-----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, QdmgXeijGSigDO3cAq6yNCP0TWCFV6wxLsdrt6icDerWZelNq7r6makgCIkNQ+mh XHFtSj0I6M+snKxOn8eqGw== 0000912057-00-001461.txt : 20000202 0000912057-00-001461.hdr.sgml : 20000202 ACCESSION NUMBER: 0000912057-00-001461 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991204 FILED AS OF DATE: 20000118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEI INC CENTRAL INDEX KEY: 0000351298 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 410944876 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-10078 FILM NUMBER: 508346 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 10QSB 1 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 **** FORM 10-QSB **** [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 4, 1999. [ ] Transition report pursuant to 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. --------------------------- (Exact name of Small Business Issuer in Its Charter) Minnesota 41-0944876 - --------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of 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 ----------------- None ---- Former name, former address and former fiscal year, if changed since last report. Check 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 ___. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: as of January 18, 2000, 4,101,965 shares of common stock, par value $.05. Transitional Small Business Disclosure Format (Check one): Yes ___ No _X_. This Form 10-QSB consists of 10 pages. 2
Table of Contents HEI, Inc. - ------------------------------------------------------------------------------- Part I - Financial Information Item 1. Consolidated Financial Statements Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements (Unaudited). . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 7-9 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . ... . . . 10 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART 1. FINANCIAL INFORMATION 3 ITEM 1. FINANCIAL STATEMENTS HEI, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) - --------------------------------------- (Dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------- DECEMBER 4, 1999 August 31, 1999 - ------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $840 $1,217 Short-term investments 896 3,744 Restricted cash 273 295 - ------------------------------------------------------------------------------------------------------ 2,009 5,256 Accounts receivable, net 3,948 2,862 Inventories 2,386 1,861 Income taxes receivable 87 109 Other current assets 769 753 - ------------------------------------------------------------------------------------------------------ Total current assets 9,199 10,841 - ------------------------------------------------------------------------------------------------------ Property and equipment: Land 216 216 Building and improvements 4,000 3,953 Fixtures and equipment 14,236 12,409 Accumulated depreciation (8,408) (8,238) - ------------------------------------------------------------------------------------------------------ Net property and equipment 10,044 8,340 - ------------------------------------------------------------------------------------------------------ Restricted cash 21 83 Investment in MSC 1,444 1,468 Other long-term assets 201 221 - ------------------------------------------------------------------------------------------------------ Total assets $20,909 $20,953 - ------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving line of credit $1,025 $0 Current maturities of long-term debt 700 700 Accounts payable 1,187 1,348 Accrued employee related costs 809 906 Accrued liabilities 312 379 - ------------------------------------------------------------------------------------------------------ Total current liabilities 4,033 3,333 - ------------------------------------------------------------------------------------------------------ Long-term liabilities, less current maturities 3,155 3,218 Deferred tax liability 15 246 - ------------------------------------------------------------------------------------------------------ Shareholders' equity: Undesignated stock; 5,000,000 shares authorized; none issued Common stock, $.05 par; 10,000,000 shares authorized; 4,101,965 and 4,095,195 shares issued and outstanding 205 205 Paid-in capital 7,529 7,529 Retained earnings 5,972 6,422 - ------------------------------------------------------------------------------------------------------ Total shareholders' equity 13,706 14,156 - ------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $20,909 $20,953 - ------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 4 HEI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------ Three Months Ended DEC. 4, 1999 Nov. 28, 1998 - ------------------------------------------------------------------------------------------------------ Net sales $6,782 $6,135 Cost of sales 5,958 4,835 - ------------------------------------------------------------------------------------------------------ Gross profit 824 1,300 - ------------------------------------------------------------------------------------------------------ Operating expenses: Selling, general and administrative 1,045 754 Research, development