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«Growth and ConsistenCy Heico® corporation annual report FinanCial hiGhliGhts Year ended October 31,(1) 2008 2009 2010 (in thousands, except per ...»

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Growth and ConsistenCy

Heico® corporation annual report

FinanCial hiGhliGhts

Year ended October 31,(1) 2008 2009 2010

(in thousands, except per share data)

Operating Data:

Net sales $ 582,347 $ 538,296 $ 617,020 Operating income 105,788(4) 88,255 109,173(6) Interest expense 2,314 615 508 Net income attributable to HEICO 48,511(4) 44,626(5) 54,938(6) Weighted average number of common shares outstanding:(2) Basic 32,886 32,756 32,833 Diluted 34,054 33,780 33,771 Per Share Data:(2)

Net income per share attributable to HEICO shareholders:

Basic $ 1.48(4) $ 1.36(5) $ 1.67(6) Diluted 1.42(4) 1.32(5) 1.62(6) Cash dividends per share(2).080.096.108

Balance Sheet Data (as of October 31):

Total assets $ 676,542 $ 732,910 $ 781,643 Total debt (including current portion) 37,601 55,431 14,221 Redeemable noncontrolling interests(3) 48,736 56,937 55,048 Total shareholders’ equity(3) 453,002 490,658 554,826 (1) Results include the results of acquisitions from each respective effective date.

(2) All share and per share information has been adjusted retrospectively to reflect a 5-for-4 stock split effected in April 2010.

(3) Amounts for the years ended October 31, 2008 and 2009 have been adjusted retrospectively to conform to new accounting guidance on accounting for noncontrolling interests (formerly referred to as minority interests) that we adopted effective November 1, 2009. See Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements for more information.

(4) Operating income was reduced by an aggregate of $1,835 in impairment losses related to the write-down of certain intangible assets within the Electronic Technologies Group (“ETG”) to their estimated fair values. The impairment losses were recorded as a component of selling, general and administrative expenses and decreased net income attributable to HEICO by $1,140, or $.03 per basic and diluted share.

(5) Includes a benefit related to a settlement with the Internal Revenue Service concerning the income tax audit claimed by the Company on its U.S. federal filings for qualified research and development activities incurred during fiscal years 2002 through 2005 as well as an aggregate reduction to the related liability for unrecognized tax benefits for fiscal years 2006 through 2008, which increased net income attributable to HEICO by approximately $1,225, or $.04 per basic and diluted share.

(6) Operating income was reduced by an aggregate of $1,438 in impairment losses related to the write-down of certain intangible assets within the ETG to their estimated fair values. The impairment losses were recorded as a component of selling, general and administrative expenses and decreased net income attributable to HEICO by $889, or $.03 per basic and diluted share.

Forward-lookinG statements Certain statements in this annual report constitute forward-looking statements which may involve risks and uncertainties. HEICO’s actual experience may differ materially from that discussed 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 our costs to complete contracts to increase; governmental and regulatory demands, export policies and restrictions, military program funding by U.S. and non-U.S. Government agencies or competition on military programs, 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 and income tax rates and economic conditions within and outside of the aviation, defense, space, medical, telecommunication and electronic industries, which could negatively impact our costs and revenues. Parties receiving this material are encouraged to review all of HEICO’s filings with the Securities and Exchange Commission, including, but not limited to filings on Form 10-K, Form 10-Q and Form 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.

manaGement messaGe From left to right: eric a. mendelson, laurans a. mendelson, Victor h. mendelson, and thomas s. irwin.

heiCo’s senior manaGement FoCused on Growth, ConsistenCy, and teamwork For the past 20 years, HEICO Corporation’s Board of Directors has placed the Company’s management in the hands of an executive team consisting of Chairman and Chief Executive Officer, Laurans A. Mendelson, Co-Presidents, Eric A. Mendelson and Victor H. Mendelson, and Executive Vice President and Chief Financial Officer, Thomas S. Irwin. While HEICO was experiencing financial and operating difficulties in the late 1980s, Laurans, Eric and Victor Mendelson became the Company’s largest shareholders after Victor Mendelson suggested that they seek to take over management of the Company in order to build a strong manufacturing and service company.

After taking over in 1990, along with Thomas Irwin, they set out to build HEICO into a successful and profitable business which would yield superior returns to the Company’s shareholders over time. Together, they have collaborated in HEICO’s transformation from a company with a net loss of $519 thousand, net sales of approximately $26 million and a market capitalization of approximately $25 million in 1990 to a diversified aerospace and defense company with fiscal 2010 operating income of more than $109 million on sales of slightly more than $617 million and with a market capitalization of approximately $1.5 billion.





Dear Fellow Shareholder:

S ince 1990, HEICO Corporation has experienced We believe the upturn in commercial aircraft-related compound annual growth in sales and operating activity will continue in 2011. HEICO is perfectly income of approximately 20%. Fiscal 2010 was situated to reap the benefits of this upturn through our another excellent year for us. Net income increased commercial aircraft aftermarket businesses and our 23% to a record $54,938,000, or $1.62 per diluted share, commercial OEM activities relating to new aircraft up from $44,626,000, or $1.32 per diluted share, in production. While we cannot be certain of the future fiscal 2009. Our operating income increased 24% and there are risks and uncertainties (which are listed to a record $109,173,000, up from $88,255,000 in at the bottom of the inside cover of this report), we fiscal 2009. Our net sales increased 15% to a record believe both the short and long term outlooks for $617,020,000, up from $538,296,000 in fiscal 2009. commercial aviation remain strong, as commercial air travel has recovered beyond 2008 levels and capacity HEICO declared its 65th consecutive semi-annual is, once again, being added to the system.

cash dividend since 1979 and, in April 2010, declared a 5-for-4 stock split, which was the 11th stock dividend We also remain committed to our defense, space, or stock split declared since the company started medical and other markets. Although we do not know making them in 1995. We also completed the which military programs will be altered in the future, acquisition of dB Control and were named one of the preliminary proposals from the U.S. Department of “Best 100 Small Companies” by Forbes Magazine. Defense indicate that HEICO’s defense companies will see limited impact in the near-term.

