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, 2008.

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 nine and three months ended July 31, 2009 have been affected by certain fiscal 2009 acquisitions. In December 2008, we acquired, through HEICO Aerospace, an additional 14% equity interest in one of our subsidiaries, which increased our ownership interest to 72%. In May 2009, we acquired, through HEICO Electronic, 82.5% of the stock of VPT, Inc. ("VPT"). The acquisitions have been accounted for using the purchase method of accounting and are included in our results of operations from the effective dates of acquisition. The purchase price of each acquisition was paid in cash using proceeds from our revolving credit facility and was not significant to our condensed consolidated financial statements. For further information regarding our fiscal 2009 acquisitions, see Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements.

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.

                                                 Nine months ended July 31,           Three months ended July 31,
                                                   2009              2008                2009              2008
Net sales                                      $ 394,689,000     $ 425,631,000      $  134,086,000     $ 147,305,000
Cost of sales                                    262,456,000       272,595,000          88,275,000        93,454,000
Selling, general and administrative expenses      68,039,000        75,958,000          24,389,000        26,362,000
Total operating costs and expenses               330,495,000       348,553,000         112,664,000       119,816,000
Operating income                               $  64,194,000     $  77,078,000      $   21,422,000     $  27,489,000

Net sales by segment:
Flight Support Group                           $ 297,543,000     $ 320,286,000      $   97,236,000     $ 109,969,000
Electronic Technologies Group                     97,523,000       105,697,000          37,054,000        37,676,000
Intersegment sales                                  (377,000 )        (352,000 )          (204,000 )        (340,000 )
                                               $ 394,689,000     $ 425,631,000      $  134,086,000     $ 147,305,000

Operating income by segment:
Flight Support Group                           $  46,297,000     $  59,723,000      $   14,759,000     $  20,392,000
Electronic Technologies Group                     26,508,000        27,731,000           9,935,000        10,783,000
Other, primarily corporate                        (8,611,000 )     (10,376,000 )        (3,272,000 )      (3,686,000 )
                                               $  64,194,000     $  77,078,000      $   21,422,000     $  27,489,000

Net sales                                              100.0 %           100.0 %             100.0 %           100.0 %
Gross profit                                            33.5 %            36.0 %              34.2 %            36.6 %
Selling, general and administrative expenses            17.2 %            17.8 %              18.2 %            17.9 %
Operating income                                        16.3 %            18.1 %              16.0 %            18.7 %
Interest expense                                          .1 %              .5 %                .1 %              .3 %
Other income (expense)                                     -               (.1 %)               .1 %             (.1 %)
Income tax expense                                       4.9 %             6.1 %               4.9 %             6.4 %
Minority interests' share of income                      2.9 %             3.3 %               2.8 %             3.1 %
Net income                                               8.4 %             8.2 %               8.3 %             8.7 %

Comparison of First Nine Months of Fiscal 2009 to First Nine Months of Fiscal 2008

Net Sales

Net sales for the first nine months of fiscal 2009 decreased by 7.3% to $394.7 million, as compared to net sales of $425.6 million for the first nine months of fiscal 2008. The decrease in net sales reflects a decrease of $22.7 million (a 7.1% decrease) to $297.5 million in net sales within the FSG and a decrease of $8.2 million (a 7.7% decrease) to $97.5 million in net sales within the ETG. The net sales decline in both the FSG and the ETG reflects the continued effects of the slowdown in global economic activity, which has resulted in a reduction in customer demand. The net sales decrease within the FSG reflects the fall in demand for our aftermarket parts and services resulting from worldwide airline capacity cuts and efforts to reduce spending and conserve cash by the airline industry. Within the ETG, we are generally seeing some strength in our defense related businesses, including space and homeland security products, but continued weakness in customer demand for certain of our medical, telecommunication and electronic products.

