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

Our results of operations for the six and three months ended April 30, 2019 
have been affected by the fiscal 2019 acquisitions as further detailed in Note 
2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements of 
this quarterly report.

All applicable fiscal 2018 share and per share information has been adjusted 
retrospectively to reflect a 5-for-4 stock split effected in June 2018.

Results of Operations

Comparison of First Six Months of Fiscal 2019 to First Six Months of Fiscal 
2018

Net Sales

Our consolidated net sales in the first six months of fiscal 2019 increased by 
18% to a record $981.8 million, up from net sales of $835.0 million in the 
first six months of fiscal 2018. The increase in consolidated net sales 
principally reflects an increase of $74.5 million (a 23% increase) to a record 
$398.9 million in net sales within the ETG as well as an increase of $72.9 
million (a 14% increase) to a record $595.5 million in net sales within the 
FSG. The net sales increase in the ETG reflects organic growth of 16% as well 
as net sales of $23.3 million contributed by our fiscal 2019 and 2018 
acquisitions. The ETG's organic growth is mainly attributable to increased 
demand for our defense, aerospace and space products resulting in net sales 
increases of $36.1 million, $9.1 million and $5.7 million, respectively. The 
net sales increase in the FSG principally reflects organic growth of 14%. The 
FSG's organic growth is mainly attributable to increased demand and new product 
offerings within our aftermarket replacement parts and specialty products 
product lines resulting in net sales increases of $52.9 million and $18.9 
million, respectively. Sales price changes were not a significant contributing 
factor to the ETG and FSG net sales growth in the first six months of fiscal 
2019.

Gross Profit and Operating Expenses

Our consolidated gross profit margin increased to 39.9% in the first six months 
of fiscal 2019, up from 38.6% in the first six months of fiscal 2018, 
principally reflecting an increase of 1.6% and .7% in the ETG's and FSG's gross 
profit margins, respectively. The increase in the ETG’s gross profit margin is 
principally attributable to increased net sales and a more favorable product 
mix for our defense and aerospace products. The increase in the FSG's gross 
profit margin is principally attributable to a more favorable product mix 
within our specialty products product line. Total new product research and 
development expenses included within our consolidated cost of sales were $32.0 
million in the first six months of fiscal 2019 compared to $26.7 million in the 
first six months of fiscal 2018.

Our consolidated selling, general and administrative (“SG&A”) expenses were 
$174.5 million and $151.5 million in the first six months of fiscal 2019 and 
2018, respectively. The increase in consolidated SG&A expenses principally 
reflects $7.4 million attributable to the fiscal 2019 and 2018 acquisitions, 
$7.1 million of higher performance-based compensation expense and $5.9 million 
attributable to changes in the estimated fair value of accrued contingent 
consideration.

Our consolidated SG&A expenses as a percentage of net sales decreased to 17.8% 
in the first six months of fiscal 2019, down from 18.1% in the first six months 
of fiscal 2018. The decrease in consolidated SG&A expenses as a percentage of 
net sales principally reflects efficiencies realized from the net sales growth 
partially offset by a .6% impact from the previously mentioned changes in the 
estimated fair value of accrued contingent consideration.

Operating Income

Our consolidated operating income increased by 27% to a record $217.1 million 
in the first six months of fiscal 2019, up from $171.1 million in the first six 
months of fiscal 2018. The increase in consolidated operating income 
principally reflects a $27.6 million increase (a 30% increase) to a record 
$119.0 million in operating income of the ETG as well as a $17.7 million 
increase (an 18% increase) to a record $115.0 million in operating income of 
the FSG. The increase in operating income of the ETG and FSG is principally 
attributable to the previously mentioned net sales growth and improved gross 
profit margins.

Our consolidated operating income as a percentage of net sales improved to 
22.1% in the first six months of fiscal 2019, up from 20.5% in the first six 
months of fiscal 2018. The increase principally reflects an increase in the 
ETG’s operating income as a percentage of net sales to 29.8% in the first six 
months of fiscal 2019, up from 28.2% in the first six months of fiscal 2018 and 
an increase in the FSG's operating income as a percentage of net sales to 19.3% 
in the first six months of fiscal 2019, up from 18.6% in the first six months 
of fiscal 2018. The increase in the ETG's and FSG's operating income as a 
percentage of net sales principally reflects the previously mentioned improved 
gross profit margins.

