HEICO Corporation
HEICO CORP (Form: 10-Q, Received: 06/03/2010 06:02:37)
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, 2010

OR

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
(State or other jurisdiction of
incorporation or organization)
65-0341002
(I.R.S. Employer Identification No.)
   
3000 Taft Street, Hollywood, Florida
(Address of principal executive offices)
33021
(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 o 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 May 31, 2010 is as follows:
 
Common Stock, $.01 par value
13,126,005 shares
Class A Common Stock, $.01 par value
19,805,119 shares
 

 
HEICO CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q
 
     
Page
       
Part I.    
Financial Information:
 
       
 
       
   
       
   
       
   
       
   
       
 
       
 
       
 
       
Part II.
Other Information:
 
       
 
       
 
1

 
PART I.  FINANCIAL INFORMATION; Item 1.  FINANCIAL STATEMENTS
HEICO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – UNAUDITED

   
April 30, 2010
   
October 31, 2009
 
ASSETS
 
Current assets:
           
Cash and cash equivalents
  $ 10,525,000     $ 7,167,000  
Accounts receivable, net
    79,232,000       77,864,000  
Inventories, net
    144,557,000       137,585,000  
Prepaid expenses and other current assets
    5,753,000       4,290,000  
Deferred income taxes
    17,185,000       16,671,000  
Total current assets
    257,252,000       243,577,000  
                 
Property, plant and equipment, net
    60,411,000       60,528,000  
Goodwill
    381,122,000       365,243,000  
Intangible assets, net
    54,037,000       41,588,000  
Other assets
    27,076,000       21,974,000  
Total assets
  $ 779,898,000     $ 732,910,000  
                 
LIABILITIES AND EQUITY
 
Current liabilities:
               
Current maturities of long-term debt
  $ 251,000     $ 237,000  
Trade accounts payable
    27,860,000       26,978,000  
Accrued expenses and other current liabilities
    37,180,000       36,978,000  
Income taxes payable
    240,000       1,320,000  
Total current liabilities
    65,531,000       65,513,000  
                 
Long-term debt, net of current maturities
    64,100,000       55,194,000  
Deferred income taxes
    42,405,000       41,340,000  
Other long-term liabilities
    30,031,000       23,268,000  
Total liabilities
    202,067,000       185,315,000  
Commitments and contingencies (Note 11)
               
                 
Redeemable noncontrolling interests (Note 12)
    56,121,000       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
               
13,063,518 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; 19,804,119 and 19,641,543 shares issued
               
and outstanding, respectively
    198,000       157,000  
Capital in excess of par value
    227,150,000       224,625,000  
Accumulated other comprehensive income (loss)
    135,000       (1,381,000 )
Retained earnings
    212,524,000       189,485,000  
Total HEICO shareholders’ equity
    440,138,000       412,990,000  
Noncontrolling interests
    81,572,000       77,668,000  
Total shareholders' equity
    521,710,000       490,658,000  
Total liabilities and equity
  $ 779,898,000     $ 732,910,000  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED
 
   
Six months ended April 30,
   
Three months ended April 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net sales
  $ 289,380,000     $ 260,603,000     $ 153,845,000     $ 130,166,000  
                                 
Operating costs and expenses:
                               
Cost of sales
    185,634,000       174,181,000       100,219,000       87,648,000  
Selling, general and administrative expenses
    53,245,000       43,650,000       27,669,000       21,199,000  
                                 
Total operating costs and expenses
    238,879,000       217,831,000       127,888,000       108,847,000  
                                 
Operating income
    50,501,000       42,772,000       25,957,000       21,319,000  
                                 
Interest expense
    (286,000 )     (307,000 )     (167,000 )     (112,000 )
Other income
    423,000       2,000       268,000       49,000  
                                 
Income before income taxes and noncontrolling
                               
   interests
    50,638,000       42,467,000       26,058,000       21,256,000  
                                 
Income tax expense
    17,700,000       12,820,000       9,150,000       6,960,000  
                                 
Net income from consolidated operations
    32,938,000       29,647,000       16,908,000       14,296,000  
                                 
