Edgar Filing: HEICO CORP

Unassociated Document

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 July 31, 2010

o	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) 987-4000

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of each of the registrant’s classes of common stock as of August 27, 2010 is as follows:

Common Stock, $.01 par value	13,126,005 shares
Class A Common Stock, $.01 par value	19,817,872 shares

HEICO CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

			Page
Part I.	Financial Information:

	Item 1.	Condensed Consolidated Balance Sheets (unaudited) as of July 31, 2010 and October 31, 2009	2

		Condensed Consolidated Statements of Operations (unaudited) for the nine months and three months ended July 31, 2010 and 2009	3

		Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income (unaudited) for the nine months ended July 31, 2010 and 2009	4

		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended July 31, 2010 and 2009	5

		Notes to Condensed Consolidated Financial Statements (unaudited)	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	31

	Item 4.	Controls and Procedures	31

Part II.	Other Information:

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

	Item 6.	Exhibits	32

Signature			33

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PART I. FINANCIAL INFORMATION; Item 1. FINANCIAL STATEMENTS

HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – UNAUDITED

	July 31, 2010			October 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	11,037,000		$	7,167,000
Accounts receivable, net		84,078,000			77,864,000
Inventories, net		140,712,000			137,585,000
Prepaid expenses and other current assets		5,364,000			4,290,000
Deferred income taxes		18,534,000			16,671,000
Total current assets		259,725,000			243,577,000

Property, plant and equipment, net		59,803,000			60,528,000
Goodwill		380,709,000			365,243,000
Intangible assets, net		51,949,000			41,588,000
Other assets		25,853,000			21,974,000
Total assets	$	778,039,000		$	732,910,000

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	199,000		$	237,000
Trade accounts payable		28,290,000			26,978,000
Accrued expenses and other current liabilities		38,292,000			36,978,000
Income taxes payable		1,196,000			1,320,000
Total current liabilities		67,977,000			65,513,000

Long-term debt, net of current maturities		47,093,000			55,194,000
Deferred income taxes		43,126,000			41,340,000
Other long-term liabilities		27,836,000			23,268,000
Total liabilities		186,032,000			185,315,000
Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 12)		56,053,000			56,937,000
Shareholders’ equity:
Preferred Stock, $.01 par value per share; 10,000,000 shares
authorized; 300,000 shares designated as Series B Junior
Participating Preferred Stock and 300,000 shares designated
as Series C Junior Participating Preferred Stock; none issued		¾			¾
Common Stock, $.01 par value per share; 30,000,000 shares authorized
13,126,005 and 13,011,426 shares issued and outstanding, respectively		131,000			104,000
Class A Common Stock, $.01 par value per share; 30,000,000
shares authorized; 19,815,122 and 19,641,543 shares issued
and outstanding, respectively		198,000			157,000
Capital in excess of par value		227,215,000			224,625,000
Accumulated other comprehensive loss		(498,000	)		(1,381,000	)
Retained earnings		225,206,000			189,485,000
Total HEICO shareholders’ equity		452,252,000			412,990,000
Noncontrolling interests		83,702,000			77,668,000
Total shareholders’ equity		535,954,000			490,658,000
Total liabilities and equity	$	778,039,000		$	732,910,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED

	Nine months ended July 31,						Three months ended July 31,
	2010			2009			2010			2009

Net sales	$	447,650,000		$	394,689,000		$	158,270,000		$	134,086,000

Operating costs and expenses:
Cost of sales		286,351,000			262,456,000			100,717,000			88,275,000
Selling, general and administrative expenses		81,805,000			68,039,000			28,560,000			24,389,000

Total operating costs and expenses		368,156,000			330,495,000			129,277,000			112,664,000

Operating income		79,494,000			64,194,000			28,993,000			21,422,000

Interest expense		(422,000	)		(484,000	)		(136,000	)		(177,000	)
Other income (expense)		392,000			186,000			(31,000	)		184,000

Income before income taxes and noncontrolling
interests		79,464,000			63,896,000			28,826,000			21,429,000

Income tax expense		27,000,000			19,331,000			9,300,000			6,511,000

Net income from consolidated operations		52,464,000			44,565,000			19,526,000			14,918,000

