-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IhdAQmEdiM/muD65MRSl+m6ODxzBsutV01uygyx/drIOVl6JiJMuv3oUDYy8S5db dAXPGNRNt9CGQRxUl0Wyrg== 0000912057-95-010433.txt : 19951130 0000912057-95-010433.hdr.sgml : 19951130 ACCESSION NUMBER: 0000912057-95-010433 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951127 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEI INC CENTRAL INDEX KEY: 0000351298 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 410944876 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10078 FILM NUMBER: 95596466 BUSINESS ADDRESS: STREET 1: 1495 STEIGER LAKE LN STREET 2: P O BOX 5000 CITY: VICTORIA STATE: MN ZIP: 55386 BUSINESS PHONE: 6124432500 MAIL ADDRESS: STREET 1: P O BOX 5000 STREET 2: 1495 STEIGER LAKE LANE CITY: VICTORIA STATE: MN ZIP: 55386 10KSB 1 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 **** FORM 10-KSB **** [X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for fiscal year ended August 31, 1995. --------------- [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to . ----- ----- Commission File Number 0-10078 ------- HEI, INC. ------------------ (Name of Small Business Issuer in Its Charter) Minnesota 41-0944876 - --------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) or incorporation or organization) P.O. Box 5000, 1495 Steiger Lake Lane, Victoria, MN 55386 - --------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (612)443-2500 ------------- Securities registered pursuant to Section 12(b) of the Exchange Act: None ---- Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.05 PER SHARE -------------------------------------- (Title of Class) RIGHTS TO PURCHASE COMMON STOCK ------------------------------- (Title of Class) Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - -- -- Indicate if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB. [ ] HEI, Inc. revenues for the fiscal year ended August 31, 1995 were $23,423,000. The aggregate market value as of November 15, 1995 (based on the closing price as reported by The Nasdaq National Market) of the voting stock held by non- affiliates was approximately $ 23,000,000. As of November 15, 1995, 3,801,597 Common Shares (par value $.05) were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended August 31, 1995 are incorporated by reference into Parts I and II. Portions of the Proxy Statement for Registrant's Annual Meeting of Shareholders to be held January 17, 1996 are incorporated by reference in Part III. HEI, Inc. is referred to herein as the Company, unless the context indicates otherwise. PART I ------ ITEM 1. DESCRIPTION OF BUSINESS (a) BUSINESS DEVELOPMENT HEI, Inc., a Minnesota corporation, was incorporated as Hybrid Electronics Inc. in 1968 and changed its name to HEI, Inc. in 1969. (b) BUSINESS OF THE COMPANY PRINCIPAL PRODUCTS AND SERVICES - HEI, Inc. is a designer and manufacturer of ultraminiature microelectronic devices and high technology products incorporating these devices. HEI's custom-built microelectronics are employed in medical, industrial and computer markets, and light pens are used by value-added systems integrators and others in a variety of applications. DISTRIBUTION METHODS - HEI sells through its Company-employed sales force based at corporate headquarters. SOURCES AND AVAILABILITY OF RAW MATERIALS - There are many sources of raw material supplies available nationally and internationally for Company operations. The manufacture of Company products involves assembly of components purchased from a wide variety of vendors. The Company's business is not dependent on any single supplier. DEPENDENCE ON SINGLE OR FEW CUSTOMERS - Following is the approximate % of the Company's sales to major customers in fiscal years 1995, 1994, and 1993. Customer 1995 1994 1993 -------- ---- ---- ---- Customer A 30% 49% 54% Customer B 27% 0% 0% Customer C 12% 19% 15% -2- COMPETITION - In each of its product lines, the Company has significant competition, including users who may produce their own alternative devices. The Company obtains new business by identifying customer needs and engineering its products to meet those needs. It competes on the basis of engineering expertise, quality, service and price to obtain new and repeat orders. RESEARCH AND DEVELOPMENT - The estimated amount spent on Company-sponsored research and development activities was approximately $754,000, $679,000 and $614,000 for the years ended August 31, 1995, 1994 and 1993, respectively. EMPLOYEES - At August 31, 1995, the Company employed 133 full-time and 2 temporary persons. ITEM 2. DESCRIPTION OF PROPERTY The Company owns a 25,000 square foot facility for administration and production in Victoria, Minnesota, which was completed in August 1981. Also, the Company leases, with an option to buy, a facility of 11,600 square feet in Sauk Centre, Minnesota. The lease was renewed for 3 years in fiscal 1993 and the Company can elect to purchase the leased facility at any time for a specified price. The Company is planning on expanding the Victoria, Minnesota facility in the coming year to increase production capacity. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings pending against the Company or its properties. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. -3- PART II ------- ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information called for by Item 5 is incorporated by reference from the Annual Report on page 16. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS The information called for by Item 6 is incorporated by reference from the Annual Report on pages 4-5. ITEM 7. FINANCIAL STATEMENTS The information called for by Item 7 is incorporated by reference from the Annual Report on pages 6-13 as follows: Page in Annual Report: -------------- Balance Sheet as of August 31, 1995 and 1994 6 Statement of Operations for the Years Ended August 31, 1995, 1994 and 1993 7 Statements of Changes in Shareholders' Equity for the Years Ended August 31, 1995, 1994 and 1993 8 Statement of Cash Flows for the Years Ended August 31, 1995, 1994 and 1993 9 Notes to Financial Statements 10-13 Report of Independent Accountants 14 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -4- PART III -------- ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT The information regarding directors called for by Item 9 is contained in the Proxy Statement under the caption "Election of Directors." The following is a list of HEI, Inc. executive officers, their ages, positions and offices as of November 1, 1995. NAME AGE POSITION Eugene W. Courtney 59 President, Chief Executive Officer Jerald H. Mortenson 61 Vice President of Finance and Administration, Chief Financial Officer, and Treasurer Dale A. Nordquist 41 Vice President of Sales BUSINESS EXPERIENCE EUGENE W. COURTNEY became President and Chief Executive Officer of the Company in June 1990. He had served as Executive Vice President and Operating Officer since August 1988 and has served as a Director since 1989. From 1980 to 1988, Mr. Courtney served as Vice President and Group Vice President of National Computer Systems. JERALD H. MORTENSON joined the Company in March 1990. Prior thereto he had spent ten years with CTS Fabri-Tek, first as Chief Financial Officer and the last five years as Group President. DALE A. NORDQUIST joined the Company on July 16, 1981 as Western Regional Manager. In December 1986, he was appointed Vice President of Sales. ITEM 10. EXECUTIVE COMPENSATION The information called for by Item 10 is contained in the Proxy Statement under the captions "Executive Compensation" and "Proposal No. 1 Election of Directors." ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 11 is incorporated in the Proxy Statement under the caption "Shares and Principal Shareholders." ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. -5- ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Exhibit Index on Page 8 (b) Reports filed on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended August 31, 1995. -6- SIGNATURES In accordance with Section 13 or 15(c) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized HEI, Inc. BY: /s/ Eugene W. Courtney ---------------------------------------------- Eugene W. Courtney, President and Chief Executive Officer BY: /s/ Jerald H. Mortenson ---------------------------------------------- Jerald H. Mortenson, Vice President of Finance and Administration, Chief Financial Officer and Treasurer BY: /s/ Craig E. Roble ----------------------------------------------- Craig E. Roble, Company Controller Date: November 21, 1995 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Robert L. Brueck November 21, 1995 - -------------------------------- ----------------- Robert L. Brueck, Director Date /s/ Eugene W. Courtney November 21, 1995 - -------------------------------- ----------------- Eugene W. Courtney, Director Date /s/ William R. Franta November 21, 1995 - -------------------------------- ----------------- William R. Franta, Director Date /s/ Kenneth A. Schoen November 21, 1995 - -------------------------------- ----------------- Kenneth A. Schoen, Director Date /s/ Frederick M. Zimmerman November 21, 1995 - -------------------------------- ----------------- Frederick M. Zimmerman, Director Date -7- EXHIBIT INDEX
Page Number or Incorporated by (a) Exhibit Number Description Reference -------------- ----------- -------------- 3.1 Restated Articles of Incorporation, as amended. Note 1 3.2 Bylaws, as amended. Note 2 4.1 Rights Agreement dated May 27, 1988 between HEI, inc. and Norwest Bank Minnesota, N.A., as amended. Note 3 4.2 Credit Agreement with Norwest Bank Minnesota, N.A. dated March 7, 1995. Note 4 10.1a Lease between Sauk Centre Opportunites Incorporated and HEI, Inc. dated October 16, 1978 (the "Lease"). Note 5 10.1b Second Addendum to the Lease, dated May 31, 1988. Note 2 10.1c Third Addendum to the Lease, dated June 1, 1993. Note 6 10.2 Form of Indemnification Agreement between HEI and officers and directors. Note 7 **10.3a HEI 1989 Omnibus Stock Compensation Plan adopted April 3, 1989, as amended to date ("1989 Plan"). Note 8 **10.3b Amendment to 1989 Omnibus Stock Compensation Plan. Note 9 **10.4a 1991 Stock Option Plan for Non-Employee Directors. Note 8 **10.4b Amendment to 1991 Stock Option Plan. Note 9 **10.5 Form of Non-qualified Stock Option agreement between HEI and executive officers under 1989 Plan. Note 10 **10.6 Form of Incentive Stock Option agreement between HEI and executive officers under 1989 Plan. Note 10 *11 Computation of Net Income per Common Share. *13 Annual Report to Shareholders for the year ended August 31, 1995. *23 Consent of Independent Accountants. *27 Financial Data Schedule
-8- Notes to Exhibits above: [1] Filed as an exhibit to Annual Report on Form 10-K for the year ended August 31, 1990 and incorporated herein by reference. [2] Filed as an exhibit to Annual Report on Form 10-K for the year ended August 31, 1988 and incorporated herein by reference. [3] Filed as an exhibit to Registration Statement on Form 8-A filed May 31, 1988, as amended by Form 8 filed June 27, 1988, and incorporated herein by reference. [4] Filed as an exhibit to Form 10-QSB for the quarter ended February 25, 1995, and incorporated herein by reference. [5] Filed as an exhibit to a Registration Statement of the Company on Form S-18 which was filed with the SEC on February 23, 1981, and incorporated herein by reference. [6] Filed as an exhibit to Annual Report on Form 10-KSB for the year ended August 31, 1993 and incorporated herein by reference. [7] Filed as an exhibit to Registration Statement on Form S-2 (SEC No. 33- 37285) filed October 15, 1990 and incorporated herein by reference. [8] Filed as an exhibit to Annual Report on Form 10-K for the fiscal year ended August 31, 1991, and incorporated herein by reference. [9] Filed as an exhibit to Annual Report on Form 10-KSB for the fiscal year 1994, and incorporated herein by reference. [10] Filed as an exhibit to Form 10-K for the year ended August 31, 1989 and incorporated herein by reference. * Filed herein as an exhibit ** Denotes management contract or compensation plan or arrangement. -9- EX-11 2 EXHIBIT 11 HEI, Inc. EXHIBIT 11 STATEMENT RE COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED) ---------------------------- (Dollars in thousands, except share and per share data)
Year Ended August 31 ---------------------------------- PER SHARE DATA 1995 1994 1993 ---- ---- ---- Net income $ 2,040 $ 1,325 $ 2,538 ------- ------- ------- Net income per common and common equivalent shares: Primary $ .52 $ .34 $ .66 ------ ------ ------ Fully diluted $ .52 $ .34 $ .66 ------ ------ ------ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary: Weighted average number of common shares outstanding 3,747,820 3,665,303 3,483,388 Common equivalent shares: Dilutive stock options and warrants, using Treasury Stock Method 150,842 192,434 338,341 ------- ------- ------- 3,898,662 3,857,737 3,821,729 --------- --------- --------- Fully diluted: Weighted average number of common shares outstanding 3,747,820 3,665,303 3,483,388 Common equivalent shares: Dilutive stock options and warrants, using Treasury Stock Method 206,208 213,622 343,488 ------- ------- ------- 3,954,028 3,878,925 3,826,876 --------- --------- ---------