Less: Net income attributable to noncontrolling
                               
   interests
    8,572,000       7,789,000       4,335,000       3,755,000  
                                 
Net income attributable to HEICO
  $ 24,366,000     $ 21,858,000     $ 12,573,000     $ 10,541,000  
                                 
Net income per share attributable to HEICO
                               
   shareholders:
                               
Basic
  $ .74     $ .66     $ .38     $ .32  
Diluted
  $ .72     $ .64     $ .37     $ .31  
                                 
Weighted average number of common shares
                               
   outstanding:
                               
Basic
    32,730,941       32,896,831       32,778,292       32,780,310  
Diluted
    33,731,386       33,909,040       33,760,854       33,765,626  
                                 
Cash dividends per share
  $ .048     $ .048     $     $  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
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
   
Income (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
   
4,668,000
     
     
     
     
     
24,366,000
     
3,904,000
     
28,270,000
 
Foreign currency translation adjustments
   
     
     
     
     
1,512,000
     
     
     
1,512,000
 
Total comprehensive income
   
4,668,000
     
     
     
     
1,512,000
     
24,366,000
     
3,904,000
     
29,782,000
 
Cash dividends ($.048 per share)
   
     
     
     
     
     
(1,570,000
)
   
     
(1,570,000
)
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
     
1,383,000
     
     
     
     
1,385,000
 
Tax benefit from stock option exercises
   
     
     
     
952,000
     
     
     
     
952,000
 
Stock option compensation expense
   
     
     
     
610,000
     
     
     
     
610,000
 
Distributions to noncontrolling interests
   
(4,446,000
)
   
     
     
     
     
     
     
 
Acquisition of noncontrolling interests
   
(727,000
)
   
     
     
     
     
     
     
 
Redemptions of common stock related to stock option exercises
   
     
     
     
(353,000
)
   
     
     
     
(353,000
)
Adjustments to redemption amount of redeemable noncontrolling interests
   
(311,000
)
   
     
     
     
     
311,000
     
     
311,000
 
Other
   
     
     
     
(1,000
)
   
4,000
     
     
     
3,000
 
Balances as of April 30, 2010
 
$
56,121,000
   
$
131,000
   
$
198,000
   
$
227,150,000
   
$
135,000
   
$
212,524,000
   
$
81,572,000
   
$
521,710,000
 
 
         
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
   
3,828,000
     
     
     
     
     
21,858,000
     
3,961,000
     
25,819,000
 
Foreign currency translation adjustments
   
     
     
     
     
(194,000
)
   
     
     
(194,000
)
Total comprehensive income
   
3,828,000
     
     
     
     
(194,000
)
   
21,858,000
     
3,961,000
     
25,625,000
 
Repurchases of common stock
   
     
(2,000
)
   
(2,000
)
   
(8,094,000
)
   
     
     
     
(8,098,000
)
Cash dividends ($.048 per share)
   
     
     
     
     
     
(1,585,000
)
   
     
(1,585,000
)
Proceeds from stock option exercises
   
     
     
1,000
     
677,000
     
     
     
     
678,000
 
Tax benefit from stock option exercises
   
     
     
     
2,136,000
     
     
     
     
2,136,000
 
Stock option compensation expense
   
     
     
     
7,000
     
     
     
     
7,000
 
Distributions to noncontrolling interests
   
(3,066,000
)
   
     
     
     
     
     
(461,000
)
   
(461,000
)
Acquisition of noncontrolling interests
   
(10,015,000
)
   
     
     
     
     
6,845,000
     
     
6,845,000
 
Adjustments to redemption amount of redeemable noncontrolling interests
   
(366,000
)
   
     
     
     
     
366,000
     
     
366,000
 
Other
   
     
     
     
(1,000
)
   
163,000
     
2,000
     
     
164,000
 
Balances as of April 30, 2009
 
$
39,117,000
   
$
104,000
   
$
157,000
   
$
224,168,000
   
$
(4,850,000
)
 