Interest Expense

Interest expense increased to $11.0 million in the first six months of fiscal 
2019, up from $9.6 million in the first six months of fiscal 2018. The increase 
was principally due to higher interest rates partially offset by a lower 
weighted average balance outstanding under our revolving credit facility.

Other Income

Other income in the first six months of fiscal 2019 and 2018 was not material.

Income Tax Expense

In December 2017, the United States ("U.S.") government enacted comprehensive 
tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax 
Act”). The Tax Act contains significant changes to previous tax law, some of 
which became immediately effective in fiscal 2018 including, among other 
things, a reduction in the U.S. federal statutory tax rate from 35% to 21% and 
the implementation of a territorial tax system resulting in a one-time 
transition tax on the unremitted earnings of our foreign subsidiaries. Certain 
other provisions of the Tax Act became effective for HEICO in fiscal 2019 
including a new tax on Global Intangible Low-Taxed Income (“GILTI”), a new 
deduction for Foreign-Derived Intangible Income (“FDII”), the repeal of the 
domestic production activity deduction and increased limitations on the 
deductibility of certain executive compensation. The provisions of the Tax Act 
that became effective for HEICO in fiscal 2019 did not have a material effect 
on our income tax expense for the first six months of fiscal 2019.


Our effective tax rate in the first six months of fiscal 2019 was 14.5% as 
compared to 14.8% in the first six months of fiscal 2018. Income tax expense in 
both the first six months of fiscal 2019 and fiscal 2018 was favorably impacted 
as a result of discrete tax benefits. The tax benefit from stock option 
exercises recognized in the first six months of fiscal 2019 increased by $14.5 
million compared to the first six months of fiscal 2018. During the first six 
months of fiscal 2018, we recognized a discrete tax benefit from the 
remeasurement of our U.S. federal net deferred tax liabilities that was 
partially offset by a discrete tax expense related to a one-time transition tax 
on the unremitted earnings of our foreign subsidiaries that resulted in an 
$11.9 million net discrete tax benefit.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests relates to the 20% 
noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace 
Holdings Corp. and the noncontrolling interests held by others in certain 
subsidiaries of the FSG and ETG. Net income attributable to noncontrolling 
interests was $17.0 million in the first six months of fiscal 2019 as compared 
to $12.9 million in the first six months of fiscal 2018. The increase in net 
income attributable to noncontrolling interests in the first six months of 
fiscal 2019 principally reflects improved operating results of certain 
subsidiaries of the FSG and ETG in which noncontrolling interests are held.

Net Income Attributable to HEICO

Net income attributable to HEICO increased to a record $161.1 million, or $1.18 
per diluted share, in the first six months of fiscal 2019, up from $124.8 
million, or $.91 per diluted share, in the first six months of fiscal 2018 
principally reflecting the previously mentioned increased net sales and 
operating income.

Comparison of Second Quarter of Fiscal 2019 to Second Quarter of Fiscal 2018

Net Sales

Our consolidated net sales in the second quarter of fiscal 2019 increased by 
20% to a record $515.6 million, up from net sales of $430.6 million in the 
second quarter of fiscal 2018. The increase in consolidated net sales 
principally reflects an increase of $45.7 million (a 27% increase) to a record 
$214.5 million in net sales within the ETG as well as an increase of $40.4 
million (a 15% increase) to a record $308.3 million in net sales within the 
FSG. The net sales increase in the ETG reflects organic growth of 20% as well 
as net sales of $12.5 million contributed by our fiscal 2019 and 2018 
acquisitions. The ETG's organic growth is mainly attributable to increased 
demand for our defense, aerospace and space products resulting in net sales 
increases of $22.0 million, $5.9 million and $3.4 million, respectively. The 
net sales increase in the FSG principally reflects organic growth of 15%. The 
FSG's organic growth is mainly attributable to increased demand and new product 
offerings within our aftermarket replacement parts and specialty products 
product lines resulting in net sales increases of $27.7 million and $10.5 
million, respectively. Sales price changes were not a significant contributing 
factor to the ETG and FSG net sales growth in the second quarter of fiscal 
2019.