-10- EX-13 3 EXHIBIT 13 HEI, INC. EXHIBIT 13 1995 ANNUAL REPORT TO OUR SHAREHOLDERS: I am pleased to report substantial growth in both revenue and net income for fiscal year 1995. Revenue for the year was $23,423,000, up 35% from $17,295,000 for fiscal 1994. Net income for fiscal 1995 was $2,040,000, or $.52 per share, up 54% compared to net income of $1,325,000, or $.34 per share for 1994. In addition to the continued strengthening of our position in the hearing instrument market, major contributions to growth over the past few years, including fiscal 1995, have come from relatively large programs with leading providers of high density disk drives. As we have seen in the past, these relatively large and dynamic programs tend to create peaks and valleys in our quarter-to-quarter performance. The phase out of one such program resulted in a downturn in fourth quarter results for fiscal 1995, and will impact the first few months of fiscal 1996 until the unused capacity is filled by new programs. Subsequently, HEI was awarded a production contract by a major manufacturer of disk drives, with the potential to more than absorb the capacity made available by the recent phase-out, and to become a substantial contributor to our revenue starting in the second half of fiscal 1996. Revenue for the fourth quarter of fiscal 1995 was $5,418,000, while revenue for the fourth quarter of the previous year was $6,255,000. Net income for the quarter just ended was $314,000, or $.08 per share, compared to $666,000, or $.17 per share for the fourth quarter of fiscal 1994. We are taking steps to moderate the volatility caused by these large programs in two ways. First, we recently announced a planned $1.8 million facility expansion that will allow doubling of our manufacturing capacity in ultraminiature microcircuitry as required to meet the needs of our customers and prospects. Current active prospects could more than fully utilize our present capacity. The expansion is expected to enhance our ability to attract these large programs and potentially to accommodate multiple programs simultaneously, thereby reducing the impact of any single program. Second, we intend to continue our efforts to grow in medical devices and other markets of opportunity where the technology and processes developed for our current applications have value. While these other applications typically do not develop as quickly as those in the computer market, they can offer stability and excellent growth prospects for the future. We have also continued to strengthen our financial position. As of August 31, 1995, we had cash and cash equivalent and short-term investment balances of $5,258,000, up $2,961,000 from the end of the previous fiscal year. We also had no bank debt, and finished the fiscal year with an average current ratio over 4:1. 1995 OPERATIONS We sustained our focus on the design and production of ultraminiature devices, with emphasis on thick film hybrids and related technologies, during fiscal 1995. Our continuing investments in plant and equipment, and in key support staff, have strengthened our design and manufacturing capabilities and have produced further manufacturing efficiencies along with measurably higher levels of quality. We expect these enhanced capabilities to be the basis for ongoing customer service improvements and competitive advantage, and to provide a sound basis for future growth as a leading edge provider of custom devices for high reliability applications in the computer peripheral, medical and industrial markets. Custom Design and Manufacturing Our ongoing concentration on the custom design and manufacture of innovative ultraminiature packaging solutions continues to yield technology transfers across multiple markets and applications; our hearing and medical instrumentation customers continue to benefit from developments for our customers in the computer peripheral market, and vice versa. Further, we believe that our growing credibility as a responsive, on-time provider of quality circuit assemblies for high density disk drives can lead to significant opportunities for expansion in this very large market segment. A growing portion of our shipments in fiscal 1995 was to providers of miniaturized high-reliability medical instrumentation. Although product development and release cycles are significantly longer in this segment than in the more volatile disk drive market, we are confident that our growing base and reputation in this segment will lead to a significant amount of future business. HEI remains a leader in the design and manufacture of state-of-the-art circuit packaging for hearing instrument providers, and we are optimistic that our position and enhanced capabilities will continue to serve us well in the future in this market. Light Pens HEI has retained its strong position in the market for Light Pens--specialized devices to move and manage the cursor or position indicator on computer monitors (cathode ray tube screens or "CRT's"). While the overall market for these devices has not grown as much as we had anticipated, we have continued development programs targeted at selected niche applications and marketing efforts aimed at reaching these end users. We remain optimistic that these efforts, plus the unique application of our rugged, ultraminiature microelectronics technology to these devices, will address the needs of this market with increasing success. International Our international activity continues to grow as we participate in a worldwide market for our services. Offshore shipments, primarily to Western Europe and Asia, grew to 21% of our total revenues in fiscal 1995. In June 1995, HEI was awarded a certificate of registration to the ISO 9001 Quality Systems Standard for our Victoria, Minnesota based design, development, production, installation and servicing operations. The Company was audited to the newly revised 1994 version of this standard for Quality Assurance by representatives from the National Standards Authority of Ireland, an international standards registrar. We anticipate that this certification, along with our ongoing improvement under the standard, will serve us particularly well with remote customers by attesting to the Company's high quality standards. 1996 PLANS Our major objective for 1996 will be to expand and broaden our capabilities and our base of accounts. The added capacity afforded by the expansion of our Victoria, Minnesota manufacturing facility is expected to help alleviate customer concerns related to our size, and open the door for new opportunities. We currently plan on securing long term financing at favorable rates for the $1.8 million plant expansion, and to finance on a five to seven year basis much of the capital equipment that we foresee installing during the initial three years of expanded operation. We will continue to pursue our target markets in the computer, medical and hearing instrumentation industries, and continue efforts to develop a more stable base for long-term growth. We expect to see ongoing pressure on prices and margins in fiscal 1996 and beyond, as we expand our business into broader markets worldwide. In response, we will continue to emphasize goals of quality and productivity improvement. These efforts, along with our past record of progress in these areas and our proven ability to provide innovative packaging solutions, position HEI to meet this challenge. We also anticipate that the ISO standard and our internal quality programs will continue to serve us well, providing a formula for future improvements. Fiscal year 1995 was characterized by significant growth and success, but we approached the physical limits of our capacity in certain areas. We expect to emerge from fiscal year 1996 with the plant capacity to sustain further growth as a credible and respected supplier of quality services and products to a larger segment of our target markets. With an exceptionally strong financial position, a proven infrastructure of talented