Our growth was broadly based across nearly all of our product lines and markets served. As the year We thank all of our fellow shareholders, our remarkable progressed, our commercial aviation aftermarket Team Members and the members of our Board of businesses witnessed greater growth than in the first Directors for their continuing support and confidence.

half of the year, while our defense, space, commercial Equally important, we thank our customers for their aircraft OEM and medical-markets also grew. We confidence in HEICO and our people.

credit our incredible Team Members for making Sincerely, this happen.

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and electronics company focused on niche markets and cost-saving solutions for its customers. HEICO’s products are found in the most demanding applications requiring

–  –  –

non-OEM, FAA-approved aircraft replacement parts; a $66.9 significant provider of aircraft accessories component repair & overhaul services for avionic, electro-mechanical, flight surface, hydraulic and pneumatic applications; a leader in

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mission-critical niche electronics, electro-optical, microwave and other components found in defense, space, medical, homeland security, telecom and other complex equipment

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Below is a Question and Answer Session with the members of HEICO’s Office of the CEO — Chairman & CEO, Laurans A. Mendelson, Executive Vice President & CFO, Thomas S. Irwin, and Co-Presidents, Eric A. Mendelson and Victor H. Mendelson.

The questions about HEICO and issues impacting it are the ones we most commonly receive from shareholders and other investors. We believe the answers provide further insight into HEICO’s strategy and operations.

Q: What do you think the outlook is for commercial aviation?

A: Presently, we are optimistic about commercial aviation for both fiscal 2011 and the long term. Commercial aviation’s recovery started slowly in late 2009 and continued to build throughout 2010. As air travel demand returned to pre-2008 levels, aircraft operators needed and should continue to need replacement parts and services which HEICO offers.

Q: How do you view the defense market’s outlook?

A: While there is uncertainty in the United States’ and certain other countries’ defense budgets, we continue to believe there is opportunity for HEICO if we focus on products found across multiple platforms and which are basic, mission-critical and high reliability subcomponents. During the past twelve months, we made two defense-related acquisitions serving niche markets which we believe are growing. We will continue to seek appropriate opportunities in this sector.

Q: Speaking of acquisitions, please tell us about HEICO’s acquisitions in the past 12 months?

A: In calendar 2010, HEICO acquired dB Control, a leading manufacturer of Traveling Wavetube Amplifiers, which are used in very high powered radar, electronic warfare and jamming applications. dB Control has deep penetration in the growing Unmanned Aerial Vehicle market, and is an important supplier on a variety of recent and in-production programs.

In December 2010, we acquired Blue Aerospace, a distributor and supplier of critical airframe and other components for military aircraft, such as the C-130 and its derivatives, the F-16 and the P-3. Blue’s primary markets are foreign military agencies which often acquire retired aircraft from the United States military and require a wide range of repair and overhaul services for their operations. Blue fills this niche by providing much-needed parts and services with unmatched customer service.

2| 3 Q: Does HEICO plan to continue making acquisitions?

A: Definitely. We remain as active in the acquisition market as ever and fully intend to continue acquiring top-notch companies looking for an excellent home. We value the entrepreneurial approach to businesses which we acquired from the founders-owners-managers of these businesses and HEICO is particularly adept at allowing these businesses to continue under existing management, while ensuring the businesses follow HEICO’s financial and regulatory discipline. The overwhelming majority of people who sold companies to us remain with us today by their own choice. We are very proud that they continue to call their companies home even after they sell the businesses to HEICO.

Q: How does HEICO’s capital structure look?

A: HEICO is extremely well capitalized, which gives us room to finance our business and make acquisitions.

We utilize our $300 million line of credit for acquisitions and pay it down with our strong cash flow from operations, which was approximately 185% of our 2010 net income. In fact, during each of the past 4 years, HEICO has paid back all or most of its borrowings during the year through our strong cash generation.

While we are willing to take on greater debt for larger acquisitions which we deem appropriate, we are averse to adding debt for purposes which do not enhance our growth. We have followed this formula for the past 20 years and it has inured to the company’s benefit, as well as to the benefit of our shareholders and Team Members.

Q: Where there any significant personnel changes in fiscal 2010?

A: Luis J. Morell, the President of the HEICO Repair Group, also assumed responsibility for the HEICO Parts Group and now leads our parts and services aftermarket operations. Luis is a truly talented Team Member who started as Controller of one of our subsidiaries in 1992, rose to run and successfully build our aircraft accessories component repair and overhaul businesses to significant market leadership and is someone who fits perfectly with HEICO’s culture. We also saw a fairly typical amount of movement between positions, retirements and new additions to the company. We are very proud that HEICO has a stable Team Member base upon which we rely. We recognize that our business is rendered successful by our remarkable people, not by equipment, financing or desks full of computers. We know that if we treat people properly and fairly, they will do the same for us and that there is plenty of room to grow together.

Q: What market expansion opportunities do you think are available to HEICO?

A: Market expansion opportunities exist both geographically and by end use. We continue to increase our efforts to work with international partners in selling opportunities, engineering opportunities and production opportunities. We also continue to work on penetrating new segments of existing product markets, like aviation, medical, space and defense equipment.

cOmmercial aviatiON: a healthY OutlOOK

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