UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997
OR
[ ]TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
Commission file number 1-4604
HEICO CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0341002
------------------------------- -----------------------------------
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
3000 TAFT STREET, HOLLYWOOD, FLORIDA 33021
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(954) 987-6101
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock, $.01 par
value, is 5,347,778 shares as of May 31, 1997.
HEICO CORPORATION
INDEX
PAGE NO.
--------
Part I. Financial information:
Consolidated Condensed Balance Sheets as of
April 30, 1997 and October 31, 1996............................ 3
Consolidated Condensed Statements of Operations for the six and
three months ended April 30, 1997 and 1996..................... 4
Consolidated Condensed Statements of Cash Flows for the
six months ended April 30, 1997 and 1996....................... 5
Notes to Consolidated Condensed Financial Statements............. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
Part II. Other Information:
Item 1. Legal Proceedings....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders..... 12
Item 6. Exhibits and Reports on Form 8-K........................ 12
-2-
PART I. FINANCIAL INFORMATION
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
APRIL 30, OCTOBER 31,
1997 1996
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 10,371,000 $ 11,025,000
Accounts receivable, net 7,747,000 7,879,000
Inventories 18,261,000 15,277,000
Prepaid expenses and other current assets 1,478,000 874,000
Deferred income taxes 2,243,000 2,058,000
------------ ------------
Total current assets 40,100,000 37,113,000
------------ ------------
Note receivable 10,000,000 10,000,000
------------ ------------
Property, plant and equipment 21,420,000 19,599,000
Less accumulated depreciation (13,835,000) (13,754,000)
------------ ------------
Property, plant and equipment, net 7,585,000 5,845,000
------------ ------------
Intangible assets less accumulated amortization of
$954,000 in 1997 and $805,000 in 1996 4,712,000 4,756,000
------------ ------------
Unexpended bond proceeds 5,330,000 2,649,000
------------ ------------
Other assets 2,683,000 1,473,000
------------ ------------
Total assets $ 70,410,000 $ 61,836,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 376,000 $ 494,000
Trade accounts payable 4,565,000 4,803,000
Accrued expenses and other current liabilities 6,539,000 5,903,000
Income taxes payable -- 665,000
------------ ------------
Total current liabilities 11,480,000 11,865,000
------------ ------------
Long-term debt 10,106,000 6,022,000
------------ ------------
Deferred income taxes 1,087,000 1,137,000
------------ ------------
Other non-current liabilities 2,111,000 1,324,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.01 per share;
Authorized - 10,000,000 shares issuable
in series; 50,000 designated as Series A
Junior Participating Preferred Stock, none
issued -- --
Common stock, $.01 par value; Authorized -
20,000,000 shares; Issued - 5,338,098 shares
in 1997 and 5,275,551 shares in 1996 53,000 53,000
Capital in excess of par value 31,690,000 30,881,000
Retained earnings 16,825,000 13,893,000
------------ ------------
48,568,000 44,827,000
Less: Note receivable from employee savings and
investment plan (2,942,000) (3,339,000)
------------ ------------
Total shareholders' equity 45,626,000 41,488,000
------------ ------------
Total liabilities and shareholders' equity $ 70,410,000 $ 61,836,000
============ ============
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-3-
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
SIX MONTHS ENDED APRIL 30, THREE MONTHS ENDED APRIL 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $ 27,819,000 $ 14,920,000 $ 13,552,000 $ 7,942,000
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of sales 18,542,000 9,882,000 9,016,000 5,226,000
Selling, general and administrative expenses 5,164,000 3,452,000 2,457,000 1,855,000
------------ ------------ ------------ ------------
Total operating costs and expenses 23,706,000 13,334,000 11,473,000 7,081,000
------------ ------------ ------------ ------------
Income from operations 4,113,000 1,586,000 2,079,000 861,000
Interest expense (178,000) (87,000) (95,000) (36,000)
Interest and other income 827,000 358,000 430,000 165,000
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 4,762,000 1,857,000 2,414,000 990,000
Income tax expense 1,528,000 632,000 774,000 343,000
------------ ------------ ------------ ------------
Net income from continuing operations 3,234,000 1,225,000 1,640,000 647,000
Net income from discontinued operations -- 727,000 -- 435,000
------------ ------------ ------------ ------------
Net income $ 3,234,000 $ 1,952,000 $ 1,640,000 $ 1,082,000
============ ============ ============ ============