employees and production processes, and a growing base of key customers, I look forward to the challenges of the coming year with enthusiasm and optimism. Eugene W. Courtney PRESIDENT AND CHIEF EXECUTIVE OFFICER Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION The Company's net cash flow provided by operating activities for the year ended August 31, 1995, was $3,366,000. The significant components of this operating net cash flow were positive cash flow of $2,943,000 from operations before changes in current operating items and a $755,000 decrease in accounts receivable, offset by a $319,000 decrease in accounts payable. The decrease in accounts receivable is attributable primarily to lower shipment volumes in the fourth quarter of 1995 compared to the fourth quarter of 1994. Accounts receivable average days outstanding were 42 days as of August 31, 1995 compared to 51 days for the same period a year ago primarily due to improved collections. Inventory turns were 7.5 turns as of August 31, 1995 compared to 8.8 turns for the same period a year ago. The inventory turn decrease is primarily due to lower shipments during the fourth quarter of 1995 as compared to the fourth quarter of 1994. In addition to purchasing $634,000 of capital equipment, the Company increased short-term investments, primarily in treasury bills, to $3,820,000, up $3,102,000 from a year ago. The current ratio at the end of 1995 was 6.2:1 as compared to 4.0:1 at the end of last year; however, the average current ratio in 1995 was 4.2:1. Capital expenditures for 1995 of $634,000 were primarily for new manufacturing equipment, including two automatic component placement systems, an additional wire bonder, and semi-automatic printing equipment. In March 1995, the Company completed a new financing agreement which provides for a $3,000,000 revolving line of credit. As of August 31, 1995, there were no borrowings under the line. Borrowings under this agreement would be collaterized by accounts receivable. The agreement contains certain restrictive covenants including limitations on other borrowings and maintenance of specified financial levels and ratios for net income, tangible net worth and debt to tangible net worth. Borrowings are limited to the lesser of $3,000,000 or the borrowing base, which is 80% of eligible accounts receivable. Interest on the borrowings is based on the Company's option, at the lender's prime rate of interest or 2% above the lender's LIBOR rate. During fiscal 1996, the Company intends to expend approximately $4.3 million for a facility addition, manufacturing facility improvements and capital equipment. These additions will increase manufacturing capacity to meet anticipated requirements for continued revenue growth. It is expected that these expenditures will be funded primarily through long-term financing. RESULTS OF OPERATIONS
APPROXIMATE SALES BY PRODUCT LINE (IN THOUSANDS) 1995 1994 1993 Microelectronics $21,187 $14,888 $16,580 Peripheral products 2,157 2,334 2,165 Other 79 73 148 ------- ------- ------- Total $23,423 $17,295 $18,893
SALES 1995 VS. 1994: Sales in 1995 increased 35% from fiscal 1994, from $17.3 million to $23.4 million. Sales of microelectronic circuits, which include opto-electronic circuits, increased 42% from the prior year from $14.9 million to $21.2 million. This increase was primarily due to increased shipments in 1995 of microelectronic devices to the computer disk drive market, primarily to the IBM Corporation and another disk drive manufacturer. Shipments of microelectronic circuits to IBM were 30% and 49% of HEI's total sales in 1995 and 1994, respectively. During mid-year 1995, shipments of microelectronic circuits to IBM were discontinued as the product reached the end of its life cycle. During the second quarter of fiscal 1995, the Company began manufacturing circuits for another major disk drive manufacturer, utilizing some of the capacity available from the conclusion of the IBM order. Shipments to this disk drive manufacturer accounted for 27% of the Company's sales in 1995, but are expected to phase out during the first quarter of fiscal 1996. Recently the Company entered into a production contract with another manufacturer of high density disk drives to build circuits. Shipments to this customer are expected to reach production volumes in the second half of fiscal 1996. Because the Company's sales to the computer disk drive market are generally tied to the customer's projected sales and production of the related product, the Company's sales levels are subject to fluctuations outside of the Company's control. To the extent that sales to any one customer represent a significant portion of the Company's sales, any change in the level of sales to that customer can have a significant impact on the Company's total revenues. In addition, production for one customer may conclude while production for a new customer has not yet begun or is not yet at full volume. These factors may result in significant fluctuations in sales from quarter to quarter. 1994 VS. 1993: HEI's 1994 sales decreased 8% from fiscal 1993, from $18.9 million to $17.3 million. Sales of microelectronic circuits decreased 10% from the prior year as a result of reduced orders from the Company's largest account in the first half of fiscal 1994. Sales of peripheral products increased 8% from the prior year due to higher demand. PERCENTAGE OF SALES
1995 1994 1993 Sales 100% 100% 100% Gross profit 26% 28% 36% Selling, general and administrative 10% 12% 11% Research, development and engineering 3% 4% 3%
GROSS PROFIT 1995 VS. 1994: The Company's gross profit as a percentage of sales was 26% in 1995, compared to 28% in 1994. The reduced gross profit rate reflects primarily the impact of increased competitive pressures to lower prices on new programs. The Company anticipates continuing pressure on gross profit rates in fiscal 1996 as a result of both the aforementioned volatility in shipments to the computer peripheral market and increasingly competitive pricing. 1994 VS. 1993: The Company's gross profit as a percentage of sales was 28% in 1994 compared with 36% in 1993. The reduced gross profit rate in 1994 reflects the impact of lower sales accompanied by increases in indirect manufacturing expenses and pressures to lower prices. OPERATING EXPENSES 1995 VS. 1994: Fiscal year 1995 selling, general and administrative expenses increased 15% from 1994 and research, development and engineering expenses increased 11%. Both increases were in support of increased product development and shipments. As a percentage of sales, selling, general and administrative expenses for fiscal 1995 decreased to 10% versus 12% for fiscal 1994 reflecting increased sales. In fiscal 1996, the Company plans to continue strengthening its product design and marketing capabilities. 1994 VS. 1993: Fiscal year 1994 selling, general and administrative expenses decreased 2% and research, development and engineering expense increased 11% from the prior year. OTHER INCOME 1995 VS. 1994: Other income increased $168,000 over fiscal 1994 primarily due to increased interest income on short-term investments. 