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, 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, 2011. There have been no material changes to our critical accounting policies during the nine months ended July 31, 2012.
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, 2012 have been affected by the fiscal 2012 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Condensed Consolidated Financial Statements of this quarterly report and by the fiscal 2011 acquisitions as further detailed in Note 2, Acquisitions, of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended October 31, 2011.
All per share information has been adjusted retrospectively to reflect a 5-for-4 stock split effected in April 2012. 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 (in
thousands).
                                 Nine months ended July 31,        Three months ended July 31,
                                    2012             2011             2012              2011
Net sales                          $654,938         $555,972         $225,969          $197,267
Cost of sales                       417,240          355,850          141,717           127,442
Selling, general and
administrative expenses             120,010           99,131           41,797            34,119
Total operating costs and
expenses                            537,250          454,981          183,514           161,561
Operating income                   $117,688         $100,991          $42,455           $35,706

Net sales by segment:
Flight Support Group               $420,654         $395,193         $140,761          $140,748
Electronic Technologies
Group                               237,225          162,477           86,482            57,166
Intersegment sales                   (2,941 )         (1,698 )         (1,274 )            (647 )
                                   $654,938         $555,972         $225,969          $197,267

Operating income by segment:
Flight Support Group                $78,523          $68,385          $26,382           $24,551
Electronic Technologies
Group                                52,472           44,556           20,950            15,373
Other, primarily corporate          (13,307 )        (11,950 )         (4,877 )          (4,218 )
                                   $117,688         $100,991          $42,455           $35,706

Net sales                             100.0 %          100.0 %          100.0 %           100.0 %
Gross profit                           36.3 %           36.0 %           37.3 %            35.4 %
Selling, general and
administrative expenses                18.3 %           17.8 %           18.5 %            17.3 %
Operating income                       18.0 %           18.2 %           18.8 %            18.1 %
Interest expense                         .3 %              -               .2 %               -
Other income (expense)                    -                -              (.1 %)              -
Income tax expense                      5.9 %            5.4 %            5.8 %             4.7 %
Net income attributable to
noncontrolling interests                2.4 %            3.0 %            2.5 %             3.0 %
Net income attributable to
HEICO                                   9.4 %            9.8 %           10.2 %            10.3 %

Comparison of First Nine Months of Fiscal 2012 to First Nine Months of Fiscal 2011
Net Sales
Our net sales for the first nine months of fiscal 2012 increased by 18% to a record $654.9 million, as compared to net sales of $556.0 million for the first nine months of fiscal 2011. The increase in net sales reflects an increase of $74.7 million (a 46% increase) to a record $237.2 million in net sales within the ETG as well as an increase of $25.5 million (a 6% increase) to a record $420.7 million in net sales within the FSG. The net sales increase in the ETG reflects additional net sales of approximately $65.7 million from acquisitions of 3D Plus SA ("3D Plus") in September 2011, Switchcraft, Inc. ("Switchcraft") in November 2011, Ramona Research, Inc. ("Ramona Research") in March 2012 and Moritz Aerospace, Inc. ("Moritz Aerospace") in April 2012, as well as organic growth of approximately 5.6%. The organic growth in the ETG principally reflects an increase in demand and market penetration for certain defense, medical, aerospace and electronic products, resulting in a $4.2 million, $1.7 million, $1.6 million and $1.6 million increase in net sales from these product lines, respectively. Based on our current economic visibility, we continue to expect stable demand for ETG's products for the remainder of fiscal 2012. The net sales increase in the FSG reflects organic growth of approximately 4.8%, as well as approximately $6.4 million in additional net sales contributed from an acquisition in December 2010. The organic growth in the FSG principally reflects an increase of $14.9 million in net sales within our specialty product lines primarily attributed to the sales of industrial products used in heavy-duty and off-road vehicles as a result of increased market penetration. Based on our current economic visibility, we expect growth within our specialty product lines to stabilize for the remainder of fiscal 2012. Additionally, the FSG's organic growth reflects increased market penetration from both new and existing product offerings for certain of the FSG's aerospace products resulting in an increase of $3.9 million within the FSG's aftermarket replacement parts product lines. Based on our current economic visibility, we expect continued growth within our aftermarket replacement parts product lines for the remainder of fiscal 2012. Sales price changes were not a significant contributing factor to the ETG and FSG net sales growth in the first nine months of fiscal 2012. Gross Profit and Operating Expenses
Our consolidated gross profit margin improved to 36.3% for the first nine months of fiscal 2012 as compared to 36.0% for the first nine months of fiscal 2011, principally reflecting a .9% increase in the FSG's gross profit margin, partially offset by a 3.7% decrease in the ETG's gross profit margin. The increase in the FSG's gross profit margin is primarily attributed to the previously mentioned increased sales of higher gross profit margin products within our specialty product and aftermarket replacement parts product lines. The decrease in the ETG's gross profit margin principally reflects a 2.0% impact from lower gross profit margins realized by Switchcraft and 3D Plus in the first nine months of fiscal 2012. The lower gross profit margins realized by these acquired businesses are principally attributed to amortization expense of certain acquired intangible assets of approximately $1.7 million and inventory purchase accounting adjustments of approximately $1.7 million. Additionally, the decrease in the ETG's gross profit margin reflects a lower margin product mix of certain of our defense, space and medical products