$
184,462,000
   
$
74,638,000
   
$
478,679,000
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED
   
Six months ended April 30,
 
   
2010
   
2009
 
             
Operating Activities:
           
Net income from consolidated operations
  $ 32,938,000     $ 29,647,000  
Adjustments to reconcile net income from consolidated operations
               
to net cash provided by operating activities:
               
Depreciation and amortization
    8,878,000       6,908,000  
Impairment of intangible assets
    281,000        
Deferred income tax provision (benefit)
    610,000       (254,000 )
Tax benefit from stock option exercises
    952,000       2,136,000  
Excess tax benefit from stock option exercises
    (670,000 )     (1,793,000 )
Stock option compensation expense
    610,000       7,000  
Changes in operating assets and liabilities, net of acquisitions:
               
Decrease in accounts receivable
    1,863,000       16,065,000  
Increase in inventories
    (184,000 )     (9,642,000 )
(Increase) decrease in prepaid expenses and other current assets
    (1,435,000 )     340,000  
Decrease in trade accounts payable
    (614,000 )     (3,847,000 )
Decrease in accrued expenses and other current liabilities
    (2,250,000 )     (10,402,000 )
Decrease in income taxes payable
    (688,000 )     (2,659,000 )
Other
    (28,000 )     90,000  
Net cash provided by operating activities
    40,263,000       26,596,000  
                 
Investing Activities:
               
Acquisitions, net of cash acquired
    (36,189,000 )     (2,216,000 )
Capital expenditures
    (4,600,000 )     (5,397,000 )
Other
    (2,000 )     54,000  
Net cash used in investing activities
    (40,791,000 )     (7,559,000 )
                 
Financing Activities:
               
Borrowings on revolving credit facility
    37,000,000       27,000,000  
Payments on revolving credit facility
    (28,000,000 )     (27,000,000 )
Acquisitions of noncontrolling interests
    (727,000 )     (11,268,000 )
Repurchases of common stock
          (8,098,000 )
Distributions to noncontrolling interests
    (4,446,000 )     (3,527,000 )
Cash dividends paid
    (1,638,000 )     (1,585,000 )
Redemptions of common stock related to stock option exercises
    (353,000 )      
Proceeds from stock option exercises
    1,385,000       678,000  
Excess tax benefit from stock option exercises
    670,000       1,793,000  
Other
    (102,000 )     (104,000 )
Net cash provided by (used in) financing activities
    3,789,000       (22,111,000 )
                 
Effect of exchange rate changes on cash
    97,000       (40,000 )
                 
Net increase (decrease) in cash and cash equivalents
    3,358,000       (3,114,000 )
Cash and cash equivalents at beginning of year
    7,167,000       12,562,000  
Cash and cash equivalents at end of period
  $ 10,525,000     $ 9,448,000  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
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 six months ended April 30, 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.

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,
 
 
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 initial purchase price was paid in cash principally using proceeds from the Company’s revolving credit facility.  A post closing purchase price adjustment of approximately $1.6 million was accrued as of the acquisition date and is expected to be paid in the third quarter of fiscal 2010.  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 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 quarter of fiscal 2010, the Company, through HEICO Electronic, paid $1.0 million and, as of April 30, 2010, accrued $1.3 million of additional purchase consideration related to prior year acquisitions for which the earnings objectives were met during fiscal 2010.  The aforementioned amounts paid and accrued 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 amounts of net sales and earnings of the 2010 acquisition included in the Condensed Consolidated Statements of Operations are 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 six and three months ended April 30, 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 six and three months ended April 30, 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.
 
