-----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, JsGcD4EMt3czW7uOeukFRNQvYcD1ljEbHMyjQ0uWvCRVHFYLlwVYOenzAJmCYMHO mO5eANsR8oPyVda8s0dbgA== 0000912057-97-021435.txt : 19970623 0000912057-97-021435.hdr.sgml : 19970623 ACCESSION NUMBER: 0000912057-97-021435 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970620 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-10078 FILM NUMBER: 97627212 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 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 **** FORM 10-QSB **** [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended May 31, 1997. [ ] 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.) 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. 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 . -- --- As of June 18, 1997, 4,207,476 Common Shares (par value $.05) were outstanding. This Form 10-QSB consists of 11 pages. 2 Table of Contents HEI, Inc. - ----------------------------------------------------------- Part I - Financial Information Item 1. Financial Statements Balance Sheet . . . . . . . . . . .. . . . . . . . . . . . . . . 3 Statement of Operations . . . . . . . . . . . . . . . . . . . . 4 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . 5 Notes to Financial Statements . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 PART 1. FINANCIAL INFORMATION 3 ITEM 1. FINANCIAL STATEMENTS HEI, INC. BALANCE SHEET - ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------- MAY 31, 1997 August 31, 1996 - ----------------------------------------------------------------------------------------------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $4,578 $1,186 Short-term investments 6,850 5,488 - ----------------------------------------------------------------------------------------------------- 11,428 6,674 Accounts receivable, net 3,121 4,039 Inventories 2,642 1,561 Other, principally deferred tax assets 1,113 764 - ----------------------------------------------------------------------------------------------------- Total current assets 18,304 13,038 - ----------------------------------------------------------------------------------------------------- Property and equipment: Land 216 216 Building and improvements 3,790 3,767 Fixtures and equipment 8,981 7,667 Accumulated depreciation (5,807) (4,868) - ----------------------------------------------------------------------------------------------------- Net property and equipment: 7,180 6,782 - ----------------------------------------------------------------------------------------------------- Restricted cash 583 2,455 Deferred financing costs 139 139 - ----------------------------------------------------------------------------------------------------- Total assets $26,206 $22,414 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $620 $354 Accounts payable 2,199 673 Accrued liabilities 1,380 1,354 Income taxes payable 105 569 - ----------------------------------------------------------------------------------------------------- Total current liabilities 4,304 2,950 - ----------------------------------------------------------------------------------------------------- Long-term debt 4,566 5,271 Deferred tax liability 405 377 - ----------------------------------------------------------------------------------------------------- Shareholders' equity: Undesignated stock; 5,000,000 shares authorized; none issued Common stock, $.05 par; 10,000,000 shares authorized; 4,207,476 and 4,030,427 shares issued and outstanding 210 202 Paid-in capital 7,859 6,892 Retained earnings 8,862 6,722 - ----------------------------------------------------------------------------------------------------- Total shareholders' equity 16,931 13,816 - ----------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $26,206 $22,414 - -----------------------------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements. 4 HEI, INC. STATEMENT OF OPERATIONS (UNAUDITED) - ----------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended MAY 31, 1997 June 1, 1996 MAY 31, 1997 June 1, 1996 - ----------------------------------------------------------------------------------------------------- Net sales $9,067 $4,656 $24,522 $14,283 Cost of sales 7,539 3,563 18,982 10,885 - ----------------------------------------------------------------------------------------------------- Gross profit 1,528 1,093 5,540 3,398 - ----------------------------------------------------------------------------------------------------- Operating expenses: Selling, general and administrative 579 578 1,780 1,736 Research, development and engineering 205 231 644 629 - ----------------------------------------------------------------------------------------------------- Operating income 744 284 3,116 1,033 - ----------------------------------------------------------------------------------------------------- Other income, net 79 58 230 211 - ----------------------------------------------------------------------------------------------------- Income before income taxes 823 342 3,346 1,244 Income taxes 284 124 1,206 460 - ----------------------------------------------------------------------------------------------------- Net income $539 $218 $2,140 $784 - ----------------------------------------------------------------------------------------------------- Net income per common share $0.13 $0.05 $0.50 $0.19 - ----------------------------------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 4,275,244 4,149,099 4,308,446 4,073,187 - -----------------------------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements. 