Less: Net income attributable to noncontrolling
interests		13,168,000			11,575,000			4,596,000			3,786,000

Net income attributable to HEICO	$	39,296,000		$	32,990,000		$	14,930,000		$	11,132,000

Net income per share attributable to HEICO
shareholders:
Basic	$	1.20		$	1.01		$	.45		$	.34
Diluted	$	1.16		$	.98		$	.44		$	.33

Weighted average number of common shares
outstanding:
Basic		32,793,137			32,799,101			32,917,530			32,603,643
Diluted		33,753,414			33,816,980			33,797,471			33,632,863

Cash dividends per share	$	.108		$	.096		$	.060		$	.048

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME – UNAUDITED

				HEICO Shareholders' Equity
											Accumulated
	Redeemable					Class A		Capital in			Other								Total
	Noncontrolling			Common		Common		Excess of			Comprehensive			Retained			Noncontrolling		Shareholders'
	Interests			Stock		Stock		Par Value			Loss			Earnings			Interests		Equity

Balances as of October 31, 2009
(as previously reported)	$	―		$	104,000	$	157,000	$	224,625,000		$	(1,381,000	)	$	234,348,000		$	―	$	457,853,000
Retrospective adjustments related to
adoption of accounting guidance for
noncontrolling interests		56,937,000			—		—		—			—			(44,863,000	)		77,668,000		32,805,000
Balances as of October 31, 2009
(as adjusted)		56,937,000			104,000		157,000		224,625,000			(1,381,000	)		189,485,000			77,668,000		490,658,000
Comprehensive income:
Net income		7,134,000			—		—		—			—			39,296,000			6,034,000		45,330,000
Foreign currency translation adjustments		—			—		—		—			877,000			—			—		877,000
Total comprehensive income		7,134,000			—		—		—			877,000			39,296,000			6,034,000		46,207,000
Cash dividends ($.108 per share)		—			—		—		—			—			(3,546,000	)		—		(3,546,000	)
Five-for-four common stock split		—			26,000		40,000		(66,000	)		—			(68,000	)		—		(68,000	)
Proceeds from stock option exercises		—			1,000		1,000		1,465,000			—			—			—		1,467,000
Tax benefit from stock option exercises		—			—		—		951,000			—			—			—		951,000
Stock option compensation expense		—			—		—		921,000			—			—			—		921,000
Distributions to noncontrolling interests		(7,184,000	)		—		—		—			—			—			—		—
Acquisitions of noncontrolling interests		(795,000	)		—		—		—			—			—			—		—
Redemptions of common stock related to
stock option exercises		—			—		—		(681,000	)		—			—			—		(681,000	)
Adjustments to redemption amount of
redeemable noncontrolling interests		(39,000	)		—		—		—			—			39,000			—		39,000
Other		—			—		—		—			6,000			—			—		6,000
Balances as of July 31, 2010	$	56,053,000		$	131,000	$	198,000	$	227,215,000		$	(498,000	)	$	225,206,000		$	83,702,000	$	535,954,000

				HEICO Shareholders' Equity
													Accumulated
	Redeemable						Class A			Capital in			Other									Total
	Noncontrolling			Common			Common			Excess of			Comprehensive			Retained			Noncontrolling			Shareholders'
	Interests			Stock			Stock			Par Value			Loss			Earnings			Interests			Equity