 
   
Six months ended
April 30, 2009
   
Three months ended
April 30, 2009
 
Net sales
  $
273,695,000
    $
137,985,000
 
Net income from consolidated operations
  $
30,915,000
    $
15,373,000
 
Net income attributable to HEICO
  $
23,126,000
    $
11,618,000
 
Net income per share attributable
               
     to HEICO shareholders:
               
    Basic
  $ .70     $ .35  
    Diluted
  $ .68     $ .34  
 
3.      SELECTED FINANCIAL STATEMENT INFORMATION

Accounts Receivable

   
April 30, 2010
   
October 31, 2009
 
Accounts receivable
  $ 81,969,000     $ 80,399,000  
Less:  Allowance for doubtful accounts
    (2,737,000 )     (2,535,000 )
Accounts receivable, net
  $ 79,232,000     $ 77,864,000  
 
Costs and Estimated Earnings on Uncompleted Percentage-of-Completion Contracts

   
April 30, 2010
   
October 31, 2009
 
Costs incurred on uncompleted contracts
  $ 10,468,000     $ 10,280,000  
Estimated earnings
    7,662,000       8,070,000  
      18,130,000       18,350,000  
Less:  Billings to date
    (15,162,000 )     (12,543,000 )
    $ 2,968,000     $ 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)
  $ 3,162,000     $ 5,832,000  
Accrued expenses and other current liabilities
               
(billings in excess of costs and estimated earnings)
    (194,000 )     (25,000 )
    $ 2,968,000     $ 5,807,000  
 
Changes in estimates did not have a material effect on net income from consolidated operations for the six months ended April 30, 2010 and 2009.

Inventories
 
   
April 30, 2010
   
October 31, 2009
 
Finished products
  $ 77,791,000     $ 79,665,000  
Work in process
    20,052,000       14,279,000  
Materials, parts, assemblies and supplies
    46,714,000       43,641,000  
     Inventories, net
  $ 144,557,000     $ 137,585,000  
 
Inventories related to long-term contracts were not significant as of April 30, 2010 and October 31, 2009.
 
 
Property, Plant and Equipment

   
April 30, 2010
   
October 31, 2009
 
Land
  $ 3,656,000     $ 3,656,000  
Buildings and improvements
    38,300,000       38,091,000  
Machinery, equipment and tooling
    84,308,000       80,697,000  
Construction in progress
    6,631,000       5,331,000  
      132,895,000       127,775,000  
Less:  Accumulated depreciation and amortization
    (72,484,000 )     (67,247,000 )
Property, plant and equipment, net
  $ 60,411,000     $ 60,528,000  
 

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 $5,634,000 and $9,689,000 as of April 30, 2010 and October 31, 2009, respectively.  The total customer rebates and credits deducted within net sales for the six months ended April 30, 2010 and 2009 was $4,398,000 and $4,734,000 respectively.  The total customer rebates and credits deducted within net sales for the three months ended April 30, 2010 and 2009 was $2,019,000 and $2,562,000 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 six months ended April 30, 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       999,000       999,000  
Balances as of April 30, 2010
  $ 188,459,000     $ 192,663,000     $ 381,122,000  

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 or accrued 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.
 
Identifiable intangible assets consist of the following:
 
   
As of April 30, 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
  $ 42,059,000     $ (12,963,000 )   $ 29,096,000     $ 33,237,000     $ (9,944,000 )   $ 23,293,000  
Intellectual property
    7,347,000       (1,009,000 )     6,338,000       3,369,000       (628,000 )     2,741,000  
Licenses
    1,000,000       (584,000 )     416,000       1,000,000       (547,000 )     453,000  
Non-compete agreements
    1,240,000       (1,040,000 )     200,000       1,221,000       (969,000 )     252,000  
Patents
    542,000       (251,000 )     291,000       575,000       (246,000 )     329,000  
Trade names
    569,000       (56,000 )     513,000       569,000       ¾       569,000  
      52,757,000       (15,903,000 )     36,854,000       39,971,000       (12,334,000 )     27,637,000  
Non-Amortizing Assets:
                                               
Trade names
    17,183,000       ¾       17,183,000       13,951,000       ¾       13,951,000  
    $ 69,940,000     $ (15,903,000 )   $ 54,037,000     $ 53,922,000     $ (12,334,000 )   $ 41,588,000  

The increase in the gross carrying amount of customer relationships, intellectual property and trade names as of April 30, 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 six years.