5 HEI, INC. STATEMENT OF CASH FLOWS (UNAUDITED) - ----------------------------------- (DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------- Nine Months Ended MAY 31, 1997 June 1, 1996 - ----------------------------------------------------------------------------------------------------- Cash flow provided by operating activities: Net income $2,140 $784 Depreciation and amortization 1,100 620 Allowance for doubtful accounts and inventories 137 (6) Deferred income taxes (17) - Changes in current operating items: Accounts receivable 905 528 Inventories (1,205) (560) Other current assets (304) (39) Accounts payable 1,726 99 Accrued liabilities 26 155 Income taxes payable (464) (52) - ----------------------------------------------------------------------------------------------------- Net cash flow provided by operating activities 4,044 1,529 - ----------------------------------------------------------------------------------------------------- Cash flow used for investing activities: Purchases of short-term investments (6,437) (4,313) Maturities of short-term investments 5,075 3,160 Additions to property and equipment (1,709) (3,556) Proceeds from sale of property and equipment 65 - Decrease (Increase) in restricted cash 1,872 (3,211) Increase in deferred financing fees (54) (102) - ----------------------------------------------------------------------------------------------------- Net cash flow used for investing activities (1,188) (8,022) - ----------------------------------------------------------------------------------------------------- Cash flow provided by financing activities: Proceeds from long-term debt - 5,625 Repayment of long-term debt (439) - Issuance of common stock 808 648 Tax benefit of nonqualified stock options 167 - - ----------------------------------------------------------------------------------------------------- Net cash flow provided by financing activities 536 6,273 - ----------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 3,392 (220) Cash and cash equivalents, beginning of period 1,186 1,438 - ----------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $4,578 $1,218 - -----------------------------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements. 6 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) HEI, INC. - -------------------------------------------------------------------------- (1) BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited 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. 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 were derived from audited financial statements, but do 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, 1996. Interim results of operations for the three and nine month periods ended May 31, 1997 may not necessarily be indicative of the results to be expected for the full year. 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: (Dollars in thousands) May 31, 1997 August 31, 1996 ------------ --------------- (unaudited) Purchased parts $2,079 $1,394 Work in process 1,151 697 Finished goods 248 182 Allowance for excess or obsolete stock (836) (712) ----- ----- $2,642 $1,561 ------ ------ ------ ------ (3) 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, when dilutive. In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS No. 128), Earnings per Share (EPS) was issued by the Financial Accounting Standards Board. This standard, which the Company must adopt effective with its second quarter of fiscal 1998, requires dual presentation of basic and diluted EPS on the face of the statement of operations. Net income per common share currently presented by the Company is comparable to the diluted EPS required under SFAS No. 128. Basic EPS for the Company would be calculated based on only weighted average common shares outstanding without considering the dilutive effects of common stock equivalents. 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 provided by operating activities was $4,044,000 for the nine months ended May 31, 1997. This primarily included net income of $2,140,000, non-cash depreciation and amortization of $1,100,000, and a net change of $684,000 in current operating items for the first nine months of fiscal 1997. The current operating item change included decreased accounts receivable of $905,000 and increased accounts payable of $1,726,000, partially offset by increased inventories of $1,205,000 and decreased income taxes payable of $464,000. The inventory increase is primarily due to increased purchased parts resulting from decreased utilization of customer supplied material. Accounts receivable average days outstanding were 34 days as of May 31, 1997 compared to 44 days for the same period a year ago. Annualized inventory turns were 10.9 for the third quarter of fiscal 1997 compared to 5.6 turns 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 has been used for the construction of the new addition to the Company's manufacturing facility, and the remainder will be or has been 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, 2006. 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 May 31, 1997 and August 31, 1996 was 4.57% and 3.95%, respectively. 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, debt to tangible net worth, cash flow and indebtedness. The bonds are collateralized by two irrevocable letters of credit and essentially all of the Company's property and equipment. Restricted cash on the balance sheet represents cash advanced under the bonds which is held by the bond trustee in an interest bearing account and will be released to the Company over the next three years for equipment purchases. To the extent such funds are not expended, they will revert back to the bond holders. The Company has a $3,000,000 revolving line of credit which expires in April 1998. Borrowings under this agreement would be collateralized by accounts receivable. The agreement requires compliance with certain financial covenants and restricts obtaining other borrowings. Interest on the revolving line of credit is, at the Company's option, based on the lender's prime rate of interest or 2% above the lender's LIBOR rate. As of May 31, 1997, there were no borrowings under the revolving line of credit. Capital equipment expenditures for the nine months ended May 31, 1997 were $1,709,000, primarily for production equipment. During fiscal 1997, the Company intends to expend approximately $2.2 million for capital equipment to increase manufacturing capacity to meet anticipated requirements for continued revenue growth. It is expected that these expenditures will be funded from multiple sources including the restricted cash available from the Industrial Development Revenue Bonds discussed above. 8 REVIEW OF OPERATIONS NET SALES 1997 VS. 1996: HEI, Inc.'s net sales for the three and nine month periods ended May 31, 1997 increased 95% and 72%, respectively, compared to the same periods a year ago. Microelectronic sales increased 117% from the same three month period last year as a result of increased shipments in the high density disk drive business primarily due to one customer program. Shipments to this customer reached 67% of total Company sales for the third quarter of this fiscal year and represent 58% of total sales for the nine month period. The increase in microelectronic sales was partially offset by the reduction in revenue due to the sale of the light pen product line in August 1996. Because the Company's sales to the computer disk drive market 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. On April 7, 1997 the Company announced that it had received notice from its largest current customer to begin phasing out production of a microelectronic assembly used in high density disk drives. Phase out of this program commenced late in the third quarter of this year and will be complete by the end of the fourth quarter. The phase out is expected to result in significantly decreased revenues and operating income relative to the past two quarters of this year beginning the fourth quarter of fiscal 1997 and continuing through at least the first quarter of fiscal 1998 until equivalent replacement business is secured. GROSS PROFIT 1997 VS. 1996: For the three month and nine month periods ended May 31, 1997, gross profit increased $435,000 and $2,142,000, respectively, from the same periods last year. The gross profit rate for the nine months ended May 31, 1997 decreased to 23% from 24% last year. The gross profit rate for the third quarter of fiscal 1997 was 17% versus 23% for the comparable period last year as a result of volume pricing with lower gross margin rates for sales on a high density disk drive program. The gross margin rates for the remainder of this year are likely to be reduced from the third quarter as a result of the expected phase out of the disk drive program. OPERATING EXPENSES 1997 VS. 1996: Operating expenses for the third quarter ended May 31, 1997 decreased 3% from last year's comparable period due to the sale of the light pen product line. Operating expenses for the nine months ended May 31, 1997 increased 2% from last year's comparable period due to increased product development and support expenses partially offset by the sale of the light pen product line. Operating expenses were 9% and 10% of net sales compared to 17% for the three and nine month periods of last year. The decrease in the percentage of net sales is primarily due to the effect of spreading fixed costs over a higher volume of sales. 9 INCOME TAXES 1997 VS. 1996: The Company records income tax expense for interim periods based on the expected effective rate for the full year. The expected effective income tax rate for fiscal 1997 is approximately 36% compared to the full year fiscal 1996 effective rate of 25.4%. The 1996 rate benefited from elimination of a deferred tax asset valuation allowance. Income tax expense was $284,000 and $1,206,000 for the three and nine month periods ended May 31, 1997 compared to $124,000 and $460,000 for the same periods a year ago. NET INCOME 1997 VS. 1996: The Company had net income of $539,000 and $2,140,000 for the three and nine month periods ended May 31, 1997 compared to $218,000 and $784,000 for the same periods a year ago. The increase in net income principally was the result of increased sales partially offset by lower gross profit rates in the second and third quarters. FORWARD-LOOKING STATEMENTS THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS CONTAIN INFORMATION REGARDING TECHNOLOGY, MARKETS, GROWTH AND EARNINGS EXPECTATIONS BASED ON THE COMPANY'S CURRENT ASSUMPTIONS INVOLVING 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 5. OTHER INFORMATION On April 25, 1997, the Company reported that its Board of Directors authorized the repurchase of up to 250,000 of its common shares. The repurchases are to be made from time to time, based upon market conditions at the discretion of management. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 27-Financial Data Schedule b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended May 31, 1997. 11 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: 06/18/97 /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-FINANCIAL DATA SCHEDULE
5 1,000 9-MOS AUG-31-1997 SEP-01-1996 MAY-31-1997 4,578 0 3,121 0 2,642 18,304 12,987 5,807 26,206 4,304 4,566 0 0 210 16,721 26,206 24,522 24,522 18,982 18,982 2,019 10 165 3,346 1,206 2,140 0 0 0 2,140 .50 .50
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