1994 VS. 1993: Other income increased $55,000 primarily due to increased interest income. NET INCOME 1995 VS. 1994: The Company had net income of $2,040,000 for 1995 compared to net income of $1,325,000 for 1994. This increase was primarily due to increased revenues and was partially offset by reduced gross profit margins. Operating income of $3,005,000 was up $980,000 from 1994 reflecting a gross profit increase of $1,362,000 partially offset by an operating expense increase of $382,000 over 1994. The effective tax rate for both fiscal 1994 and 1995 was 37%. 1994 VS. 1993: The Company had net income of $1,325,000 for 1994 compared to a net income of $2,538,000 for 1993. The reduced net income from 1993 was due to a sales decrease of 8%, a reduced gross profit rate of 28% in fiscal 1994 compared to 36% in fiscal 1993, and an operating expense increase of $29,000. HEI, INC. FIVE YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION (Dollars in thousands, except per share amounts) Years Ended August 31
- ---------------------------------------------------------------------- 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------- Net sales $23,423 $17,295 $18,893 $14,138 $ 9,038 Cost of sales 17,263 12,497 12,174 9,491 6,527 - ---------------------------------------------------------------------- Gross profit 6,160 4,798 6,719 4,647 2,511 - ---------------------------------------------------------------------- Operating expenses: Selling, general and administrative 2,401 2,094 2,130 1,963 1,823 Research, development and engineering 754 679 614 565 646 - ---------------------------------------------------------------------- Operating income 3,005 2,025 3,975 2,119 42 - ---------------------------------------------------------------------- Income (loss) before income taxes 3,250 2,102 3,997 2,012 (51) - ---------------------------------------------------------------------- Income taxes 1,210 777 1,459 150 24 - ---------------------------------------------------------------------- Net income (loss) $ 2,040 $ 1,325 $ 2,538 $ 1,862 $ (75) - ---------------------------------------------------------------------- Net income (loss) per common share: Primary $ .52 $ .34 $ .66 $ .57 $ (.04) Fully diluted $ .52 $ .34 $ .66 $ .54 $ (.04) - ---------------------------------------------------------------------- Weight average number of common and common equivalent shares outstanding: Primary 3,898,662 3,857,737 3,821,729 3,284,725 1,957,291 Fully diluted 3,954,028 3,878,925 3,826,876 3,443,235 1,957,291 - ---------------------------------------------------------------------- Balance sheet: Current assets $ 9,983 $ 7,903 $ 5,743 $ 4,054 $ 2,956 Total assets 12,857 10,905 8,564 5,850 4,394 Current liabilities 1,603 1,976 1,532 1,907 2,760 Long-term debt, less current maturities 308 Shareholders' equity 10,982 8,671 6,762 3,635 1,634 - ----------------------------------------------------------------------
HEI, INC. BALANCE SHEET (Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------- As of August 31 1995 1994 - ---------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,438 $ 1,579 Short-term investments 3,820 718 ----- ----- 5,258 2,297 Accounts receivable, net 2,525 3,421 Inventories 1,851 1,829 Other, principally deferred tax assets 349 356 - ---------------------------------------------------------------------- Total current assets 9,983 7,903 - ---------------------------------------------------------------------- Property and equipment: Land 184 184 Building and improvements 1,398 1,398 Fixtures and equipment 5,475 4,870 Accumulated depreciation and amortization (4,183) (3,450) - ---------------------------------------------------------------------- Net property and equipment 2,874 3,002 - ---------------------------------------------------------------------- Total assets $12,857 $10,905 - ---------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $385 $704 Accrued liabilities 1,043 906 Income taxes payable 175 366 - ---------------------------------------------------------------------- Total current liabilities 1,603 1,976 - ---------------------------------------------------------------------- Deferred tax liability 272 258 - ---------------------------------------------------------------------- Shareholders' equity: Undesignated stock; 5,000,000 shares authorized, none issued Common stock, $.05 par; 10,000,000 shares authorized; 3,791,597, and 3,685,520 shares issued and outstanding 190 184 Paid-in capital 6,183 5,918 Retained earnings 4,609 2,569 - ---------------------------------------------------------------------- Total shareholders' equity 10,982 8,671 - ---------------------------------------------------------------------- Total liabilities and shareholders' equity $12,857 $10,905 - ----------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. HEI, INC. STATEMENT OF OPERATIONS (Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------- Years Ended August 31 1995 1994 1993 - ---------------------------------------------------------------------- Net sales $ 23,423 $ 17,295 $ 18,893 Cost of sales 17,263 12,497 12,174 - ---------------------------------------------------------------------- Gross profit 6,160 4,798 6,719 - ---------------------------------------------------------------------- Operating expenses: Selling, general and administrative 2,401 2,094 2,130 Research,development and engineering 754 679 614 - ---------------------------------------------------------------------- Operating income 3,005 2,025 3,975 - ---------------------------------------------------------------------- Other, principally interest income (245) (77) (22) - ---------------------------------------------------------------------- Income before income taxes 3,250 2,102 3,997 - ---------------------------------------------------------------------- Current income taxes 1,210 777 1,629 Benefit arising from utilization of net operating loss carryforwards (170) - ---------------------------------------------------------------------- Income taxes 1,210 777 1,459 - ---------------------------------------------------------------------- Net income $ 2,040 $ 1,325 $ 2,538 - ---------------------------------------------------------------------- Net income per common share $ .52 $ .34 $ .66 - ---------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 3,898,662 3,857,737 3,821,729 - ----------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. HEI, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in thousands)