Gross Profit and Operating Expenses

Our consolidated gross profit margin decreased to 33.5% for the first nine months of fiscal 2009 as compared to 36.0% for the first nine months of fiscal 2008, mainly reflecting lower margins within the FSG due principally to a less favorable product mix as well as a higher investment by HEICO in the research and development of new products and services. Consolidated cost of sales for the first nine months of fiscal 2009 and 2008 includes approximately $14.8 million and $13.9 million, respectively, of new product research and development expenses.

Selling, general and administrative ("SG&A") expenses were $68.0 million and $76.0 million for the first nine months of fiscal 2009 and fiscal 2008, respectively. The decrease in SG&A expenses was mainly due to lower operating costs, principally personnel related, associated with cost reduction initiatives and the decline in net sales discussed above. These cost reductions resulted in a decrease of SG&A expenses as a percentage of net sales from 17.8% for the first nine months of fiscal 2008 to 17.2% for the first nine months of fiscal 2009.

Operating Income

Operating income for the first nine months of fiscal 2009 decreased by 16.7% to $64.2 million, compared to operating income of $77.1 million for the first nine months of fiscal 2008. The decrease in operating income reflects a decrease of $13.4 million (a 22.4% decrease) to $46.3 million in operating income of the FSG in the first nine months of fiscal 2009 from $59.7 million for the first nine months of fiscal 2008, a $1.2 million decrease (a 4.4% decrease) in operating income of the ETG from $27.7 million for the first nine months of fiscal 2008 to $26.5 million for the first nine months of fiscal 2009, partially offset by a $1.8 million decrease in corporate expenses.

As a percentage of net sales, consolidated operating income decreased to 16.3% for the first nine months of fiscal 2009 compared to 18.1% for the first nine months of fiscal 2008. The consolidated operating income as a percentage of net sales reflects a decrease in the FSG's operating income as a percentage of net sales from 18.6% in the first nine months of fiscal 2008 to 15.6% in the first nine months of fiscal 2009, partially offset by an increase in the ETG's operating income as a percentage of net sales from 26.2% in the first nine months of fiscal 2008 to 27.2% in the first nine months of fiscal 2009. The decrease in operating income as a percentage of net sales for the FSG principally reflects the aforementioned impact of the lower sales volume on gross profit margins and a less favorable product mix. The increase in operating income as a percentage of net sales for the ETG principally reflects a favorable product mix.

Interest Expense

Interest expense decreased to $484,000 in the first nine months of fiscal 2009 from $1,951,000 in the first nine months of fiscal 2008. The decrease was principally due to lower variable interest rates under our revolving credit facility in the first nine months of fiscal 2009.

Other Income (Expense)

Other income (expense) in the first nine months of fiscal 2009 and 2008 was not material.

Income Tax Expense

Our effective tax rate for the first nine months of fiscal 2009 decreased to 30.3% from 34.8% for the first nine months of 2008. This decrease principally reflects a settlement reached with the Internal Revenue Service ("IRS") during the first quarter of fiscal 2009 and a lower effective state income tax rate. The IRS settlement pertained to the income tax credits claimed on HEICO's U.S. federal filings for qualified research and development activities incurred for fiscal years 2002 through 2005 and a resulting reduction to the related reserve for fiscal years 2002 through 2008 based on new information obtained during the examination, which increased net income by approximately $1,225,000, or $.05 per diluted share, for the first nine months of fiscal 2009. The lower effective state income tax rate was due to changes in certain state tax laws which impacted state apportionment factors.

Minority Interests' Share of Income

Minority interests' share of income of consolidated subsidiaries relates to the 20% minority interest held in HEICO Aerospace and the minority interests held in certain subsidiaries of HEICO Aerospace and HEICO Electronic. The decrease in the minority interests' share of income for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008 is principally attributable to the acquired additional equity interests of certain FSG subsidiaries in which minority interests exist as well as the lower earnings of the FSG.

