -------------- Net sales ................................. $ 44,535,000 $ 6,410,000 $ 50,945,000 ------------ ----------- ------------ Operating costs and expenses: Cost of sales ........................... 30,389,000 3,321,000* 33,710,000 Selling, general and administrative expenses .................. 7,777,000 1,141,000* $ 48,000 (9) 8,966,000 ------------ ----------- ---------------- ------------ Total operating costs and expenses ...... 38,166,000 4,462,000 48,000 42,676,000 ------------ ----------- ---------------- ------------ Income from operations .................. 6,369,000 1,948,000 (48,000) 8,269,000 Interest expense ........................ (319,000) (20,000) (339,000) Interest and other income ............... 1,300,000 28,000 85,000 (10) 1,413,000 ------------ ----------- ---------------- ------------ Income before income taxes and minority interest .................. 7,350,000 1,956,000 37,000 9,343,000 Income tax expense ........................ (2,404,000) (749,000) (149,000)(11) (3,302,000) ------------ ----------- ---------------- ------------ Net income before minority interest ...... 4,946,000 1,207,000 (112,000) 6,041,000 Minority interest in net income of subsidiary ........................... -- -- (1,266,000)(12) (1,266,000) ------------ ----------- ---------------- ------------ Net income .............................. $ 4,946,000 $ 1,207,000 $ (1,378,000) $ 4,775,000 ============ =========== ================ ============ Net income per share ..................... $ 0.78 $ 0.73 ============ ============ Weighted average number of common and common equivalent shares outstanding ..................... 6,343,216 154,907 (13) 6,498,123 ============ ================ ============
- ---------------- * Amounts have been reclassified to conform to classifications within HEICO Corporation's Consolidated Condensed Statement of Operations. See accompanying notes to unaudited pro forma consolidated financial statements F-4 HEICO CORPORATION AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1996 (UNAUDITED)
TRILECTRON NORTHWINGS HEICO INDUSTRIES, ACCESSORIES PRO FORMA PRO FORMA CORPORATION(14) INC.(15) CORPORATION(16) ADJUSTMENTS COMBINED ----------------- ------------- ----------------- --------------------- ---------------- Net sales ........................ $ 34,565,000 $13,633,000 $ 4,707,000 $ 52,905,000 ------------ ----------- ----------- ------------ Operating costs and expenses: Cost of sales ..................... 22,396,000 10,210,000 2,798,000* $ 18,000 (9) 35,422,000 Selling, general and administrative expenses ......... 7,657,000 2,071,000 1,137,000* 144,000 (9) 11,009,000 ------------ ----------- ----------- ---------------- ------------ Total operating costs and expenses ..................... 30,053,000 12,281,000 3,935,000 162,000 46,431,000 ------------ ----------- ----------- ---------------- ------------ Income from operations ............ 4,512,000 1,352,000 772,000 (162,00) 6,474,000 Interest expense .................. (185,000) (108,000) (26,000) (319,000) Interest and other income ......... 1,058,000 -- 26,000 (198,000)(17) 886,000 ------------ ----------- ----------- ---------------- ------------ Income from continuing operations before taxes and minority interest ............... 5,385,000 1,244,000 772,000 (360,000) 7,041,000 Income tax expense ............... (1,720,000) -- (288,000) (499,000)(11) (2,507,000) ------------ ----------- ----------- ---------------- ------------ Net income from continuing operations before minority interest ............... 3,665,000 1,244,000 484,000 (859,000) 4,534,000 Minority interest in net income of subsidiary ..................... -- -- -- (1,041,000)(12) (1,041,000) ------------ ----------- ----------- ---------------- ------------ Net income from continuing operations ............ 3,665,000 1,244,000 484,000 (1,900,000) 3,493,000 Net income from discontinued operations ........................ 963,000 -- -- -- 963,000 Gain on sale of health care operations ........................ 5,264,000 -- -- -- 5,264,000 ------------ ----------- ----------- ---------------- ------------ Net income ........................ $ 9,892,000 $1,244,000 $ 484,000 $ (1,900,000) $ 9,720,000 ============ =========== =========== ================ ============ Net income per share: From continuing operations ......... $ 0.62 $ 0.57 From discontinued operations ...... 0.17 0.16 From gain on sale of health care operations .................. 0.89 0.87 ------------ ------------ Net income per share ............... $ 1.68 $ 1.60 ============ ============ Weighted average number of common and common equivalent shares outstanding ............... 5,903,151 154,907 (13) 6,058,058 ============ ================ ============
- ---------------- * Amounts have been reclassified to conform to classifications within HEICO Corporation's Consolidated Condensed Statement of Operations. See accompanying notes to unaudited pro forma consolidated financial statements F-5 HEICO CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) As reported as of and for the nine-month period ended July 31, 1997. (2) Represents Northwings' balance sheet as of June 30, 1997 (3) Represents the $12.6 million increase in cash resulting from the following: Proceeds from sale of note receivable (see note 5) .................. $ 10,137,000 Proceeds from sale of 20% interest in the Company's Flight Support Group (see note 6) ...................................................... 9,800,000 Cash portion of Northwings purchase price, excluding estimated acquisition costs ................................................... (6,957,000) Estimated Northwings acquisition costs .............................. (400,000) ------------ $ 12,580,000 ============
(4) Represents the decrease in accounts receivable and increases in inventory, deferred income taxes, current liabilities and non-current liabilities, which are to record allowances and reserves utilizing the Company's methodology, as well as their fair market values and the excess of cost over the fair value of net assets acquired from the acquisition of Northwings. The origins of the purchase cost and its allocation to assets and liabilities is as follows: Northwings purchase costs: Cash paid ......................................................... $ 6,957,000 HEICO Corporation common stock issued (154,907 shares) ............ 3,543,000 Estimated acquisition costs ....................................... 400,000 ------------ Total purchase costs ............................................. $ 10,900,000 ============ Allocation of purchase costs: Cash and cash equivalents ....................................... $ 598,000 Accounts receivable ............................................. 1,602,000 Inventories ...................................................... 541,000 Other current assets ............................................. 14,000 Deferred income taxes .......................................... 39,000 Property, plant & equipment .................................... 399,000 Other assets ................................................... 3,000 Liabilities assumed ............................................. (1,200,000) ------------ Subtotal ...................................................... 1,996,000 Excess of costs over the fair value of net assets acquired ...... 8,904,000 ------------ Total allocation of purchase costs .............................. $ 10,900,000 ============
(5) Represents the sale of the $10 million note receivable from US Diagnostic Inc. ("USDL"), to one of the Underwriters for $10,137,000, including interest income of $137,000, of which $54,000 was accrued as of July 31, 1997. The proceeds of the sale were partially used to fund the acquisition of Northwings. (6) Represents 20% minority interest in the net assets of the Company's Flight Support Group, as of July 31, 1997, acquired by Lufthansa. F-6 HEICO CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED) (7) Represents the estimated net gain on sale of minority interest in the Company's Flight Support Group, the additional interest income from the sale of the USDL note receivable and the issuance of 154,907 additional common shares of the Company as a portion of the Northwings purchase price, net of the elimination of Northwings' common stock and retained earnings as follows:
CAPITAL IN EXCESS RETAINED COMMON STOCK OF PAR EARNINGS TOTAL -------------- ------------------- --------------- ---------------- Gain on sale of minority interest, net of estimated transaction costs ........................ $ 6,800,000 $ 6,800,000 Additional interest income from sale of note receivable (see note 5) ..................... 83,000 83,000 HEICO Corporation common stock issued in Northwings acquisition .................. $ 1,000 $3,542,000 -- 3,543,000 Elimination of Northwings common stock and retained earnings ............ (125,000) -- (1,932,000) (2,057,000) ---------- ----------- ------------ ------------ $ (124,000) $3,542,000 $ 4,951,000 $ 8,369,000 ========== =========== ============ ============
The gain on sale of minority interest as calculated above is based on the excess of the purchase price of the 20% interest over the basis of net assets of the Company's Flight Support Group. (8) Represents Northwings' statement of operations for the nine months ended June 30, 1997. Northwings' operating results are included in the consolidated operating results of the Company effective as of September 1, 1997, the date of the acquisition. F-7 HEICO CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED) (9) Represents the amortization of the excess of costs over the fair value of net assets acquired in the Trilectron and Northwings purchases over 20 years and the increased depreciation of property, plant and equipment over 7 years, net of the elimination of non-recurring shareholder expenses of Northwings as follows:
NINE MONTHS ENDED YEAR ENDED JULY 31, 1997 OCTOBER 31, 1996 ------------------- ------------------ Amortization of excess of costs over the fair value of net assets acquired--Trilectron ........................... $ 107,000 Depreciation of property, plant and equipment-- Trilectron .......................................... 18,000 Amortization of excess of costs over the fair value of net assets acquired--Northwings ........................... $ 334,000 445,000 Elimination of non-recurring shareholder expenses-- Northwings .......................................... (286,000) (408,000) ---------- ---------- $ 48,000 $ 162,000 ========== ==========
(10) Represents the investment income on the estimated $9.8 million net proceeds from the sale of the minority interest in the Company's Flight Support Group, net of the $7.4 million cash used for the acquisition of Northwings as follows:
NINE MONTHS ENDED JULY 31, 1997 ------------------- Investment income on proceeds from sale of minority interest at an assumed annual investment yield of 5.9% ..................... $ 446,000 Reduced investment income on cash used for the acquisition of Northwings at 6.5% .......................................... (361,000) ---------- $ 85,000 ==========
(11) Represents an increase in Federal and state income taxes associated with adjustments to pre-tax income, as well as the non-deductibility, for tax purposes, of amortization of the excess of costs over the fair value of net assets acquired in the Northwings purchase included in the pro forma adjustments. (12) Represents the minority interest in income of the Company's Flight Support Group for the periods ended July 31, 1997 and October 31, 1996. (13) Represents increase in the Company's common shares outstanding as a result of shares issued as part of the acquisition cost of Northwings. (14) As reported for the fiscal year ended October 31, 1996. (15) Represents Trilectron's unaudited statement of operations for the ten months ended August 31, 1996. Trilectron's operating results are included in the consolidated operating results of the Company effective as of September 1, 1996, the date of acquisition. (16) Represents Northwings' statement of operations for the year ended December 31, 1996. F-8 HEICO CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED) (17) Represents the investment income on the estimated $9.8 million net proceeds from the sale of the minority interest in the Company's Flight Support Group net of the $7.4 million cash used for the Trilectron acquisition and the $7.4 million cash used for the Northwings acquisition as follows:
YEAR ENDED OCTOBER 31, 1996 ------------------ Investment income on proceeds from sale of minority interest at an assumed annual investment yield of 5.2% ........................... $ 522,000 Reduced investment income on cash used for the acquisition of Northwings at 5.4% ............................................................ (414,000) Reduced investment income on cash used for the acquisition of Trilectron at 5.0% ............................................................ (306,000) ---------- $ (198,000) ==========
* * * * * * * * F-9 62 HEICO CORPORATION AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of HEICO CorporationCorporation: We have audited the accompanying consolidated balance sheets of HEICO Corporation and subsidiaries (the "Company") as of October 31, 19951998 and 1996,1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended October 31, 1996.1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 19951998 and 1996,1997, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 19961998, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective November 1, 1993 to conform with Statement of Financial Accounting Standards No. 109. DELOITTE & TOUCHE LLP Certified Public Accountants Miami, Florida December 27, 1996 (September 9, 1997 as to Note 15) F-1030, 1998 F-2 63 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, 19951998 AND 1996 ASSETS1997
1995 1996 ------------- -------------1998 1997 ------------ ----------- ASSETS Current assets: Cash and cash equivalents .......................................equivalents................................. $ 4,664,000 $11,025,0008,609,000 $24,199,000 Short-term investments. ....................................... 2,939,000investments.................................... 2,051,000 -- Accounts receivable, net ....................................... 6,709,000 7,879,000 Inventories ................................................... 5,359,000 15,277,000net.................................. 19,422,000 12,560,000 Inventories............................................... 24,327,000 18,359,000 Prepaid expenses and other current assets ..................... 1,373,000 874,000assets................. 1,768,000 1,500,000 Deferred income taxes .......................................... 1,593,000 2,058,000taxes..................................... 2,010,000 1,098,000 ------------ ----------------------- Total current assets .......................................... 22,637,000 37,113,000 Note receivable ................................................ -- 10,000,000assets.............................. 58,187,000 57,716,000 Property, plant and equipment, net .............................. 9,296,000 5,845,000net.......................... 14,795,000 8,543,000 Intangible assets, net .......................................... 12,445,000 4,756,000 Investments in and advances to unconsolidated partnerships ...... 2,094,000 --net...................................... 53,964,000 13,258,000 Unexpended bond proceeds ....................................... -- 2,649,000proceeds.................................... 2,252,000 5,437,000 Deferred income taxes....................................... 495,000 394,000 Other assets ................................................... 929,000 1,473,000assets................................................ 3,368,000 2,828,000 ------------ ----------------------- Total assets ................................................ $47,401,000 $61,836,000assets...................................... $133,061,000 $88,176,000 ============ ============
See notes to consolidated financial statements. F-11 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1995 AND 1996=========== LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1996 --------------- ---------------- Current liabilities: ................................................ Current maturities of long-term debt and capital leases ............debt...................... $ 794,000377,000 $ 494,000342,000 Trade accounts payable ............................................. 1,499,000 4,803,000payable.................................... 6,158,000 4,180,000 Accrued expenses and other current liabilities ..................... 5,046,000 5,903,000liabilities............ 10,401,000 6,680,000 Income taxes payable ............................................. 543,000 665,000payable...................................... 664,000 1,383,000 ------------ ----------------------- Total current liabilities ....................................... 7,882,000 11,865,000liabilities......................... 17,600,000 12,585,000 Long-term debt, and capital leases, net of current maturities ...... 7,076,000 6,022,000 Deferred income taxes ............................................. 1,720,000 1,137,000maturities................... 30,143,000 10,458,000 Other non-current liabilities ....................................... 470,000 1,324,000liabilities............................... 2,819,000 2,414,000 ------------ ----------- Total liabilities................................. 50,562,000 25,457,000 ------------ Total liabilities ................................................ 17,148,000 20,348,000----------- Minority interest in consolidated subsidiary................ 14,892,000 3,273,000 ------------ ------------ Minority interests ................................................ 107,000 -- ------------ ----------------------- Commitments and contingencies:contingencies (Notes 2, 5 and 15) Shareholders' equity: ............................................. Preferred stock, par value $.01 per share; Authorized--10,000,000Authorized -- 10,000,000 shares issuable in series, 50,000200,000 designated as Series A Junior Participating Preferred Stock, none issued .....................issued........................... -- -- Common stock, $.01 par value; Authorized--20,000,000Authorized -- 30,000,000 shares; Issued-- 5,275,551Issued and Outstanding 8,323,036 shares in 19961998 and 5,075,2838,283,493 in 1995 (as restated--Note 4) .......................................... 28,000 53,0001997.................................. 83,000 83,000 Class A Common stock, $.01 par value; Authorized -- 30,000,000 shares; Issued and Outstanding 4,140,404 shares in 1998............................... 41,000 -- Capital in excess of par value .................................... 8,371,000 30,881,000value............................ 34,474,000 35,533,000 Unrealized loss on investments............................ (1,142,000) -- Retained earnings ................................................... 25,439,000 13,893,000earnings......................................... 36,649,000 26,772,000 ------------ ------------ 33,838,000 44,827,000----------- 70,105,000 62,388,000 Less: Note receivable from employee savings and investment plan ................................................ (3,692,000) (3,339,000)plan................................................... (2,498,000) (2,942,000) ------------ ----------------------- Total shareholders' equity ....................................... 30,146,000 41,488,000equity........................ 67,607,000 59,446,000 ------------ ----------------------- Total liabilities and shareholders' equity ..................... $ 47,401,000 $ 61,836,000equity........ $133,061,000 $88,176,000 ============ =======================
SeeThe accompanying notes toare an integral part of these consolidated financial statements. F-12F-3 64 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 1994, 19951998, 1997 AND 1996