- ----------------------------------------------------------------------- Common Stock Paid-in Retained Shares Amount Capital Earnings Outstanding Outstanding (Accumulated Deficit) - ----------------------------------------------------------------------- Balance, August 31, 1992 3,177,310 $ 159 $4,770 $(1,294) Net income 2,538 Issuance of common shares under employee stock purchase and option plans 456,125 23 566 - ----------------------------------------------------------------------- Balance, August 31, 1993 3,633,435 182 5,336 1,244 Net income 1,325 Tax benefit of nonqualified stock options 458 Issuance of common shares under employee stock purchase and option plans 52,085 2 124 - ----------------------------------------------------------------------- Balance, August 31, 1994 3,685,520 184 5,918 2,569 Net income 2,040 Tax benefit of nonqualified stock options 50 Issuance of common shares under employee stock purchase and option plans 106,077 6 215 - ----------------------------------------------------------------------- Balance, August 31, 1995 3,791,597 $ 190 $6,183 $4,609 - -----------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. HEI, INC. STATEMENT OF CASH FLOWS (Dollars in thousands)
- ---------------------------------------------------------------------- Years Ended August 31 1995 1994 1993 - ---------------------------------------------------------------------- Cash flow provided by operating activities: Net income $ 2,040 $ 1,325 $ 2,538 Depreciation and amortization 759 640 462 Provision for doubtful accounts 141 150 86 Other 3 4 26 Changes in current operating items: Accounts receivable 755 (1,248) (765) Inventories (22) (739) 251 Prepaid expenses and other 21 30 (5) Accounts payable (319) 140 (143) Accrued liabilities 179 3 17 Income taxes payable (191) 306 (87) - ---------------------------------------------------------------------- Net cash flow provided by operating activities 3,366 611 2,380 - ---------------------------------------------------------------------- Cash flow used for investing activities: Purchase of short-term investments (6,910) (936) (1,132) Maturity of short-term investments 3,808 1,044 606 Additions to property and equipment (634) (825) (1,513) - ---------------------------------------------------------------------- Net cash flow used for investing activities (3,736) (717) (2,039) - ---------------------------------------------------------------------- Cash flow provided by financing activities: Repayment of long-term debt (390) Principal payments for obligations under capital leases (42) (47) (38) Tax benefit of nonqualified stock options 50 458 Issuance of common shares 221 126 589 - ---------------------------------------------------------------------- Net cash flow provided by financing activities 229 537 161 - ---------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (141) 431 502 Cash and cash equivalents, beginning of year 1,579 1,148 646 - ---------------------------------------------------------------------- Cash and cash equivalents, end of year $ 1,438 $ 1,579 $ 1,148 - ---------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: - ---------------------------------------------------------------------- Interest paid $ 2 $ 6 $ 40 Income taxes paid 1,351 429 1,524 - ----------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. SUMMARY OF QUARTERLY OPERATING RESULTS (unaudited) (Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------- Fiscal year 1995 First Second Third Fourth - ---------------------------------------------------------------------- Net sales $5,947 $5,924 $6,134 $5,418 Gross profit 1,916 1,735 1,328 1,181 Operating income 1,081 952 526 446 Net income 710 652 364 314 - ---------------------------------------------------------------------- Net income per share $ .18 $ .17 $ .09 $ .08 - ---------------------------------------------------------------------- Fiscal year 1994 (unreviewed) First Second Third Fourth - ---------------------------------------------------------------------- Net sales $3,119 $3,154 $4,767 $6,255 Gross profit 860 735 1,493 1,710 Operating income 148 95 748 1,034 Net income 102 72 485 666 - ---------------------------------------------------------------------- Net income per share $ .03 $ .02 $ .13 $ .17 - ----------------------------------------------------------------------
Note: The summation of quarterly net income per share for 1994 does not equate to the calculation for the year since the quarterly calculations are performed on a discrete basis. Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HEI, Inc. (the Company) specializes in the design and manufacture of custom microelectronics (thick film hybrid circuits and optical switches and assemblies) and light pens. CASH AND CASH EQUIVALENTS. The Company considers its investments in all highly liquid debt instruments with original maturities of three months or less at date of purchase to be cash equivalents. The carrying amount approximates fair value because of the short maturity of those instruments. INVENTORIES. Inventories are stated at the lower of cost or market and include materials, labor and overhead costs. The first-in, first-out cost method is used to value inventories. The allowance for excess or obsolete stock is determined based on the Company's continuing analysis of inventory levels in excess of current requirements or considered to be obsolete. The Company has established an estimated allowance to record inventories at estimated net realizable value. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation and amortization are provided on the straight-line method over the estimated useful lives of the property and equipment. Maintenance and repairs are charged to expense as incurred. Major improvements and tooling costs are capitalized and depreciated over their estimated useful lives. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are removed from the related accounts, and any resulting gain or loss charged or credited to operations. INCOME TAXES. Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using currently enacted tax rates in effect for the year in which the differences are expected to reverse. Income tax expense is the tax payable for the period and the change during the period in deferred income tax assets and liabilities. REVENUE RECOGNITION. Revenue is recognized at the time of shipment. Product returns are applied against revenue. PRODUCT WARRANTY. The Company records estimated product warranty costs in the period in which the related sales are recognized. NET INCOME PER COMMON SHARE. Net income per common share is based on the weighted average number of common and common equivalent shares outstanding, assuming the exercise of stock options and warrants, when dilutive. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS. Certain reclassifications have been made to 1994 amounts to conform to the 1995 presentation with no effect on previously reported net income and shareholders' equity. 2. MAJOR CUSTOMERS, CONCENTRATION OF CREDIT RISK AND GEOGRAPHIC DATA Major customers, each of which accounted for more than 10% of the Company's total sales for the years ended August 31, were as follows: 1995 1994 1993 ---- ---- ---- Customer A 30% 49% 54% Customer B 27 Customer C 12 19 15 The Company generally sells its products to original equipment manufacturers in the United States and abroad in accordance with supply contracts specific to certain manufacturer product programs. The Company performs ongoing credit evaluations of its customers financial condition and, generally, does not require collateral from its customers. The Company's continued sales to these customers is often dependent upon the continuance of the customer's product programs. The Company's ten largest customers accounted for approximately 89% of sales in 1995, 86% in 1994 and 86% in 1993 and approximately 87% and 86% of accounts receivable at August 31, 1995 and 1994, respectively. The Company had sales of $2,493,000 to Hong Kong in 1995 and $2,230,000 to Singapore in 1994. Total export sales were $4,995,000 in 1995 and $2,749,000 in 1994. 