Heico Corporation (HEI)

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HEICO Corporation (HEI)

F1Q09 (Qtr End 1/31/09) Earnings Call

February 25, 2009 09:00 AM ET

Executives

Laurans A. Mendelson - Chairman, President, and Chief Executive Officer

Victor H. Mendelson - President, Electronic Technologies Group, and General Counsel, HEICO Corporation

Thomas S. Irwin - Executive Vice President and Chief Financial Officer

Eric A. Mendelson - President, Flight Support Group, HEICO Corporation

Analysts

Arnie Ursaner - CJS Securities

Tyler Hojo - Sidoti & Company

J.B. Groh - D.A. Davidson

Eric Hugel - Stephens, Inc.

Chris Quilty - Raymond James

James Foung - Gabelli & Company

Presentation

Operator

Good morning and welcome to the HEICO Corporation Fiscal 2009 First Quarter Earnings Conference Call. During this call, there will be breaks for questions-and-answers. (Operator Instructions).

At this time, I will turn the call over to Larry Mendelson, Chairman, President, and CEO of HEICO Corporation.

Laurans A. Mendelson

Thank you and good morning to everyone on the call, and we welcome you to the HEICO first quarter fiscal 2009 earnings announcement teleconference. I am Larry Mendelson, CEO of HEICO Corporation, and I'm joined here this morning by Eric Mendelson, President of HEICO's Flight Support Group; Victor Mendelson, President of HEICO's Electronic Technologies Group; and Tom Irwin, HEICO's Executive Vice President and CFO

Before we begin, Victor Mendelson will read a statement.

Victor H. Mendelson

Thank you. Good morning. Certain statements in today's conference call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those and/or expressed by those forward-looking statements as a result of factors, including but not limited to lower demand for commercial air travel or airline fleet changes, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase to our costs to complete contracts; governmental and regulatory demands; export policies and restrictions; reductions in defense, space or homeland security spending by U.S. and/or foreign customers; or competition from existing and new competitors, which could reduce our sales; HEICO's ability to introduce new products and product-pricing levels, which could reduce our sales or sales growth; HEICO's ability to make acquisitions and achieve operating synergies from acquired businesses, customer credit risk, interest rates and economic conditions within and outside of the aviation, defense, space and electronics industries, which could negatively impact our cost and revenues; and HEICO's ability to maintain effective internal controls, which could adversely affect our business and the market price of our common stock.

Those listening to today's call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including but not limited to filings on Forms 10-K, 10-Q and 8-K. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Thank you.

Laurans A. Mendelson

Thank you, Victor. And now, before reviewing our first quarter operating results in detail, I would like to take a few moments to summarize the highlights of what we consider a reasonably good first quarter, especially in light of the current global economic conditions.

Consolidated net income increased by 12% to $0.42 per diluted share in the ... for the first quarter of '09, up from $0.37 per diluted share in the first quarter of '08. And this was despite a slight decline in net sales.

Although, our airline customers have reduced capacity between 5 and 10% from last year, net sales of Flight Support were down only 3% in the quarter, indicating continued success in penetrating the market with our new products and services.

Typically, in market downturns such as the current one, we laid the groundwork for our future market share expansion as customers become more committed to our cost saving products.

Within HEICO Electronic Technologies, we are seeing continued strength in our defense related businesses, including space and homeland security products, but continuing weakness in customer demand for some of our electronic products, including demand from medical equipment end markets. For the quarter, overall net sales of Electronic Technologies were down 3%.

In January, we paid our 61st consecutive semiannual cash dividend since 1979. The dividend was 20% higher than the prior year or $0.06 per share versus $0.05 per share, reiterating our Board of Directors' continuing confidence in HEICO strategies and financial strength, and our willingness to reward shareholders while retaining sufficient capital to fund our internal growth objectives and acquisition strategy.

We are also pleased to report that the IRS completed its product relating to the company's qualified R&D tax credit claimed for fiscal years 2002 to '05. The audit settlement resulted in an increase in net income of $1.1 million or $0.04 per diluted share in the first quarter of '09.

Our cash flow and balance sheet remained strong. As of January 31st, the company's debt to capital ratio was only 8.6% with the net debt, the debtless cash of $36.2 million. And we have no significant debt maturities until 2013.

As for acquisitions, we have plenty of capital available on our bank lines where we pay very favorable interest rates due to our strong credit rating. Our weighted average interest rate at January 31, '09 was less than 1% and I like to joke with my staff and say we're considered like treasury bills.

Further, despite the economic challenges, we remain true to our principles for growth driven, primarily through development of new products and services. While we are aggressively pursuing cost efficiencies and cost reductions, we actually increased new product development spending in the first quarter of '09 by approximately $600,000 or 15% over the first quarter of '08.

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