01—Abstract
Summary
Summary of the 10-K filed December 24, 2008. Cited figures are marked; the original filing is the authoritative source.
HEICO Corporation, through its subsidiaries, describes itself as the world's largest manufacturer of FAA-approved jet engine and aircraft component replacement parts, other than OEMs and their subcontractors, and a leading manufacturer of electronic equipment for the aviation, defense, space, medical, telecommunications and electronics industries.
The company operates two segments: the Flight Support Group (75% of fiscal 2008 net sales) and the Electronic Technologies Group (25%). For fiscal 2008 (year ended October 31, 2008), net sales rose 14.7% to $582.3 milliona, operating income rose 23.0% to $105.8 million, and net income was $48.5 million, or $1.78 per diluted share, compared with $39.0 million, or $1.45 per diluted share, in fiscal 2007. Management stated it is targeting growth in net sales, earnings and operating cash flow in fiscal 2009, while noting expected capacity reductions in the commercial airline industry.
Balance sheet and cash flow remained conservative. Cash and equivalents rose to $12.6 million, total debt fell to $37.6 millionb from $56.0 million, and total debt to total capitalization was 8%, versus 13% a year earlier. Net cash from operations was $73.2 million, and the company had $261.6 million of unused availability under its $300 million revolving credit facility, which matures in May 2013.
Minority interests in consolidated subsidiaries grew to $84.0 millionc, reflecting Lufthansa Technik's 20% stake in HEICO Aerospace and other partially owned subsidiaries, and the company disclosed significant future put-right purchase obligations, with an estimated aggregate redemption amount of approximately $49 million. Key risks cited include dependence on the aviation industry's cycles, FAA regulation, competition from OEMs, reliance on defense spending for about 41% of Electronic Technologies Group sales, and an aggressive acquisition strategy. Contingent acquisition consideration could total approximately $82 million, with an estimated expected payment of about $5 million based on historical earnings levels.
02—Key points
Key Highlights
- Fiscal 2008 net sales increased 14.7% to $582.3 million; operating income increased 23.0% to $105.8 million.
- Net income was $48.5 million, or $1.78 per diluted share, versus $1.45 per diluted share in fiscal 2007.
- Flight Support Group net sales were $436.8 million and Electronic Technologies Group net sales were $146.0 million; FSG operating margin rose to 18.6% from 17.6%.
- Total debt fell to $37.6 million from $56.0 million; debt-to-total-capitalization dropped to 8% from 13%.
- Net cash provided by operating activities was $73.2 million, and $261.6 million was unused under the revolving credit facility.
- The Board declared a semi-annual cash dividend of $.06 per share, a 20% increase over the prior $.05 payment.
- Backlog was $107.1 million as of October 31, 2008, versus $106.3 million a year earlier.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Heico kept $0.08.
- Revenue$582.3M100.0%
- Cost of revenue−$371.9M63.9%
- Gross profit$210.5M36.1%
- Operating costs−$104.7M18.0%
- Operating income$105.8M18.2%
- Interest, other & tax−$57.3M9.8%
- Net income$48.5M8.3%
Where FY2008 revenue went
$582.3M- Cost of revenue: $371.9M, 64% of revenue
- SG&A: $104.7M, 18% of revenue
- Net income: $48.5M, 8.3% of revenue
- Interest, other & tax: $57.3M, 9.8% of revenue
Kept 8.3% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed December 24, 2008Financial Statements
| Revenue | $582.35M |
| Cost of Revenue | $371.85M |
| Gross Profit | $210.50M |
| SG&A Expenses | $104.71M |
| Operating Expenses | $476.56M |
| Operating Income | $105.79M |
| Interest Expense | $2.31M |
| Net Income | $48.51M |
| EPS (Basic) | $1.48 |
| EPS (Diluted) | $1.42 |
| Shares Outstanding (Basic) | 32.89M |
| Shares Outstanding (Diluted) | 34.05M |
05—Questions
Frequently Asked Questions
What does HEICO sell and who are its main customers?
HEICO makes FAA-approved jet engine and aircraft component replacement parts, repairs and overhauls components, and manufactures electronic, microwave and electro-optical equipment. Customers include commercial airlines, repair and overhaul facilities, OEMs, and U.S. and foreign military units. No single customer accounted for 10% or more of consolidated sales in the last three fiscal years, and the five largest customers represented about 21% of fiscal 2008 net sales.
How strong is HEICO's balance sheet?
At October 31, 2008, the company had $12.6 million of cash, $37.6 million of total debt, and shareholders' equity of $417.8 million. Total debt to total capitalization was 8%, down from 13%. The revolving credit facility is unsecured and was in compliance with all covenants as of year-end.
What is the strategic relationship with Lufthansa?
Lufthansa Technik has invested over $60 million to acquire and maintain a 20% minority interest in HEICO Aerospace. Lufthansa has the right to select 50% of the parts for which HEICO will seek PMAs, provided those parts are technologically and economically feasible and comparably profitable.
What are the main risks to investors?
Key risks include downturns in the aviation industry, loss of FAA approvals, reduced defense or homeland security spending (about 41% of ETG sales came from military agencies and their suppliers), intense competition from OEMs, product liability claims not fully insured, and the execution of its acquisition strategy. Executive officers and directors beneficially owned about 27% of Common Stock and about 7% of Class A Common Stock, giving them substantial influence.
What is the company's outlook for fiscal 2009?
Management said it is targeting growth in net sales, earnings and net cash provided by operating activities in fiscal 2009 over fiscal 2008, despite global economic strains and expected capacity reductions in the commercial airline industry. Substantially all of the October 31, 2008 backlog is expected to be delivered during fiscal 2009.
06—Continue