3. OTHER FINANCIAL STATEMENT DATA The Company had $895,000 in cash and cash equivalents and short-term investments at August 31, 1994 invested with a single banking institution, and $1,607,760 and $1,355,000 in cash and cash equivalents and short-term investments at August 31, 1995 and 1994, respectively, invested with an affiliate of the same banking institution. Short-term investments are primarily treasury bills at August 31, 1995 and certificates of deposit at August 31, 1994. The following provides additional information concerning selected balance sheet accounts at August 31, 1995 and 1994:
(Dollars in thousands) Accounts receivable, net: 1995 1994 ---- ---- Trade accounts receivable $ 2,793 $ 3,679 Less allowance for doubtful accounts (268) (258) ------- ------- $ 2,525 $ 3,421 ======= ======= Inventories: Purchased parts $ 1,670 $ 1,715 Work in process 907 820 Finished goods 233 172 Less allowance for excess or obsolete stock (959) (878) ------- ------- $ 1,851 $ 1,829 ======= ======= Accrued liabilities: Vacation and employee benefits $ 398 $ 298 Payroll related 220 141 Real estate taxes 75 71 Warranty 100 80 Other 250 316 ------- ------- $ 1,043 $ 906 ======= =======
4. FINANCING ARRANGEMENTS During fiscal 1995, the Company completed a new financing agreement which provides for a $3,000,000 revolving line of credit. At August 31, 1995, there were no borrowings under the line of credit. Borrowings under this agreement would be collateralized by accounts receivable. The agreement contains certain restrictive covenants including limitations on other borrowings and maintenance of specified financial levels and ratios for net income, tangible net worth and debt to tangible net worth. Borrowings are limited to the lesser of $3,000,000 or the borrowing base, which is 80% of eligible accounts receivable. Interest on the borrowings is, based on the Company's option, at the lender's prime rate of interest or at 2% above the lender's LIBOR rate. The prime rate of interest was 8.75% on August 31, 1995 and 7.75% on August 31, 1994. The revolving line of credit expires in March 1997. 5. INCOME TAXES Income tax expense for the years ended August 31 consisted of the following:
(Dollars in thousands) 1995 1994 1993 ---- ---- ---- Current: Federal $ 1,106 $ 730 $ 1,359 State 104 47 270 ------- ----- ------ Current tax expense 1,210 777 1,629 ------- ----- ------ Benefit arising from utilization of net operating loss carryforwards -- -- (170) ------ ----- ------ Income tax expense $1,210 $ 777 $1,459 ====== ===== ======
The components of the deferred tax assets and liability at August 31, 1995 and 1994 are as follows:
(Dollars in thousands) 1995 1994 --------- --------- Deferred tax assets: Allowance for doubtful accounts $ 99 $ 95 Inventories 274 282 Accrued liabilities 101 94
Other 72 69 ----- ----- 546 540 Valuation allowance (274) (282) ----- ----- $272 $258 ===== ===== Deferred tax liability: Depreciation $(272) $(258) ====== ======
Management has retained the valuation allowance for the deferred tax asset related to the reserve established for excess or obsolete inventories due to uncertainty as to the timing of disposition of such inventories. The Company adopted FAS109 in fiscal 1992 and has had no effect on the Company's financial position, results of operations or cash flow. A reconciliation of the statutory federal income tax rate to the Company's effective tax rate for the years ended August 31 is as follows:
1995 1994 1993 ---- ---- ---- Federal statutory tax rate 34.0% 34.0% 34.0% State income tax rate (net of federal tax effect) 3.2 3.0 4.9 Effect of net operating loss carryforwards (2.4) ------ ----- ----- Effective tax rate 37.2% 37.0% 36.5% ===== ===== =====
6. STOCK BENEFIT PLANS 1989 PLAN. Under the Company's 1989 Omnibus Stock Compensation Plan (the "1989 Plan"), a maximum of 1,200,000 shares of common stock may be issued in connection with awards that may be granted under the Plan, including qualified and nonqualified stock options, stock purchase rights and other stock-based awards. Stock options granted become exercisable in varying increments and generally expire five years after the date of grant. The exercise price for options granted is equal to the market value of the common stock on the date of grant. Under the 1989 Plan, substantially all regular full-time employees are given the opportunity to designate up to 10% of their annual compensation to be withheld, through payroll deductions, for the purchase of common stock at 85% of the lower of (i) the market price at the beginning of the plan year or (ii) the market price at the end of the plan year. During fiscal 1995, 1994, and 1993, 22,077, 12,235, and 21,850 shares at prices of $3.95, $4.74, and $2.38, respectively, were purchased under the 1989 Plan. DIRECTORS' OPTIONS. In fiscal 1990, the Company granted to its directors (including officers who were also directors) options to purchase, in the aggregate, 227,500 shares of common stock at an average price of $1.34 per share. Options to purchase 20,000 shares at an average price of $1.34 per share and 187,500 shares at $1.33 per share were exercised in fiscal 1994 and 1993, respectively. DIRECTORS' PLAN. In fiscal 1992, the shareholders approved adoption of a stock option plan for the non-employee directors. The plan, under which 400,000 shares are authorized for issuance, provides for an annual grant of 10,000 shares to each non-employee director. These grants are effective on the first business day following the annual shareholders' meeting at an exercise price equal to the fair market value on the date of grant. The options become exercisable one year after the grant date and expire five years after the grant date. Options to purchase 40,000 shares were granted each year to the four non-employee directors at $4.71 per share, $5.425 per share and $6.60 per share in 1995, 1994 and 1993, respectively. Options to purchase 30,000 shares were exercised in 1993 under the Directors' Plan at $1.525 per share. WARRANTS. In connection with the shareholder rights offering in fiscal 1991, the Company issued to the underwriter warrants to purchase 103,275 shares at $.60 per share exercisable for a four-year period commencing April 22, 1992. These warrants were exercised in fiscal 1993. SUMMARY OF ACTIVITY. The following is a summary of all activity involving options and warrants for the years ended August 31:
1995 1994 1993 ---- ---- ---- Outstanding, beginning of year 398,500 346,100 741,375 Granted 377,500 92,500 40,000 Exercised (84,000) (39,850) (434,275) Cancelled (250) ( 1,000) ------- ------- ------- Outstanding, end of year 692,000 398,500 346,100 ======== ======== ======== Exercisable, end of year 308,500 212,500 64,500 Available for grant 350,560 750,137 854,622