Net Income

Our net income was $33.0 million, or $1.22 per diluted share, for the first nine months of fiscal 2009 compared to $34.9 million, or $1.28 per diluted share, for the first nine months of fiscal 2008 reflecting the decreased operating income referenced above, partially offset by the aforementioned favorable IRS settlement, the decreased minority interests' share of income of certain consolidated subsidiaries and lower interest expense.

Comparison of Third Quarter of Fiscal 2009 to Third Quarter of Fiscal 2008

Net Sales

Net sales for the third quarter of fiscal 2009 decreased by 9.0% to $134.1 million, as compared to net sales of $147.3 million for the third quarter of fiscal 2008. The decrease in net sales reflects a decrease of $12.7 million (an 11.6% decrease) to $97.2 million in net sales within the FSG and a decrease of $.6 million (a 1.7% decrease) to $37.1 million in net sales within the ETG. The net sales decline in both the FSG and the ETG reflects the continued effects of the slowdown in global economic activity, which has resulted in a reduction in customer demand. The net sales decline in the ETG was partially offset by the impact of the May 2009 acquisition of VPT. Within the FSG, we have experienced a fall in demand for our aftermarket parts and services and a corresponding decrease in net sales resulting from worldwide airline capacity cuts and efforts to reduce spending and conserve cash by the airline industry. Within the ETG, we are generally seeing some strength in our defense related businesses, including space and homeland security products, but continued weakness in customer demand for certain of our medical, telecommunication and electronic products.

Gross Profit and Operating Expenses

Our consolidated gross profit margin decreased to 34.2% for the third quarter of fiscal 2009 as compared to 36.6% for the third quarter of fiscal 2008, principally reflecting lower margins within the FSG primarily due to the impact of a less favorable product mix. Consolidated cost of sales for the third quarter of fiscal 2009 and 2008 includes approximately $5.1 million and $5.4 million, respectively, of new product research and development expenses.

SG&A expenses were $24.4 million and $26.4 million for the third quarter of fiscal 2009 and fiscal 2008, respectively. The decrease in SG&A expenses was mainly due to lower operating costs, principally personnel related, associated with cost reduction initiatives and the decline in net sales discussed above, partially offset by the operating costs of VPT, which was acquired in May 2009. SG&A expenses as a percentage of net sales were 18.2% for the third quarter of fiscal 2009 compared to 17.9% for the third quarter of fiscal 2008.

Operating Income

Operating income for the third quarter of fiscal 2009 decreased by 22.1% to $21.4 million, compared to operating income of $27.5 million for the third quarter of fiscal 2008. The decrease in operating income reflects a decrease of $5.6 million (a 27.6% decrease) to $14.8

million in operating income of the FSG in the third quarter of fiscal 2009 from $20.4 million for the third quarter of fiscal 2008, a $.9 million decrease (a 7.9% decrease) in operating income of the ETG from $10.8 million for the third quarter of fiscal 2008 to $9.9 million for the third quarter of fiscal 2009, partially offset by a $.4 million decrease in corporate expenses.

As a percentage of net sales, consolidated operating income decreased to 16.0% for the third quarter of fiscal 2009 compared to 18.7% for the third quarter of fiscal 2008. The consolidated operating income as a percentage of net sales principally reflects a decrease in the FSG's operating income as a percentage of net sales from 18.5% in the third quarter of fiscal 2008 to 15.2% in the third quarter of fiscal 2009 and a decrease in the ETG's operating income as a percentage of net sales from 28.6% in the third quarter of fiscal 2008 to 26.8% in the third quarter of fiscal 2009. The decrease in operating income as a percentage of net sales for the FSG principally reflects the impact of the lower sales volumes on gross profit margins, including a resultant increase in inventory reserves of certain parts evaluated as slow-moving, and a less favorable product mix. The decrease in operating income as a percentage of net sales for the ETG principally reflects the impact of higher SG&A expenses as a percentage of net sales due to the lower sales volume, partially offset by a favorable product mix.

Interest Expense

Interest expense decreased to $177,000 in the third quarter of fiscal 2009 from $444,000 in the third quarter of fiscal 2008. The decrease was principally due to lower variable interest rates, partially offset by a higher weighted average balance outstanding under our revolving credit facility in the third quarter of fiscal 2009.