in the first nine months of fiscal 2012. Total new product research and development expenses included within our consolidated cost of sales increased from approximately $18.2 million in the first nine months of fiscal 2011 to approximately $22.4 million in the first nine months of fiscal 2012, principally to further enhance growth opportunities and market penetration.
Selling, general and administrative ("SG&A") expenses were $120.0 million and $99.1 million for the first nine months of fiscal 2012 and fiscal 2011, respectively. The increase in SG&A expenses reflects an increase of $13.4 million in general and administrative expenses and $7.5 million in selling expenses, of which $11.6 million in general and administrative expenses and $5.8 million in selling expenses were attributed to the acquired businesses. SG&A expenses as a percentage of net sales increased from 17.8% in the first nine months of fiscal 2011 to 18.3% in the first nine months of fiscal 2012 principally reflecting an increase in amortization expense of intangible assets from the acquired businesses.
Operating Income
Operating income for the first nine months of fiscal 2012 increased by 17% to a record $117.7 million as compared to operating income of $101.0 million for the first nine months of fiscal 2011. The increase in operating income reflects a $10.1 million increase (a 15% increase) to a record $78.5 million in operating income of the FSG for the first nine months of fiscal 2012, up from $68.4 million in the first nine months of fiscal 2011 and a $7.9 million increase (an 18% increase) in operating income of the ETG to a record $52.5 million for the first nine months of fiscal 2012, up from $44.6 million for the first nine months of fiscal 2011. The increase in operating income of the FSG principally reflects the previously mentioned increased sales volumes and improved gross profit margin. The increase in the operating income of the ETG is mainly attributed to $8.7 million in operating income contributed by the acquired businesses and the organic sales growth partially offset by the previously mentioned lower gross profit margin.
As a percentage of net sales, our consolidated operating income decreased to 18.0% for the first nine months of fiscal 2012, down from 18.2% for the first nine months of fiscal 2011. The decrease in consolidated operating income as a percentage of net sales reflects a decrease in the ETG's operating income as a percentage of net sales from 27.4% in the first nine months of fiscal 2011 to 22.1% in the first nine months of fiscal 2012, partially offset by an increase in the FSG's operating income as a percentage of net sales from 17.3% in the first nine months of fiscal 2011 to 18.7% in the first nine months of fiscal 2012. The decrease in operating income as a percentage of net sales for the ETG principally reflects a 4.1% impact from lower operating margins realized by 3D Plus and Switchcraft as well as the previously mentioned lower gross profit margin. The lower operating margin realized by 3D Plus is principally attributed to amortization expense of approximately $2.9 million associated with intangible assets and inventory purchase accounting adjustments during the first nine months of fiscal 2012. Additionally, the lower operating margin realized by 3D Plus during the first nine months of fiscal 2012 reflects lower net sales for certain of its products during the first six months of fiscal 2012 resulting from the economic uncertainty throughout Europe. The lower operating margin realized by Switchcraft is principally attributed to amortization expense of approximately $5.4 million associated with intangible assets and inventory purchase accounting adjustments. Based