Amortization expense related to intangible assets for the six months ended April 30, 2010 and 2009 was $3,470,000 and $1,812,000, respectively.  Amortization expense related to intangible assets for the three months ended April 30, 2010 and 2009 was $ 1,894,000 and $871,000, respectively.  Amortization expense related to intangible assets for the fiscal year ending October 31, 2010 is estimated to be $7,429,000.  Amortization expense for each of the next five fiscal years is estimated to be $7,232,000 in fiscal 2011, $6,526,000 in fiscal 2012, $6,065,000 in fiscal 2013, $5,768,000 in fiscal 2014 and $4,642,000 in fiscal 2015 and $2,662,000 thereafter.


5.      LONG-TERM DEBT

Long-term debt consists of the following:
 
   
April 30, 2010
   
October 31, 2009
 
Borrowings under revolving credit facility
  $ 64,000,000     $ 55,000,000  
Notes payable, capital leases and equipment loans
    351,000       431,000  
      64,351,000       55,431,000  
Less: Current maturities of long-term debt
    (251,000 )     (237,000 )
    $ 64,100,000     $ 55,194,000  

As of April 30, 2010 and October 31, 2009, the weighted average interest rate on borrowings under the Company’s $300 million revolving credit facility was .9%.  The revolving credit facility contains both financial and non-financial covenants.  As of April 30, 2010, the Company was in compliance with all such covenants.
 
 
6.      INCOME TAXES

As of April 30, 2010, the Company’s liability for gross unrecognized tax benefits related to uncertain tax positions was $3,626,000 of which $3,104,000 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 six months ended April 30, 2010 is as follows:
 
Balance as of October 31, 2009
  $ 3,328,000  
Increases related to current year tax positions
    298,000  
Balance as of April 30, 2010
  $ 3,626,000  

There were no material changes in the liability for unrecognized tax positions resulting from tax positions taken during the current or a prior year, settlements with other taxing authorities or a lapse of applicable statutes of limitations.  The accrual of interest and penalties related to the unrecognized tax benefits was not material for the six months ended April 30, 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.
 
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 April 30, 2010
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Deferred compensation plans:
                       
Corporate owned life insurance
  $     $ 21,729,000     $     $ 21,729,000  
Mutual funds
    1,674,000                   1,674,000  
Equity securities
    1,573,000                   1,573,000  
Other
    1,000       115,000             116,000  
Total assets
  $ 3,248,000     $ 21,844,000     $     $ 25,092,000  
                                 
Liabilities:
                               
     Contingent consideration
  $     $     $ 1,150,000     $ 1,150,000  


   
As of October 31, 2009
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Deferred compensation plans:
                       
Corporate owned life insurance
  $     $ 15,687,000     $     $ 15,687,000  
Mutual funds
    2,776,000                   2,776,000  
Equity securities
    1,057,000                   1,057,000  
Other
    1,000       243,000             244,000  
Total assets
  $ 3,834,000     $ 15,930,000     $     $ 19,764,000  
                                 
Liabilities
                       
 
 
The Company maintains two non-qualified deferred compensation plans.  The assets of the HEICO Corporation Leadership Compensation Plan (the “LCP”) principally represent cash surrender values of life insurance policies, which derive their fair values from investments in mutual funds that are managed by an insurance company and are classified within Level 2.  Certain other assets of the LCP represent investments in publicly-traded equity securities and are classified within Level 1.  The assets of the Company’s other deferred compensation plan are principally invested in publicly-traded mutual funds and equity securities and a life insurance policy, and the fair values of this plan’s assets are classified within Level 1 and Level 2, respectively.  The assets of both plans are held within irrevocable trusts and classified within other assets in the Company’s Condensed Consolidated Balance Sheets.  The related liabilities of the two deferred compensation plans are included within other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets and have an aggregate value of $24,781,000 as of April 30, 2010 and $19,505,000 as of October 31, 2009.