Gross Profit and Operating Expenses

Our consolidated gross profit margin increased to 40.6% in the second quarter 
of fiscal 2019, up from 39.0% in the second quarter of fiscal 2018, principally 
reflecting an increase of 2.9% and .6% in the ETG's and FSG's gross profit 
margin, respectively. The increase in the ETG’s gross profit margin is 
principally attributable to increased net sales and a more favorable product 
mix for certain defense and aerospace products. The increase in the FSG's gross 
profit margin is principally attributable to a more favorable product mix 
within our specialty products product line. Total new product research and 
development expenses included within our consolidated cost of sales were $16.8 
million in the second quarter of fiscal 2019 compared to $14.0 million in the 
second quarter of fiscal 2018.

Our consolidated SG&A expenses were $90.2 million and $76.3 million in the 
second quarter of fiscal 2019 and 2018, respectively. The increase in 
consolidated SG&A expenses principally reflects $5.4 million of higher 
performance-based compensation expense, $3.9 million attributable to the fiscal 
2019 and 2018 acquisitions, and $1.6 million attributable to changes in the 
estimated fair value of accrued contingent consideration. Our consolidated SG&A 
expenses as a percentage of net sales decreased to 17.5% in the second quarter 
of fiscal 2019, down from 17.7% in the second quarter of fiscal 2018.

Operating Income

Our consolidated operating income increased by 30% to a record $119.2 million 
in the second quarter of fiscal 2019, up from $91.6 million in the second 
quarter of fiscal 2018. The increase in consolidated operating income 
principally reflects a $19.2 million increase (a 40% increase) to a record 
$67.4 million in operating income of the ETG as well as a $10.7 million 
increase (a 21% increase) to a record $62.2 million in operating income of the 
FSG. The increase in operating income of the ETG and FSG is principally 
attributable to the previously mentioned net sales growth and improved gross 
profit margins.

As a percentage of net sales, our consolidated operating income increased to 
23.1% in the second quarter of fiscal 2019, up from 21.3% in the second quarter 
of fiscal 2018. The increase principally reflects an increase in the ETG’s 
operating income as a percentage of net sales to 31.4% in the second quarter of 
fiscal 2019, up from 28.5% in the second quarter of fiscal 2018 and an increase 
in the FSG's operating income as a percentage of net sales to 20.2% in the 
second quarter of fiscal 2019, up from 19.2% in the second quarter of fiscal 
2018. The increase in the ETG’s and FSG's operating income as a percentage of 
net sales principally reflects the previously mentioned improved gross profit 
margins.


Interest Expense

Interest expense increased to $5.5 million in the second quarter of fiscal 
2019, up from $4.9 million in the second quarter of fiscal 2018. The increase 
was principally due to higher interest rates partially offset by a lower 
weighted average balance outstanding under our revolving credit facility.

Other Income (Expense)

Other income (expense) income in the second quarter of fiscal 2019 and 2018 was 
not material.

Income Tax Expense

Our effective tax rate in the second quarter of fiscal 2019 was 22.5% as 
compared to 23.6% in the second quarter of fiscal 2018.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests relates to the 20% 
noncontrolling interest held by Lufthansa Technik AG in HEICO Aerospace 
Holdings Corp. and the noncontrolling interests held by others in certain 
subsidiaries of the FSG and ETG. Net income attributable to noncontrolling 
interests was $8.3 million in the second quarter of fiscal 2019 as compared to 
$6.4 million in the second quarter of fiscal 2018. The increase in net income 
attributable to noncontrolling interests in the second quarter of fiscal 2019 
principally reflects improved operating results of certain subsidiaries of the 
FSG and ETG in which noncontrolling interests are held.

Net Income Attributable to HEICO

Net income attributable to HEICO increased to a record $81.8 million, or $.60 
per diluted share, in the second quarter of fiscal 2019, up from $59.6 million, 
or $.44 per diluted share, in the second quarter of fiscal 2018 principally 
reflecting the previously mentioned increased net sales and operating income.