and engineering 433 276 Severance costs - 490 - ------------------------------------------------------------------------------------------------------ Operating loss (654) (220) - ------------------------------------------------------------------------------------------------------ Other income (expense), net (28) 62 - ------------------------------------------------------------------------------------------------------ Loss before income taxes (682) (158) Income tax benefit (232) (56) - ------------------------------------------------------------------------------------------------------ Net loss ($450) ($102) - ------------------------------------------------------------------------------------------------------ Net loss per common share Basic ($0.11) ($0.02) Diluted ($0.11) ($0.02) - ------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding Basic 4,102 4,095 Diluted 4,102 4,095 - ------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 5 HEI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------- (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------- Three Months Ended DECEMBER 4, 1999 November 28, 1998 - --------------------------------------------------------------------------------------------------------- Cash flow provided by (used for) operating activities: Net loss ($450) ($102) Equity in loss from MSC investment 24 - Depreciation 432 341 Amortization 20 15 Accounts receivable allowance - - Deferred income tax expense (benefit) (265) 12 Changes in current operating items: Accounts receivable (1,086) 619 Inventories (525) (347) Income taxes 22 (68) Other current assets 18 281 Accounts payable (161) (590) Accrued employee related costs and accrued liabilities (164) (153) - --------------------------------------------------------------------------------------------------------- Net cash flow provided by (used for) operating activities (2,135) 8 - --------------------------------------------------------------------------------------------------------- Cash flow provided by investing activities: Purchases of investments - (670) Maturities of investments 2,848 2,112 Additions to property and equipment (2,136) (166) Proceeds on sales of product lines - 18 Decrease (increase) in restricted cash 84 (493) - --------------------------------------------------------------------------------------------------------- Net cash flow provided by investing activities 796 801 - --------------------------------------------------------------------------------------------------------- Cash flow provided by financing activities: Repayment of long-term debt (63) - Borrowings on revolving line of credit 1,025 - Issuance of long-term debt - 271 - --------------------------------------------------------------------------------------------------------- Net cash flow provided by financing activities 962 271 - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (377) 1,080 Cash and cash equivalents, beginning of period 1,217 297 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $840 $1,377 - --------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: - --------------------------------------------------------------------------------------------------------- Interest paid $38 $43 Income taxes paid 11 - - ---------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) HEI, INC. - ------------------------------------------------------------------------------- (1) Basis of Financial Statement Presentation - --------------------------------------------- The unaudited consolidated financial statements have been prepared by the Company, under the rules and regulations of the Securities and Exchange Commission. The accompanying financial statements contain all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted under such rules and regulations although the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report to Shareholders on Form 10-KSB for the year ended August 31, 1999. Interim results of operations for the three month period ended December 4, 1999 may not necessarily be indicative of the results to be expected for the full year. The Company is currently in the process of determining the impact of Statement of Financial Accounting Standards No. 133 (SFAS No. 133) "Accounting for Derivative Instruments and Hedging Activities." The Company's quarterly periods end on the last Saturday of each quarter of its fiscal year ending August 31. (2) 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 in valuing inventories. Inventories consist of the following:
(In thousands) December 4, 1999 August 31, 1999 ---------------- --------------- Purchased parts $1,834 $989 Work in process 387 755 Finished goods 165 117 ------ ------ $2,386 $1,861 ====== ======