Balances as of October 31, 2008
(as previously reported)	$	―		$	106,000		$	158,000		$	229,443,000		$	(4,819,000	)	$	192,872,000		$	―		$	417,760,000
Retrospective adjustments related to
adoption of accounting guidance for
noncontrolling interests		48,736,000			—			—			—			—			(35,896,000	)		71,138,000			35,242,000
Balances as of October 31, 2008
(as adjusted)		48,736,000			106,000			158,000			229,443,000			(4,819,000	)		156,976,000			71,138,000			453,002,000
Comprehensive income:
Net income		5,938,000			—			—			—			—			32,990,000			5,637,000			38,627,000
Foreign currency translation adjustments		—			—			—			—			2,859,000			—			—			2,859,000
Total comprehensive income		5,938,000			—			—			—			2,859,000			32,990,000			5,637,000			41,486,000
Repurchases of common stock		—			(2,000	)		(2,000	)		(8,094,000	)		—			—			—			(8,098,000	)
Cash dividends ($.096 per share)		—			—			—			—			—			(3,150,000	)		—			(3,150,000	)
Proceeds from stock option exercises		—			—			1,000			821,000			—			—			—			822,000
Tax benefit from stock option exercises		—			—			—			1,889,000			—			—			—			1,889,000
Stock option compensation expense		—			—			—			15,000			—			—			—			15,000
Distributions to noncontrolling interests		(5,533,000	)		—			—			—			—			—			(461,000	)		(461,000	)
Acquisitions of noncontrolling interests		(10,015,000	)		—			—			—			—			6,845,000			—			6,845,000
Noncontrolling interests assumed
related to acquistion		7,505,000			—			—			—			—			(4,202,000	)		—			(4,202,000	)
Adjustments to redemption amount of
redeemable noncontrolling interests		971,000			—			—			—			—			(971,000	)		—			(971,000	)
Other		—			—			—			—			164,000			1,000			—			165,000
Balances as of July 31, 2009	$	47,602,000		$	104,000		$	157,000		$	224,074,000		$	(1,796,000	)	$	188,489,000		$	76,314,000		$	487,342,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEICO CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED

	Nine months ended July 31,
	2010			2009

Operating Activities:
Net income from consolidated operations	$	52,464,000		$	44,565,000
Adjustments to reconcile net income from consolidated operations
to net cash provided by operating activities:
Depreciation and amortization		13,578,000			10,951,000
Impairment of intangible assets		281,000			—
Deferred income tax benefit		(80,000	)		(1,376,000	)
Tax benefit from stock option exercises		951,000			1,889,000
Excess tax benefit from stock option exercises		(669,000	)		(1,572,000	)
Stock option compensation expense		921,000			15,000
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable		(2,988,000	)		20,207,000
Decrease (increase) in inventories		3,625,000			(9,282,000	)
Increase in prepaid expenses and other current assets		(1,051,000	)		(2,271,000	)
Decrease in trade accounts payable		(177,000	)		(2,995,000	)
Increase (decrease) in accrued expenses and other current liabilities		1,744,000			(15,776,000	)
Decrease in income taxes payable		(794,000	)		(1,080,000	)
Other		116,000			444,000
Net cash provided by operating activities		67,921,000			43,719,000

Investing Activities:
Acquisitions, net of cash acquired		(39,061,000	)		(34,562,000	)
Capital expenditures		(6,743,000	)		(7,784,000	)
Other		(18,000	)		73,000
Net cash used in investing activities		(45,822,000	)		(42,273,000	)

Financing Activities:
Payments on revolving credit facility		(45,000,000	)		(49,000,000	)
Borrowings on revolving credit facility		37,000,000			68,000,000
Acquisitions of noncontrolling interests		(795,000	)		(11,268,000	)
Repurchases of common stock		—			(8,098,000	)
Distributions to noncontrolling interests		(7,184,000	)		(5,994,000	)
Cash dividends paid		(3,614,000	)		(3,150,000	)
Redemptions of common stock related to stock option exercises		(681,000	)		—
Proceeds from stock option exercises		1,467,000			822,000
Excess tax benefit from stock option exercises		669,000			1,572,000
Other		(152,000	)		(158,000	)
Net cash used in financing activities		(18,290,000	)		(7,274,000	)

Effect of exchange rate changes on cash		61,000			214,000

Net increase (decrease) in cash and cash equivalents		3,870,000			(5,614,000	)
Cash and cash equivalents at beginning of year		7,167,000			12,562,000
Cash and cash equivalents at end of period	$	11,037,000		$	6,948,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEICO CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of HEICO Corporation and its subsidiaries (collectively, “HEICO,” or the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q. Therefore, the condensed consolidated financial statements do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2009. The October 31, 2009 Condensed Consolidated Balance Sheet has been derived from the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations and statements of cash flows for such interim periods presented. The results of operations for the nine months ended July 31, 2010 are not necessarily indicative of the results which may be expected for the entire fiscal year.

Stock Split

In March 2010, the Company’s Board of Directors declared a 5-for-4 stock split on both classes of the Company’s common stock. The stock split was effected as of April 27, 2010 in the form of a 25% stock dividend distributed to shareholders of record as of April 16, 2010. All applicable share and per share information has been adjusted retrospectively to give effect to the 5-for-4 stock split.