Outlook

As we look ahead to the remainder of fiscal 2019, we anticipate net sales 
growth within the FSG's commercial aviation and defense product lines. We also 
expect growth within the ETG, principally driven by demand for the majority of 
our products. Also, we plan to continue our commitments to developing new 
products and services, further market penetration, and an aggressive 
acquisition strategy while maintaining our financial strength and flexibility. 
Based on our current economic visibility, we now estimate our consolidated 
fiscal 2019 year-over-year growth in net sales to be 12% - 13% and in net 
income to be 17% - 18%, as compared to our prior growth estimates in net sales 
of 9% - 10% and in net income of approximately 11% - 13%.

Liquidity and Capital Resources

Our principal uses of cash include acquisitions, capital expenditures, cash 
dividends, distributions to noncontrolling interests and working capital needs. 
Capital expenditures in fiscal 2019 are now anticipated to be approximately $38 
million. We finance our activities primarily from our operating and financing 
activities, including borrowings under our revolving credit facility. The 
revolving credit facility contains both financial and non-financial covenants. 
As of April 30, 2019, we were in compliance with all such covenants. As of 
April 30, 2019, our total debt to shareholders’ equity ratio was 33.5%.

Based on our current outlook, we believe that our net cash provided by 
operating activities and available borrowings under our revolving credit 
facility will be sufficient to fund cash requirements for at least the next 
twelve months.

Operating Activities

Net cash provided by operating activities was $178.3 million in the first six 
months of fiscal 2019 and consisted primarily of net income from consolidated 
operations of $178.1 million, depreciation and amortization expense of $40.5 
million (a non-cash item), net changes in other long-term liabilities and 
assets related to the HEICO Leadership Compensation Plan ("LCP") of $10.6 
million (principally participant deferrals and employer contributions), $5.0 
million in share-based compensation expense (a non-cash item) and $4.6 million 
in employer contributions to the HEICO Savings and Investment Plan (a non-cash 
item), partially offset by a $62.2 million increase in working capital. The 
increase in working capital is inclusive of a $26.7 million increase in 
inventories to support the growth of our businesses and backlog, a $16.6 
million decrease in accrued expenses and other current liabilities mainly due 
to a timing difference between the accrual and payment of performance-based 
compensation, and a $15.8 million increase in accounts receivable reflecting 
the strong organic net sales growth in each of our operating segments.

Net cash provided by operating activities increased by $74.9 million in the 
first six months of fiscal 2019 from $103.4 million in the first six months of 
fiscal 2018. The increase is principally attributable to a $40.4 million 
increase in net income from consolidated operations, a $13.8 million decrease 
in deferred income tax benefits, an $11.5 million decrease in net working 
capital, and a $6.5 million increase in accrued contingent consideration. The 
decrease in deferred income tax benefits is principally attributable to the 
remeasurement of our U.S. federal net deferred tax liabilities under the Tax 
Act in the first six months of fiscal 2018.

Investing Activities

Net cash used in investing activities totaled $157.7 million in the first six 
months of fiscal 2019 and related primarily to acquisitions of $134.9 million 
(net of cash acquired), capital expenditures of $12.6 million and investments 
related to the HEICO LCP of $10.8 million.

Financing Activities

Net cash used in financing activities in the first six months of fiscal 2019 
totaled $16.2 million. During the first six months of fiscal 2019, we made 
$105.0 million in payments on our revolving credit facility, redeemed common 
stock related to stock option exercises aggregating $27.7 million, paid $9.3 
million in cash dividends on our common stock and made $8.2 million of 
distributions to noncontrolling interests. Additionally, we borrowed $129.0 
million under our revolving credit facility to fund certain of our fiscal 2019 
acquisitions and received $5.5 million in proceeds from stock option exercises 
in the first six months of fiscal 2019.

Contractual Obligations

There have not been any material changes to the amounts presented in the table 
of contractual obligations that was included in our Annual Report on Form 10-K 
for the year ended October 31, 2018.

Off-Balance Sheet Arrangements

Guarantees

As of April 30, 2019, we have arranged for standby letters of credit 
aggregating $4.3 million, which are supported by our revolving credit facility 
and pertain to payment guarantees related to potential workers' compensation 
claims and a facility lease as well as performance guarantees related to 
customer contracts entered into by certain of our subsidiaries.