1994 19951998 1997 1996 -------------- -------------- --------------------------- ----------- ----------- Net sales ...................................................... $19,212,000 $25,613,000sales............................................. $95,351,000 $63,674,000 $34,565,000 ----------- ----------- ----------- Operating costs and expenses: Cost of sales (Note 13) ....................................... 13,377,000 17,497,000sales......................................... 59,247,000 43,045,000 22,396,000 Selling, general and administrative expenses .................. 5,495,000 6,405,000expenses.......... 17,140,000 11,515,000 7,657,000 ----------- ----------- ----------- Total operating costs and expenses ........................... 18,872,000 23,902,000expenses.......... 76,387,000 54,560,000 30,053,000 ----------- ----------- ----------- Income from operations ....................................... 340,000 1,711,000Operating income...................................... 18,964,000 9,114,000 4,512,000 Interest expense ............................................. (59,000) (169,000)expense...................................... (984,000) (477,000) (185,000) Interest and other income .................................... 454,000 666,000income............................. 2,062,000 1,722,000 1,058,000 ----------- ----------- ----------- Income from continuing operations before income taxes and cumulative effect of change in accounting principle ......... 735,000 2,208,000minority interest............................... 20,042,000 10,359,000 5,385,000 Income tax expense ............................................. 95,000 771,000expense.................................... 6,914,000 3,340,000 1,720,000 ----------- ----------- ----------- Net incomeIncome from continuing operations before cumulative effect of change in accounting principle ..................... 640,000 1,437,000minority interest............................................ 13,128,000 7,019,000 3,665,000 Minority interest..................................... 2,619,000 -- -- ----------- ----------- ----------- Income from continuing operations..................... 10,509,000 7,019,000 3,665,000 Discontinued operations (Note 3)13): Net incomeIncome from discontinued health care operations, net of applicable income taxes of $717,000, $894,000 and $618,000 in fiscal 1996, 1995 and 1994, respectively ......... 830,000 1,258,000$717,000.............. -- -- 963,000 Gain on sale of health care operations, net of applicable income taxes of $1,719,000 ....................................$1,719,000............... -- -- 5,264,000 Cumulative effect on prior years of change in accounting principle ................................................... 381,000 -- -- ----------- ----------- ----------- Net income ...................................................income............................................ $10,509,000 $ 1,851,000 $ 2,695,0007,019,000 $ 9,892,000 =========== =========== =========== NetBasic income per share: From continuing operations before cumulative effect of change in accounting principle ..............................operations.......................... $ 0.13.84 $ 0.27.58 $ 0.62.31 From discontinued health care operations ..................... 0.16 0.24 0.17operations............ -- -- .08 From gain on sale of health care operations ..................operations......... -- -- 0.89 From cumulative effect of change in accounting principle ...... 0.08 -- --.45 ----------- ----------- ----------- Net income per share ..........................................share................................ $ 0.37.84 $ 0.51.58 $ 1.68.84 =========== =========== =========== Diluted income per share: From continuing operations.......................... $ .68 $ .49 $ .28 From discontinued health care operations............ -- -- .07 From gain on sale of health care operations......... -- -- .40 ----------- ----------- ----------- Net income per share................................ $ .68 $ .49 $ .75 =========== =========== =========== Weighted average number of common and common equivalent shares outstanding .............................. 5,044,963 5,302,370 5,903,151outstanding: Basic.......................................... 12,499,079 12,040,359 11,679,584 =========== =========== =========== Diluted........................................ 15,540,620 14,418,308 13,282,089 =========== =========== ===========
SeeThe accompanying notes toare an integral part of these consolidated financial statements. F-13F-4 65 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 1994, 19951998, 1997 AND 1996
CLASS A CAPITAL IN UNREALIZED COMMON COMMON EXCESS OF PARLOSS ON RETAINED NOTE STOCK STOCK PAR VALUE INVESTMENTS EARNINGS RECEIVABLE TOTAL --------- --------------- --------------- ---------------- ----------------------- ------- ----------- ----------- ----------- ----------- ----------- Balances, October 31, 1993 ............ $23,0001995........... $28,000 -- $ -0- $ 29,721,000$ $ (4,231,000) $25,513,0008,371,000 -- $25,439,000 $(3,692,000) $30,146,000 Exercise of stock options (2,200 shares) ..............................options............ 2,000 -- 22,0001,562,000 -- -- 22,000 Payment on note receivable from employee savings and investment plan ................................. -- -- -- 253,000 253,000 Repurchases and retirements of 16,300 shares of common stock ...... -- -- (238,000) -- (238,000) Cash dividends ($.068 per share) ...... -- -- (340,000) -- (340,000) Net income for the year ............... -- -- 1,851,000 -- 1,851,000 -------- ----------- ------------- ------------ ----------- Balances, October 31, 1994 ............ 23,000 22,000 30,994,000 (3,978,000) 27,061,000 Exercise of stock options (59,095 shares) .............................. 1,000 589,000 -- -- 590,000 Payment on note receivable from employee savings and investment plan ................................. -- -- -- 286,000 286,000 Repurchases and retirements of 13,000 shares of common stock ...... -- (117,000) -- -- (117,000) Cash dividends ($.072 per share) ...... -- -- (369,000) -- (369,000) 10% common stock dividend paid July 28, 1995 (229,349 shares) ...... 2,000 3,240,000 (3,242,000) -- -- 10% common stock dividend paid February 8, 1996 (254,209 shares) 2,000 4,637,000 (4,639,000) -- -- Net income for the year ............... -- -- 2,695,000 -- 2,695,000 -------- ----------- ------------- ------------ ----------- Balances, October 31, 1995 ............ 28,000 8,371,000 25,439,000 (3,692,000) 30,146,000 Exercise of stock options (124,972 shares) .............................. 2,000 1,562,000 -- -- 1,564,000 Payment on note receivable from employee savings and investment plan .................................plan............................... -- -- -- -- -- 353,000 353,000 Cash dividends ($.086.038 per share) ........... -- -- -- -- (475,000) -- (475,000) Three for two common stockThree-for-two Common Stock split distributeddistri-buted April 24, 1996 (1,442,546 shares) ..................1996........ 14,000 -- (14,000) -- -- -- -- 10% common stockCommon Stock dividend paid July 26, 1996 (432,644 shares) ......1996........................... 4,000 -- 10,827,000 -- (10,831,000) -- -- 10% common stockCommon Stock dividend payablepaid January 17, 1997 (479,595 shares) .....................1997................... 5,000 -- 10,127,000 -- (10,132,000) -- -- Other .................................Other................................ -- -- 8,000 -- -- -- 8,000 Net income for the year ...............year.............. -- -- -- -- 9,892,000 -- 9,892,000 --------------- ------- ----------- ------------- ----------------------- ----------- ----------- ----------- Balances, October 31, 1996 ............ $53,000 $30,881,000 $1996........... 53,000 -- 30,881,000 -- 13,893,000 $ (3,339,000) $41,488,000 ========41,488,000 Exercise of stock options............ 1,000 -- 1,117,000 -- -- -- 1,118,000 Payment on note receivable from employee savings and investment plan............................... -- -- -- -- -- 397,000 397,000 Cash dividends ($.045 per share)..... -- -- -- -- (548,000) -- (548,000) Stock issued in acquisition.......... 2,000 -- 3,542,000 -- -- -- 3,544,000 Excess of purchase price over book value on sale of minority interest........................... -- -- -- -- 6,427,000 -- 6,427,000 Three-for-two Common Stock split distri-buted December 16, 1997..... 27,000 -- (27,000) -- -- -- -- Other................................ -- -- 20,000 -- (19,000) -- 1,000 Net income for the year.............. -- -- -- -- 7,019,000 -- 7,019,000 ------- ------- ----------- ----------- ----------- ----------- ----------- Balances, October 31, 1997........... 83,000 -- 35,533,000 -- 26,772,000 (2,942,000) 59,446,000 Distribution of one share of Class A Common Stock for each two shares of Common Stock made April 23, 1998... -- 42,000 (42,000) -- -- -- -- Repurchase of stock (58,300 shares of Common Stock and 75,400 shares of Class A Common Stock).............. (1,000) (1,000) (2,036,000) -- -- -- (2,038,000) Unrealized loss on investments....... -- -- -- (1,142,000) -- -- (1,142,000) Exercise of stock options (115,270 shares of Common Stock and 38,675 shares of Class A Common Stock).... 1,000 -- 956,000 -- -- -- 957,000 Payment on note receivable from employee savings and investment plan............................... -- -- -- -- -- 444,000 444,000 Cash dividends ($.05 per share)...... -- -- -- -- (643,000) -- (643,000) Other................................ -- -- 63,000 -- 11,000 -- 74,000 Net income for the year.............. -- -- -- -- 10,509,000 -- 10,509,000 ------- ------- ----------- ----------- ----------- ----------- ----------- Balances, October 31, 1998........... $83,000 $41,000 $34,474,000 $(1,142,000) $36,649,000 $(2,498,000) $67,607,000 ======= ======= =========== ============= ======================= =========== =========== ===========
SeeThe accompanying notes toare an integral part of these consolidated financial statements. F-14F-5 66 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 1994, 19951998, 1997 AND 1996
1994 19951998 1997 1996 --------------- -------------- --------------------------- ----------- ----------- Cash flows from operating activities: Net incomeincome.................................................. $10,509,000 $ 1,851,000 $ 2,695,0007,019,000 $ 9,892,000 Adjustments to reconcile net income to cash provided by operating activities: Gain from sale of health care operations ........................operations.................. -- -- (5,264,000) Depreciation and amortization .................................... 2,000,000 2,638,000amortization............................. 2,761,000 1,624,000 2,107,000 Deferred income taxes ............................................. 171,000 (245,000)taxes..................................... (342,000) (486,000) (1,048,000) Deferred financing costs .......................................... (255,000) (56,000)costs.................................. (1,039,000) (144,000) (159,000) (Income) loss from unconsolidated partnerships .................. 724,000 590,000 (393,000) Minority interest in consolidated partnerships .................. 34,000 144,000 313,000 Cumulative effect of change in accounting principle ............... (381,000)subsidiary.............. 2,619,000 -- -- Change in assets and liabilities: ................................. Decrease (increase)(Increase) decrease in accounts receivable ........................ (717,000) (967,000)receivable.............. (3,822,000) (2,713,000) 166,000 (Increase) in inventories ....................................... (588,000) (98,000)inventories............................... (4,642,000) (2,912,000) (3,283,000) Decrease (increase)(Increase) decrease in prepaid expenses and other current assets ................................................ (190,000) (147,000)assets........................................ (182,000) (605,000) 111,000 (Decrease) increase(Increase) in unexpended bond proceeds.................. (229,000) (222,000) -- Increase (decrease) in trade payables, accrued expenses and other current liabilities ....................................... 1,014,000 2,111,000liabilities......................... 4,653,000 (215,000) (14,000) (Decrease) increase in income taxes payable and deferred income taxes .......................................... 10,000 488,000payable............. (961,000) 118,000 (983,000) Increase in other non-current liabilities ........................liabilities............... -- 67,000266,000 251,000 Other ............................................................ -- (97,000) (4,000) ------------ ------------ ------------Other................................................... 214,000 (14,000) (84,000) ----------- ----------- ----------- Net cash provided by operating activities ........................ 3,673,000 7,123,000activities................... 9,539,000 1,716,000 1,692,000 ------------ ------------ ----------------------- ----------- ----------- Cash flows from investing activities: Acquisitions: Purchases of businesses, net of cash acquired............. (45,627,000) (6,737,000) (6,555,000) Contingent note payments of discontinued health care operations.............................................. -- -- (1,106,000) Proceeds from sale of health care operations, net of cash sold of $304,000 .........................................................$304,000.......................................... -- -- 13,524,000 Sale (purchase)(Purchase) sale of short-term investments ........................investments................... (3,864,000) -- (2,939,000) 2,939,000 Acquisitions: Purchases of businesses, net of cash acquired ..................... (1,518,000) (154,000) (6,555,000) Contingent note payments .......................................... (1,560,000) (1,945,000) (1,106,000) Purchases of property, plant and equipment ........................ (1,165,000) (800,000)equipment.................. (6,171,000) (3,551,000) (3,227,000) Payments for deferred organization costs ........................... (120,000) (358,000) (387,000) Payment received from employee savings and investment plan note receivable ...................................................... 253,000 286,000receivable........................................... 444,000 397,000 353,000 Proceeds from the saleSale of property, plant and equipment ............ 21,000 324,000 17,000 Distributions from (advances to) unconsolidated partnerships ...... (114,000) (480,000) 60,000 Distributions to minority interests ..............................note receivable..................................... -- (71,000) (216,000) Other ............................................................ (189,000) 87,000 155,000 ------------ ------------ ------------10,000,000 -- Other....................................................... (171,000) (268,000) (371,000) ----------- ----------- ----------- Net cash (used in) provided by investing activities ............... (4,392,000) (6,050,000)activities......... (55,389,000) (159,000) 5,557,000 ------------ ------------ ----------------------- ----------- ----------- Cash flows from financing activities: Proceeds from the issuance of long-term debt ..................... 1,418,000 201,000 1,343,000debt: Proceeds from revolving credit facility................... 25,000,000 -- -- Bond reimbursement proceeds............................... 3,384,000 1,427,000 851,000 Other..................................................... 95,000 845,000 492,000 Proceeds from the exercise of stock options ........................ 22,000 570,000options................. 957,000 1,118,000 1,525,000 Repurchases of common stock ....................................... (238,000) (117,000)stock................................. (2,038,000) -- Principle-- Principal payments on short-term debt, long-term debt and capital leases ............................................................ (594,000) (1,715,000)debt........................ (5,493,000) (926,000) (3,289,000) Cash dividends paid ................................................ (340,000) (369,000)paid......................................... (643,000) (548,000) (475,000) Other ............................................................Proceeds from sale of minority interest, net of expenses.... -- (9,000)9,700,000 -- Additional minority interest investments.................... 9,000,000 -- -- Other....................................................... (2,000) 1,000 8,000 ------------ ------------ ----------------------- ----------- ----------- Net cash provided by (used in) financing activities ............... 268,000 (1,439,000)activities......... 30,260,000 11,617,000 (888,000) ------------ ------------ ----------------------- ----------- ----------- Net (decrease) increase in cash and cash equivalents ............... (451,000) (366,000)equivalents........ (15,590,000) 13,174,000 6,361,000 Cash and cash equivalents at beginning of year ..................... 5,481,000 5,030,000year.............. 24,199,000 11,025,000 4,664,000 ------------ ------------ ----------------------- ----------- ----------- Cash and cash equivalents at end of year ...........................year.................... $ 5,030,000 $ 4,664,000 $ 11,025,000 ============ ============ ============8,609,000 $24,199,000 $11,025,000 =========== =========== ===========
SeeThe accompanying notes toare an integral part of these consolidated financial statements. F-15F-6 67 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 19951998, 1997 AND 1996 NOTE 1--SUMMARY1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS HEICO Corporation (the Company), through its principal subsidiaries HEICO Aerospace CorporationHoldings Corp. (HEICO Aerospace), including its subsidiaries, Jet Avion Corporation (Jet Avion), LPI Industries Corporation (LPI), and Aircraft Technology, Inc. (Aircraft Technology), and HEICO Aviation Products Corp. (HEICO Aviation) and its subsidiary, Trilectron Industries, Inc. (Trilectron),their subsidiaries, is engaged in the design, manufacture and sale of aerospace products and services throughout the United States and abroad. ItsHEICO Aerospace's subsidiaries include HEICO Aerospace Corporation, Jet Avion Corporation (Jet Avion), LPI Industries Corporation (LPI), Aircraft Technology, Inc. (Aircraft Technology), Northwings Accessories Corporation (Northwings), McClain International, Inc. (McClain) (Note 2), Associated Composite, Inc. (ACI) (Note 2) and Rogers-Dierks, Inc. acquired December 1998 (Note 2). HEICO Aviation's subsidiary is Trilectron Industries, Inc. (Trilectron). The Company's customer base is primarily the commercial airline industry. As of October 31, 1996,1998, the Company's principal operations are located in Atlanta, Georgia and Hollywood, Miami and Palmetto, Florida. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned.wholly-owned except for HEICO Aerospace, of which a 20% interest was sold to Lufthansa Technik AG (Lufthansa) in October 1997 (see Note 2). All significant intercompany balances and transactions are eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the consolidated financial statements, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. SHORT-TERM INVESTMENTS Investments with a maturity of less than one year that are not readily convertible to cash before their maturity are classified as short-term investments and are stated at their fair value (see Note 8). INVENTORIES Portions of the HEICO Aerospace and Trilectron inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out basis. The remaining portions of thesethe inventories are stated at the lower of cost or market, on a per contract basis, with estimated total contract costs being allocated ratably to all units. The effects of changes in estimated total contract costs are recognized in the period determined. Losses, if any, are recognized fully when identified. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation and amortization is provided mainly on the straight-line method over the estimated useful lives of the various assets, including assets recorded under capital leases which are amortized over the shorter of their useful lives or the term of the related leases.assets. Property, plant and equipment useful lives are as follows: F-16 Buildings and components.................................... 7 to 55 years Building and leasehold improvements......................... 3 to 15 years Machinery and equipment..................................... 3 to 20 years
F-7 68 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996---- (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Buildings and components ...... 7 to 55 years Building improvements ......... 3 to 15 years Machinery and equipment ......... 3 to 20 years The costs of major renewals and betterments are capitalized. Repairs and maintenance are charged to operations as incurred. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in earnings. INTANGIBLE ASSETS Intangible assets include the excess of cost over the fair value of net assets acquired and deferred charges which are amortized on the straight-line method over their legal or estimated useful lives, whichever is shorter, as follows: Excess of cost over the fair market value of net assets acquired .....acquired.................................................. 20 to 40 years Deferred charges .....................................................charges............................................ 3 to 20 years