Other Income (Expense)

Other income (expense) in the third quarter of fiscal 2009 and 2008 was not material.

Income Tax Expense

Our effective tax rate for the third quarter of fiscal 2009 decreased to 30.4% from 35.3% for the third quarter of fiscal 2008. This decrease principally reflects a larger income tax credit for qualified research and development activities recognized in the third quarter of fiscal 2009 compared to 2008 as well as a lower effective state income tax rate. The lower effective state income tax rate was due to changes in certain state tax laws which impacted state apportionment factors.

Minority Interests' Share of Income

Minority interests' share of income of consolidated subsidiaries relates to the 20% minority interest held in HEICO Aerospace and the minority interests held in certain subsidiaries of HEICO Aerospace and HEICO Electronic. The decrease in the minority interests' share of income for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 was principally attributable to the acquired additional equity interests of certain FSG subsidiaries in which minority interests exist as well as lower earnings of the FSG, partially offset by the minority interest held in VPT.

Net Income

Our net income was $11.1 million, or $.41 per diluted share, for the third quarter of fiscal 2009 compared to $12.8 million, or $.47 per diluted share, for the third quarter of fiscal 2008. This decrease in net income reflects the decreased operating income referenced above, partially offset by a lower effective tax rate, the decreased minority interests' share of income of certain consolidated subsidiaries and lower interest expense.

Outlook

Although airline capacity reductions have been moderating in recent months, near-term visibility remains somewhat opaque. Based on current market conditions, we are targeting fiscal 2009 full year net sales and diluted net income per share to be approximately 7% to 9% lower when compared to 2008. These targets are within the range of our prior estimates and exclude the impact of additional acquisitions, if any.

Liquidity and Capital Resources

Our principal uses of cash include acquisitions, payments of principal and interest on debt, capital expenditures, cash dividends and increases in working capital.

We finance our activities primarily from our operating activities and financing activities, including borrowings under short-term and long-term credit agreements. As of July 31, 2009, our net debt to equity ratio was a low 11%, with net debt (total debt less cash and cash equivalents) of $49.5 million, and we have no significant debt maturities until fiscal 2013.

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 the foreseeable future.

Operating Activities

Net cash provided by operating activities was $43.7 million for the first nine months of fiscal 2009, consisting primarily of net income of $33.0 million, minority interests' share of income of consolidated subsidiaries of $11.6 million, depreciation and amortization of $11.0 million and a tax benefit on stock option exercises of $1.9 million, partially offset by an increase in net operating assets of $11.2 million, the presentation of $1.6 million of excess tax benefit from stock option exercises as a financing activity, and a deferred tax benefit of $1.4 million. The increase in net operating assets principally reflects the payment of certain accrued employee compensation and accrued additional purchase consideration since October 31, 2008 and a higher level of inventories, partially offset by a decrease in accounts receivable due to the timing of cash collections and lower net sales.

Net cash provided by operating activities decreased $12.9 million from $56.6 million for

the first nine months of fiscal 2008 to $43.7 million for the first nine months of fiscal 2009 due to lower income before minority interests, a reduction in accrued expenses and other current liabilities related to a lower accrual for performance based awards, and a reduced tax benefit from stock option exercises partially offset by a decrease in accounts receivable due to lower sales volumes and the timing of cash collections.

Investing Activities

Net cash used in investing activities during the first nine months of fiscal 2009 related primarily to acquisitions and related costs of $45.8 million and capital expenditures totaling $7.8 million. Acquisitions and related costs principally reflect the acquisition of VPT, an additional 14% of the equity interests of a subsidiary of the FSG and additional purchase consideration related to a subsidiary acquired in a previous year, which was accrued as of October 31, 2008 based on the subsidiary's earnings relative to target. Further details on the fiscal 2009 acquisitions can be found in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements.