Net income per share:
From continuing operations $ .51 $ .21 $ .26 $ .11
From discontinued health care operations -- .13 -- .07
------------ ------------ ------------ ------------
Net income per share $ .51 $ .34 $ .26 $ .18
============ ============ ============ ============
Weighted average number of common
and common equivalent shares outstanding 6,331,680 5,708,631 6,387,702 5,829,248
============ ============ ============ ============
Cash dividends per share $ .05 $ .041 -- --
============ ============ ============ ============
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-4-
HEICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
SIX MONTHS ENDED
APRIL 30,
------------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 3,234,000 $ 1,952,000
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 764,000 1,286,000
(Income) loss from unconsolidated partnerships -- (327,000)
Minority interest in consolidated partnerships -- 228,000
Deferred income taxes (235,000) (495,000)
Deferred financing costs (144,000) --
Change in assets and liabilities:
Decrease (increase) in accounts receivable 40,000 (608,000)
(Increase) in inventories (2,984,000) (843,000)
(Increase) in prepaid expenses and other
current assets (604,000) (181,000)
Increase in trade payables, accrued
expenses and other current liabilities 400,000 800,000
(Decrease) increase in income taxes payable (665,000) 439,000
Increase in other non-current liabilities 140,000 123,000
Other (80,000) --
------------ ------------
Net cash (used in) provided by operating activities (134,000) 2,374,000
------------ ------------
Cash flows from investing activities:
Maturity of short-term investments -- 2,939,000
Purchases of property, plant and equipment (2,325,000) (639,000)
Acquisitions:
Contingent note payments -- (783,000)
Other -- --
Distributions from
unconsolidated partnerships -- 109,000
Distributions to minority interests -- (216,000)
Payments for deferred organization costs -- (486,000)
Payment received from employee savings and
investment plan note receivable 396,000 353,000
Other (363,000) 93,000
------------ ------------
Net cash (used in) provided by investing activities (2,292,000) 1,320,000
------------ ------------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt:
Reimbursements from unexpended bond proceeds 1,375,000 --
Other 210,000 302,000
Proceeds from the exercise of stock options 788,000 1,262,000
Payments on long-term debt and capital leases (320,000) (581,000)
Cash dividends paid (282,000) (224,000)
Other 1,000 --
------------ ------------
Net cash provided by financing activities 1,772,000 759,000
------------ ------------
Net (decrease) increase in cash and cash equivalents (654,000) 4,453,000
Cash and cash equivalents at beginning of year 11,025,000 4,664,000
------------ ------------
Cash and cash equivalents at end of period $ 10,371,000 $ 9,117,000
============ ============
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-5-
HEICO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
April 30, 1997
1. The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes normally included in annual
consolidated financial statements and should be read in conjunction with the
financial statements and notes thereto included in the Company's latest Annual
Report on Form 10-K for the year ended October 31, 1996. In the opinion of
management, the unaudited consolidated condensed financial statements contain
all adjustments (consisting of only normal recurring accruals) necessary for a
fair presentation of the consolidated condensed balance sheets and consolidated
condensed statements of operations and cash flow for such interim periods
presented. The results of operations for the six months ended April 30, 1997 are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Accounts receivable are composed of the following:
APRIL 30, 1997 OCTOBER 31, 1996
-------------- ----------------
Accounts receivable............................ $ 7,744,000 $ 7,882,000
Net costs and estimated earnings in excess
of billings on uncompleted contracts......... 265,000 265,000
Less allowance for doubtful accounts........... (262,000) (268,000)
-------------- ----------------
Accounts receivable, net....................... $ 7,747,000 $ 7,879,000
============== ================
Inventories are comprised of the following:
APRIL 30, 1997 OCTOBER 31, 1996
-------------- ----------------
Finished products.............................. $ 4,174,000 $ 4,428,000
Work in process................................ 7,220,000 5,845,000
Materials, parts, assemblies and supplies...... 6,867,000 5,004,000
-------------- ----------------
Total inventories.............................. $ 18,261,000 $ 15,277,000
============== ================
Inventories related to long-term contracts aggregated approximately $328,000 as
of April 30, 1997 and $628,000 as of October 31, 1996.