The Company continually evaluatesreviews the periodscarrying value of intangible asset amortization to determine whether events and circumstances subsequent to the origination dates of such assets warrant revised estimates of useful lives. In addition, the Company periodically reviews the excess of cost over the fair value of net assets acquired (goodwill) to assess recoverability based upon expectations of undiscounted cash flows and operating income of each consolidated entity having a material goodwill balance.for impairment whenever events or changes in circumstances indicate that it may not be recoverable. An impairment would be recognized in operating results, based upon the difference between each consolidated entity'sentities' respective present value of future cash flows and the carrying value of the goodwill, if a permanent diminution in value were to occur. There have not been any significant revised estimates nor recognition of goodwill impairment during the three years ended October 31, 1996. FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value due to the relatively short maturity of the respective instruments. The Company's financial instruments also include a note receivable (see Note 3) and long-term debt (see Note 5). The carrying amount of the note receivable is $10,000,000 as of October 31, 1996, which approximates its fair market value. Long-term debt at October 31, 1996 includes industrial development revenue bonds with a carrying value of $5,480,000 and other long-term debt with a carrying value of $1,036,000. The carrying value of long-term debt approximates fair market value due to its floating interest rates. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many different geographical regions. At October 31, 1996, the Company had no significant concentrations of credit risk. F-17 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) REVENUE RECOGNITION Revenues areRevenue is recognized on an accrual basis, primarily upon shipment of products and the rendering of services. Certain contracts of Trilectron are long-term contracts and the related net costs and estimated earnings in excess of billings, if any, are included in accounts receivable on a percentage of completion basis. Revenue amounts set forth in the accompanying consolidated statements of operations do not include any material amounts in excess of billings related to long-term contracts. INCOME TAXES In fiscal 1994,Deferred income taxes are provided on elements of income that are recognized for financial accounting purposes in periods different from such items recognized for income tax purposes in accordance with the Company adopted, effective November 1, 1993,provisions of Statement of Financial Accounting StandardStandards (SFAS) No. 109, "Accounting for Income Taxes,Taxes." which requires the use of the liability method of accounting for deferred income taxes. The cumulative effect of this change in accounting for income taxes is a $381,000 benefit ($.08 per share) and is reported separately in the Consolidated Statements of Operations for the year ended October 31, 1994. The provision for income taxes includes Federal, state and local income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities.NET INCOME PER SHARE IncomeBasic net income per share is calculated on the basis of the weighted average number of shares outstanding during the period, excluding dilution. Diluted net income per share is computed on the basis of the weighted average number of shares outstanding during the period plus common share equivalents arising from the assumed exercise of stock options, if dilutive. The dilutive impact of common share F-8 69 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) equivalents is determined by applying the treasury stock method. Per share information for fiscal 1997 and 1996 have been restated in accordance with Statement of Financial Accounting Standard No. 128, "Earnings Per Share." STOCK BASED COMPENSATION Effective November 1, 1996, the Company adopted SFAS No. 123, "Stock Based Compensation." This statement requires the Company to choose between two different methods of accounting for stock options. The statement defines a fair-value-based method of accounting for stock options but allows an entity to continue to measure compensation cost for stock options using the intrinsic value method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has been adjusted forelected to continue using the effect of any stock dividendsaccounting methods prescribed by APB No. 25 and splits (seeto provide in Note 4).10 the pro forma disclosures required by SFAS No. 123. NEW ACCOUNTING STANDARDSTANDARDS In October 1995,June 1997, the Financial Accounting Standards Board (FASB) issued StatementSFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of Financial Accounting Standardscomprehensive income and its components in a full set of general purpose financial statements. SFAS No. 123, "Accounting130 is effective for Stock-Based Compensation" (SFAS 123). SFAS 123 established a fair value based methodfiscal years beginning after December 15, 1997. Adoption of accounting for stock options. Entities may elect to either adoptthis statement will not impact the measurement criteria of the statement for accounting purposes, thereby recognizing an amount inCompany's consolidated financial position, results of operations on a prospective basis, or disclosecash flows, and any effect will be limited to the pro forma effectsform and content of the new measurement criteria in Notes to Consolidated Financial Statements.its disclosures. The Company intends to adopt the pro formaprovisions of this statement in fiscal 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131, establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997, with earlier application permitted. Adoption of this statement will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. The Company intends to adopt the provisions of this statement in fiscal 1999. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 standardizes the disclosure featuresrequirements of SFAS 123, which are87, 88 and 106 to the extent practicable and recommends a parallel format for presenting information about pensions and other postretirement benefits. SFAS 132 is effective for fiscal yearyears beginning after December 15, 1997. NOTE 2--ACQUISITIONAdoption of this statement will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. The Company intends to adopt the provisions of this statement in fiscal 1999. 2. STRATEGIC ALLIANCE AND ACQUISITIONS STRATEGIC ALLIANCE AND SALE OF MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY In October 1997, the Company entered into a strategic alliance with Lufthansa, the technical services subsidiary of Lufthansa German Airlines, whereby Lufthansa agreed to invest approximately $26 million in HEICO Aerospace, including $10 million paid at closing pursuant to a stock purchase agreement and approximately $16 million to be paid to HEICO Aerospace over three years pursuant to a research and development cooperation agreement, which will partially fund accelerated development of additional F-9 70 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Federal Aviation Administration (FAA)-approved replacement parts for jet engines. The funds received as a result of the research and development cooperation agreement reduce research and development expenses in the period such expenses are incurred. In addition, Lufthansa and HEICO Aerospace have agreed to cooperate regarding technical services and marketing support for jet engine parts on a worldwide basis. As part of the strategic alliance, the Company sold 20% of HEICO Aerospace (200 shares) with an approximate book value of $3,273,000 to Lufthansa for $10 million. The Company's accounting policy is to treat the sale of a subsidiary's stock as an equity transaction, recording the difference between the purchase price, net of transaction costs incurred, and book value of the subsidiary, to the subsidiary's retained earnings. As a result of this sale, $6,427,000 was recorded as an increase to the retained earnings of the Company in the consolidated financial statements. In connection with subsequent acquisitions by HEICO Aerospace, Lufthansa invested additional amounts pursuant to its option to maintain a 20% equity interest as described below. ACQUISITIONS In September 1996, the Company, through HEICO Aviation,a subsidiary, acquired effective as of September 1, 1996 all of the outstanding stock of Trilectron for $7.0$6.6 million in cash and the assumption of debt aggregating $2.3 million. Trilectron is a leading manufacturer of ground power, air conditioning and air startingsupport equipment for civil and military aircraft and is a designer and manufacturer of certain military electronics. The acquisition of Trilectron has been accounted using the purchase method of accounting and the purchase price has been assigned to the net assets acquired based on the fair value of such assets and liabilities at the date of acquisition. The excess of the purchase price over the fair value of the identifiable net assets acquired amounted to $2,838,000, which is being amortized over 20 years using the straight line method. The results of operations of Trilectron are included in the Consolidated Statements of Operations from September 1, 1996. Pursuant to a Stock Purchase Agreement, the Company, through a subsidiary, acquired effective as of September 1, 1997 all of the outstanding stock of Northwings. In consideration of this acquisition, the Company paid approximately $6.7 million in cash and 232,360 shares of the Company's common stock, having an aggregate fair value of approximately $3.5 million. Northwings is an FAA-authorized overhaul and repair facility servicing aircraft engine components and airframe accessories. The acquisition of Northwings has been accounted for using the purchase method of accounting and the purchase price has been assigned to the net assets acquired based on the fair value of such assets and liabilities at the date of acquisition. The excess of the purchase price over the fair value of the identifiable net assets acquired amounted to $2,838,000,$8,395,000, which will beis being amortized over 20 years using the F-18straight line method. The results of operations of Northwings are included in the Consolidated Statements of Operations from September 1, 1997. On July 31, 1998, the Company, through a subsidiary, acquired all of the outstanding capital stock of McClain, located in Atlanta, GA. In consideration of this acquisition, the Company paid approximately $41 million in cash. The Company also purchased from one of McClain's selling shareholders, McClain's headquarters and manufacturing facility for $2.5 million in cash. The purchase price will be adjusted based on the final determination of the actual net worth of McClain as of July 31, 1998. McClain designs, manufactures and overhauls FAA-approved aircraft jet engine replacement components. The source of the purchase price was $10 million from available funds, $9 million from an additional minority interest investment by Lufthansa and $25 million from proceeds of a $120 million revolving credit facility (see Note 4). F-10 71 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996---- (CONTINUED) NOTE 2--ACQUISITION--(CONTINUED)The acquisition of McClain has been accounted for using the purchase method of accounting. The purchase price has been assigned to the net assets acquired based on the fair value of such assets and liabilities at the date of acquisition. The excess of purchase price over the fair value of the identifiable net assets acquired amounted to $37.7 million, which is being amortized over 30 years using the straight line method. Results of operations of McClain are included in the Company's results effective August 1, 1998. On October 19, 1998, the Company, through a subsidiary, acquired all of the outstanding capital stock of ACI for $1.3 million in cash. The purchase price will be adjusted based on the final determination of the actual net worth of ACI as of October 19, 1998. ACI is an FAA-licensed repair and overhaul company. The source of the purchase price was from available funds. The acquisition has been accounted for using the purchase method of accounting. The purchase price has been assigned to the net assets acquired based on the fair value of such assets and liabilities at the date of acquisition. The excess of the purchase price over the fair value of the identifiable net assets acquired was insignificant. Results of operations for ACI are included in the Company's results effective October 20, 1998. The costs of each acquisition have been allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition as determined by management. The allocation of the costs of acquisitions of McClain and ACI is preliminary while the Company obtains final information regarding the fair values of all assets acquired; however, management believes that any adjustments to the amounts allocated will not have a material effect on the Company's financial position or results of operations. Effective December 4, 1998, the Company, through a subsidiary, acquired substantially all of the assets of 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. This acquisition is being accounted for using the purchase method of accounting and the results of operations of Trilectron areRogers-Dierks will be included in the consolidated statementsCompany's results effective December 4, 1998. Rogers-Dierks formerly designed and manufactured FAA-approved, factory-new jet engine replacement parts for sale to commercial airlines. The Company intends to continue to use the acquired assets for the same purposes as formerly used by Rogers-Dierks. Subsequent to the closing of operations from September 1, 1996.the transaction, Lufthansa made an additional investment of $3 million in HEICO Aerospace representing 20% of the initial cash consideration. The following table presents unaudited pro forma consolidated operating results as if the acquisitionCompany's sale of Trilectrona 20% minority interest in HEICO Aerospace to Lufthansa and its acquisitions of Northwings, McClain and Rogers-Dierks had occurred atbeen consummated as of November 1, 1996. The pro forma impact of ACI is not significant. The unaudited pro forma results include adjustments to historical amounts including additional amortization of the beginningexcess of costs over the fair value of net assets acquired, increased interest on borrowings to finance the acquisitions, discontinuance of certain compensation previously paid by the acquired companies to their shareholders, reduced investment income on available funds used to finance the acquisitions, and the incremental minority interest of Lufthansa in the net income of the acquired companies. The unaudited pro forma consolidated operating results for fiscal 1995.1997 do not include any income received from the aforementioned research and development cooperation agreement with Lufthansa or the gain on the sale of the 20% minority interest referenced above. The pro forma consolidated operating results do not purport to present actual operating results had the acquisition been made at the beginning of fiscal 1995,1997, or the results which may occur in the future.
1995 1996 ------------- ------------- Net sales ............................................. $39,544,000 $48,198,000 Net income from continuing operations ............... $ 1,685,000 $ 4,186,000 Net income .......................................... $ 2,943,000 $10,413,000 Net income per share from continuing operations ...... $ 0.32 $ 0.71 Net income per share ................................. $ 0.56 $ 1.76
NOTE 3--SALE OF HEALTH CARE OPERATIONS In July 1996, the Company consummated the sale of all of the outstanding capital stock of its wholly-owned subsidiary MediTek Health Corporation ("MediTek"), representing the Company's health care services segment, to U.S. Diagnostic Inc. ("USDL"). In consideration for the sale of MediTek, the Company received $13,828,000 in cash and a five-year, 61/2% promissory note (the "Convertible Note") in the principal amount of $10,000,000, which is convertible, at the option of the Company, into 1,081,081 shares of USDL common stock. In order to assure the Company's liquidity with respect to the Convertible Note and the USDL common stock into which it is convertible, USDL (i) granted the Company demand and piggy-back registration rights with respect to such shares of USDL common stock, and (ii) agreed to prepay the Convertible Note at the Company's request at any time until such registration is completed. The terms of such demand registration rights, as amended in December 1996, require USDL to use its best efforts to cause a registration statement covering all of the USDL common stock into which the Convertible Note is convertible to be declared effective by the Securities and Exchange Commission by July 1, 1997. The terms of such piggy-back registration rights give the Company rights to include such USDL common stock in certain registration statements filed by USDL from January 1, 1997 until January 1, 2000. Upon 15 days' prior written notice, USDL may require the Company to convert the Convertible Note into USDL common stock at any time beginning on the later of December 31, 1997 or the date that such shares of USDL common stock have been registered, if the closing price of the USDL common stock has averaged at least $9.25 per share for the immediately preceding ten trading days. Also, beginning on December 31, 1997, USDL may prepay the Convertible Note at any time upon 60 days' prior written notice. The Company retains the right to convert the promissory note into the applicable shares of USDL common stock at any time prior to prepayment. The sale of MediTek resulted in a gain in fiscal 1996 of $5,264,000, net of expenses and applicable income taxes. The income taxes on the gain are less than the normal Federal statutory rate principally due to the utilization of a $4.6 million capital loss carryforward partially offset by state income taxes. MediTek's results of operations, net of taxes, for fiscal 1994, 1995 and 1996 have been reported separately as discontinued operations in the Consolidated Statement of Operations. No amounts related to the discontinued operations remain in the October 31, 1996 Consolidated Balance Sheet. F-19F-11 72 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996---- (CONTINUED) NOTE 3--SALE OF HEALTH CARE OPERATIONS--(CONTINUED) The condensed statement of operations related to the discontinued health care services segment during fiscal years 1994, 1995 and 1996 are presented below:
YEARS ENDED OCTOBER 31, EIGHT MONTHS ENDED ----------------------------- JUNE 30, 1994 1995 1996 ------------- ------------- --------------------1998 1997 ------------ ----------- Net revenues ..................... $13,181,000 $14,766,000 $11,382,000sales................................................... $112,421,000 $89,805,000 ============ ============ ======================= Income before income taxes ......minority interest............................. $ 1,448,00015,576,000 $10,788,000 ============ =========== Minority interest........................................... $ 2,152,000(3,438,000) $(2,944,000) ============ =========== Net income.................................................. $ 1,680,000 Income tax expense ............... 618,000 894,000 717,000 ------------ ------------ ------------12,138,000 $ 7,844,000 ============ =========== Net income .....................per share: Basic..................................................... $ 830,0000.97 $ 1,258,0000.64 ============ =========== Diluted................................................... $ 963,0000.78 $ 0.53 ============ ============ =======================
The effective tax rate used in calculating income tax expense related to discontinued operations exceeds the normal Federal statutory tax rate due principally to state income taxes. With the sale3. SHORT-TERM INVESTMENTS Short-term investments consist of the health care services segment, the Company's operations are within a single business segment, the aerospace products and services industry. NOTE 4--STOCK DIVIDENDS AND SPLIT In May 1995, December 1995 and June 1996, the Company's Boardequity securities with an aggregate cost of Directors declared 10% stock dividends that were paid in July 1995, February 1996 and July 1996, respectively. In March 1996, the Company's Board of Directors declared a three-for-two stock split that was distributed in April 1996. On December 13, 1996, the Company's Board of Directors declared a 10% stock dividend payable January 17, 1997 to shareholders of record on January 8, 1997. These transactions were valued based on the closing market prices of the Company's stock$3,864,000 as of their respective declaration dates. DuringOctober 31, 1998. These investments are classified as available-for-sale and stated at a fair value of $2,051,000 as of October 31, 1998. The gross unrealized losses were $1,813,000 as of October 31, 1998. There were no short-term investments during the year ended October 31, 1997. Unrealized gains and losses, net of deferred taxes, are reflected as an adjustment to shareholders' equity. Gross realized gains on sales of securities classified as available-for-sale, using the average cost method, were $288,000 for fiscal 1996, retained earnings was charged $20,963,000 as a result of the issuance of a combined total of 2,354,785 shares of the Company's common stock. During fiscal 1995, retained earnings was charged $7,881,000 as a result of the issuance of a combined total of 483,558 shares of the Company's common stock. All income per share, dividend per share and common shares outstanding information has been retroactively restated to reflect1998. There were no realized losses during these stock dividends and split. F-20 HEICO CORPORATIONperiods. 4. CREDIT FACILITIES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 5--CREDIT FACILITIES, LONG-TERM DEBT AND CAPITAL LEASES Long-term debt and capital leases consistconsists of:
OCTOBER 31, ------------------------------ 1995 1996 ------------ ---------------------------------------- 1998 1997 ----------- ----------- Industrial development revenue bonds .............................. $1,980,000 $5,480,000 Term loan borrowingBorrowings under revolving credit facility ............... 633,000 317,000facility.................. $20,000,000 $ -- Industrial Development Revenue Bonds -- Series 1997A........ 3,000,000 3,000,000 Industrial Development Revenue Bonds -- Series 1997C and 1997B..................................................... 995,000 1,000,000 Industrial Development Revenue Bonds -- Series 1996......... 3,500,000 3,500,000 Industrial Development Revenue Refunding Bonds -- Series 1988...................................................... 1,980,000 1,980,000 Equipment loans ................................................... 430,000 719,000 Mortgage note payable in monthly installments including interest at 8.625% due January, 1999 ....................................... 497,000 -- Capital leases with various expiration dates from 1995 to 2003, at various interest rates from 10.625% to 12.03% .................. 3,812,000 -- Other long-term debt ............................................. 518,000 -- ---------- ---------- 7,870,000 6,516,000loans............................................. 1,045,000 1,320,000 ----------- ----------- 30,520,000 10,800,000 Less current maturities .......................................... (794,000) (494,000) ---------- ---------- $7,076,000 $6,022,000 ========== ==========maturities..................................... (377,000) (342,000) ----------- ----------- $30,143,000 $10,458,000 =========== ===========
The amount of long-term debt maturing in each of the next five years is $494,000 in fiscal 1997, $170,000 in fiscal 1998, $170,000$377,000 in fiscal 1999, $138,000$328,000 in fiscal 2000, and $71,000$1,476,000 in fiscal 2001, $5,114,000 in fiscal 2002, $5,000,000 in 2003 and $18,225,000 thereafter. The amount of long-term debt maturing in each of the next five years assumes the outstanding borrowings under the revolving credit facility of $20,000,000 will be converted to term loans in July 2001 and amortized over a four year period in accordance with the terms of the facility. REVOLVING CREDIT FACILITY In July 1998, the Company entered into a $120 million revolving credit facility (Credit Facility) with a bank syndicate replacing its $7 million credit facility. Funds are available for funding acquisitions, working capital and general corporate requirements on a revolving basis through July 2001. The Credit Facility may be extended by mutual consent through July 2003. The Company has the option to convert outstanding advances to term loans amortizing over a five year period, with a maximum Credit Facility F-12 73 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) term of seven years. Outstanding borrowings bear interest at the Company's choice of prime rate or London Interbank Offering Rates (LIBOR) plus applicable margins. The applicable margins range from .00% to .50% for prime rate borrowings and from .75% to 2.00% for LIBOR based borrowings depending on the leverage ratio of the Company. A fee of .20% to .40% is charged on the amount of the unused commitment depending on the leverage ratio of the Company. The Credit Facility is secured by all the assets, excluding real estate, of the Company and its subsidiaries and contains covenants which, among other things, requires the maintenance of certain working capital, leverage and debt service ratios as well as minimum net worth requirements. At October 31, 1998, the Company had a total of $20 million borrowed under the Credit Facility at an interest rate of 6.38%, which was borrowed to partially fund the acquisition of McClain (Note 2). INDUSTRIAL DEVELOPMENT REVENUE BONDS The industrial development revenue bonds represent bonds issued by Manatee County, Florida in 1997 (the 1997 bonds), and bonds issued by Broward County, Florida in 1996 (the 1996 bonds) and in 1988 (the 1988 bonds). The 1996Series 1997A and 1997B bonds were issued in March 1997 in the amountamounts of $3,500,000$3,000,000 and $1,000,000, respectively, for the purpose of renovatingconstructing and expandingpurchasing equipment for a new facility in Palmetto, Florida. In November 1997, the Hollywood facility.Series 1997B bonds were refinanced by the issuance of Series 1997C bonds. As of October 31, 1996,1998 and 1997, the Company hashad been reimbursed $851,000$3,384,000 and $80,000 for such qualified expenditures, and the balance of the unexpended bond proceeds of $2,649,000 are$785,000 and $4,044,000, respectively, including investment earnings, was held by the trustee and is available for future qualified expenditures. The Series 1997A and 1997C bonds bear interest at variable rates calculated weekly (3.25% at October 31, 1998). The 1997A and 1997C bonds are due March 2017 and 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 of $200,000 beginning in March 1998. The 1996 bonds are due October 2011 and bear interest at a variable rate calculated weekly (3.75%(3.20% at October 31, 1996)1998). The 1996 bonds are secured by a letter of credit expiring in October 2001 and a mortgage on the related properties pledged as collateral. The letter of credit requires annual sinking fund payments beginning October 2000 in the amount of $187,500. As of October 31, 1998 and 1997, the balance of the unexpended bond proceeds of $1,467,000 and $1,393,000, respectively, including investment earnings, was held by the trustee and is available for future qualified expenditures. The 1988 bonds are due April 2008 and bear interest at a variable rate calculated weekly (3.70%(3.05% at October 31, 1996)1998). The 1988 bonds are secured by a letter of credit expiring in February 1999, a bond sinking fund ($8,250 payable monthly) and a mortgage on the related properties pledged as collateral. The pledged properties for the 1996 and 1988 bonds have a carrying value aggregating approximately $5,555,000 at October 31, 1996. Trilectron has been approved by Manatee County, Florida for $3,000,000 of industrial development revenue bonds to finance the construction of a larger facility in Palmetto, Florida and the purchase of additional equipment. These bonds are expected to be issued in fiscal 1997. REVOLVING CREDIT FACILITY The Company has a $7 million credit facility available for funding acquisitions, working capital and general corporate requirements. Borrowings under this credit facility bear interest at 0.25% over the F-21 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 5--CREDIT FACILITIES, LONG-TERM DEBT AND CAPITAL LEASES--(CONTINUED) bank's prime rate, adjusted daily, and are convertible to term loans that bear interest, at the Company's option, at 0.25% over the bank's prime rate, adjusted daily, or a fixed interest rate of 200 basis points over the bank's prime rate in effect on the day of the conversion. Term loan borrowings under the credit facility are payable in 36 to 48 monthly installments. The credit facility is secured by substantially all the assets of HEICO Aerospace and its subsidiaries. The revolving portion of the facility expires in April 1997 and may be renewed annually by mutual agreement. This credit facility and the letters of credit securing the 1996 bonds and 1988 bonds contain covenants which, among other things, restrict borrowings, capital expenditures and cash dividends, require the maintenance of certain net worth, working capital and debt service amounts and ratios, require the continued employment of the current Chairman, President and Chief Executive Officer and require that he and his affiliates maintain a specified ownership position in the Company. In October 1994, the Company borrowed $950,000 from the $7 million credit facility, of which $317,000 is outstanding as of October 31, 1996 with interest accruing at 8.5% per annum. EQUIPMENT LOAN FACILITY In March 1994, a bank committed to advance up to $1,900,000,$2,000,000 through December 1998, as amended, in fiscal 1995, for the purpose of purchasing equipment to be used in the Company's operations. Each term loan is limited to 80% of the purchase price of the related equipment and is repayable up to a maximum of 60 months with interest at a rate equal to the bank's prime rate.rate (as defined). The term loans are secured by collateral representing the related purchased equipment, which has a carrying valueequipment. Equipment loans beared interest at rates ranging from 8.25% to 8.75% as of approximately $905,000 at October 31, 1996. In December 1996, the Company received a commitment to extend the facility until December 1997. OTHER LONG-TERM DEBT The mortgage note payable, capital leases and other long-term debt were assumed by USDL as part of the sale of MediTek in July 1996. (See Note 3) NOTE 6--LEASE1998. 5. LEASE COMMITMENTS The Company leases certain property and equipment, including manufacturing facilities and office equipment under operating leases. Some of these leases provide the Company with the option after the F-13 74 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) initial lease term either to purchase the property at the then fair market value or renew its lease at the then fair rental value. Generally, management expects that leases will be renewed or replaced by other leases in the normal course of business. F-22 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 6--LEASE COMMITMENTS--(CONTINUED) Minimum payments for operating leases having initial or remaining noncancellablenoncancelable terms in excess of one year are as follows: Year ending October 31, 1997 .............................. $332,000 1998 .............................. 259,000 1999 .............................. 133,000 2000 .............................. 27,000 --------- Total minimum lease commitments ...... $751,000 ========= Year ending October 31, 1999........................................................ $ 521,000 2000........................................................ 451,000 2001........................................................ 327,000 2002........................................................ 208,000 2003........................................................ 161,000 After 2003.................................................. 107,000 ---------- Total minimum lease commitments............................. $1,775,000 ==========
Total rent expense charged to continuing operations for all operating leases in fiscal 1994,1998, fiscal 19951997 and fiscal 1996 amounted to $68,000, $133,000$319,000, $240,000 and $166,000, respectively. NOTE 7--INCOMEIncluded in the fiscal 1998 and 1997 rent expense was approximately $73,000 and $12,000, respectively, paid to a related party for the month-to-month lease of the Northwings facility. 6. INCOME TAXES The provision for income taxes on income from continuing operations before cumulative effect of change in accounting principle for each of the three years ended October 31, 1996 is as follows:
1994 19951998 1997 1996 ------------- ------------ ------------------------- ---------- ----------- Current: Federal ................................................ $ 407,000 $1,592,000Federal......................................... $6,687,000 $3,468,000 $ 4,084,000 State ................................................ 135,000 318,000State........................................... 569,000 358,000 459,000 ---------- ---------- ------------ 542,000 1,910,000----------- 7,256,000 3,826,000 4,543,000 Deferred ................................................ 171,000 (245,000)Deferred.......................................... (342,000) (486,000) (387,000) ---------- ---------- ----------------------- Total income tax expense .............................. 713,000 1,665,000expense.......................... 6,914,000 3,340,000 4,156,000 Less income taxes for discontinued operations ......... (618,000) (894,000)health care operations...................................... -- -- (2,436,000) ---------- ---------- ----------------------- Income taxes on income from continuing operations ...... $ 95,000 $ 771,000operations...................................... $6,914,000 $3,340,000 $ 1,720,000 ========== ========== =======================
A net deferred tax liabilitybenefit of $661,000$671,000, relating to MediTekgross unrealized losses on available-for-sale equity securities, was written offrecorded as a result of the sale of such discontinued operations describedan adjustment to shareholders' equity in Note 3.fiscal 1998. F-14 75 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reconciles the federal statutory tax rate to the Company's effective rate for continuing operations:
1994 19951998 1997 1996 ---------- ------- -------------- ---- ---- Federal statutory tax rate .......................................... 34.0%rate.................................. 35.0% 34.0% 34.0% State taxes, less applicable federal income tax reduction ............ 1.1 2.6reduction... 2.1 1.9 2.3 Tax benefits on export sales ....................................... (13.6) (6.4)sales................................ (2.1) (3.6) (5.1) Tax benefits from tax free investments .............................. (1.2)investments...................... (.2) (1.0) (1.1) Tax benefits from dividend income .................................... (.2) (.1) (.2) Nondeductible amortization of intangible assets ..................... 2.4assets............. .8 .5 .3 Reversal of excess income tax provisions upon completion of tax audit (8.0) -- -- Other, net ......................................................... (1.6) 4.2 1.7 ------ ----- -----net.................................................. (1.1) .4 1.5 ---- ---- ---- Effective tax rate ................................................ 12.9% 34.9%rate................................ 34.5% 32.2% 31.9% ====== ===== ========= ==== ====
F-23 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 7--INCOME TAXES--(CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of October 31, 1994, 19951998, 1997 and 1996 are as follows:
OCTOBER 31, ------------------------------------------------- 1994 1995------------------------------------ 1998 1997 1996 --------------- -------------- ------------------------ ---------- ---------- Deferred tax assets: Inventory .............................................Inventory.......................................... $ 306,000486,000 $ 412,000571,000 $ 600,000 Bad debt allowances .................................... 261,000 436,000allowances................................ 119,000 124,000 62,000 Retirement and deferredDeferred compensation liabilities ...... 76,000 102,000liability.................... 586,000 445,000 148,000 Vacation accruals .................................... 115,000 112,000accruals.................................. 222,000 121,000 147,000 Customer rebates and credits ........................... 279,000 371,000credits....................... 511,000 169,000 860,000 Retirement plan liability.......................... 183,000 156,000 -- Warranty accruals ....................................accruals.................................. 243,000 256,000 94,000 Unrealized loss on short-term investments.......... 671,000 -- -- 94,000 Alternative minimum tax credit ........................Other.............................................. -- 113,000 147,000 13,000 -- Capital loss carryforward .............................. 1,560000, -- -- Other ................................................ 67,000 147,000 147,000 ------------ ---------- ---------- 2,811,000 1,593,000 2,058,000 Valuation allowance .................................... (1,560,000) -- -- ------------ ---------- ---------- Total deferred tax assets .............................. 1,251,000 1,593,000assets................ 3,021,000 1,955,000 2,058,000 ---------------------- ---------- ---------- Deferred tax liabilities: Accelerated depreciation .............................. 948,000 1,208,000depreciation........................... 259,000 436,000 927,000 Intangible asset amortization ........................ 280,000 545,000amortization...................... 176,000 22,000 345,000 Retirement plan liability ..............................liability.......................... -- -- (127,000) Equity in losses of partnerships ..................... 387,000 (35,000) -- Other ................................................ 8,000 2,000Other.............................................. 81,000 5,000 (8,000) ---------------------- ---------- ---------- Total deferred tax liabilities ........................ 1,623,000 1,720,000liabilities........... 516,000 463,000 1,137,000 ---------------------- ---------- ---------- Net deferred tax asset (liability) ..................... $ (372,000) $ (127,000)asset................... $2,505,000 $1,492,000 $ 921,000 ====================== ========== ==========
The $1,560,000 deferred tax asset related to7. STOCK DIVIDENDS AND SPLITS In December 1996, June 1996 and December 1995, the Company's $4.6 million capital loss carryforward hadBoard of Directors declared 10% stock dividends that were paid in January 1997, July 1996 and February 1996, respectively. In March 1996 and November 1997, the Company's Board of Directors declared three-for-two stock splits that were distributed in April 1996 and December 1997, respectively. In March 1998, the Company's Board of Directors declared a 100% valuation allowancestock distribution payable of one share of newly-authorized Class A Common Stock to each shareholder of Common Stock for each two shares of Common Stock held. The Class A Common Stock distribution was made on April 23, 1998 to shareholders of record on April 9, 1998. The 10% stock dividends were valued based on the closing market prices of the Company's stock as of October 31, 1994. NOTE 8--INVESTMENT IN FINANCIAL INSTRUMENTS In fiscal 1995, the Company entered into transactions in which it simultaneously purchased and sold call options on an industry sector index of equity securities (the Index Options) expiring in November 1995. The Index Options were purchased with temporary surplus funds of approximately $2.9 million for investment purposes. Prior to the end of fiscal 1995, the Company traded substantially all of the purchase option position and entered into a similar purchase option position having the same November 1995 expiration date. The gain realized in fiscal 1995 fully utilized the Company's $4.6 million capital loss carryover. The deferred tax asset related to the Company's $4.6 million capital loss carryforward had a 100% valuation allowance as of October 31, 1994. As of October 31, 1995, the investments in the purchased and sold call option contracts are netted because the terms of the Index Option contracts provide for a right of offset. The net investment as of October 31, 1995 in the amount of $2.9 million is recorded at fair market value as represented by the net cash proceeds realized upon F-24respective F-15 76 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996---- (CONTINUED) NOTE 8--INVESTMENT IN FINANCIAL INSTRUMENTS--(CONTINUED) termination of the option contracts in November 1995declaration dates. All income per share, dividend per share, stock options and is included in short-term investments. Upon termination of the option contracts in November 1995, the Company recognized a $4.6 million capital loss for income tax purposes. For financial statement purposes, the transactions did not result in any material gain or loss. NOTE 9--PREFERREDcommon shares outstanding information has been retroactively restated to reflect these stock dividends and splits. 8. PREFERRED STOCK PURCHASE RIGHTS PLAN In November 1993, pursuant to a plan adopted by the Board of Directors on such date, the Board declared a distribution of one Preferred Stock Purchase Right (the Rights) for each outstanding share of common stock par value $.01 per share, of the Company. The Rights trade with the common stock and are not exercisable or transferable apart from the common stockCommon Stock and Class A Common Stock until after a person or group either acquires 15% or more of the outstanding common stock or commences or announces an intention to commence a tender offer for 30% or more of the outstanding common stock. Absent either of the aforementioned events transpiring, the Rights will expire at the close of business on November 2, 2003. The Rights have certain anti-takeover effects and, therefore, will cause substantial dilution to a person or group who attempts to acquire the Company on terms not approved by the Company's Board of Directors or who acquires 15% or more of the outstanding common stock without approval of the Company's Board of Directors. The Rights should not interfere with any merger or other business combination approved by the Board since they may be redeemed by the Company at $.01 per Right at any time until the close of business on the tenth day after a person or group has obtained beneficial ownership of 15% or more of the outstanding common stock or until a person commences or announces an intention to commence a tender offer for 30% or more of the outstanding common stock. NOTE 10--STOCK9. COMMON STOCK AND CLASS A COMMON STOCK Each share of Common Stock is entitled to one vote per share. Each share of Class A Common Stock is entitled to a 1/10 vote per share. Holders of the Company's Common Stock and Class A Common Stock are entitled to receive when, as and if declared by the Board of Directors dividends and other distributions payable in cash, property, stock, or otherwise. In the event of liquidation, after payment of debts and other liabilities of the Company, and after making provision for the holders of preferred stock, if any, the remaining assets of the Company will be distributable ratably among the holders of all classes of common stock. 10. STOCK OPTIONS The Company currently has two stock option plans, the 1993 Stock Option Plan (1993 Plan) and the Non-Qualified Stock Option Plan (NQSOP). In March 1998, March 1997 and March 1996, shareholders of the Company approved an increaseincreases in the number of shares issuable pursuant to the 1993 Plan by 251,178 shares. A third plan, the Combined Stock Option Plan expired in February 1993586,865, 596,421 and was replaced by the 1993 Plan.565,151, respectively. In September 1996, the Board of Directors reserved 70,180157,905 shares for the issuance of non-qualified stock options in conjunction with the purchase of Trilectron. Under the terms of the plans, a total of 1,634,5582,807,122 Common and 1,589,748 Class A Common shares of the Company's stock are reserved for issuance to directors, officers and key employees as of October 31, 1996.1998. Options issued under the 1993 Plan may be designated incentive stock options (ISO) or non-qualified stock options (NQSO). ISOs are granted at not less than 100% of the fair market value at the date of grant (110% thereof in certain cases) and are exercisable in percentages specified at date of grant over a period up to ten years. Only employees are eligible to receive ISOs. NQSOs may be granted at less than fair market value and may be immediately exercisable. Options granted under the NQSOP may be granted to directors, officers and employees at no less than the fair market value at the date of grant and are generally exercisable in four equal annual installments commencing one year from date of grant. F-25 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 10--STOCK OPTIONS--(CONTINUED) Information concerning all of the stock option transactions for the three years ended October 31, 1996 follows:
SHARES UNDER OPTION -------------------------------- SHARES AVAILABLE PRICE FOR OPTION SHARES PER SHARE ----------------- ------------- ---------------- Outstanding, October 31, 1993 ...... 418,940 1,301,854 $3.28 - $8.95 Granted ........................... (173,496) 173,496 $4.73 - $5.46 Cancelled ........................... 4,392 (63,178) $4.61 - $8.16 Exercised ........................... -- (4,831) $4.61 --------- --------- Outstanding, October 31, 1994 ...... 249,836 1,407,341 $3.28 - $8.95 Granted ........................... (194,032) 194,032 $4.33 - $8.64 Cancelled ........................... 57,922 (62,316) $4.38 - $8.16 Exercised ........................... -- (126,924) $3.47 - $8.16 --------- --------- Outstanding, October 31, 1995 ...... 113,726 1,412,133 $3.28 - $8.95 Additional shares approved for 1993 Stock Option Plan ............ 251,178 -- -- Shares approved for grant in the Trilectron acquisition ............ 70,180 -- -- Granted ........................... (328,803) 328,803 $9.08 - $16.64 Cancelled ........................... 18,950 (29,412) $4.61 - $11.44 Exercised ........................... -- (202,197) $4.38 - $8.95 --------- --------- Outstanding, October 31, 1996 ...... 125,231 1,509,327 $3.28 - $16.64 ========= =========
All of the above options were granted at the fair market value of the stock on the date of grant. As of October 31, 1996, options for 1,280,429 shares were exercisable at a weighted average option price of $6.05. If there were a change in control of the Company, options for an additional 228,898 shares would become immediately exercisable. The weighted average option price for all options outstanding as of October 31, 1996 is $6.86. All stock option share and price per share information has been retroactively restated for stock dividends and splits. NOTE 11--RETIREMENTF-16 77 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information concerning all of the stock option transactions for the three years ended October 31, 1998 is as follows:
SHARES UNDER OPTION SHARES -------------------------- AVAILABLE PRICE FOR OPTION SHARES PER SHARE ---------- --------- -------------- Outstanding, October 31, 1995.................. 255,884 3,177,371 $1.46 - $ 3.98 Additional shares approved for 1993 Stock Option Plan............................ 565,151 -- -- Shares approved for grant in the Trilectron acquisition.................................. 157,905 -- -- Granted........................................ (739,806) 739,806 4.03 - 7.39 Cancelled...................................... 42,637 (66,178) 2.05 - 5.09 Exercised...................................... -- (454,942) 1.95 - 3.98 -------- --------- -------------- Outstanding, October 31, 1996.................. 281,771 3,396,057 1.46 - 7.39 Additional shares approved for 1993 Stock Option Plan............................ 596,421 -- -- Granted........................................ (814,500) 814,500 6.22 - 12.36 Cancelled...................................... 5,208 (87,991) 2.65 - 10.89 Exercised...................................... -- (208,377) 1.95 - 7.39 -------- --------- -------------- Outstanding, October 31, 1997.................. 68,900 3,914,189 1.46 - 12.36 Additional shares approved for 1993 Stock Option Plan............................ 586,865 -- -- Granted........................................ (429,002) 429,002 9.92 - 30.63 Cancelled...................................... 2,382 (21,521) 9.83 - 16.33 Exercised...................................... -- (153,945) 1.95 - 16.33 -------- --------- -------------- Outstanding, October 31, 1998.................. 229,145 4,167,725 $1.46 - $30.63 ======== ========= ==============
Summary of shares available for option and shares under option by class of common stock is as follows:
SHARES UNDER OPTION SHARES -------------------------- AVAILABLE PRICE FOR OPTION SHARES PER SHARE ---------- --------- -------------- Common Stock................................... 41,190 2,765,932 $1.46 - $30.63 Class A Common Stock........................... 187,955 1,401,793 1.46 - 29.17 ------- --------- 229,145 4,167,725 ======= =========
Information concerning stock options outstanding and exercisable by class of common stock as of October 31, 1998 is as follows: COMMON STOCK
WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- ---------------- ----------- -------------- $ 1.46 - $ 3.33 1,423,362 $ 2.23 3.5 1,407,013 $2.23 3.34 - 7.33 502,895 4.47 5.8 405,425 4.41 7.34 - 12.36 566,925 9.96 8.4 303,754 9.87 12.37 - 30.63 272,750 30.16 9.6 0 0.00 --------- ------ --- --------- ----- 2,765,932 $ 6.98 5.5 2,116,192 $3.74 ========= ====== === ========= =====
F-17 78 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CLASS A COMMON STOCK
WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- ---------------- ----------- -------------- $ 1.46 - $ 3.33 711,533 $ 2.23 3.3 703,348 $2.23 3.34 - 7.33 251,592 4.47 5.6 202,846 4.41 7.34 - 12.36 283,541 9.96 8.4 151,997 9.87 12.37 - 29.17 155,127 27.30 9.6 25,000 27.50 --------- ------ --- --------- ----- 1,401,793 $ 6.97 5.4 1,083,191 $4.29 ========= ====== === ========= =====
Information concerning stock options outstanding and exercisable as of October 31, 1997, all of which related to Common Stock, is as follows:
WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- ---------------- ----------- -------------- $ 1.46 - $ 3.33 2,299,653 $ 2.25 3.9 2,248,029 $2.25 3.34 - 7.33 755,486 4.47 6.3 546,770 4.39 7.34 - 12.36 859,050 9.97 9.4 355,072 9.87 --------- ------ --- --------- ----- 3,914,189 $ 4.37 5.6 3,149,871 $3.48 ========= ====== === ========= =====
Information concerning stock options outstanding and exercisable as of October 31, 1996, all of which related to Common Stock, is as follows:
WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF OPTIONS AVERAGE REMAINING OPTIONS AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- ---------------- ----------- -------------- $ 1.46 - $ 3.33 2,384,756 $ 2.26 4.8 2,294,191 $2.25 3.34 - 5.33 850,921 4.45 6.6 589,124 4.40 5.34 - 7.39 160,380 7.39 3.9 -- -- --------- ------ --- --------- ----- 3,396,057 $ 3.05 5.2 2,883,315 $2.69 ========= ====== === ========= =====
If there were a change in control of the Company, options for an additional 968,342 shares would become immediately exercisable. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, compensation expense has been recorded in the accompanying consolidated financial statements for those options granted below the fair market value of the stock on the date of grant. Had the fair value of all grants under these plans been recognized as compensation expense over the vesting period of the grants, consistent with SFAS No. 123, the Company's net income would have been $8,913,000 ($.71 and $.57 basic and diluted net income per share, respectively) for fiscal 1998, $4,805,000 ($.40 and $.33 basic and diluted net income per share, respectively) for fiscal 1997 and $9,020,000 ($.77 and $.68 basic and diluted net income per share, respectively) for fiscal 1996. The estimated weighted average fair value of options granted was $22.85 per share for Common Stock and $20.55 per share for Class A Common Stock in fiscal 1998, $7.73 per share in fiscal 1997 and $3.90 per share in fiscal 1996. F-18 79 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
1998 1997 1996 ------------------ ----- ----- CLASS A COMMON COMMON STOCK STOCK ------ ------- Volatility.................................... 59.69% 58.55% 66.21% 77.19% Risk free interest rate (weighted average).... 4.94% 5.44% 6.35% 5.84% Dividend yield (weighted average)............. .0017% .0019% .67% 1.29% Expected life (years)......................... 10 10 10 10
11. RETIREMENT PLANS The Company has a qualified defined contribution retirement plan (the Plan) under which eligible employees of the Company and its participating subsidiaries may contribute up to 10% of their annual compensation, as defined, and the Company will contribute specified percentages ranging from 25% to 50% of employee contributions up to 3% of annual pay in Company stock or cash, as determined by the Company. The Plan also provides that the Company may contribute additional amounts in its common stock or cash at the discretion of the Board of Directors. In September 1992, the Company sold 658,845988,267 shares of the Company's stockCommon Stock to the Plan for an aggregate price of $4,122,000 entirely financed through a promissory note with the Company. The promissory note is payable in nine equal annual installments, inclusive of principal and interest at the rate of 8% per annum, of $655,000 each and a final installment of $640,000 and is prepayable in full or in F-26 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 11--RETIREMENT PLANS--(CONTINUED) part without penalty at any time. Prior to September 1992, the Company sold an aggregate of 452,429678,643 shares of its stockCommon Stock to the Plan in exchange for two notes receivable, which have been fully satisfied. Participants receive 100% vesting in employee contributions. Vesting in Company contributions is based on number of years of service. Contributions to the Plan charged to income from continuing operations for fiscal 1994, 19951998, 1997 and 1996 totaled $206,000, $240,000$452,000, $498,000 and $364,000, respectively, net of interest income earned on the note received from the Plan of $331,000$182,000 in fiscal 1994, $299,0001998, $267,000 in fiscal 19951997 and $272,000 in fiscal 1996. In 1991, the Company established a Directors Retirement Plan covering its then current directors. The net assets of this plan as of October 31, 19961998 and 1997 are not material to the financial position of the Company. During fiscal 1994, 19951998, 1997 and 1996, $73,000, $75,000$80,000, $76,000 and $82,000 respectively, was expensed for this plan. NOTE 12--QUARTERLY12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------------------ ----------- ----------- ----------- Net sales: 1995 .............................. $5,392,000 $6,394,000 $6,904,000 $ 6,923,000 1996 .............................. $6,978,000 $7,942,000 $8,059,000 $11,586,0001998...................................... $19,783,000 $22,673,000 $24,062,000 $28,833,000 1997...................................... 14,267,000 13,552,000 16,716,000 19,139,000 1996...................................... 6,978,000 7,942,000 8,059,000 11,586,000 Gross profit: 1995 .............................. $1,740,000 $1,960,000 $2,205,0001998...................................... $ 2,211,000 1996 .............................. $2,322,000 $2,716,000 $2,897,0007,304,000 $ 4,234,000 Net income8,156,000 $ 8,808,000 $11,836,000 1997...................................... 4,741,000 4,536,000 4,869,000 6,483,000 1996...................................... 2,322,000 2,716,000 2,897,000 4,234,000
F-19 80 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- Income from continuing operations: 1995 ..............................1998...................................... $ 191,0002,282,000 $ 268,0002,451,000 $ 514,0002,613,000 $ 464,000 1996 .............................. $3,163,000 1997...................................... 1,594,000 1,640,000 1,712,000 2,073,000 1996...................................... 578,000 $ 647,000 $1,053,000 $1,053,000 1,387,000 Net income: ........................ 1995 ..............................1998...................................... $ 569,0002,282,000 $ 652,0002,451,000 $ 721,0002,613,000 $ 753,000 1996 .............................. $3,163,000 1997...................................... 1,594,000 1,640,000 1,712,000 2,073,000 1996...................................... 870,000 $1,082,000 $6,553,000 $1,082,000 6,553,000 1,387,000 Net incomeIncome per share from continuing operations: 1995 ..............................Basic 1998................................... $ .04.18 $ .20 $ .21 $ .25 1997................................... .13 .14 .14 .17 1996................................... .05 .06 .09 .12 Diluted 1998................................... $ .09.15 $ .08 1996 .............................. $ .10 $ .11.16 $ .17 $ .23.21 1997................................... .11 .11 .12 .14 1996................................... .05 .05 .08 .10 Net income per share: 1995 ..............................Basic 1998................................... $ .11.18 $ .20 $ .21 $ .25 1997................................... .13 $ .14 $ .14 1996 ...............................17 1996................................... .08 .09 .56 .12 Diluted 1998................................... $ .15 $ .18.16 $ 1.07.17 $ .23.21 1997................................... .11 .11 .12 .14 1996................................... .07 .08 .48 .10
Due to changes in the average number of common shares outstanding, net income per share for the full fiscal year does not equal the sum of the four individual quarters. The amounts above differ from those previously reported on Forms 10-Q because these amounts have been restated to reflect13. SALE OF HEALTH CARE OPERATIONS In July 1996, the resultsCompany consummated the sale of all of the outstanding capital stock of its wholly-owned subsidiary MediTek Health Corporation (MediTek), representing the Company's health care services segment, to U.S. Diagnostic Inc. In consideration for the sale of MediTek, the Company received $13,828,000 in cash and a five-year, 6 1/2% promissory note in the principal amount of $10,000,000. This note was sold to an unrelated party in September 1997 for the par value of the note of $10,000,000 plus accrued interest. The sale of MediTek resulted in a gain in fiscal 1996 of $5,264,000, net of expenses and applicable income taxes. The income taxes on the gain are less than the normal Federal statutory rate principally due to the utilization of a $4.6 million capital loss carryforward partially offset by state income taxes. MediTek's results of operations, net of taxes, for fiscal 1996 have been reported separately as discontinued operations for all periods presented. F-27in the Consolidated Statements of Operations. No amounts related to the discontinued operations remained in the October 31, 1996 Consolidated Balance Sheet. F-20 81 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996---- (CONTINUED) NOTE 13--OTHERThe condensed statements of operations related to the discontinued health care services segment during fiscal 1996 are presented below:
EIGHT MONTHS ENDED JUNE 30, 1996 -------------- Net revenues................................................ $11,382,000 =========== Income before income taxes.................................. $ 1,680,000 Income tax expense.......................................... 717,000 ----------- Net income........................................ $ 963,000 ===========
The effective tax rate used in calculating income tax expense related to discontinued operations exceeds the normal Federal statutory tax rate due principally to state income taxes. 14. OTHER CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS INFORMATION Accounts receivable are composed of the following:
BALANCE AT OCTOBER 31, --------------------------------- 1995 1996 --------------- ---------------------------------------- 1998 1997 ----------- ----------- Accounts receivable .................................... $ 9,531,000 $7,882,000 Net costs and estimated earnings in excess of billings on uncompleted contracts ................................. -- 265,000receivable......................................... $19,681,000 $12,922,000 Less allowance for doubtful accounts .................. (1,174,000) (268,000) Less contractual allowances ........................... (1,648,000) -- ------------ ----------accounts........................ (259,000) (362,000) ----------- ----------- Accounts receivable, net .............................. $ 6,709,000 $7,879,000 ============ ==========net.......................... $19,422,000 $12,560,000 =========== ===========
Revenue amounts set forth in the accompanying Consolidated Statements of Operations do not include any material amounts in excess of billings related to long-term contracts. Inventories are composed of the following:
BALANCE AT OCTOBER 31, ----------------------------- 1995 1996 ------------- -------------------------------------- 1998 1997 ----------- ----------- Finished products ..............................products........................................... $ 2,534,0009,306,000 $ 4,428,0004,329,000 Work in process ................................. 1,721,000 5,845,000process............................................. 5,213,000 7,359,000 Materials, parts, assemblies and supplies ...... 1,104,000 5,004,000 ------------ ------------supplies................... 9,808,000 6,671,000 ----------- ----------- Total inventories .............................. $ 5,359,000 $15,277,000 ============ ============inventories................................. $24,327,000 $18,359,000 =========== ===========
Inventories related to long-term contracts aggregated $628,000were not significant as of October 31, 1996. There were no such inventories as of1998 and October 31, 1995.1997. Property, plant and equipment including capital leases are composed of the following:
BALANCE AT OCTOBER 31, ------------------------------------ 1995 1996 ---------------- -------------------------------------------- 1998 1997 ------------ ------------ Land ....................................Land...................................................... $ 131,000707,000 $ 523,000525,000 Buildings and improvements ............... 6,026,000 5,418,000improvements................................ 7,477,000 6,578,000 Machinery and equipment .................. 18,040,000 13,658,000 ------------- ------------- 24,197,000 19,599,000equipment................................... 17,581,000 15,753,000 Construction in progress.................................. 5,058,000 507,000 ------------ ------------ 30,823,000 23,363,000 Less accumulated depreciation ............ (14,901,000) (13,754,000) ------------- -------------depreciation............................. (16,028,000) (14,820,000) ------------ ------------ Property, plant and equipment, net ......net.............. $ 9,296,00014,795,000 $ 5,845,000 ============= =============8,543,000 ============ ============
F-21 82 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Intangible assets are composed of the following:
BALANCE AT OCTOBER 31, -------------------------------- 1995 1996 -------------- ---------------------------------------- 1998 1997 ----------- ----------- Excess of cost over the fair value of net assets acquired ...... $12,324,000 $4,882,000acquired... $54,247,000 $13,539,000 Deferred charges ................................................ 1,473,000 679,000 Other ......................................................... 25,000 -- ------------ ---------- 13,822,000 5,561,000charges............................................ 1,691,000 905,000 ----------- ----------- 55,938,000 14,444,000 Less accumulated amortization ................................. (1,377,000) (805,000) ------------ ----------amortization............................... (1,974,000) (1,186,000) ----------- ----------- Intangible assets, net .......................................... $12,445,000 $4,756,000 ============ ==========net...................................... $53,964,000 $13,258,000 =========== ===========
F-28 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 13--OTHER CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS INFORMATION--(CONTINUED) Accrued expenses and other current liabilities are composed of the following:
BALANCE AT OCTOBER 31, --------------------------- 1995 1996 ------------ ------------------------------------ 1998 1997 ----------- ---------- Accrued employee compensation .............................. $1,711,000 $2,071,000compensation............................... $ 3,515,000 $2,757,000 Accrued customer rebates and credits ..................... 1,378,000 1,848,000 Accrued property taxes .................................... 505,000 435,000 Other ...................................................... 1,452,000 1,549,000credits........................ 2,434,000 1,553,000 Estimated McClain purchase price adjustment................. 1,000,000 -- Deferred reimbursement of research and development costs.... 990,000 -- Other....................................................... 2,462,000 2,370,000 ----------- --------------------- Total accrued expenses and other current liabilities ...... $5,046,000 $5,903,000liabilities..................................... $10,401,000 $6,680,000 =========== =====================
SALES Export sales were $3,678,000$21,874,000 in fiscal 1994, $5,762,0001998, $18,662,000 in fiscal 19951997 and $9,806,000 in fiscal 1996. Fiscal 1997 export sales include $7,912,000 to Europe. No one customer accounted for sales of 10% or more of consolidated sales during the last three fiscal years. RESEARCH AND DEVELOPMENT EXPENSES Fiscal 1994, 19951998, 1997, and 1996 cost of sales amounts include approximately $1,200,000, $1,800,000$900,000, $3,100,000 and $2,400,000, respectively, of new product research and development expenses. The expenses for fiscal 1998 are net of $3,500,000 received from Lufthansa and spent by the Company in fiscal 1998 pursuant to a research and development cooperation agreement entered into October 1997. Amounts received from Lufthansa and not used as of October 31, 1998 totalled $990,000 and are recorded as deferred income on the balance sheet. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ARE AS FOLLOWS: Cash paid for interest was $193,000, $386,000$996,000, $477,000 and $264,000 in 1994, 1995fiscal 1998, 1997 and 1996, respectively. Cash paid for income taxes was $881,000, $1,400,000$6,753,000, $3,438,000 and $4,421,000 in 1994, 1995fiscal 1998, 1997 and 1996, respectively. F-22 83 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Non-cash investing and financing activities related to the acquisitions and contingent note payments during fiscal 1994, 19951998, 1997 and 1996 were as follows:
1994 19951998 1997 1996 --------------- --------------- --------------------------- ---------- ---------- Fair value of assets acquired: Intangible assets ................................. $ 2,632,000 $ 1,945,000 $ 3,944,000 Inventories ....................................... -- --assets............................... $40,468,000 $8,395,000 $3,944,000 Inventories..................................... 1,327,000 669,000 6,635,000 Accounts receivable ................................. 300,000 --receivable............................. 3,040,000 2,032,000 3,051,000 Property, plant and equipment ..................... 249,000 -- 401,000equipment................... 1,985,000 421,000 104,000 Other assets ....................................... 146,000 154,000assets.................................... 95,000 24,000 41,000 Cash paid, including contingent note payments ...... (3,078,000) (2,099,000)payments..... (45,911,000) (6,737,000) (7,661,000) ------------ ------------ ------------Fair value of common stock issued................. -- (3,544,000) -- ----------- ---------- ---------- Liabilities assumed .................................assumed............................... $ 249,000 $ -- $ 6,411,0000 ============ ============ ============1,004,000 $1,260,000 $6,114,000 =========== ========== ==========
Non-cash investing and financing activities related to purchases by the discontinued health care operations of property, plant and equipment financed by capital leases during fiscal 1994, 1995 and 1996 amounted to $1,044,000, $2,257,000 and $1,343,000, respectively. Non-cash investing and$1,343,000. There were no significant capital lease financing activities during fiscal 1995 also included purchases of property, plant1998 and equipment of $2,269,000, investments in and advances to unconsolidated partnerships of $862,000, deferred charges of $461,000 and other assets of $139,000 F-29 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 13--OTHER CONSOLIDATED BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS INFORMATION--(CONTINUED) which were financed by capital leases assumed, issuance of a note payable and distributions from an unconsolidated partnership during fiscal 1995.1997. Additionally, retained earnings was charged $7,881,000 in fiscal 1995 and $20,963,000 in fiscal 1996 as a result of the 10% stock dividends described in Note 47 above. NOTE 14--PENDING15. PENDING LITIGATION In November 1989, HEICO Aerospace Corporation and Jet Avion were named defendants in a complaint filed by United Technologies Corporation ("UTC")(UTC) in the United States District courtCourt 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, allegesalleged 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 seekssought approximately $10$8 million in damages for the patent infringement and approximately $30 million in damages for the misappropriation of trade secrets and the unfair competition claims. The aggregate damages referred to in the preceding sentence dodid not exceed approximately $30 million because a portion of the misappropriation and unfair competition damages duplicate the $10 million patent infringement damages. The complaintUTC also seeks,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 itsan answer denying certain counterclaims and moved to dismiss otherthe counterclaims. A number of motions are currentlyremain pending and no trial date has beenis currently set. Based on currently known facts, the Company's legal counsel has advised that it believes thatIn August 1997, a Motion for Summary Judgment filed by the Company should be able to successfully defendon a portion of the patent infringementlawsuit was granted by the United States District Court Judge. The Summary Judgment dismissed UTC's claims alleged in UTC's complaint. With respect to thefor misappropriation of trade secrets and unfair competition, claims, legal counsel to the Company has advisedfinding that it believes the likelihood that UTC will be able to prove a case regarding such claims within theFlorida's statute of limitations is remote. Further,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. F-23 84 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 against UTC.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 accompanyingconsolidated 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. NOTE 15--SUBSEQUENT EVENT--PENDING LITIGATION16. SUBSEQUENT EVENT (UNAUDITED) On August 25, 1997,January 22, 1999, the Company received notice of a Motion for Summary Judgment filedproposed adjustment pursuant to an examination by the Company on a portionInternal Revenue Service of the lawsuit described in Note 14 was granted byCompany's fiscal 1995 and 1996 tax returns, disallowing 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. The ruling left pending UTC's claim alleging F-30 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996--(CONTINUED) NOTE 15--SUBSEQUENT EVENT--PENDING LITIGATION--(CONTINUED) infringement of a patent that expired in 1992 and the Company's counterclaims against UTC alleging, among other things, malicious prosecution, trade disparagement, tortious interference, unfair competition and antitrust violations. On September 9, 1997, UTC served its Motion for Reconsiderationutilization of the Court's Motion for Summary Judgment, which is currently pending, and accordingly, the Company filed its response opposing such motion. Based on currently known facts, the Company's legal counsel has advised that it believes that the Company should be able to successfully defend the patent infringement claims alleged in UTC's complaint. With respect to the misappropriation and unfair competition claims, legal counsel to the Company has advised that it believes that the likelihood of success of UTC's Motion for Reconsideration is remote. Further, the Company intends to vigorously pursue its counterclaims against UTC. The ultimate outcome of this litigation is not certain at this time and no provision for gain or$4.6 million capital loss if any, has been made in the consoldiated financial statements. * * * * * * * F-31 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET--UNAUDITED AS OF JULY 31, 1997 ASSETS
JULY 31, 1997 --------------- Current assets: Cash and cash equivalents .......................................... $ 10,330,000 Accounts receivable, net .......................................... 8,374,000 Inventories ......................................................... 17,282,000 Prepaid expenses and other current assets ........................... 1,582,000 Deferred income taxes ............................................. 2,062,000 ------------- Total current assets ............................................. 39,630,000 ------------- Note receivable ................................................... 10,000,000 ------------- Property, plant and equipment ....................................... 21,901,000 Less accumulated depreciation .................................... (14,167,000) ------------- Property, plant and equipment, net .............................. 7,734,000 ------------- Intangible assets less accumulated amortization of $1,084,000 in 1997 5,156,000 ------------- Unexpended bond proceeds .......................................... 5,361,000 ------------- Other assets ...................................................... 2,939,000 ------------- Total assets ...................................................... $ 70,820,000 ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt .............................. $ 342,000 Trade accounts payable ............................................. 3,780,000 Accrued expenses and other current liabilities ..................... 5,622,000 Income taxes payable ................................................ 132,000 ------------- Total current liabilities ....................................... 9,876,000 ------------- Long-term debt ...................................................... 10,546,000 ------------- Deferred income taxes ................................................ 796,000 ------------- Other non-current liabilities ....................................... 2,290,000 ------------- 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-- 5,353,932 shares in 1997 ......................................... 54,000 Capital in excess of par value .................................... 31,929,000 Retained earnings ................................................... 18,271,000 ------------- 50,254,000 Less: Note receivable from employee savings and investment plan ... (2,942,000) ------------- Total shareholders' equity ....................................... 47,312,000 ------------- Total liabilities and shareholders' equity ......................... $ 70,820,000 =============
See notes to consolidated condensed financial statements F-32 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS--UNAUDITED FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1997
NINE MONTHS ENDED JULY 31, -------------------------------- 1996 1997 ------------- ---------------- Net sales ................................................... $22,979,000 $44,535,000 ----------- ----------- Operating costs and expenses: .............................. Cost of sales ............................................. 15,044,000 30,389,000 Selling, general and administrative expenses ............... 5,067,000 7,777,000 ----------- ----------- Total operating costs and expenses ........................ 20,111,000 38,166,000 ----------- ----------- Income from operations .................................... 2,868,000 6,369,000 Interest expense .......................................... (129,000) (319,000) Interest and other income ................................. 617,000 1,300,000 ----------- ----------- Income from continuing operations before income taxes ...... 3,356,000 7,350,000 Income tax expense .......................................... 1,078,000 2,404,000 ----------- ----------- Net income from continuing operations ..................... 2,278,000 4,946,000 Net income from discontinued health care operations ......... 963,000 -- Gain on sale of health care operations ..................... 5,264,000 -- ----------- ----------- Net income ................................................ $8,505,000 $ 4,946,000 =========== =========== Net income per share: From continuing operations ................................. $ .39 $ .78 From discontinued health care operations .................. .16 -- From gain on sale of health care operations ............... .90 -- ----------- ----------- Net income per share ....................................... $ 1.45 $ .78 =========== =========== Weighted average number of common and common equivalent shares outstanding ....................................... 5,847,445 6,343,216 =========== =========== Cash dividends per share .................................... $ .09 $ .10 =========== ===========
See notes to consolidated condensed financial statements. F-33 HEICO CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1997
NINE MONTHS ENDED JULY 31, --------------------------------- 1996 1997 --------------- --------------- Cash flows from operating activities: Net income ...................................................... $ 8,505,000 $ 4,946,000 ------------ ------------ Adjustments to reconcile net income to cash provided by operating activities: -- Gain from sale of health care operations ........................ (5,264,000) Depreciation and amortization ................................. 1,808,000 1,170,000 (Income) from unconsolidated partnerships ..................... (393,000) -- Minority interest in consolidated partnerships .................. 313,000 -- Deferred income taxes .......................................... (345,000) (345,000) Deferred financing costs ....................................... -- (144,000) Change in assets and liabilities: .............................. (Increase) in accounts receivable .............................. (131,000) (587,000) (Increase) in inventories .................................... (1,224,000) (2,557,000) (Increase) in prepaid expenses and other current assets ...... (9,000) (708,000) (Decrease) in trade payables, accrued expenses and other current liabilities ................................................ (52,000) (1,556,000) (Decrease) increase in income taxes payable .................. 205,000 (533,000) Increase in other non-current liabilities ..................... 186,000 203,000 Other ......................................................... -- (174,000) ------------ ------------ Net cash (used in) provided by operating activities ............ 3,599,000 (285,000) ------------ ------------ Cash flows from investing activities: Proceeds from sale of health care operations, net of cash sold of $304,000 ...................................................... 13,524,000 -- Maturity of short-term investments .............................. 2,939,000 -- Purchases of property, plant and equipment ..................... (2,108,000) (2,807,000) Acquisitions--Contingent note payments ........................... (1,106,000) -- Distributions from unconsolidated partnerships .................. 60,000 -- Distributions to minority interests .............................. (216,000) -- Payments for deferred organization costs ........................ (486,000) -- Payment received from employee savings and investment plan note receivable ................................................... 353,000 396,000 Other ............................................................ 114,000 (180,000) ------------ ------------ Net cash (used in) provided by investing activities ............ 13,074,000 (2,591,000) ------------ ------------ Cash flows from financing activities: Proceeds from the issuance of long-term debt: Reimbursements from unexpended bond proceeds .................. -- 1,427,000 Other long-term debt .......................................... 492,000 845,000 Proceeds from the exercise of stock options ..................... 1,303,000 1,028,000 Payments on long-term debt and capital leases .................. (869,000) (573,000) Cash dividends paid ............................................. (475,000) (549,000) Other ............................................................ -- 3,000 ------------ ------------ Net cash provided by financing activities ........................ 451,000 2,181,000 ------------ ------------ Net (decrease) increase in cash and cash equivalents ............ 17,124,000 (695,000) Cash and cash equivalents at beginning of year .................. 4,664,000 11,025,000 ------------ ------------ Cash and cash equivalents at end of period ........................ $ 21,788,000 $ 10,330,000 ============ ============
See notes to consolidated condensed financial statements. F-34 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--UNAUDITED FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 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 flows for such interim periods presented. The results of operations for the nine months ended July 31, 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: JULY 31, 1997 --------------- Accounts receivable .................................... $8,363,000 Net costs and estimated earnings in excess of billings on uncompleted contracts ................................. 265,000 Less allowance for doubtful accounts .................. (254,000) ---------- Accounts receivable, net .............................. $8,374,000 ========== Inventories are comprised of the following: JULY 31, 1997 --------------- Finished products ..................................... $ 3,955,000 Work in process ........................................ 7,980,000 Materials, parts, assemblies and supplies ............. 5,347,000 ------------ Total inventories ..................................... $17,282,000 ============ Inventories related to long-term contracts were not significant as of July 31, 1997. 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. Long-term debt consists of: JULY 31, 1997 -------------- 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 Industrial Development Revenue Refunding Bonds-- Series 1988 ............................................. 1,980,000 Term loan borrowing under revolving credit facility ...... -- Equipment loans .......................................... 1,408,000 ----------- 10,888,000 Less current maturities ................................. (342,000) ----------- $10,546,000 =========== F-35 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--UNAUDITED FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1997--(CONTINUED) 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 July 31, 1997, the Company has been reimbursed $80,000 for such expenditures, and the balance of the unexpended bond proceeds of $3,985,000, including investment earnings, 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 (3.75% and 5.60%, respectively, at July 31, 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 of $200,000 beginning in March 1998. The Series 1996 and Series 1988 bonds bear interest as of July 31, 1997, at 3.80% and 3.70%, respectively. As of July 31, 1997, unexpended proceeds of the Series 1996 bonds of $1,376,000 are held by the trustee and are 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. Equipment loans bear interest at rates ranging from 8.50% to 9.00% as of July 31, 1997. 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. 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 nine months ended July 31, 1997 and 1996 are as follows: Cash paid for interest was $319,000 and $129,000 in fiscal 1997 and 1996, respectively. Cash paid for income taxes was $3,013,000 and $1,228,000 in fiscal 1997 and 1996, respectively. 7. With respect to the litigationcarryforward referenced in Note 14 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended October 31, 1996, a Motion for Summary Judgment filed by the Company on a portion of the lawsuit was granted by the United States District Court Judge in August 1997. 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. The ruling left pending UTC's claim alleging infringement of a patent that expired in 1992 and the Company's counterclaims against UTC alleging, among other things, malicious prosecution, trade disparagement, tortious interference, unfair competition and antitrust violations. On F-36 HEICO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--UNAUDITED FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1997--(CONTINUED) September 9, 1997, UTC served its Motion for Reconsideration of the Court's Motion for Summary Judgment, which is currently pending, and accordingly, the Company filed its response opposing such motion. Based on currently known facts, the Company's legal counsel has advised that it believes that the Company should be able to successfully defend the patent infringement claims alleged in UTC's complaint. With respect to the misappropriation and unfair competition claims, legal counsel to the Company has advised that it believes the likelihood of success of UTC's Motion for Reconsideration is remote. Further, the Company intends to vigorously pursue its counterclaims against UTC. 