As part of the agreement to acquire a subsidiary by the ETG in the second quarter of fiscal 2010, the Company may be obligated to pay contingent consideration of up to $2.0 million in fiscal 2013 should the acquired entity meet certain earnings objectives during the second and third years following the acquisition.  The $1,150,000 fair value of the contingent consideration as of the acquisition date was determined using a discounted cash flow model and probability adjusted internal estimates of the subsidiary’s future earnings and is classified in Level 3.  This
 
 
obligation is included in other long-term liabilities in the Company’s Condensed Consolidated Balance Sheet.  There were no subsequent changes in the fair value of this contingent consideration during the period ended April 30, 2010.  Changes in the fair value of contingent consideration will be recorded in the Company’s condensed consolidated statements of operations.

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, trade accounts payable, and accrued expenses and other current liabilities approximate fair value as of April 30, 2010 due to the relatively short maturity of the respective instruments.  The carrying amount of long-term debt approximates fair value due to its variable interest rates.


8.      RESEARCH AND DEVELOPMENT EXPENSES

Cost of sales for the six months ended April 30, 2010 and 2009 includes approximately $10.5 million and $9.7 million, respectively, of new product research and development expenses. Cost of sales for the three months ended April 30, 2010 and 2009 includes approximately $5.4 million and $4.9 million, respectively, of new product research and development expenses.


9.      NET INCOME PER SHARE ATTRIBUTABLE TO HEICO SHAREHOLDERS

The computation of basic and diluted net income per share attributable to HEICO shareholders is as follows:
 
   
Six months ended April 30,
   
Three months ended April 30,
 
   
2010
   
2009
   
2010
   
2009
 
Numerator:
                       
Net income attributable to HEICO
  $ 24,366,000     $ 21,858,000     $ 12,573,000     $ 10,541,000  
                                 
Denominator:
                               
Weighted average common shares outstanding-basic
    32,730,941       32,896,831       32,778,292       32,780,310  
Effect of dilutive stock options
    1,000,445       1,012,209       982,562       985,316  
Weighted average common shares outstanding-diluted
    33,731,386       33,909,040       33,760,854       33,765,626  
                                 
Net income per share attributable to HEICO shareholders:
                               
Basic
  $ .74     $ .66     $ .38     $ .32  
Diluted
  $ .72     $ .64     $ .37     $ .31  
                                 
Anti-dilutive stock options excluded
    432,813       ¾       431,250       ¾  
 
 
No portion of the adjustments to the redemption amount of redeemable noncontrolling interests of ($311,000) and ($613,000) for the six months and three months ended April 30, 2010, respectively, reflect a redemption amount in excess of fair value and therefore no portion of the adjustments affect basic or diluted net income per share attributable to HEICO shareholders.
 
 
10.           OPERATING SEGMENTS

Information on the Company’s two operating segments, the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. and its subsidiaries, and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. and its subsidiaries, for the six months and three months ended April 30, 2010 and 2009, respectively, is as follows:
 
               
Other,
       
               
Primarily
       
   
Segment
   
Corporate and
   
Consolidated
 
   
FSG
   
ETG
   
Intersegment
   
Totals
 
For the six months ended April 30, 2010:
                       
Net sales
  $ 196,822,000     $ 93,124,000     $ (566,000 )   $ 289,380,000  
Depreciation and amortization
    4,974,000       3,706,000       198,000       8,878,000  
Operating income
    32,775,000       24,763,000       (7,037,000 )     50,501,000  
Capital expenditures
    3,817,000       780,000       3,000       4,600,000  
                                 
For the six months ended April 30, 2009:
                               
Net sales
  $ 200,307,000     $ 60,469,000     $ (173,000 )   $ 260,603,000  
Depreciation and amortization
    4,809,000       1,878,000       221,000       6,908,000  
Operating income
    31,538,000       16,573,000       (5,339,000 )     42,772,000  
Capital expenditures
    4,777,000       609,000       11,000       5,397,000  
                                 
For the three months ended April 30, 2010:
                               
Net sales
  $ 103,043,000     $ 51,066,000     $ (264,000 )   $ 153,845,000  
Depreciation and amortization
    2,510,000       2,018,000       99,000       4,627,000  
Operating income
    16,055,000       13,593,000       (3,691,000 )     25,957,000  
Capital expenditures
    1,868,000       574,000             2,442,000  
                                 