Revenue amounts set forth in the accompanying Consolidated Condensed Statements
of Operations do not include any material amounts in excess of billings related
to long-term contracts.
-6-
3. Long-term debt consists of:
APRIL 30, 1997 OCTOBER 31, 1996
-------------- ----------------
Industrial Development Revenue
Bonds - Series 1997A......................... $ 3,000,000 ---
Industrial Development Revenue
Bonds - Series 1997B......................... 1,000,000 ---
Industrial Development Revenue
Bonds - Series 1996.......................... 3,500,000 $ 3,500,000
Industrial Development Revenue
Refunding Bonds - Series 1988................ 1,980,000 1,980,000
Term loan borrowing under revolving
credit facility.............................. 158,000 317,000
Equipment loans................................ 844,000 719,000
------------- ----------------
10,482,000 6,516,000
Less current maturities........................ (376,000) (494,000)
------------- ----------------
$ 10,106,000 $ 6,022,000
============= ================
The industrial development revenue bonds represent bonds issued by
Broward County, Florida in 1996 (Series 1996 bonds) and in 1988 (Series 1988
bonds), and bonds issued by Manatee County, Florida in 1997 (Series 1997A and
Series 1997B bonds).
The Series 1997A and 1997B bonds were issued in the amounts of
$3,000,000 and $1,000,000, respectively, for the purpose of constructing and
purchasing equipment for a new facility in Palmetto, Florida. As of April 30,
1997, the Company has been reimbursed $80,000 for such expenditures, and the
balance of the unexpended bond proceeds of $3,920,000 is held by the trustee and
is available for future qualified expenditures. The Series 1997A and 1997B bonds
are due March 2017 and bear interest at variable rates calculated weekly (4.70%
and 5.65%, respectively, at April 30, 1997). The 1997A and 1997B bonds are
secured by a letter of credit expiring in March 2004 and a mortgage on the
related properties pledged as collateral. The letter of credit requires annual
sinking fund payments with a fair market value of $200,000 beginning in March
1998.
The Series 1988 and Series 1996 bonds bear interest as of April 30,
1997, at 4.60% and 4.70%, respectively.
As of April 30, 1997, unexpended proceeds of the Series 1996 bonds of
$1,410,000 are held by the trustee and is available for future qualified
expenditures.
In February 1997, the Company's equipment loan facility was extended
through December 1997. In addition, the amendment, among other things, increased
the amount of available funds to $2,000,000.
-7-
The term loan borrowings and equipment loans bear interest as of April
30, 1997 at 8.75% and 9.00% respectively.
4. The fiscal 1996 net income from discontinued operations represents the
Company's former subsidiary, MediTek Health Corporation, which was sold in the
third quarter of fiscal 1996 at a gain of $5,264,000 (89 cents per share).
5. Net income per share is calculated on the basis of the weighted average
number of common shares outstanding during each period plus common share
equivalents arising from the assumed exercise of stock options, if dilutive, and
has been adjusted for the effect of any stock dividends and stock splits.
6. Supplemental disclosures of cash flow information for the six months
ended April 30, 1997 and 1996 are as follows:
Cash paid for interest was $178,000 and $137,000 in 1997 and 1996,
respectively. Cash paid for income taxes was $2,654,000 and $1,228,000 in 1997
and 1996, respectively.
7. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). SFAS No. 123 established a fair value based method
of accounting for stock options. Entities may elect to either adopt the
measurement criteria of the statement for accounting purposes, thereby
recognizing an amount in results of operations on a prospective basis, or
disclose the pro forma effects of the new measurement criteria in Notes to
Consolidated Financial Statements. The Company intends to adopt the pro forma
disclosure features of SFAS No. 123, which are effective for fiscal year 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
No. 128). SFAS No. 128 changes the method in which earnings per share will be
determined and is effective for financial statements for periods ending after
December 15, 1997. The Company has not determined the effect, if any, of SFAS
No. 128 on its earnings per share.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the six months ended April 30, 1997 and 1996
RESULTS OF OPERATIONS
Fiscal 1997 second quarter net income of $1,640,000 ($.26 per share) increased
153% over fiscal 1996 second quarter net income from continuing operations of
$647,000 ($.11 per share) and net income in the first half of fiscal 1997 of
$3,234,000 ($.51 per share) increased 164% over net income from continuing
operations of $1,225,000 ($.21 per share) in the first half of fiscal 1996.