Noncontrolling Interests

Effective November 1, 2009, the Company adopted new accounting guidance that requires the recognition of certain noncontrolling interests (previously referred to as minority interests) as a separate component within equity in the consolidated balance sheet. It also requires the amount of consolidated net income attributable to the parent and the noncontrolling interests be clearly identified and presented within the consolidated statement of operations. The adoption of this new guidance has affected the presentation of noncontrolling interests in the Company’s condensed consolidated financial statements on a retrospective basis. For example, under this guidance, “Net income from consolidated operations” is comparable to what was previously presented as “Income before minority interests” and “Net income attributable to HEICO” is comparable to what was previously presented as “Net income.” Further, acquisitions of noncontrolling interests are considered a financing activity under the new accounting guidance and are no longer presented as an investing activity.

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Effective November 1, 2009, the Company also adopted new accounting guidance that affects the financial statement classification and measurement of redeemable noncontrolling interests. As further detailed in Note 15, Commitments and Contingencies, of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended October 31, 2009, the holders of equity interests in certain of the Company’s subsidiaries have rights (“Put Rights”) that require the Company to provide cash consideration for their equity interests (the “Redemption Amount”) at fair value or at a formula that management intended to reasonably approximate fair value based solely on a multiple of future earnings over a measurement period. The Put Rights are embedded in the shares owned by the noncontrolling interest holders and are not freestanding. Previously, the Company recorded such redeemable noncontrolling interests at historical cost plus an allocation of subsidiary earnings based on ownership interest, less dividends paid to the noncontrolling interest holders. Effective November 1, 2009, the Company adjusted its redeemable noncontrolling interests in accordance with this new accounting guidance to the higher of their carrying cost or management’s estimate of the Redemption Amount with a corresponding decrease to retained earnings and classified such interests outside of permanent equity. Under this guidance, subsequent adjustments to the carrying amount of redeemable noncontrolling interests to reflect any changes in the Redemption Amount at the end of each reporting period will be recorded in the same manner. Such adjustments to Redemption Amounts based on fair value will have no effect on net income per share attributable to HEICO shareholders whereas the portion of periodic adjustments to the carrying amount of redeemable noncontrolling interests based solely on a multiple of future earnings that reflect a redemption amount in excess of fair value will effect net income per share attributable to HEICO shareholders under the two-class method.

As a result of adopting the new accounting guidance for noncontrolling interests and redeemable noncontrolling interests, the Company (i) reclassified approximately $78 million from temporary equity (previously labeled as “Minority interests in consolidated subsidiaries”) to permanent equity (labeled as “Noncontrolling interests”) pertaining to noncontrolling interests that do not contain a redemption feature; and (ii) renamed temporary equity as “Redeemable noncontrolling interests” and recorded an approximately $45 million increase to redeemable noncontrolling interests with a corresponding decrease to retained earnings in the Company’s Condensed Consolidated Balance Sheet. The resulting $57 million of redeemable noncontrolling interests as of November 1, 2009 represents management’s estimate of the aggregate Redemption Amount of all Put Rights that the Company would be required to pay of which approximately $25 million is redeemable at fair value and approximately $32 million is redeemable based solely on a multiple of future earnings. The actual Redemption Amount will likely be different. See Note 12, Redeemable Noncontrolling Interests, for additional information.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued new guidance which defines fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. In February 2008, the FASB issued additional guidance which delayed the effective date by one year for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. These nonfinancial assets and liabilities include items such as goodwill,

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other intangible assets, and property, plant and equipment that are measured at fair value resulting from impairment, if deemed necessary. The portions of the new guidance that were delayed were adopted by the Company on a prospective basis as of the beginning of fiscal 2010, or November 1, 2009. The adoption did not have a material effect on the Company’s results of operations, financial position or cash flows.