For the three months ended April 30, 2009:
                               
Net sales
  $ 100,745,000     $ 29,510,000     $ (89,000 )   $ 130,166,000  
Depreciation and amortization
    2,398,000       927,000       112,000       3,437,000  
Operating income
    15,897,000       8,031,000       (2,609,000 )     21,319,000  
Capital expenditures
    2,486,000       295,000             2,781,000  
 
 
Total assets by operating segment as of April 30, 2010 and October 31, 2009 are as follows:
 
               
Other,
       
   
Segment
   
Primarily
   
Consolidated
 
   
FSG
   
ETG
   
Corporate
   
Totals
 
                         
Total assets as of April 30, 2010
  $ 409,922,000     $ 327,734,000     $ 42,242,000     $ 779,898,000  
Total assets as of October 31, 2009
    414,030,000       285,602,000       33,278,000       732,910,000  
 
 
11.           COMMITMENTS AND CONTINGENCIES

Guarantees

The Company has arranged for a standby letter of credit for $1.5 million to meet the security requirement of its insurance company for potential workers’ compensation claims, which is supported by the Company’s revolving credit facility.  As of April 30, 2010, one of the Company’s subsidiaries has guaranteed its performance related to certain customer contracts through two letters of credit in an aggregate amount of $.7 million, expiring in the third quarter of fiscal 2010, which are supported by the Company’s revolving credit facility.  The subsidiary is also a beneficiary of two letters of credit related to the same contracts.

Product Warranty

Changes in the Company’s product warranty liability for the six months ended April 30, 2010 and 2009, respectively, are as follows:

   
Six months ended April 30,
 
   
2010
   
2009
 
Balances as of beginning of fiscal year
  $ 1,022,000     $ 671,000  
Accruals for warranties
    850,000       859,000  
Warranty claims settled
    (570,000 )     (497,000 )
Acquired warranty liabilities
    80,000        
Balances as of April 30
  $ 1,382,000     $ 1,033,000  
 
 
Additional Contingent Purchase Consideration

As part of the agreement to acquire a subsidiary by the ETG in fiscal 2007, the Company may be obligated to pay additional purchase consideration of up to 73 million Canadian dollars in aggregate, which translates to approximately $73 million U.S. dollars based on the April 30, 2010 exchange rate, should the subsidiary meet certain earnings objectives through fiscal 2012.

As part of the agreement to acquire a subsidiary by the ETG in fiscal 2009, the Company may be obligated to pay additional purchase consideration of up to approximately $1.3 million in fiscal 2011 and $10.1 million in fiscal 2012 should the subsidiary meet certain earnings objectives during the second and third years, respectively, following the acquisition.

As part of the agreement to acquire a subsidiary by the ETG in fiscal 2009, the Company may be obligated to pay additional purchase consideration of up to approximately $11.7 million should the subsidiary meet certain earnings objectives during the first two years following the acquisition.

The above referenced additional contingent purchase consideration will be accrued when the earnings objectives are met.  Such additional contingent purchase consideration is based on a multiple of earnings above a threshold (subject to a cap in certain cases) and is not contingent upon the former shareholders of the acquired entities remaining employed by the Company or
 
 
providing future services to the Company.  Accordingly, such consideration will be recorded as an additional cost of the respective acquired entity when paid.  The aggregate maximum amount of such contingent purchase consideration that the Company could be required to pay is approximately $96 million payable over future periods beginning in fiscal 2011 through fiscal 2013.  Assuming the subsidiaries perform over their respective future measurement periods at the same earnings levels they have performed in the comparable historical measurement periods, the aggregate amount of such contingent purchase consideration that the Company would be required to pay is approximately $12 million.  The actual contingent purchase consideration will likely be different.

Litigation

The Company is involved in various legal actions arising in the normal course of business.  Based upon the Company’s and its legal counsel’s evaluations of any claims or assessments, management is of the opinion that the outcome of these matters will not have a material adverse effect on the Company’s results of operations, financial position or cash flows.