(3) Net Loss Per Weighted Average Common Share - ----------------------------------------------- Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding assuming the exercise of dilutive stock options. The dilutive effect of the stock options is computed using the average market price of the Company's stock during each period under the treasury stock method. In periods where losses have occurred, options are considered anti-dilutive and thus have not been included in the diluted loss per share calculations. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HEI, INC. ---------------------------------------------------------------------- FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES The Company's net cash flow used for operating activities was $2,135,000 for the three months ended December 4, 1999. This included a net loss of $450,000, non-cash depreciation and amortization of $452,000, equity in loss from MSC investment of $24,000, increase in deferred income taxes of $265,000 and a net increase of $1,896,000 in current operating items for the first three months of fiscal 2000. The current operating item increase included increased accounts receivable of $1,086,000 due to increased sales in the three month period ended December 4, 1999 as compared to the three month period ended August 31, 1999. The current operating item increase also included an increase in inventories of $525,000 mainly due an expected increase in shipments. Accounts receivable average days outstanding were 45 days as of December 4, 1999 compared to 41 days for the same period a year. Inventory turns were 8.4 for the first three months of fiscal 2000 compared to 9.7 for the same period a year ago. In April 1996, the Company received proceeds of $5,625,000 from the issuance of Industrial Development Revenue Bonds. Of these funds, approximately $1,500,000 was used for the construction of the new addition to the Company's manufacturing facility and the remainder was used for equipment purchases. The bonds related to the facility expansion require annual principal payments of $90,000 in the first year and $95,000 on April 1 of each year thereafter through 2011. The bonds related to the purchased equipment require payments over seven years from the date of purchase of the equipment through no later than April 1, 2005. In April 1999 and 1998, the Company repaid $700,000 and $650,000 of the construction and equipment bonds and in April 2000, another $700,000 is expected to be repaid. The Company has a limited market risk in terms of the variability of the interest rate on these bonds. The bonds bear interest at a rate which varies weekly, based on comparable tax exempt issues, and is limited to a maximum rate of 10%. The interest rate at December 4, 1999 and August 31, 1999 was 4.15% and 3.70%, respectively. The bonds are collateralized by two irrevocable letters of credit and essentially all of the Company's property and equipment. The letter of credit reimbursement agreement contains certain restrictive covenants including limitations on other borrowings and maintenance of specified financial levels and ratios for net income, tangible net worth, debt to tangible net worth, cash flow and indebtedness. Restricted cash on the balance sheet represents an investment pledged as payment on a severance agreement and is held in a separate account and will be released to the Company's regular accounts over the next year as the obligation is paid. The Company has a $5,000,000 revolving line of credit which expires in April 2000. At December 4, 1999, the Company had borrowed $1,025,000 under this revolving line of credit. This borrowing is collateralized by the Company's accounts receivable. The agreement requires compliance with certain financial covenants and restricts obtaining other borrowings. Interest on the revolving line of credit is based, at the Company's option, on the lender's prime rate of interest or 2% above the lender's LIBOR rate. Capital equipment expenditures for the three months ended December 4, 1999 were $2,136,000, primarily for production equipment in for the Company's new facilities in Tempe, Arizona and Mexico as well as investments in a new Enterprise Resource Planning applications software system. 8 During fiscal 2000, the Company intends to expend approximately $5.4 million for manufacturing and facility improvements and capital equipment as well as a new enterprise resource planning application software system to support its internal operations. These additions will increase manufacturing capacity to meet anticipated requirements including additional equipment for the Company's new facilities in Mexico and Tempe, Arizona. It is expected that these expenditures will be funded primarily from operations and external financing. REVIEW OF OPERATIONS NET SALES FISCAL 2000 VS. 1999: HEI, Inc.'s net sales for the three months ended December 4, 1999 increased 11%, compared to the same period a year ago reflecting an increase in sales to the hearing aid and industrial markets. Because the Company's sales are generally tied to the customers' projected sales and production of the related product, the Company's sales levels are subject to fluctuations outside 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 sales. 