In December 2007, the FASB issued new guidance for business combinations that retains the fundamental requirements of previous guidance that the acquisition method of accounting (formerly the “purchase accounting” method) be used for all business combinations and for an acquirer to be identified for each business combination. However, the new guidance changes the approach of applying the acquisition method in a number of significant areas, including that acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value as of the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset as of the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. Further, any contingent consideration will be recognized as a liability at fair value as of the acquisition date with subsequent fair value adjustments recorded in operations. Contingent consideration was previously accounted for as an additional cost of the respective acquired entity when paid. The Company adopted the new guidance on a prospective basis as of the beginning of fiscal 2010 for all business combinations consummated on or after November 1, 2009. The adoption did not have a material effect on the Company’s results of operations, financial position or cash flows.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, “Improving Disclosures About Fair Value Measurements,” which requires new disclosures regarding transfers in and out of Level 1 and Level 2 fair value measurements and more detailed information of activity in Level 3 fair value measurements. The Company adopted ASU 2010-06 as of the beginning of the second quarter of fiscal 2010, except the additional Level 3 disclosures, which are effective in fiscal years beginning after December 15, 2010, or as of fiscal 2012 for HEICO. The adoption did not have a material effect on the Company’s results of operations, financial position or cash flows.

2. ACQUISITIONS

In February 2010, the Company, through its HEICO Electronic Technologies Corp. (“HEICO Electronic”) subsidiary, acquired substantially all of the assets and assumed certain liabilities of dB Control. dB Control produces high-power devices used in both defense and commercial applications. The total consideration for this acquisition and related allocation to the tangible and identifiable intangible assets acquired and liabilities assumed is not material or significant to the Company’s condensed consolidated financial statements. The purchase price (including a post closing purchase price adjustment of approximately $1.6 million accrued as of the acquisition date and paid during the third quarter of fiscal 2010) was paid in cash principally using proceeds from the Company’s revolving credit facility. The total consideration includes an accrual of approximately $1.2 million representing the fair value of contingent consideration that the Company may be obligated to pay in fiscal 2013 should dB Control meet certain earnings

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objectives during the second and third years following the acquisition. The maximum amount of contingent consideration that the Company could be required to pay is $2.0 million. See Note 7, Fair Value Measurements, for additional information regarding the Company’s contingent consideration obligation.

As part of the purchase agreements associated with certain prior year acquisitions, the Company may be obligated to pay additional purchase consideration based on the acquired subsidiary meeting certain earnings objectives following the acquisition. The Company accrues an estimate of additional purchase consideration when the earnings objectives are met. During the first quarter of fiscal 2010, the Company, through HEICO Electronic, paid $1.9 million of additional purchase consideration of which $1.8 million was accrued as of October 31, 2009. During the second and third quarters of fiscal 2010, the Company, through HEICO Electronic, paid $1.0 million and $1.3 million, respectively, of additional purchase consideration related to prior year acquisitions for which the earnings objectives were met during fiscal 2010. The aforementioned amounts paid were based on a multiple of each applicable subsidiary’s earnings relative to target and were not contingent upon the former shareholders of the respective acquired entity remaining employed by the Company or providing future services to the Company. Accordingly, these amounts represent an additional cost of the respective entity recorded as additional goodwill. Information regarding additional purchase consideration related to prior year acquisitions may be found in Note 11, Commitments and Contingencies.

The operating results of the Company’s fiscal 2010 acquisition were included in the Company’s results of operations from the effective acquisition date. The amount of net sales and earnings of the 2010 acquisition included in the Condensed Consolidated Statements of Operations is not material. The following table presents unaudited pro forma financial information as if the fiscal 2010 acquisition had occurred as of November 1, 2008 for purposes of the information presented for the nine and three months ended July 31, 2009. Had the fiscal 2010 acquisition been consummated as of November 1, 2009, net sales, net income from consolidated operations, net income attributable to HEICO, and basic and diluted net income per share attributable to HEICO shareholders on a pro forma basis for the nine and three months ended July 31, 2010 would not have been materially different than the reported amounts. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place as of November 1, 2008. The unaudited pro forma financial information includes adjustments to historical amounts such as additional amortization expense related to intangible assets acquired and increased interest expense associated with borrowings to finance the acquisition.