on variations in product mix and the timing of customer delivery requirements, the operating margin of the ETG can vary from quarter to quarter. Excluding 3D Plus and Switchcraft, the ETG's operating margins for the first nine months of fiscal 2012 would have been approximately 26%, which is comparable to the ETG's full year operating margins, which normally approximate 25%. The increase in operating income as a percentage of net sales for the FSG principally reflects the previously mentioned higher gross profit margins. Interest Expense
Interest expense increased to $1.8 million in the first nine months of fiscal 2012 from $.1 million in the first nine months of fiscal 2011. The increase was principally due to a higher weighted average balance outstanding under our revolving credit facility in the first nine months of fiscal 2012 associated with the recent acquisitions.
Other Income
Other income in the first nine months of fiscal 2012 and 2011 was not material. Income Tax Expense
Our effective tax rate in the first nine months of fiscal 2012 increased to 33.3% from 29.7% in the first nine months of fiscal 2011. The effective tax rate for the first nine months of fiscal 2011 reflects a benefit, which increased net income attributable to HEICO by $.9 million, net of expenses, from state income apportionment updates recognized upon the filing of our fiscal 2010 state tax returns and the amendment of certain prior year state tax returns in the third quarter of fiscal 2011. The increase in the effective tax rate in the first nine months of fiscal 2012 is also due to the retroactive extension of Section 41 of the Internal Revenue Code, "Credit for Increasing Research Activities," to cover the period from January 1, 2010 to December 31, 2011, which resulted in the recognition of an income tax credit for qualified research and development activities for the last ten months of fiscal 2010 in the first quarter of fiscal 2011 and reduced the recognition of such income tax credit to just the first two months of qualifying research and development activities in fiscal 2012. In addition, the increase reflects a higher effective state income tax rate attributable to a fiscal 2012 acquisition and changes in certain state tax laws which impacted state apportionment factors. During fiscal 2011 and 2012, we purchased certain noncontrolling interests that also contributed to the comparative increase in the effective tax rate for the first nine months of fiscal 2012.
Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held in the FSG and the noncontrolling interests held in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $16.0 million for the first nine months of fiscal 2012 compared to $16.7 million in the first nine months of fiscal 2011. The decrease in the first nine months of fiscal 2012 principally reflects our purchases of certain noncontrolling interests during fiscal 2011 and 2012 resulting in lower allocations of net income to noncontrolling interests. Additionally, the decrease is attributed to lower earnings of certain

