01—Abstract
Summary
Summary of the 10-K filed December 15, 2016. Cited figures are marked; the original filing is the authoritative source.
HEICO Corporation, through its subsidiaries, reports fiscal 2016 (year ended October 31, 2016) as a record year.
Net sales rose 16% to $1,376.3 milliona from $1,188.6 million, and operating income rose 16% to a record $265.3 million. Net income attributable to HEICO increased to a record $156.2 million, or $2.29 per diluted share, from $133.4 million, or $1.97 per diluted share, in fiscal 2015. The Electronic Technologies Group (ETG) drove much of the growth, with net sales up 31% to $511.3 million and operating income up 28% to $126.0 million, aided by acquisitions including Robertson Fuel Systems.
The Flight Support Group (FSG) grew net sales 8% to $875.9 millionb and operating income 9% to $163.4 million. Acquisitions remain central to the strategy. Cash paid for acquisitions totaled $263.8 million in fiscal 2016, funded mainly by the revolving credit facility.
Total debt rose to $458.2 millionc from $367.6 million, and net debt to shareholders' equity was 40%, up from 37%. Net cash provided by operating activities was $249.2 million, up from $172.9 million. Total backlog reached $497 million at October 31, 2016, compared with $349 million a year earlier.
Management targets growth in fiscal 2017 net sales and net income over fiscal 2016 levels, excluding additional acquisitions. Key risks include dependence on the aviation industry cycle, defense and space budget reductions, foreign sales (about 34%d of net sales), and goodwill and intangible assets that represent approximately 60% of total assets. The Mendelson family and related parties beneficially own approximately 22% of Common Stock and 6% of Class A Common Stock, giving them substantial influence over control of the company.
02—Key points
Key Highlights
- Record fiscal 2016 net sales of $1,376.3 million, up 16% from $1,188.6 million in fiscal 2015.
- Record net income attributable to HEICO of $156.2 million, or $2.29 per diluted share, versus $1.97 in fiscal 2015.
- Electronic Technologies Group net sales rose 31% to $511.3 million, and its operating income rose 28% to $126.0 million.
- Flight Support Group net sales rose 8% to $875.9 million, with operating income of $163.4 million.
- Backlog of unshipped orders reached $497 million at October 31, 2016, up from $349 million a year earlier.
- Total debt increased to $458.2 million, and $263.8 million was paid in cash for acquisitions during fiscal 2016.
- Semi-annual cash dividend increased to $.09 per share for January 2017, a 13% increase over the prior $.08 payment.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Heico kept $0.11.
- Revenue$1.38B100.0%
- Cost of revenue−$860.8M62.5%
- Gross profit$515.5M37.5%
- Operating costs−$250.1M18.2%
- Operating income$265.3M19.3%
- Interest, other & tax−$109.2M7.9%
- Net income$156.2M11.3%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed December 15, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.38B$1.19B | +15.8% |
| Cost of Revenue | $860.77M$754.47M | +14.1% |
| Gross Profit | $515.49M$434.18M | +18.7% |
| R&D Expenses | $44.73M$38.75M | +15.4% |
| SG&A Expenses | $250.15M$204.52M | +22.3% |
| Operating Expenses | $1.11B$958.99M | +15.8% |
| Operating Income | $265.35M$229.66M | +15.5% |
| Interest Expense | $8.27M$4.63M | +78.8% |
| Net Income | $156.19M$133.36M | +17.1% |
| EPS (Basic) | $1.19$1.60 | −25.6% |
| EPS (Diluted) | $1.17$1.57 | −25.5% |
| Shares Outstanding (Basic) | 130.95M83.42M | +57.0% |
| Shares Outstanding (Diluted) | 133.15M84.76M | +57.1% |
05—Questions
Frequently Asked Questions
What drove revenue and profit growth in fiscal 2016?
Net sales grew 16% to a record $1,376.3 million. The Electronic Technologies Group contributed $107.3 million of sales from fiscal 2016 and 2015 acquisitions plus 4% organic growth. The Flight Support Group added $40.6 million from fiscal 2015 acquisitions plus 3% organic growth. Operating income rose 16% to $265.3 million.
How is HEICO financing its acquisitions and how levered is it?
Acquisitions were paid in cash principally using proceeds from the revolving credit facility, which had $455.1 million outstanding at October 31, 2016. Total debt including current portion was $458.2 million. Net debt to shareholders' equity was 40%, compared with 37% a year earlier. As of December 13, 2016, about $353 million of unused committed availability remained under the facility.
What are the main risks flagged in the filing?
Risks include dependence on the aviation industry and its downward cycles, reductions in U.S. or foreign defense, space or homeland security spending, and the roughly 34% of net sales from foreign customers. The filing also cites risks from acquisitions, and goodwill and intangible assets representing approximately 60% of total assets, which could be impaired. The Mendelson family's combined ownership gives them substantial influence over the company.
What is the outlook for fiscal 2017?
Management anticipates net sales growth within the Flight Support Group's commercial aviation and defense product lines and growth in the Electronic Technologies Group. The company is targeting growth in fiscal 2017 full-year net sales and net income over fiscal 2016 levels, excluding additional acquired businesses. Capital expenditures in fiscal 2017 are anticipated to approximate $38 million.
What is the dividend policy and recent dividend action?
HEICO has historically paid semi-annual cash dividends on both classes of common stock. Dividends paid in fiscal 2016 were $.08 per share in January 2016 and in July 2016, the 75th and 76th consecutive semi-annual payments since 1979. In December 2016, the Board declared a regular semi-annual dividend of $.09 per share payable in January 2017, a 13% increase over the prior $.08.
06—Continue