Financing Activities

Net cash provided by financing activities during the first nine months of fiscal 2009 primarily related to net borrowings on our revolving credit facility of $19.0 million and the presentation of $1.6 million of excess tax benefit from stock option exercises as a financing activity, offset by repurchases of our common stock of $8.1 million, distributions to minority interest holders of $6.0 million, and the payment of $3.2 million in cash dividends on our common stock.

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, 2008.

As discussed in "Off-Balance Sheet Arrangements - Acquisitions - Put/Call Rights" below, the minority interest holders of certain subsidiaries have rights ("Put Rights") that may be exercised on varying dates causing us to purchase their equity interests beginning in fiscal 2010 through fiscal 2018. Assuming the subsidiaries perform over their respective future measurement periods at the same earnings levels they have performed in the comparable historical measurement periods and assuming all Put Rights are exercised, the aggregate amount that we would be required to pay is approximately $48 million. The actual amount will likely be different.

Further, as discussed in "Off-Balance Sheet Arrangements - Acquisitions - Additional Contingent Purchase Consideration" below, we may be obligated to pay additional contingent purchase consideration based on future earnings of certain acquired businesses. The aggregate maximum amount of such contingent consideration that we could be required to pay is approximately $103 million payable over future periods beginning in fiscal 2010 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 consideration that we would be required to pay is approximately $11 million. The actual contingent purchase consideration will likely be different.

Off-Balance Sheet Arrangements

Guarantees

We have arranged for a standby letter of credit for $1.5 million, which is supported by our revolving credit facility, to meet the security requirement of our insurance company for potential workers' compensation claims.

Acquisitions - Put/Call Rights

As part of the agreement to acquire an 80% interest in a subsidiary by the ETG in fiscal 2004, the minority interest holders currently have the right to cause us to purchase their interests over a five-year period and we have the right to purchase the minority interests over a five-year period beginning in fiscal 2015, or sooner under certain conditions.

Pursuant to the purchase agreement related to the acquisition of an 85% interest in a subsidiary by the ETG in fiscal 2005, certain minority interest holders exercised their option during fiscal 2007 to cause us to purchase their aggregate 3% interest over a four-year period ending in fiscal 2010. Pursuant to this same purchase agreement, certain other minority interest holders exercised their option during the second quarter of fiscal 2009 to cause us to purchase their aggregate 10.5% interest over a four-year period ending in fiscal 2012. Accordingly, we increased our ownership interest in the subsidiary by an aggregate 4.9% (or one-fourth of such applicable minority interest holders' aggregate interest in fiscal years 2007 through 2009) to 89.9% effective April 2009. Further, the remaining minority interest holders currently have the right to cause us to purchase their aggregate 1.5% interest over a four-year period.

Pursuant to the purchase agreement related to the acquisition of a 51% interest in a subsidiary by the FSG in fiscal 2006, the minority interest holders exercised their option during fiscal 2008 to cause us to purchase an aggregate 28% interest over a four-year period ending in fiscal 2011. Accordingly, we increased our ownership interest in the subsidiary by 7% (or one-fourth of such minority interest holders' aggregate interest) to 58% effective April 2008. We and the minority interest holders agreed to accelerate the purchase of 14% of these equity interests (7% from April 2009 and 7% from April 2010), which increased our ownership interest to 72% effective December 2008. The remaining 7% interest is scheduled to be purchased in April 2011. Further, we have the right to purchase the remaining 21% of the equity interests of the subsidiary over a three-year period beginning in fiscal 2012, or sooner under certain conditions, and the minority interest holders have the right to cause us to purchase the same equity interests over the same period.

As part of the agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2006, we have the right to purchase the minority interests over a four-year period beginning in

fiscal 2014, or sooner under certain conditions, and the minority interest holders have the right to cause us to purchase the same equity interests over the same period.

As part of an agreement to acquire an 80% interest in a subsidiary by the FSG in fiscal 2008, we have the right to purchase the minority interests over a . . .