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. There have been no other material developments in previously reported litigation involving the Company and its subsidiaries. 8. In October 1995, the Financial Accounting Standards Board (FASB) 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.13. The Company intends to adopt the pro forma disclosure featuresdisputes such proposed adjustment, which would result in additional taxes of SFAS No. 123, which are effective for fiscal year 1997. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS No. 128, which supersedes Accounting Principles Board ("APB") Opinion No. 15, requires a dual presentation of basic and diluted earnings per shareapproximately $1.8 million on the facegain on the sale of the income statement. Basic earnings per share excludes dilution and is computed by dividing income or loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted earnings per share is computed similarly to fully diluted earnings per share under APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. Had SFAS No. 128 been adopted for the nine months ended July 31, 1996 and 1997, basic and diluted earnings per share would have been: F-37 1996 1997 ------- ------ BASIC EARNINGS PER SHARE: From continuing operations ........................ $ .44 $.93 From discontinued health care operations ......... .19 -- From gain on sale of health care operations ...... 1.02 -- ------ ----- Net income per share .............................. $1.65 $.93 ====== ===== DILUTED EARNINGS PER SHARE: From continuing operations ........................ $ .39 .78 From discontinued health care operations ......... .16 -- From gain on sale of health care operations ...... .90 -- ------ ----- Net income per share .............................. $1.45 $.78 ====== ===== In March 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information About Capital Structure" (SFAS No. 129). SFAS No. 129 is effective for interimoperations. F-24 85 [This Page Intentionally Left Blank] 86 [This Page Intentionally Left Blank] 87 [picture] A Flight Support Group New Product Development engineer utilizes a Scanning Electron Microscope and annual periods ending after December 15, 1997. The Company believes SFAS No. 129 will have little, if any, effect on the information already disclosedan Optical Emission Spectrometer in the Company's consolidated financial statements. In June 1997,re-engineering of jet engine replacement parts. [picture] Shown here are a commercial Ground Power Unit (GPU), a military GPU and a commercial continuous flow pneumatic Air Start Unit, all manufactured by the FASB issued SFAS No. 131, "Disclosures about SegmentsGround Support Group. [picture] A trained technician inspects aircraft components prior to delivery at the Flight Support Group's repair and overhaul business. [picture] View of an Enterprise and Related Information." SFAS No. 131 establishes standards forpart of the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements forfactory floor at the periods beginning after December 15, 1997. The Company has not determined the effects, if any, SFAS No. 131 will have on the disclosures in its consolidated financial statements. F-38Ground Support Group's new manufacturing facility. ================================================================================ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS88 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,000,000 SHARES (HEICO CORPORATION LOGO) CLASS A COMMON STOCK --------------------- PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ------------ TABLE OF CONTENTS PAGE ------ Prospectus Summary .................. 3 Risk Factors ........................ 7 Use of Proceeds ..................... 13 Capitalization ..................... 14 Price Range of Common Stock and Dividends ........................ 15 Selected Financial Data ............ 16 Management's Discussion and Analysis of Financial Condition and Results of Operations .................. 18 Industry Overview .................. 21 Business ........................... 23 Management ........................... 32 Principal Shareholders ............ 34 Description of Notes ............... 36 Certain Federal Income Tax Considerations .................. 44 Description of Capital Stock ...... 46 Underwriting ........................ 48 Legal Matters ..................... 49 Experts ........................... 49 Available Information ............... 49 Incorporation of Certain Documents by Reference ..................... 50 Index to Financial Statements ...... F-1 ================================================================================ ================================================================================ $75,000,000 [HEICO CORPORATION LOGO] % CONVERTIBLE SUBORDINATED NOTES DUE 2004 ---------- PROSPECTUS ---------- FORUM CAPITAL MARKETS L.P.--------------------- MERRILL LYNCH & CO. RAYMOND JAMES & ASSOCIATES, INC. SOUTHEAST RESEARCH PARTNERS, INC.ING BARING FURMAN SELZ LLC , 1997 ================================================================================1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 89 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with the offeringOffering are as follows: Securities and Exchange Commission Registration Fee ....................................Fee......... $ 26,13728,497 NASD Filing Fee............................................. 10,160 Legal Fees and Expenses ............................................................... $100,000Expenses..................................... 100,000 Accounting Fees and Expenses ......................................................... $ 50,000 AMEX Filing Fee ........................................................................ $ * Blue Sky Qualification Fees and Expenses ................................................ $ 5,000Expenses................................ 100,000 Printing and Engraving Expenses ...................................................... $ 40,000 Fees and Expenses (including Legal Fees) for qualifications under State Securities Laws $ 5,000Expenses............................. 100,000 Registrar and Transfer Agents Fees and Expenses ....................................... $ 25,000 Miscellaneous ........................................................................ $ * --------- $ * Total .............................................................................. =========Expenses............. 4,000 Miscellaneous............................................... 157,343 -------- Total............................................. $500,000 ========
All amounts except the Securities and Exchange Commission registration fee and NASD filing fee are estimated. - ---------------- * To be filed by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant has authority under Section 607.0850 of the Florida Business Corporation Act to indemnify its directors and officers to the extent provided in such statute. The Registrant's Articles of Incorporation provide that the Registrant may indemnify its executive officers and directors to the fullest extent permitted by law, witherwhether now or hereafter. The Registrant has entered or will enter into an agreement with each of its directors and certainsome of its officers wherein it has agreed or will agree to indemnify each of them to the fullest extent permitted by law. The provisions of the Florida Business Corporation Act that authorize indemnification do not eliminate the duty of care of a director, and in appropriate circumstances equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Florida law. In addition, each director will continue to be subject to liability for (a) violations of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (b) deriving an improper personal benefit from a transaction; (c) voting for or assenting to an unlawful distribution; and (d) willful misconduct or a conscious disregard for the best interests of the Registrant in a proceeding by or in the right of the Registrant to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. The statute does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. ITEM 16. EXHIBITSEXHIBITS.
EXHIBIT NUMBER DESCRIPTION - -------- ---------------------------------------------------------------------------------------------- ----------- 1.1 -- Proposed Form of Purchase Agreement.** 2.1 -- Amended and Restated Agreement of Merger and Plan of Reorganization, dated as of March 22, 1993, by and among HEICO Corporation, HEICO Industries, Corp. and New HEICO, Inc. is incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-57624) Amendment No. 1 filed on March 19, 1993.* 2.2 -- Stock Purchase Agreement, dated June 20, 1996, by and among HEICO Corporation, MediTek Health Corporation and U.S. Diagnostic Inc. is incorporated by reference to Exhibit 2 to the Form 8-K dated July 11, 1996.*
II-1 90
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.3 -- Stock Purchase Agreement, dated as of September 16, 1996, by and between HEICO Corporation and Sigmund Borax is incorporated by reference to Exhibit 2 to the Form 8-K dated September 16, 1996.* 2.4 -- Stock Purchase Agreement dated July 25, 1997, among HEICO Corporation, N.A.C. Acquisition Corporation, Northwings Accessories Corporation, Ramon Portela and Otto Newman (without schedules) is incorporated by reference to Exhibit 2 to Form 8-K dated September 16, 1997.* 3.1 -- Articles of Incorporation of the Registrant are incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (Registration No. 33-57624) Amendment No. 1 filed on March 19, 1993.* 3.2 -- Articles of Amendment of the Articles of Incorporation of the Registrant, dated April 27, 1993, are incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-B dated April 29, 1993.* 3.3 -- Articles of Amendment of the Articles of Incorporation of the Registrant, dated November 3, 1993, are incorporated by reference to Exhibit 3.3 to the Form 10-K for the year ended October 31, 1993.* 3.4 -- Articles of Amendment of the Articles of Incorporation of the Registrant, dated March 19, 1998, are incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-48439) filed on March 23, 1998.* 3.5 -- Bylaws of the Registrant are incorporated by reference to Exhibit 3.4 to the Form 10-K for the year ended October 31, 1996.* 4.0 -- The description and terms of Preferred Stock Purchase Rights are set forth in a Rights Agreement between the Company and SunBank, N.A., as Rights Agent, dated as of November 2, 1993, incorporated by reference to Exhibit 1 to the Form 8-K dated November 2, 1993.* 5.1 -- Opinion of Greenberg Traurig, P.A. as to the validity of the Common Stock being registered.** 10.1 -- Loan Agreement, dated March 1, 1988, between HEICO Corporation and Broward County, Florida is incorporated by reference to Exhibit 10.1 to the Form 10-K for the year ended October 31, 1994.* 10.2 -- SunBank Reimbursement Agreement, dated February 28, 1994, between HEICO Aerospace Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended October 31, 1994.* 10.3 -- Amendment, dated March 1, 1995, to the SunBank Reimbursement Agreement dated February 28, 1994 between HEICO Aerospace Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.3 to the Form 10-K from the year ended October 31, 1995.* 10.4 -- Loan Agreement, dated February 28, 1994, between HEICO Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended October 31, 1994.* 10.5 -- The First Amendment, dated October 13, 1994, to Loan Agreement dated February 28, 1994 between HEICO Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.4 to the Form 10-K for the year ended October 31, 1994.* 10.6 -- Second Amendment, dated March 1, 1995, to the Loan Agreement dated February 28, 1994 between HEICO Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended October 31, 1995.*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.7 -- Third Amendment, dated September 16, 1997, to Loan Agreement dated February 28, 1994 between HEICO Corporation and SunTrust Bank, South Florida, National Association is incorporated by reference to Exhibit 10.7 to the Form 10-K/A for the year ended October 31, 1997.* 10.8 -- Fourth Amendment, dated December 1, 1997, to Loan Agreement dated February 28, 1994 between HEICO Corporation and SunTrust Bank, South Florida, National Association is incorporated by reference to Exhibit 10.8 to Form 10-K/A for the year ended October 31, 1997.* 10.9 -- Loan Agreement, dated March 31, 1994, between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.5 to the Form 10-K for the year ended October 31, 1994.* 10.10 -- The First Amendment, dated May 31, 1994, to Loan Agreement dated March 31, 1994 between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended October 31, 1994.* 10.11 -- The Second Amendment, dated August 9, 1995, to the Loan Agreement dated March 31, 1994 between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.9 to the Form 10-K for the year ended October 31, 1995.* 10.12 -- Second Loan Modification Agreement, dated February 27, 1997, between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.3 to the Form 10-Q for the three months ended April 30, 1997.* 10.13 -- Third Loan Modification Agreement, dated February 6, 1998, between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.1 to the Form 10-Q for the three months ended January 31, 1998.* 10.14 -- Loan Agreement, dated October 1, 1996, between HEICO Aerospace Corporation and Broward County, Florida is incorporated by reference to Exhibit 10.10 to the Form 10-K for the year ended October 31, 1996.* 10.15 -- SunTrust Bank Reimbursement Agreement, dated October 1, 1996, between HEICO Aerospace Corporation and SunTrust Bank, South Florida, N.A. is incorporated by reference to Exhibit 10.11 to the Form 10-K for the year ended October 31, 1996.* 10.16 -- HEICO Savings and Investment Plan and Trust, as amended and restated effective January 2, 1987 is incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended October 31, 1987.* 10.17 -- HEICO Savings and Investment Plan, as amended and restated December 19, 1994, is incorporated by reference to Exhibit 10.11 to the Form 10-K for the year ended October 31, 1994.* 10.18 -- HEICO Corporation 1993 Stock Option Plan, as amended, is incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-3 (Registration No. 333-48439) filed on March 23, 1998.* 10.19 -- HEICO Corporation Combined Stock Option Plan, dated March 15, 1988, is incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended October 31, 1989.* 10.20 -- Non-Qualified Stock Option Agreement for Directors, Officers and Employees is incorporated by reference to Exhibit 10.8 to the Form 10-K for the year ended October 31, 1985.* 10.21 -- HEICO Corporation Directors' Retirement Plan, as amended, dated as of May 31, 1991, is incorporated by reference to Exhibit 10.19 to the Form 10-K for the year ended October 31, 1992.*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.22 -- Key Employee Termination Agreement, dated as of April 5, 1988, between HEICO Corporation and Thomas S. Irwin is incorporated by reference to Exhibit 10.20 to the Form 10-K for the year ended October 31, 1992.* 10.23 -- Employment and Non-compete Agreement, dated as of September 16, 1996, by and between HEICO Corporation and Sigmund Borax is incorporated by reference to Exhibit 10.1 to the Form 8-K dated September 16, 1996.* 10.24 -- Employment and Non-compete Agreement, dated as of September 16, 1996, by and between HEICO Corporation and Charles Kott is incorporated by reference to Exhibit 10.2 to the Form 8-K dated September 16, 1996.* 10.25 -- Loan Agreement, dated as of March 1, 1997, between Trilectron Industries, Inc. and Manatee County, Florida is incorporated by reference to Exhibit 10.1 to the Form 10-Q for the three months ended April 30, 1997.* 10.26 -- 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) is incorporated by reference to Exhibit 10.2 to the Form 10-Q for the three months ended April 30, 1997.* 10.27 -- Registration Rights Agreement, dated September 15, 1997, by and between HEICO Corporation and Ramon Portela is incorporated by reference to Exhibit 10.1 to Form 8-K dated September 16, 1997.* 10.28 -- Employment and Non-compete Agreement dated September 16, 1997, by and between Northwings Accessories Corporation and Ramon Portela is incorporated by reference to Exhibit 10.2 to Form 8-K dated September 16, 1997.* 10.29 -- Amendment to Registration and Sale Rights Agreement, dated as of December 24, 1996, by and among U.S. Diagnostic Inc. and HEICO Corporation is incorporated by reference to Exhibit 10.22 to Form 10-K for the year ended October 31, 1996.* 10.30 -- Assignment of Promissory Note by and between HEICO Corporation and Forum Capital Markets L.P. is incorporated by reference to Exhibit 10.3 to Form 8-K dated September 16, 1997.* 10.31 -- Amendment to 6 1/2% Convertible Note, dated as of December 24, 1996, by and among U.S. Diagnostic Inc. and HEICO Corporation is incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended October 31, 1996.* 10.32 -- Second Amendment to the 6 1/2% Convertible Note, dated September 10, 1997, by and among U.S. Diagnostic Inc., and HEICO Corporation is incorporated by reference to Exhibit 10.4 to Form 8-K dated September 16, 1997.* 10.33 -- Stock Purchase Agreement, dated October 30, 1997, by and among HEICO Corporation, HEICO Aerospace Holdings Corp. and Lufthansa Technik AG is incorporated by reference to Exhibit 10.31 to Form 10-K/A for the year ended October 31, 1997.* 10.34 -- Shareholders Agreement, dated October 30, 1997, by and between HEICO Aerospace Holdings Corp., HEICO Aerospace Corporation and all of the shareholders of HEICO Aerospace Holdings Corp. and Lufthansa Technik AG is incorporated by reference to Exhibit 10.32 to Form 10-K/A for the year ended October 31, 1997.* 10.35 -- Stock Purchase Agreement dated as of June 9, 1998 among HEICO Aerospace Holdings Corp., McClain International, Inc., Randolph S. McClain, Janet M. Wallace and Paul R. Schwinne (without schedules) is incorporated by reference to Exhibit 2 to Form 8-K dated August 4, 1998.*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.36 -- Agreement for the Sale and Purchase of Real Property, by and among Randolph S. McClain and HEICO Aerospace Holdings Corp., is incorporated by reference to Exhibit 10.1 to Form 8-K dated August 4, 1998.* 10.37 -- Credit Agreement among HEICO Corporation and SunTrust Bank, South Florida, N.A., as Agent, dated as of July 30, 1998, is incorporated by reference to Exhibit 10.2 to Form 8-K dated August 4, 1998.* 10.38 -- Asset Purchase Agreement, dated as of December 4, 1998, among RDI Acquisition Corp., HEICO Aerospace Holdings Corp., HEICO Corporation, Rogers-Dierks, Inc., William Rogers and John Dierks (without schedules and exhibits) is incorporated by reference to Exhibit 2.1 to Form 8-K dated December 22, 1998.* 23.1 -- Consent of Greenberg Traurig, P.A. (included in its opinion filed as Exhibit 5.1).* 23.2 -- Consent of Deloitte & Touche LLP.** 23.3 -- Consent of Pyke & Pierce.** 24.1 -- Power of Attorney.*
- --------------- * Previously filed. ** Filed herewith. ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that for purposes of determining any liability under the Securities Act, (i) the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this Registration Statement at the time it was declared effective and (ii) each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 94 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on February 10, 1999. HEICO CORPORATION By: /s/ LAURANS A. MENDELSON ------------------------------------ Laurans A. Mendelson Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- 1/s/ LAURANS A. MENDELSON Chairman of the Board, February 10, 1999 - ----------------------------------------------------- President and Chief Laurans A. Mendelson Executive Officer (principal executive officer) /s/ ERIC A. MENDELSON Vice President, President of February 10, 1999 - ----------------------------------------------------- HEICO Aerospace Holdings Eric A. Mendelson Corp. and Director /s/ VICTOR H. MENDELSON Vice President, General February 10, 1999 - ----------------------------------------------------- Counsel and Director, Victor H. Mendelson President of HEICO Aviation Products Corp. /s/ THOMAS S. IRWIN Executive Vice President and February 10, 1999 - ----------------------------------------------------- Chief Financial Officer Thomas S. Irwin (principal financial and accounting officer) Director - ----------------------------------------------------- Jacob T. Carwile /s/ SAMUEL L. HIGGINBOTTOM* Director February 10, 1999 - ----------------------------------------------------- Samuel L. Higginbottom Director - ----------------------------------------------------- Paul F. Manieri /s/ ALBERT MORRISON, JR.* Director February 10, 1999 - ----------------------------------------------------- Albert Morrison, Jr.
