01—Abstract
Summary
Summary of the 10-K filed December 28, 2007. Cited figures are marked; the original filing is the authoritative source.
HEICO Corporation (NYSE: HEI and HEI.A) reported fiscal 2007 (year ended October 31, 2007) net sales of $507.9 milliona, up 29.5% from $392.2 million in fiscal 2006, and net income of $39.0 million, or $1.45 per diluted share, compared with $31.9 million, or $1.20 per diluted share, a year earlier.
Operating income rose 28.6% to $86.0 millionb. The Flight Support Group, which designs and makes FAA-approved jet engine and aircraft replacement parts, supplied 76% of net sales, and its operating income increased 43.9% to $67.4 million. The Electronic Technologies Group contributed 24% of net sales, with operating income roughly flat at $33.9 million, as gross margins fell on a less favorable product mix.
Consolidated gross margin declined to 34.9% from 36.3%. Growth was driven by both organic expansion (approximately 21% organic growth at the Flight Support Group and about 5% at the Electronic Technologies Group) and acquisitions, including Arger, Prime Air, FerriShield and EMD. Cash flow from operations was $57.5 millionc, and capital expenditures were $12.9 million.
Total debt was $55.95 milliond at year end, almost all borrowed under a $130 million revolving credit facility at a weighted average rate of 5.8%. Backlog reached $106.3 million, up from $80.0 million. Management is targeting growth in fiscal 2008 net sales and earnings over fiscal 2007 results.
The company declared a semi-annual cash dividend of $.05 per share, a 25% increase over the prior $.04 payment. Insiders, including executive officers and entities they control, beneficially owned approximately 35% of Common Stock and 9% of Class A Common Stock, giving them substantial influence over corporate control.
Concentration risk is moderate: no single customer accounted for 10% or more of sales, and the five largest customers represented about 21%. Defense-related sales were about 41% of Electronic Technologies Group sales.
02—Key points
Key Highlights
- Net sales rose 29.5% to $507.9 million in fiscal 2007, from $392.2 million in fiscal 2006.
- Net income increased to $39.0 million, or $1.45 per diluted share, versus $31.9 million, or $1.20 per diluted share, in fiscal 2006.
- Flight Support Group operating income grew 43.9% to $67.4 million on 76% of net sales, with organic growth of approximately 21%.
- Electronic Technologies Group operating income was $33.9 million, a slight decline, as gross margin pressure from product mix reduced its operating margin to 27.3%.
- Backlog increased to $106.3 million at October 31, 2007, from $80.0 million a year earlier.
- Cash from operations was $57.5 million; long-term debt was $55.95 million, mainly drawn on a $130 million revolving credit facility at a 5.8% weighted average rate.
- The Board declared a $.05 per share semi-annual dividend, a 25% increase over the prior $.04 payment.
03—Questions
Frequently Asked Questions
What drove HEICO's revenue growth in fiscal 2007?
Net sales grew 29.5% to $507.9 million. The Flight Support Group's sales rose $106.7 million to $383.9 million, reflecting approximately 21% organic growth plus acquisitions such as Arger and Prime Air. The Electronic Technologies Group's sales rose $9.0 million to $124.0 million, with approximately 5% organic growth plus the FerriShield and EMD acquisitions.
Did profitability improve?
Net income rose to $39.0 million from $31.9 million, and diluted EPS rose to $1.45 from $1.20. Operating income increased 28.6% to $86.0 million. However, gross profit margin declined to 34.9% from 36.3%, due mainly to lower margins in the Electronic Technologies Group. Minority interests' share of income also rose, to $16.3 million from $11.2 million, which limited the net income increase.
How is the company financed, and what is its debt position?
Total debt was $55.95 million at October 31, 2007. Of this, $53.0 million was borrowed under the $130 million revolving credit facility, which expires in August 2010 and is secured by substantially all assets other than real property. The facility can be increased to $175 million. Borrowings carried a weighted average rate of 5.8%. The company stated it was in compliance with all covenants.
What is the outlook for fiscal 2008?
The filing states that, based on current economic and market conditions and including recent acquisitions, the company is targeting growth in fiscal 2008 net sales and earnings over fiscal 2007 results. It also cites a focus on new products and services, market penetration, additional acquisitions, and maintaining financial strength.
What concentration or control risks should investors consider?
Insiders, including executive officers, entities they control, the 401(k) Plan and directors, beneficially owned approximately 35% of Common Stock and approximately 9% of Class A Common Stock, so they can substantially influence board elections and corporate control. Customer concentration is moderate: no single customer exceeded 10% of consolidated sales, and the five largest represented approximately 21%. About 41% of Electronic Technologies Group sales were to U.S. and foreign military agencies, so defense budget changes could affect revenue.
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