For the second quarter of fiscal 1997, net sales totaled $13,552,000,
representing a 71% increase over net sales from continuing operations of
$7,942,000 in the second quarter of fiscal 1996. In the first half of fiscal
1997, net sales rose 86% to $27,819,000, up from net sales from continuing
operations of $14,920,000 in the first half of last year.
The improved fiscal 1997 earnings are primarily attributable to increased sales
and gross margins discussed below as well as the addition of the newly acquired
Ground Support operations.
Net sales of the Company's Flight Support operations increased 15% in the second
quarter of fiscal 1997 as compared to the same period of fiscal 1996 and rose
20% in the first half of fiscal 1997 versus the first half of fiscal 1996. The
increases from fiscal 1996 to 1997 are principally due to increased sales
volumes of jet engine replacement parts to the Company's commercial airline
customers.
Net sales of the Company's Ground Support operations totaled $4,456,000 for the
second quarter of fiscal 1997 and $9,937,000 in the first half of fiscal 1997,
all of which represented sales of Trilectron Industries, Inc. (Trilectron), a
business acquired in September 1996.
The Company's Flight Support operations had a backlog which totaled
approximately $23 million as of April 30, 1997 and April 30, 1996, and
approximately $14 million as of October 31, 1996. The current backlog increased
from October 31, 1996 principally due to certain customers entering into longer
term contracts which replaced shorter term purchase orders. Substantially all of
this backlog of orders is expected to be delivered within twelve months.
-9-
The Company's Ground Support operations had a backlog totalling $13 million at
April 30, 1997. This is an 18% increase over the October 31, 1996 backlog
balance of $11 million and is principally due to receipt of a contract
approximating $4 million in the first quarter of fiscal 1997 covering deliveries
expected to begin in fiscal 1997 and continue into fiscal 1998.
The Company's gross profit margins for the second quarter of fiscal 1997
averaged 33.5% as compared to gross profit margins averaging 34.2% in the same
period of fiscal 1996. Gross profit margins averaged 33.3% in the first half of
fiscal 1997, which approximated the 33.8% average gross profit margins in the
first half of fiscal 1996. These reflect an improvement in gross margins in the
Flight Support operations, partially offset by inclusion of the newly-acquired
Ground Support operations. Sales of ground support equipment generally carry
lower profit margins than those of the Company's Flight Support operations. The
improvement in margins in the Flight Support operations reflects volume
increases in sales of higher margin products and manufacturing cost
efficiencies.
Selling, general and administrative (SG&A) expenses in the second quarter and
the first half of fiscal 1997 increased $602,000 and $1,712,000, respectively,
over amounts in the second quarter and the first half of fiscal 1996. The
increase from fiscal 1996 is due principally to increased selling expenses by
the Flight Support operations and the SG&A expenses of Trilectron. As a
percentage of sales, however, SG&A expenses improved to 18.1% of consolidated
net sales in the second quarter and 18.6% of consolidated net sales in the first
half of fiscal 1997, down from 23.4% and 23.1% in the comparable three-month and
six-month periods of fiscal 1996.
Income from operations, which totaled $2,079,000 for the second quarter of
fiscal 1997 and $4,113,000 for the first six months of fiscal 1997, increased
$1,218,000 and $2,527,000 respectively, over the same three-month and six-month
periods of last year. These increases reflect the increase in sales and gross
margins of Flight Support operations and the addition of the Ground Support
operations as discussed above.
Interest and other income in the second quarter and the first half of fiscal
1997 increased $265,000 and $469,000, respectively, over the same periods in
fiscal 1996. These increases are principally due to interest income on the
convertible note received from the sale of MediTek in July 1996 and higher cash
balances available for investment.
The Company's effective tax rate totaled 32.1% for the first half of fiscal 1997
and 34.0% in the first half of fiscal 1996.
-10-
The decrease in the Company's effective tax rate is principally due to the tax
benefit received from an increase in foreign sales.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1997, net cash used in operating
activities was $134,000, reflecting net income of $3.2 million offset primarily
by increases in inventories of $3.0 million required to meet increased sales and
faster customer delivery requirements and a decrease in Federal and state income
taxes attributable to estimated tax payments made.
The Company's principal investing activities during the first six months of
fiscal 1997 were purchases of property, plant and equipment of $2,325,000
including $1,191,000 related to the Series 1996 industrial development revenue
bond project.
The Company's principal financing activities during the first half of fiscal
1997 were $1,585,000 in proceeds of long-term debt including $1,295,000 in
reimbursements for qualified expenditures from above referenced Series 1996
industrial development revenue bonds and $788,000 representing the receipt of
funds from the exercise of stock options.
As discussed in Note 3 to the Consolidated Condensed Financial Statements
contained herein, industrial development revenue bonds in the amount of
$4,000,000 were issued by Manatee County, Florida, to be used to construct and
equip a new Trilectron manufacturing facility in Palmetto, Florida. As of April
30, 1997, unexpended bond proceeds of $3,920,000 were available for qualified
expenditures of the Trilectron facility and unexpended bond proceeds of
$1,410,000 were available for qualified expenditures of the Series 1996
industrial development revenue bond project of HEICO Aerospace.
The revolving portion of the Company's $7,000,000 credit facility, which was to
expire in April 1997, was renewed by mutual agreement until June 30, 1997. In
addition, amounts available under the Company's equipment loan facility (See
Note 3 to the Consolidated Condensed Financial Statements) were increased to
$2,000,000 and extended to December 1997.
There have been no other material changes in the liquidity or the capital
resources of the Company since the end of fiscal 1996.
-11-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in previously reported
litigation involving the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on March 18, 1997, the
Company's shareholders elected nine directors and approved a proposal
to amend the 1993 Stock Option Plan (the "Plan") to increase the number
of shares issuable pursuant to the Plan.
The number of votes cast for and withheld for each nominee for
directors were as follows:
DIRECTOR FOR WITHHELD
-------- --------- --------
Jacob T. Carwile 4,592,600 432,169
Samuel L. Higginbottom 4,590,872 433,897
Paul F. Manieri 4,592,298 432,471
Eric A. Mendelson 4,545,795 478,974
Laurans A. Mendelson 4,592,787 431,982
Victor H. Mendelson 4,545,795 478,974
Albert Morrison, Jr. 4,592,787 431,982
Dr. Alan Schriesheim 4,592,460 432,309
Guy C. Shafer 4,590,822 433,947
The number of votes cast for and against the proposal to amend
the Plan, as well as the number of abstentions, were as
follows: For: 4,228,335; Against: 691,008; and Abstain:
91,126. There were 14,300 broker non-votes with respect to
this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Loan Agreement, dated as of March 1, 1997, between Trilectron
Industries, Inc., and Manatee County, Florida (excluding
referenced exhibits).
-12-
(a) Exhibits (continued)
10.2 Letter of Credit and Reimbursement Agreement, dated as of
March 1, 1997, between Trilectron Industries, Inc., and First
Union National Bank of Florida (excluding referenced
exhibits).
10.3 Second Loan Modification Agreement, dated February 27, 1997,
between HEICO Corporation and Eagle National Bank of Miami.
11 Computation of earnings per share.
27 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the three months
ended April 30, 1997.
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HEICO CORPORATION
-----------------
(Registrant)
JUNE 6, 1997 BY /s/THOMAS S. IRWIN
------------ -------------------------------
Date Thomas S. Irwin, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
-14-
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.1 Loan Agreement, dated as of March 1, 1997, between Trilectron
Industries, Inc., and Manatee County, Florida (excluding
referenced exhibits).
10.2 Letter of Credit and Reimbursement Agreement, dated as of
March 1, 1997, between Trilectron Industries, Inc., and First
Union National Bank of Florida (excluding referenced exhibits).
10.3 Second Loan Modification Agreement, dated February 27, 1997,
between HEICO Corporation and Eagle National Bank of Miami.
11 Computation of earnings per share.
27 Financial Data Schedule (for SEC use only)