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. GROSS PROFIT FISCAL 2000 VS. 1999: For the three months ended December 4, 1999, gross profit decreased $476,000 from last year, and the gross profit margin decreased to 12% from 21% last year. The decreased gross profit rate primarily reflects the impact of manufacturing related startup costs for the Company's Tempe facility and unabsorbed fixed manufacturing costs for the Mexico facility which is not yet operating at full capacity. OPERATING EXPENSES FISCAL 2000 VS. 1999: Operating expenses for the three month period ended December 4, 1999 increased from last year's comparable period. The increase in sales, general and administrative expenses of $291,000 was due to increased selling expenses and ramp up costs for the High Density Interconnect operations in Tempe, Arizona which are expensed as incurred. The increase in research, development and engineering expenses of $157,000 was primarily due to increased development costs to support future business opportunities. Operating expenses in total were 22% of net sales compared to 25% for the first quarter of last year. The decrease in the percentage to net sales is primarily due to severance costs incurred during the first quarter of fiscal year 1999. INCOME TAX BENEFIT FISCAL 2000 VS. 1999: The Company records income tax expense (benefit) for interim periods based on the expected effective rate for the full year. The expected effective income tax rate for fiscal 2000 is approximately 34%. Income tax benefit for the first quarter of fiscal 2000 was $232,000 as compared to income tax benefit of $56,000 for the same period a year ago. 9 NET LOSS FISCAL 2000 VS. 1999: The Company had a net loss of $450,000 for the first quarter of fiscal 2000 compared to a net loss of $102,000 for the same period a year ago. The net loss for the current quarter was primarily due to higher manufacturing, selling, general and administrative and research, development and engineering expenses. The net loss for the first quarter of fiscal 1999 was principally the result of severance costs. IMPACT OF YEAR 2000: The Company has devoted significant resources to minimize the risk of potential disruption from year 2000 issues related to computers or other equipment with date-sensitive software and embedded chip systems. If we, or our significant customers, suppliers or other third parties fail to correct year 2000 issues during the year 2000 transition period, our ability to operate our business could be adversely affected. However, based on our assessment of operations through January 17, 2000, we have not experienced any significant year 2000 issues. The Company assessed, inventoried and classified year 2000 issues on all of our information systems infrastructure and non-technical assets (e.g., plant production equipment). Information systems that were year 2000 deficient were modified, upgraded or replaced and tested for compliance. All non-computer assets (including production equipment) were tested for year 2000 compliance. The costs of addressing internal system year 2000 issues totaled approximately $140,000, all of which have been incurred, and which were not material to our financial position, results of operations or cash flows. The Company has surveyed significant customers, suppliers and third parties critical to our business operations to determine their year 2000 compliance. Cross-functional planning teams assessed the associated risks and developed contingency plans. The Company also established backup procedures similar to existing procedures developed for our disaster recovery plan. The Company will continue to modify these plans through the year 2000 transition period as additional information becomes available. FORWARD-LOOKING INFORMATION INFORMATION IN THIS DOCUMENT WHICH IS NOT HISTORICAL INCLUDES FORWARD-LOOKING STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS ARE MADE BASED ON THE COMPANY'S CURRENT ASSUMPTIONS REGARDING TECHNOLOGY, MARKETS, GROWTH AND EARNINGS EXPECTATIONS, AND ALL OF SUCH FORWARD-LOOKING STATEMENTS INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THERE ARE CERTAIN IMPORTANT FACTORS THAT CAN CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION, ADVERSE BUSINESS OR MARKET CONDITIONS, THE ABILITY OF THE COMPANY TO SECURE AND SATISFY CUSTOMERS, THE AVAILABILITY AND COST OF MATERIALS FROM HEI'S SUPPLIERS, ADVERSE COMPETITIVE DEVELOPMENTS, CHANGE IN OR CANCELLATION OF CUSTOMER REQUIREMENTS AND OTHER FACTORS DISCUSSED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS; HEI UNDERTAKES NO OBLIGATION TO UPDATE THESE STATEMENTS TO REFLECT ENSUING EVENTS OR CIRCUMSTANCES, OR SUBSEQUENT ACTUAL RESULTS. 10 PART II - OTHER INFORMATION - ------------------------------------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- a) Exhibits Exhibit 27 Financial Data Schedule b) Reports on Form 8-K There were no Forms 8-K Current Report filed with the Securities and Exchange Commission for the quarter ended December 4, 1999. SIGNATURES - ---------- In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized HEI, Inc. (Registrant) Date: 01/18/00 /s/ Jerald H. Mortenson --------------------- --------------------------------------------- Jerald H. Mortenson Vice President of Finance and Administration, Chief Financial Officer and Treasurer (a duly authorized officer) EX-27 2 EXHIBIT-27
5 1,000 3-MOS AUG-31-2000 SEP-01-1999 DEC-04-1999 840 0 3,948 0 2,386 9,199 18,452 8,408 20,909 4,033 3,135 0 0 205 13,501 20,909 6,782 6,782 5,958 5,958 1,468 0 38 (682) (232) (450) 0 0 0 (450) (.11) (.11)
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