	Nine months ended		Three months ended
	July 31, 2009		July 31, 2009
Net sales	$	412,717,000	$	139,023,000
Net income from consolidated operations	$	45,882,000	$	14,969,000
Net income attributable to HEICO	$	34,307,000	$	11,183,000
Net income per share attributable
to HEICO shareholders:
Basic	$	1.05	$	.34
Diluted	$	1.01	$	.33

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3. SELECTED FINANCIAL STATEMENT INFORMATION

Accounts Receivable

	July 31, 2010			October 31, 2009
Accounts receivable	$	86,962,000		$	80,399,000
Less: Allowance for doubtful accounts		(2,884,000	)		(2,535,000	)
Accounts receivable, net	$	84,078,000		$	77,864,000

Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts

	July 31, 2010			October 31, 2009
Costs incurred on uncompleted contracts	$	4,548,000		$	10,280,000
Estimated earnings		5,480,000			8,070,000
		10,028,000			18,350,000
Less: Billings to date		(7,251,000	)		(12,543,000	)
	$	2,777,000		$	5,807,000
Included in the accompanying Condensed Consolidated
Balance Sheets under the following captions:
Accounts receivable, net (costs and estimated
earnings in excess of billings)	$	2,958,000		$	5,832,000
Accrued expenses and other current liabilities
(billings in excess of costs and estimated earnings)		(181,000	)		(25,000	)
	$	2,777,000		$	5,807,000

Changes in estimates did not have a material effect on net income from consolidated operations for the nine months ended July 31, 2010 and 2009.

Inventories

	July 31, 2010		October 31, 2009
Finished products	$	74,609,000	$	79,665,000
Work in process		18,814,000		14,279,000
Materials, parts, assemblies and supplies		47,289,000		43,641,000
Inventories, net	$	140,712,000	$	137,585,000

Inventories related to long-term contracts were not significant as of July 31, 2010 and October 31, 2009.

Property, Plant and Equipment

	July 31, 2010			October 31, 2009
Land	$	3,656,000		$	3,656,000
Buildings and improvements		38,750,000			38,091,000
Machinery, equipment and tooling		86,276,000			80,697,000
Construction in progress		6,028,000			5,331,000
		134,710,000			127,775,000
Less: Accumulated depreciation and amortization		(74,907,000	)		(67,247,000	)
Property, plant and equipment, net	$	59,803,000		$	60,528,000

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Accrued Customer Rebates and Credits

The aggregate amount of accrued customer rebates and credits included within accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets was $7,692,000 and $9,689,000 as of July 31, 2010 and October 31, 2009, respectively. The total customer rebates and credits deducted within net sales for the nine months ended July 31, 2010 and 2009 was $6,642,000 and $6,757,000 respectively. The total customer rebates and credits deducted within net sales for the three months ended July 31, 2010 and 2009 was $2,244,000 and $2,023,000 respectively.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company has two operating segments: the Flight Support Group (“FSG”) and the Electronic Technologies Group (“ETG”). Changes in the carrying amount of goodwill by operating segment for the nine months ended July 31, 2010 are as follows:

	Segment				Consolidated
	FSG		ETG		Totals
Balances as of October 31, 2009	$	188,459,000	$	176,784,000	$	365,243,000
Acquired goodwill		¾		12,920,000		12,920,000
Adjustments to goodwill		¾		1,960,000		1,960,000
Foreign currency translation adjustment		¾		586,000		586,000
Balances as of July 31, 2010	$	188,459,000	$	192,250,000	$	380,709,000

The goodwill acquired pertains to a current year acquisition and represents the residual value after the allocation of the total consideration to the tangible and identifiable intangible assets acquired and liabilities assumed (inclusive of contingent consideration). The adjustments to goodwill principally represent additional purchase consideration paid relating to prior year acquisitions for which the earnings objectives were met in fiscal 2010. See Note 2, Acquisitions, for additional information regarding the fiscal 2010 acquisition and additional purchase consideration. The foreign currency translation adjustment reflects unrealized translation gains on the goodwill recognized in connection with a foreign subsidiary.