Exercise price of options $ .725- $.725- $.725- and warrants outstanding $ 6.60 $6.60 $6.60
RIGHTS PLAN. On May 27, 1988, the Company's Board of Directors authorized a shareholder rights plan which provides for a dividend distribution of one right for each share of common stock to shareholders of record at the close of business on June 10, 1988. With certain exceptions, the rights will become exercisable only in the event that an acquiring party accumulates 20% or more of the Company's voting stock or a party announces an offer to acquire 30% or more of the voting stock. The rights will expire on June 10, 1998, if not previously redeemed or exercised. Each right will entitle the holder to purchase one-fourth of one common share at a price of $6.00 per share, subject to adjustment under certain circumstances. In addition, upon the occurrence of certain events, holders of the rights will be entitled to purchase a defined number of shares of an acquiring entity or the Company's common stock at half its then current market value. The Company will generally be entitled to redeem the rights at $.05 per right at any time until the tenth day following the acquisition of 20% or more, or an offer to acquire 30% or more, of the Company's voting stock. 7. EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan covering all eligible employees. Employees can make voluntary contributions to the plan of up to 20% of their compensation, not to exceed the maximum specified by the Internal Revenue Code. The plan also provides for a discretionary contribution by the Company. During fiscal years 1995, 1994 and 1993, the Company contributed $75,000, $65,000 and $49,000, respectively, to the plan. 8. RENT EXPENSE Total rent expense under noncancelable operating leases was approximately $57,000 in 1995, $62,000 in 1994, and $69,000 in 1993. Future minimum rental payments under these noncancelable operating leases are not significant. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of HEI, Inc.: We have audited the accompanying balance sheet of HEI, Inc. as of August 31, 1995 and 1994, and the related statements of operations, changes in shareholders' equity, and cash flows for the years ended August 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HEI, Inc. as of August 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended August 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. Minneapolis, Minnesota September 29, 1995 Corporate Information BOARD OF DIRECTORS Robert L. Brueck Consultant Eugene W. Courtney President and Chief Executive Officer HEI, Inc. William R. Franta Vice President Network Systems Corporation Kenneth A. Schoen Executive Vice President (ret.) 3M Company Frederick M. Zimmerman Chair of Manufacturing Systems Engineering Department University of St. Thomas CORPORATE OFFICERS AND MANAGEMENT Eugene W. Courtney President and Chief Executive Officer Jerald H. Mortenson Vice President of Finance and Administration, Chief Financial Officer and Treasurer Dale A. Nordquist Vice President of Sales Thomas G. Easter Director of Manufacturing Scott J. Kazle Director of Engineering Wray A. Wentworth Director of Corporate Quality GENERAL COUNSEL Moss & Barnett Minneapolis, Minnesota INDEPENDENT AUDITORS Coopers & Lybrand L.L.P. Minneapolis, Minnesota STOCK TRANSFER AGENT AND REGISTRAR Norwest Bank Minnesota, N. A. Box 738 161 North Concord Exchange South St. Paul, Minnesota 55075-0738 CORPORATE HEADQUARTERS HEI, Inc. Box 5000 1495 Steiger Lake Lane Victoria, Minnesota 55386-5000 (612) 443-2500 FORM 10-KSB A copy of the Company's Annual Report to the Securities and Exchange Commission on Form 10-KSB is available without charge by sending a written or oral request to: Shareholder Relations HEI, Inc. P.O. Box 5000 Victoria, Minnesota 55386 Phone (612) 443-2500 Facsimile (612) 443-2668 ANNUAL MEETING OF SHAREHOLDERS The Company's annual meeting of shareholders will be held on January 17, 1996 at 3:00 P.M. at The Planets (50th floor), IDS Center, 80 South Eighth Street, Minneapolis, Minnesota. MARKET PRICE AND RELATED MATTERS The Company's common stock is currently traded on The Nasdaq National Market under the symbol HEII. Below are the high and low closing bid prices for each quarter of fiscal year 1995 and 1994, as reported on The Nasdaq. These quotations represent prices between dealers, do not include retail markups, markdowns or commissions, and may not represent actual transactions.
1995 HIGH LOW First Quarter $6 $4 1/4 Second Quarter $5 1/2 $4 1/8 Third Quarter $5 1/2 $4 3/8 Fourth Quarter $6 3/8 $4 1/4
1994 HIGH LOW First Quarter $6 3/8 $4 3/8 Second Quarter 6 4 1/4 Third Quarter 6 4 1/2 Fourth Quarter 6 4 1/2
As of August 31, 1995, the Company had approximately 3,300 shareholders of which approximately 800 are shareholders of record. The Company does not declare cash dividends. STATEMENT OF FINANCIAL RESPONSIBILITY The accompanying financial statements, including the notes thereto, and other financial information presented in this Annual Report, were prepared by management, which is responsible for their integrity and objectivity. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based upon management's best estimates and judgments. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that the Company's assets are protected and that transactions are executed in accordance with established authorizations and are recorded properly. The reasonable assurance concept is based on recognition that the cost of a system of internal accounting controls should not exceed the benefit derived. The Audit Committee of the Board of Directors is responsible for recommending the independent accounting firm to be retained for the coming year. The Audit Committee meets periodically and privately with the independent public accountants, as well as with management, to review accounting, auditing, and financial reporting matters. The Company's independent certified public accountants, Coopers & Lybrand L.L.P., are engaged to audit the financial statements of the Company and to issue their report thereon. Their audit has been performed in accordance with generally accepted auditing standards. EX-23 4 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of HEI, Inc. on Forms S-8 (File Nos. 33-33322, 33-46928 and 33-46929) of our report dated September 29, 1995, on our audits of the financial statements of HEI, Inc. as of August 31, 1995 and 1994, and for the years ended August 31, 1995, 1994 and 1993, which report is incorporated by reference in its Annual Report on Form 10-KSB for the year ended August 31, 1995. COOPERS & LYBRAND L.L.P. Minneapolis, Minnesota November 20, 1995 EX-27 5 EXHIBIT 27
5 1,000 12-MOS AUG-31-1995 SEP-01-1994 AUG-31-1995 1,438 0 2,525 0 1,851 9,983 7,057 4,183 12,857 1,603 0 190 0 0 10,792 12,857 23,423 23,423 17,263 17,263 2,910 0 0 3,250 1,210 2,040 0 0 0 2,040 .52 .52
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