ETG subsidiaries partially offset by higher earnings of the FSG in which the 20% noncontrolling interest is held.
Net Income Attributable to HEICO
Net income attributable to HEICO increased to a record $61.4 million, or $1.15 per diluted share, for the first nine months of fiscal 2012 from $54.3 million, or $1.02 per diluted share, for the first nine months of fiscal 2011, principally reflecting the increased operating income referenced above. Comparison of Third Quarter of Fiscal 2012 to Third Quarter of Fiscal 2011 Net Sales
Our net sales for the third quarter of fiscal 2012 increased by 15% to a record $226.0 million, as compared to net sales of $197.3 million for the third quarter of fiscal 2011. The increase in net sales principally reflects an increase of $29.3 million (a 51% increase) to a record $86.5 million in net sales within the ETG. The net sales increase in the ETG reflects additional net sales of approximately $26.3 million from the acquisitions of 3D Plus, Switchcraft, Ramona Research and Moritz Aerospace, as well as organic growth of approximately 5.3%. The organic growth in the ETG principally reflects increased market penetration and demand for certain medical, electronic and aerospace products resulting in a $1.2 million, $1.1 million and $.7 million increase in net sales from these product lines. Net sales of the FSG were $140.8 million for the third quarter of fiscal 2012 compared to $140.7 million for the third quarter of fiscal 2011. The slight increase in FSG net sales reflects a $1.2 million increase within our specialty product lines primarily attributed to increased demand for certain of our aerospace and industrial products and a $1.1 million increase within the FSG's aftermarket replacement parts product lines principally from increased market penetration from both new and existing product offerings partially offset by a slowing of aftermarket growth. The aforementioned increases in FSG net sales were partially offset by a $2.3 million decrease within the FSG's repair and overhaul services principally reflecting a general slowing of airline capacity growth. Based on current economic visibility, we expect nominal net sales growth within our repair and overhaul services for the remainder of fiscal 2012. Sales price changes were not a significant contributing factor to the ETG and FSG net sales growth in the third quarter of fiscal 2012.
Gross Profit and Operating Expenses
Our consolidated gross profit margin improved to 37.3% for the third quarter of fiscal 2012 as compared to 35.4% for the third quarter of fiscal 2011, principally reflecting a 1.2% increase in the FSG's gross profit margin, partially offset by a .5% decrease in the ETG's gross profit margin. The increase in the FSG's gross profit margin is primarily attributed to the previously mentioned increased sales of higher gross profit margin products within our aftermarket replacement parts and specialty products product lines. The decrease in the ETG's gross profit margin principally reflects the impact of a somewhat lower gross profit margin realized by Switchcraft in the third quarter of fiscal 2012. Total new product research and development expenses included within our consolidated cost of sales increased from

approximately $6.5 million in the third quarter of fiscal 2011 to approximately $7.5 million in the third quarter of fiscal 2012, principally to further enhance growth opportunities and market penetration.
Selling, general and administrative ("SG&A") expenses were $41.8 million and $34.1 million for the third quarter of fiscal 2012 and fiscal 2011, respectively. The increase in SG&A expenses reflects an increase of $4.8 million in general and administrative expenses and $2.9 million in selling expenses, of which $4.3 million in general and administrative expenses and $1.9 million in selling expenses were attributed to the acquired businesses. SG&A expenses as a percentage of net sales increased from 17.3% in the third quarter of fiscal 2011 to 18.5% in the third quarter of fiscal 2012 principally reflecting an increase in amortization expense of intangible assets from the acquired businesses and certain selling expenses within the ETG. Operating Income
Operating income for the third quarter of fiscal 2012 increased by 19% to a record $42.5 million as compared to operating income of $35.7 million for the third quarter of fiscal 2011. The increase in operating income reflects a $5.6 million increase (a 36% increase) to a record $21.0 million in operating income of the ETG in the third quarter of fiscal 2012, up from $15.4 million in the third quarter of fiscal 2011 and a $1.8 million increase (a 7% increase) to $26.4 million in operating income of the FSG in the third quarter of fiscal 2012, up from $24.6 million in the third quarter of fiscal 2011. The increase in operating income of the FSG principally reflects the previously mentioned higher gross profit margin. The increase in the operating income of the ETG is mainly attributed to $5.1 million in operating income contributed by the acquired businesses and the organic sales growth.
As a percentage of net sales, our consolidated operating income increased to 18.8% for the third quarter of fiscal 2012, up from 18.1% for the third quarter of fiscal 2011. The increase in consolidated operating income as a percentage of net sales reflects an increase in the FSG's operating income as a percentage of net sales from 17.4% in the third quarter of fiscal 2011 to 18.7% in the third quarter of fiscal 2012, partially offset by a decrease in the ETG's operating income as a percentage of net sales from 26.9% in the third quarter of fiscal 2011 to 24.2% in the third quarter of fiscal 2012. The increase in operating income as a percentage of net sales for the FSG principally reflects the previously mentioned higher gross profit margins. The decrease in operating income as a percentage of net sales for the ETG principally reflects a 2.8% impact from a lower operating margin realized by Switchcraft and 3D Plus. The lower operating margin realized by Switchcraft and 3D Plus is principally attributed to amortization expense of approximately $1.6 million and $.7 million, respectively, associated with intangible assets. Based on variations in product mix and the timing of customer delivery requirements, the operating margin of the ETG can vary from quarter to quarter. Excluding Switchcraft and 3D Plus, the ETG's operating margins for the third quarter of fiscal 2012 would have been approximately 27%, which is comparable to the ETG's full year operating margins, which normally approximate 25%.

Interest Expense
Interest expense increased $.5 million in the third quarter of fiscal 2012. The increase was principally due to a higher weighted average balance outstanding under our revolving credit facility in the third quarter of fiscal 2012 associated with the recent acquisitions. Other Income and Expense
Other income and expense in the third quarter of fiscal 2012 and 2011 was not material.
Income Tax Expense
Our effective tax rate in the third quarter of fiscal 2012 increased to 31.4% from 26.0% in the third quarter of fiscal 2011. The effective tax rate for the third quarter of fiscal 2011 reflects a benefit, which increased net income attributable to HEICO by $.9 million, net of expenses, from state income apportionment updates recognized upon the filing of our fiscal 2010 state tax returns and the amendment of certain prior year state tax returns. The increase in the effective tax rate in the third quarter of fiscal 2012 is also due to the expiration of Section 41 of the Internal Revenue Code, "Credit for Increasing Research Activities," as of December 31, 2011, which reduced the amount of research and development tax credits recognized during the quarter. In addition, the increase reflects a higher effective state income tax rate attributable to a fiscal 2012 acquisition and changes in certain state tax laws which impacted state apportionment factors. During fiscal 2011 and 2012, we purchased certain noncontrolling interests that also contributed to the comparative increase in the effective tax rate for the third quarter of fiscal 2012. Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests relates to the 20% noncontrolling interest held in the FSG and the noncontrolling interests held in certain subsidiaries of the FSG and ETG. Net income attributable to noncontrolling interests was $5.5 million in the third quarter of fiscal 2012 compared to $6.0 million in the third quarter of fiscal 2011. The decrease in the third quarter of fiscal 2012 principally reflects our purchases of certain noncontrolling interests during fiscal 2011 and 2012 resulting in lower allocations of net income to noncontrolling interests. Net Income Attributable to HEICO
Net income attributable to HEICO increased to a record $23.1 million, or $.43 per diluted share, for the third quarter of fiscal 2012 from $20.4 million, or $.38 per diluted share, for the third quarter of fiscal 2011, principally reflecting the increased operating income referenced above. Outlook
In our Flight Support Group's markets, forecasts of potential decelerating capacity growth within the commercial aviation market and continued global economic uncertainty may

moderate our net sales growth for the remainder of fiscal 2012. In our Electronic Technologies Group's markets, we generally anticipate stable demand for most of our products, but acknowledge that government deficits and spending reduction plans may moderate demand for certain of our defense products. Liquidity and Capital Resources
Our principal uses of cash include acquisitions, capital expenditures, distributions to noncontrolling interests, cash dividends and increases in working capital needs. Capital expenditures in fiscal 2012 are anticipated to approximate $18 - $20 million.
We finance our activities primarily from our operating activities and financing activities, including borrowings under our revolving credit facility. The revolving credit facility contains both financial and non-financial covenants. As of July 31, 2012, we were in compliance with all such covenants. As of July 31, 2012, our net debt to shareholders' equity ratio was 20.1%, with net debt (total debt less cash and cash equivalents) of $139.0 million.
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 $78.3 million for the first nine months of fiscal 2012 and consisted primarily of net income from consolidated operations of $77.4 million. Net cash provided by operating activities decreased by $6.7 million from $85.0 million in the first nine months of fiscal 2011. The decrease in net cash provided by operating activities is principally due to a $21.3 million increase in working capital primarily from the timing of certain payments pertaining to fiscal 2011 year-end and the first nine months of fiscal 2012 accruals and payables and a build in inventory levels to meet customer demand, partially offset by increases in depreciation and amortization of $8.7 million and net income from consolidated operations of $6.3 million. Investing Activities
Net cash used in investing activities of $184.0 million during the first nine months of fiscal 2012 related primarily to acquisitions of $171.5 million and . . .