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SIGNATURE TITLE DATE --------- ----- ---- Director - ----------------------------------------------------- Dr. Alan Schriesheim Director - ----------------------------------------------------- Guy C. Shafer
- --------------- * By Laurans A. Mendelson, Attorney-in-Fact II-7 96 EXHIBIT INDEX
SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER - ------ ----------- ----------- 1.1 Proposed Form of Underwriting Agreement between HEICO and the Underwriters.Purchase Agreement.** 2.1 Amended and Restated Agreement of Merger and Plan of Reorganization, dated as of March 22, 1993, by and among HEICO Corporation, HEICO Industries, Corp. and New HEICO, Inc. is incorporated by reference to Exhibit 2.1 to the Company'sRegistrant's Registration Statement on Form S-4 (Registration No. 33-57624) Amendment No. 1 filed on March 19, 1993.*
II-1
EXHIBIT NUMBER DESCRIPTION - -------- ------------------------------------------------------------------------------------------------- 2.2 Stock Purchase Agreement, dated June 20, 1996, by and among HEICO Corporation, MediTek Health Corporation and U.S. Diagnostic Inc. is incorporated by reference to Exhibit 2 to the Form 8-K dated July 11, 1996.* 2.3 Stock Purchase Agreement, dated as of September 16, 1996, by and between HEICO Corporation and Sigmund Borax is incorporated by reference to Exhibit 2 to the Form 8-K dated September 16, 1996.* 2.4 Stock Purchase Agreement dated July 25, 1997, among HEICO Corporation, N.A.C. Acquisition Corporation, Northwings Accessories Corporation, Ramon Portela and Otto Newman (without schedules) is incorporated by reference to Exhibit 2 to Form 8-K dated September 16, 1997.* 3.1 Articles of Incorporation of the Registrant are incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (Registration No. 33-57624) Amendment No. 1 filed on March 19, 1993.* 3.2 Articles of Amendment of the Articles of Incorporation of the Registrant, dated April 27, 1993, are incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-B dated April 29, 1993.* 3.3 Articles of Amendment of the Articles of Incorporation of the Registrant, dated November 3, 1993, are incorporated by reference to Exhibit 3.3 to the Form 10-K for the year ended October 31, 1993.* 3.4 Articles of Amendment of the Articles of Incorporation of the Registrant, dated March 19, 1998, are incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-3 (Registration No. 333-48439) filed on March 23, 1998.* 3.5 Bylaws of the Registrant.Registrant are incorporated by reference to Exhibit 3.4 to the Form 10-K for the year ended October 31, 1996.* 4.0 The description and terms of Preferred Stock Purchase Rights are set forth in a Rights Agreement between the Company and SunBank, N.A., as Rights Agent, dated as of November 2, 1993, incorporated by reference to Exhibit 1 to the Form 8-K dated November 2, 1993.* 4.2 Form of Indenture, dated as of , 1997, with respect to HEICO's % Convertible Subordinated Notes due 2004.** 5.1 Opinion of Greenberg Traurig, Hoffman Rosen Lipoff & Quentel, P.A. as to the validity of the Notes and the Common Stock issuable upon conversion of the Notes being registered.*** 10.1 Loan Agreement, dated March 1, 1988, between HEICO Corporation and Broward County, Florida is incorporated by reference to Exhibit 10.1 to the Form 10-K for the year ended October 31, 1994.* 10.2 SunBank Reimbursement Agreement, dated February 28, 1994, between HEICO Aerospace Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended October 31, 1994.* 10.3 Amendment, dated March 1, 1995, to the SunBank Reimbursement Agreement dated February 28, 1994 between HEICO Aerospace Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended October 31, 1994.* 10.3 Amendment, dated March 1, 1995, to the SunBank Reimbursement Agreement dated February 28, 1994 between HEICO Aerospace Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.3 to the Form 10-K from the year ended October 31, 1995.*
97
SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER - ------ ----------- ----------- 10.4 Loan Agreement, dated February 28, 1994, between HEICO Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended October 31, 1994.* 10.5 The First Amendment, dated October 13, 1994, to Loan Agreement dated February 28, 1994 between HEICO Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.4 to the Form 10-K for the year ended October 31, 1994.* 10.6 Second Amendment, dated March 1, 1995, to the Loan Agreement dated February 28, 1994 between HEICO Corporation and SunBank/South Florida, N.A. is incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended October 31, 1995.* 10.7 Third Amendment, dated September 16, 1997, to Loan Agreement dated February 28, 1994 between HeicoHEICO Corporation and SunTrust Bank, South Florida, National Association.**Association is incorporated by reference to Exhibit 10.7 to the Form 10- K/A for the year ended October 31, 1997.* 10.8 Fourth Amendment, dated December 1, 1997, to Loan Agreement dated February 28, 1994 between HEICO Corporation and SunTrust Bank, South Florida, National Association is incorporated by reference to Exhibit 10.8 to Form 10-K/A for the year ended October 31, 1997.* 10.9 Loan Agreement, dated March 31, 1994, between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.5 to the Form 10-K for the year ended October 31, 1994.* 10.910.10 The First Amendment, dated May 31, 1994, to Loan Agreement dated March 31, 1994 between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Loan Agreement dated MarchExhibit 10.6 to the Form 10-K for the year ended October 31, 1994 between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended October 31, 1994.*
II-2
EXHIBIT NUMBER DESCRIPTION - -------- ---------------------------------------------------------------------------------------------- 10.101994.* 10.11 The Second Amendment, dated August 9, 1995, to the Loan Agreement dated March 31, 1994 between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.9 to the Form 10-K for the year ended October 31, 1995.* 10.1110.12 Second Loan Modification Agreement, dated February 27, 1997, between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.3 to the Form 10-Q for the three months ended April 30, 1997.* 10.1210.13 Third Loan Modification Agreement, dated February 6, 1998, between HEICO Corporation and Eagle National Bank of Miami is incorporated by reference to Exhibit 10.1 to the Form 10-Q for the three months ended January 31, 1998.* 10.14 Loan Agreement, dated October 1, 1996, between HEICO Aerospace Corporation and Broward County, Florida.Florida is incorporated by reference to Exhibit 10.10 to the Form 10-K for the year ended October 31, 1996.* 10.1310.15 SunTrust Bank Reimbursement Agreement, dated October 1, 1996, between HEICO Aerospace Corporation and SunTrust Bank, South Florida, N.A. is incorporated by reference to Exhibit 10.11 to the Form 10-K for the year ended October 31, 1996.* 10.1410.16 HEICO Savings and Investment Plan and Trust, as amended and restated effective January 2, 1987 is incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended October 31, 1987.* 10.1510.17 HEICO Savings and Investment Plan, as amended and restated December 19, 1994, is incorporated by reference to Exhibit 10.11 to the Form 10-K for the year ended October 31, 1994.*
98
SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER - ------ ----------- ----------- 10.18 HEICO Corporation 1993 Stock Option Plan, as amended, is incorporated by reference to Exhibit 10.1110.18 to the Company's Registration Statement on Form 10-K for the year ended October 31, 1994.S-3 (Registration No. 333-48439) filed on March 23, 1998.* 10.16 HEICO Corporation 1993 Stock Option Plan.* 10.1710.19 HEICO Corporation Combined Stock Option Plan, dated March 15, 1988, is incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended October 31, 1989.* 10.1810.20 Non-Qualified Stock Option Agreement for Directors, Officers and Employees is incorporated by reference to Exhibit 10.8 to the Form 10-K for the year ended October 31, 1985.* 10.1910.21 HEICO Corporation Directors' Retirement Plan, as amended, dated as of May 31, 1991, is incorporated by reference to Exhibit 10.19 to the Form 10-K for the year ended October 31, 1992.* 10.2010.22 Key Employee Termination Agreement, dated as of April 5, 1988, between HEICO Corporation and Thomas S. Irwin is incorporated by reference to Exhibit 10.20 to the Form 10-K for the year ended October 31, 1992.* 10.2110.23 Employment and Non-compete Agreement, dated as of September 16, 1996, by and between HEICO Corporation and Sigmund Borax is incorporated by reference to Exhibit 10.1 to the Form 8-K dated September 16, 1996.* 10.2210.24 Employment and Non-compete Agreement, dated as of September 16, 1996, by and between HEICO Corporation and Charles Kott is incorporated by reference to Exhibit 10.2 to the Form 8-K dated September 16, 1996.* 10.2310.25 Loan Agreement, dated as of March 1, 1997, between Trilectron Industries, Inc. and Manatee County, Florida is incorporated by reference to Exhibit 10.1 to the Form 10-Q for the three months ended April 30, 1997.* 10.2410.26 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) is incorporated by reference to Exhibit 10.2 to the Form 10-Q for the three months ended April 30, 1997.* 10.25 Stock Purchase Agreement dated July 25, 1997, among HEICO Corporation, N.A.C. Acquisition Corporation, Northwings Accessories Corporation, Ramon Portela and Otto Neuman (without schedules) is incorporated by reference to Exhibit 2 to Form 8-K dated September 16, 1996.* 10.2610.27 Registration Rights Agreement, dated September 15, 1997, by and between HEICO Corporation and Ramon Portela is incorporated by reference to Exhibit 10.1 to Form 8-K dated September 16, 1996.1997.* 10.2710.28 Employment and Non-compete Agreement dated September 16, 1997, by and between Northwings Accessories Corporation and Ramon Portela is incorporated by reference to Exhibit 10.2 to Form 8-K dated September 16, 1996.*
II-3
EXHIBIT NUMBER DESCRIPTION - -------- ------------------------------------------------------------------------------------------- 10.281997.* 10.29 Amendment to Registration and Sale Rights Agreement, dated as of December 4,24, 1996, by and among U.S. Diagnostic Inc. and HeicoHEICO Corporation is incorporated by reference to Exhibit 10.22 to Form 10-K for the year ended October 31, 1996.* 10.2910.30 Assignment of Promissory Note by and between HEICO Corporation and Forum Capital Markets L.P. is incorporated by reference to Exhibit 10.3 to Form 8-K dated September 16, 1997.* 10.3010.31 Amendment to 6 1/2% Convertible Note, dated as of December 24, 1996, by and among U.S. Diagnostic Inc. and HEICO Corporation.* 10.31 Second Amendment to the 6 1/2% Convertible Note, dated September 10, 1997, by and among U.S. Diagnostic Inc., and HEICO Corporation is incorporated by reference to Exhibit 10.410.21 to Form 8-K10-K for the year ended October 31, 1996.* 10.32 Second Amendment to the 6 1/2% Convertible Note, dated September 16, 1997.* 10.3210, 1997, by and among U.S. Diagnostic Inc., and HEICO Corporation is incorporated by reference to Exhibit 10.4 to Form 8-K dated September 16, 1997.*
99
SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER - ------ ----------- ----------- 10.33 Stock Purchase Agreement, dated October 30, 1997, by and among HEICO Corporation, HEICO Aerospace Holdings Corp. and Lufthansa Technik AG.*AG is incorporated by reference to Exhibit 10.31 to Form 10-K/A for the year ended October 31, 1997.* 10.3310.34 Shareholders Agreement, dated October 30, 1997, by and between HEICO Aerospace Holdings Corp., HEICO Aerospace Corporation and all of the shareholders of HEICO Aerospace Holdings Corp. and Lufthansa Technik AG.*AG is incorporated by reference to Exhibit 10.32 to Form 10-K/A for the year ended October 31, 1997.* 12 Ratio10.35 Stock Purchase Agreement dated as of EarningsJune 9, 1998 among HEICO Aerospace Holdings Corp., McClain International, Inc., Randolph S. McClain, Janet M. Wallace and Paul R. Schwinne (without schedules) is incorporated by reference to Fixed Charges*Exhibit 2 to Form 8-K dated August 4, 1998.* 21 Subsidiaries10.36 Agreement for the Sale and Purchase of the Company.Real Property, by and among Randolph S. McClain and HEICO Aerospace Holdings Corp., is incorporated by reference to Exhibit 10.1 to Form 8-K dated August 4, 1998.* 10.37 Credit Agreement among HEICO Corporation and SunTrust Bank, South Florida, N.A., as Agent, dated as of July 30, 1998, is incorporated by reference to Exhibit 10.2 to Form 8-K dated August 4, 1998.* 10.38 Asset Purchase Agreement, dated as of December 4, 1998, among RDI Acquisition Corp., HEICO Aerospace Holdings Corp., HEICO Corporation, Rogers-Dierks, Inc., William Rogers and John Dierks (without schedules and exhibits) is incorporated by reference to Exhibit 2.1 to Form 8-K dated December 22, 1998.* 23.1 Consent of Greenberg Traurig, Hoffman Rosen Lipoff & Quentel, P.A. (to be included(included in its opinion to be filed as Exhibit 5.1).*** 23.2 Consent of Deloitte & Touche LLP.** 23.3 Consent of De La OsaPyke & Associates, P.A.Pierce.** 23.4 Consent24.1 Power of Kerkering, Barberio & Co.** 27 Financial Data Schedule*Attorney.*
- ------------------------------- * Previously filed. ** Filed herewith. *** To be filed by amendment. ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes: (a) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (b) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering II-4 thereof, and (c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (c) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on November 5, 1997. HEICO CORPORATION. By: /s/ Laurans A. Mendelson ------------------------------------ LAURANS A. MENDELSON, Chairman of the Board, President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Laurans A. Mendelson his true and lawful attorney-in-fact, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including any post-effective amendments, to this Registration Statement, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - -------------------------------- ------------------------------------- ------------------ /s/ Laurans A. Mendelson Chairman of the Board, President November 5, 1997 - -------------------------------- and Chief Executive Officer LAURANS A. MENDELSON (principal executive officer) /s/ Eric A. Mendelson Vice President, President of HEICO November 5, 1997 - -------------------------------- Aerospace Corporation and ERIC A. MENDELSON Director /s/ Victor H. Mendelson Vice President, General Counsel and November 5, 1997 - -------------------------------- Director, President of HEICO VICTOR H. MENDELSON Aviation Products Corp. /s/ Thomas S. Irwin Executive Vice President and November 5, 1997 - -------------------------------- Chief Financial Officer THOMAS S. IRWIN (principal financial officer) /s/ Jacob T. Carwile Director November 5, 1997 - -------------------------------- JACOB T. CARWILE /s/ Samuel L. Higginbottom Director November 5, 1997 - -------------------------------- SAMUEL L. HIGGINBOTTOM
II-6
SIGNATURE TITLE DATE - -------------------------------- ------------------------------------- ------------------ /s/ Paul F. Manieri Director November 5, 1997 - -------------------------------- PAUL F. MANIERI /s/ Albert Morrison, Jr. Director November 5, 1997 - -------------------------------- ALBERT MORRISON, JR. /s/ Dr. Alan Schriesheim Director November 5, 1997 - -------------------------------- DR. ALAN SCHRIESHEIM /s/ Guy C. Shafer Director November 5, 1997 - -------------------------------- GUY C. SHAFER
II-7 INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED EXHIBIT DESCRIPTION PAGE - --------- --------------------------------------------------------------------------- -------------- 1 Form of Underwriting Agreement between HEICO and the Underwriters. 4.2 Form of Indenture, dated as of , 1997, with respect to HEICO's % Convertible Subordinated Notes due 2004. 10.32 Stock Purchase Agreement, dated October 30, 1997, by and among HEICO Corporation, HEICO Aerospace Holdings Corp. and Lufthansa Technik AG. 10.33 Shareholders Agreement, dated October 30, 1997, by and between HEICO Aerospace Holdings Corp., HEICO Aerospace Corporation and all of the shareholders of HEICO Aerospace Holdings Corp. and Lufthansa Technik AG. 12 Ratio of Earnings to Fixed Charges 21 Subsidiaries of the Company. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of De La Osa & Associates, P.A. 23.4 Consent of Kerkering, Barberio & Co. 27 Financial Data Schedule