12.           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 may be exercised on varying dates causing the Company to purchase their equity interests beginning in fiscal 2010 through fiscal 2018.  The Put Rights, all of which relate either to common shares or membership interests in limited liability companies, provide that the cash consideration to be paid for their equity interests (the “Redemption Amount”) be 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.  As of April 30, 2010, management’s estimate of the aggregate Redemption Amount of all Put Rights that the Company would be required to pay is approximately $56 million.  The actual Redemption Amount will likely be different.  The portion of the estimated Redemption Amount as of April 30, 2010 redeemable at fair value is $25 million and the portion redeemable based solely on a multiple of future earnings is $31 million.  See Note 1, Summary of Significant Accounting Policies, for more information regarding how the Company accounts for its redeemable noncontrolling interests in accordance with new accounting guidance adopted as of the beginning of fiscal 2010 and the Condensed Consolidated Statements of Shareholders’ Equity and Comprehensive Income for a summary of changes in redeemable noncontrolling interests for the six months ended April 30, 2010 and 2009.

In April 2010, the Company, through HEICO Electronic, acquired an additional 3.4% equity interest in one of its subsidiaries, which increased the Company’s ownership interest to 93.3%.  The purchase price of the redeemable noncontrolling interest acquired was paid using cash provided by operating activities.  The acquisition resulted in a decrease to redeemable noncontrolling interests and had no effect on HEICO shareholders’ equity.
 
During the six months ended April 30, 2009, the Company acquired certain redeemable noncontrolling interests and accounted for the transactions under the accounting guidance in effect at that time pertaining to step acquisitions.  The excess of the purchase price paid over the carrying amount was allocated principally to goodwill under such guidance.  As previously mentioned, the Condensed Consolidated Statement of Shareholders’ Equity and Comprehensive Income for the six months ended April 30, 2009 is presented on a retrospective basis to reflect the adoption of new accounting guidance as of November 1, 2009 pertaining to redeemable noncontrolling interests, which resulted in an increase to redeemable noncontrolling interests and a decrease to retained earnings.  The subsequent acquisition of certain redeemable noncontrolling interests on a retrospective basis results in a reversal of any previously recorded decrease to retained earnings related to such redeemable noncontrolling interests recorded as part of the adoption of this new accounting guidance.
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein.  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates if different assumptions were used or different events ultimately transpire.

Our critical accounting policies, some of which require management to make judgments about matters that are inherently uncertain, are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended October 31, 2009.

Our business is comprised of two operating segments:  the Flight Support Group (“FSG”), consisting of HEICO Aerospace Holdings Corp. (“HEICO Aerospace”) and its subsidiaries, and the Electronic Technologies Group (“ETG”), consisting of HEICO Electronic Technologies Corp. (“HEICO Electronic”) and its subsidiaries.

Our results of operations for the six months and three months ended April 30, 2010 have been affected by certain fiscal 2010 and 2009 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements of this quarterly report and of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2009.

All per share information has been adjusted retrospectively to reflect a 5-for-4 stock split effected in April 2010.  See Note 1, Summary of Significant Accounting Policies – Stock Split, of the Notes to Condensed Consolidated Financial Statements for additional information regarding this stock split.
 
 
Results of Operations

The following table sets forth the results of our operations, net sales and operating income by segment and the percentage of net sales represented by the respective items in our Condensed Consolidated Statements of Operations.
 
   
Six months ended April 30,
   
Three months ended April 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net sales
  $ 289,380,000     $ 260,603,000     $ 153,845,000     $ 130,166,000  
Cost of sales
    185,634,000       174,181,000       100,219,000       87,648,000  
Selling, general and administrative expenses
    53,245,000       43,650,000       27,669,000       21,199,000  
Total operating costs and expenses
    238,879,000       217,831,000       127,888,000       108,847,000  
Operating income
  $ 50,501,000     $ 42,772,000     $ 25,957,000     $ 21,319,000  
                                 
Net sales by segment:
                               
Flight Support Group
  $ 196,822,000     $ 200,307,000