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Identifiable intangible assets consist of the following:

	As of July 31, 2010							As of October 31, 2009
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Amortizing Assets:
Customer relationships	$	41,759,000	$	(14,360,000	)	$	27,399,000	$	33,237,000	$	(9,944,000	)	$	23,293,000
Intellectual property		7,303,000		(1,247,000	)		6,056,000		3,369,000		(628,000	)		2,741,000
Licenses		1,000,000		(603,000	)		397,000		1,000,000		(547,000	)		453,000
Non-compete agreements		1,166,000		(991,000	)		175,000		1,221,000		(969,000	)		252,000
Patents		558,000		(261,000	)		297,000		575,000		(246,000	)		329,000
Trade names		569,000		(84,000	)		485,000		569,000		¾			569,000
		52,355,000		(17,546,000	)		34,809,000		39,971,000		(12,334,000	)		27,637,000
Non-Amortizing Assets:
Trade names		17,140,000		¾			17,140,000		13,951,000		¾			13,951,000
	$	69,495,000	$	(17,546,000	)	$	51,949,000	$	53,922,000	$	(12,334,000	)	$	41,588,000

The increase in the gross carrying amount of customer relationships, intellectual property and non-amortizing trade names as of July 31, 2010 compared to October 31, 2009 principally relates to such intangible assets recognized in connection with an acquisition made during the second quarter of fiscal 2010 (see Note 2, Acquisitions). The weighted average amortization period of the customer relationships and intellectual property acquired during fiscal 2010 is eight years. Based on the final purchase price allocations during the allocation period for certain fiscal 2009 acquisitions, the weighted average amortization period of the customer relationships and intellectual property acquired in fiscal 2009 is now eight years and seven years, respectively.

Amortization expense related to intangible assets for the nine months ended July 31, 2010 and 2009 was $5,446,000 and $3,148,000, respectively. Amortization expense related to intangible assets for the three months ended July 31, 2010 and 2009 was $1,976,000 and $1,336,000, respectively. Amortization expense related to intangible assets for the fiscal year ending October 31, 2010 is estimated to be $6,795,000. Amortization expense for each of the next five fiscal years and thereafter is estimated to be $6,327,000 in fiscal 2011, $5,621,000 in fiscal 2012, $5,161,000 in fiscal 2013, $4,864,000 in fiscal 2014, $3,739,000 in fiscal 2015 and $7,748,000 thereafter.

5. LONG-TERM DEBT

Long-term debt consists of the following:

	July 31, 2010			October 31, 2009
Borrowings under revolving credit facility	$	47,000,000		$	55,000,000
Notes payable, capital leases and equipment loans		292,000			431,000
		47,292,000			55,431,000
Less: Current maturities of long-term debt		(199,000	)		(237,000	)
	$	47,093,000		$	55,194,000

As of July 31, 2010 and October 31, 2009, the weighted average interest rate of borrowings under the Company’s $300 million revolving credit facility was 1.0% and .9%, respectively. The revolving credit facility contains both financial and non-financial covenants. As of July 31, 2010, the Company was in compliance with all such covenants.

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6. INCOME TAXES

As of July 31, 2010, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $2,596,000 of which $2,058,000 would decrease the Company’s income tax expense and effective income tax rate if the tax benefits were recognized. A reconciliation of the activity related to the liability for gross unrecognized tax benefits for the nine months ended July 31, 2010 is as follows:

Balance as of October 31, 2009	$	3,328,000
Decreases related to prior year tax positions		(837,000	)
Increases related to current year tax positions		393,000
Lapse of statutes of limitations		(288,000	)
Balance as of July 31, 2010	$	2,596,000

The $732,000 net decrease in the liability for gross unrecognized tax benefits was principally related to the finalization of a study of qualifying research and development activities used to prepare the Company’s fiscal 2009 U.S. federal and state income tax returns. The decrease in the liability reduced the Company’s income tax expense by $801,000.

The accrual of interest and penalties related to the unrecognized tax benefits was not material for the nine months ended July 31, 2010. Further, the Company does not expect the total amount of unrecognized tax benefits to materially change in the next twelve months.

7. FAIR VALUE MEASUREMENTS

The Company performs its fair value measurements according to accounting guidance that defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement. The guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1 —

Quoted prices in active markets for identical assets or liabilities;

Level 2 —

Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly; or

Level 3 —

Unobservable inputs for the asset or liability where there is little or no market data, requiring management to develop its own assumptions.

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The following tables set forth by level within the fair value hierarchy, the Company’s assets and liabilities that were measured at fair value on a recurring basis:

As of July 31, 2010

Level 1

Level 2

Level 3

Total

Assets:

Deferred compensation plans: