-----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, TceROU+gm4zPwG8SgaTn6Ukjr7CoQtF8+HOgM/2SpX53avc9Y1HC6eipjNfjiF7g mZHGfjv1ZJBKLpqyOhB8VQ== 0001047469-99-013577.txt : 19990406 0001047469-99-013577.hdr.sgml : 19990406 ACCESSION NUMBER: 0001047469-99-013577 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990227 FILED AS OF DATE: 19990405 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: 99587244 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 10-QSB 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 February 27, 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 April 5, 1999, 4,095,195 shares of common stock, par value $.05. Transitional Small Business Disclosure Format (Check one): Yes No X. -- -- This Form 10-QSB consists of 11 pages. 2 Table of Contents HEI, Inc. - -------------------------------------------------------------------------------- Part I - Financial Information Item 1. Financial Statements Balance Sheets .................................... 3 Statements of Operations .......................... 4 Statements 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 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K .................. 10 Signatures ................................................. 11 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HEI, INC. BALANCE SHEETS (UNAUDITED) - -------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------ FEBRUARY 27, 1999 August 31, 1998 - ------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 858 $ 297 Short-term investments 7,501 7,984 Restricted cash 290 -- - ------------------------------------------------------------------------------------ 8,649 8,281 Accounts receivable, net 3,649 3,434 Inventories 2,311 1,538 Income taxes receivable -- 1,176 Other current assets 845 1,176 - ------------------------------------------------------------------------------------ Total current assets 15,454 15,605 - ------------------------------------------------------------------------------------ Property and equipment: Land 216 216 Building and improvements 3,915 3,897 Fixtures and equipment 9,502 9,018 Accumulated depreciation (7,531) (6,859) - ------------------------------------------------------------------------------------ Net property and equipment 6,102 6,272 - ------------------------------------------------------------------------------------ Restricted cash 208 -- Long-term investments -- 186 Deferred financing costs 82 110 - ------------------------------------------------------------------------------------ Total assets $ 21,846 $ 22,173 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 700 $ 700 Accounts payable 997 1,834 Accrued employee related costs 804 612 Accrued liabilities 347 595 Income taxes payable 213 -- - ------------------------------------------------------------------------------------ Total current liabilities 3,061 3,741 - ------------------------------------------------------------------------------------ Long-term liabilites, less current maturities 4,043 3,835 Deferred tax liability 295 256 - ------------------------------------------------------------------------------------ Shareholders' equity: Undesignated stock; 5,000,000 shares authorized; none issued Common stock, $.05 par; 10,000,000 shares authorized; 4,095,195 shares issued and outstanding 205 205 Paid-in capital 7,491 7,491 Retained earnings 6,751 6,645 - ------------------------------------------------------------------------------------ Total shareholders' equity 14,447 14,341 - ------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 21,846 $ 22,173 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements. 4 HEI, INC. STATEMENTS OF OPERATIONS (UNAUDITED) - ------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended FEB. 27, 1999 Feb. 28, 1998 FEB. 27, 1999 Feb. 28, 1998 - ------------------------------------------------------------------------------------------------------ Net sales $7,053 $4,632 $13,188 $8,712 Cost of sales 5,574 3,640 10,409 7,183 - ------------------------------------------------------------------------------------------------------ Gross profit 1,479 992 2,779 1,529 - ------------------------------------------------------------------------------------------------------ Operating expenses: Selling, general and administrative 926 644 1,680 1,279 Research, development and engineering 313 211 589 379 Severance costs -- -- 490 -- - ------------------------------------------------------------------------------------------------------ Operating income (loss) 240 137 20 (129) - ------------------------------------------------------------------------------------------------------ Other income, principally interest income 82 166 144 273 - ------------------------------------------------------------------------------------------------------ Income before income taxes 322 303 164 144 Income taxes 114 99 58 44 - ------------------------------------------------------------------------------------------------------ Net income $208 $204 $106 $100 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Net income per common share Basic $0.05 $0.05 $0.03 $0.02 Diluted $0.05 $0.05 $0.03 $0.02 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding Basic 4,095 4,070 4,095 4,077 Diluted 4,099 4,195 4,095 4,175 - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements. 5 HEI, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------ (IN THOUSANDS)
- -------------------------------------------------------------------------------------------- Six Months Ended FEBRUARY 27,1999 February 28, 1998 - -------------------------------------------------------------------------------------------- Cash flow provided by operating activities: Net income $106 $100 Depreciation 690 685 Amortization 28 32 Accounts receivable and inventory allowances 51 50 Deferred income tax expense (benefit) 2 (119) Changes in current operating items: Accounts receivable (215) (314) Inventories (824) (68) Other current assets 341 103 Accounts payable (837) 145 Accrued employee related costs and accrued liabilities (56) (107) Income taxes 1,389 316 - -------------------------------------------------------------------------------------------- Net cash flow provided by operating activities 675 823 - -------------------------------------------------------------------------------------------- Cash flow used for investing activities: Purchases of investments (6,440) (9,926) Maturities of investments 7,109 7,105 Additions to property and equipment (520) (465) Proceeds from sales of product lines 27 128 Increase in restricted cash (498) (10) - -------------------------------------------------------------------------------------------- Net cash flow used for investing activities (322) (3,168) - -------------------------------------------------------------------------------------------- Cash flow provided by financing activities: Issuance of common stock and other -- 68 Issuance of long-term debt 271 -- Repayment of long-term debt (63) -- Repurchase of common shares -- (186) - -------------------------------------------------------------------------------------------- Net cash flow provided by (used for) financing activities 208 (118) - -------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 561 (2,463) Cash and cash equivalents, beginning of period 297 3,458 - -------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $858 $995 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Interest paid $82 $105 Income taxes paid -- -- - --------------------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements. 6 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) HEI, INC. - -------------------------------------------------------------------------------- (1) BASIS OF FINANCIAL STATEMENT PRESENTATION The unaudited interim 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 in accordance with generally accepted accounting principles. 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 herein 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, 1998. Interim results of operations for the three and six month periods ended February 27, 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) FEBRUARY 27, 1999 August 31, 1998 ----------------- --------------- Purchased parts $1,132 $ 781 Work in process 819 681 Finished goods 360 76 ------ ------ $2,311 $1,538 ------ ------ ------ ------
(3) NET INCOME PER COMMON SHARE Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding assuming the exercise of dilutive stock options. The dilutive effect of stock options is computed using the average market price of the Company's stock during each period under the treasury stock method.
Three Months Ended Six Months Ended (In thousands) Feb. 27, 1999 Feb. 28, 1998 Feb. 27, 1999 Feb. 28, 1998 ------------- ------------- ------------- ------------- Basic Common Shares 4,095 4,070 4,095 4,077 Dilutive Effect of Stock Options 4 125 -- 98 ----- ----- ----- ----- Diluted Common Shares 4,099 4,195 4,095 4,175 ----- ----- ----- ----- ----- ----- ----- -----
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 $675,000 for the six months ended February 27, 1999. This primarily included net income of $106,000, non-cash depreciation and amortization of $718,000, and a net decrease of $202,000 in working capital investments during the first six months of fiscal 1999. The lower working capital investment resulted from increased accounts receivable of $215,000, increased inventories of $824,000 and lower accounts payable of $837,000. This working capital decrease was partially offset by income tax payable and receivable change of $1,389,000, primarily as a result of an income tax refund. The inventory increase is primarily due to increased purchased parts and finished goods in conjunction with meeting customer delivery requirements. Accounts receivable average days outstanding were 43 days as of February 27, 1999 compared to 34 days as of February 28, 1998. Annualized inventory turns were 9.8 for the second quarter of fiscal 1999 compared to 9.1 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 proceeds, approximately $1,500,000 has been used for the construction of the addition to the Company's manufacturing facility in Victoria, Minnesota and the remainder was used for equipment purchases. The bonds relating 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 relating to the purchased equipment require payments over seven years from the date of purchase of the equipment through no later than April 1, 2006. In April 1998 and 1997, the Company repaid $650,000 and $440,000, respectively, of the construction and equipment bonds and in April 1999, another $700,000 is expected to be repaid. The Company has 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 February 27, 1999 and August 31, 1998 was 2.97% and 3.70%, respectively. The bonds are collateralized by two irrevocable letters of credit and essentially all 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, is held in a separate account, and will be released to the Company's regular accounts over the next two years as the obligation is paid. The Company has a $3,000,000 revolving line of credit which expires in April 1999. The Company intends to replace this with another revolving line of credit of at least an equal amount. As of February 27, 1999, there were no borrowings under the revolving line of credit. Any borrowings under this agreement are subject to the extent of and 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 six months ended February 27, 1999 were $520,000, primarily for production equipment. 8 During fiscal 1999, the Company intends to expend approximately $3.0 million for capital equipment to increase manufacturing capacity to meet anticipated requirements for continued revenue growth, including the start up of assembly operations in Mexico. It is expected that these expenditures will be funded primarily from internally generated funds. Some equipment will be financed through operating leases in lieu of capital expenditures. REVIEW OF OPERATIONS NET SALES FISCAL 1999 VS. 1998: HEI, Inc.'s net sales for the three and six month periods ended February 27, 1999 increased 52% and 51%, respectively, compared to the same periods a year ago, reflecting an increase in sales in all major product lines. 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 beyond 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 1999 VS. 1998: For the three month and six month periods ended February 27, 1999, gross profit increased $487,000 and $1,250,000, respectively, from the same periods last year. The gross profit margin for the six months ended February 27, 1999 increased to 21% from 18% last year, which primarily reflects the impact of higher revenues on fixed costs. The gross profit margin for the second quarter of fiscal 1999 remained the same at 21% compared to the same period last year. OPERATING EXPENSES FISCAL 1999 VS. 1998: Operating expenses for the three and six month periods ended February 27, 1999 increased from last year's comparable periods. The increase in selling, general and administrative expenses of $282,000 and $401,000 for the three and six month periods, respectively, was due to higher legal expenses, increased selling expenses and start-up costs related to Mexican operations which are expensed as incurred. The increases in research, development and engineering expenses of $102,000 and $210,000 for the three and six month periods, respectively, were primarily due to increased development costs to support future business opportunities. In addition, during the first quarter the Company incurred $490,000 of costs related to the severance agreement between the Company and Eugene W. Courtney, former Chief Executive Officer. These costs are being paid over a two-year period. Operating expenses in total were 18% and 21% of net sales for the three and six month periods, respectively, compared to 18% and 19% for the same periods last year. INCOME TAXES FISCAL 1999 VS. 1998: 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 1999 is approximately 35% compared to the full year fiscal 1998 effective rate of 31%. Income tax expense was $114,000 and $58,000 for the three and six month periods ended February 27, 1999, respectively, compared to $99,000 and $44,000 for the same periods a year ago. 9 NET INCOME FISCAL 1999 VS. 1998: The Company had net income of $208,000 and $106,000 for the three and six month periods ended February 27, 1999, respectively, compared to $204,000 and $100,000 for the same periods a year ago. The increase in net income was principally the result of increased sales offset by higher operating expenses and the recognition of severance costs in the first quarter of this fiscal year. IMPACT OF YEAR 2000: The Company has considered the impact of Year 2000 on its computer systems and applications and developed a remediation plan. Conversion activities are in process, and we expect conversion and testing to be completed during the third quarter of fiscal 1999. Expenditures to date for the Year 2000 project amounted to approximately $70,000. The Company expects that completion of the project will result in additional expenditures of approximately $40,000. The Company is also assessing the Year 2000 readiness of key material and service providers. The Company believes that with modifications to existing systems and conversions to new systems, the Year 2000 issue will not pose significant operational problems. However, there can be no assurance that all Year 2000 issues will be identified and resolved in a timely manner, particularly those issues involving key material and service providers' and other business affiliates' computer systems outside of the Company's control. If the Company's remediation plan is not successful, or if these outside systems should fail, there could be a significant disruption of the Company's ability to transact business with its customers and suppliers. FORWARD-LOOKING STATEMENTS 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, THE YEAR 2000 ISSUE 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The Company held its Annual Meeting of Shareholders on January 20, 1999. b) The following matters were considered: 1. Election of six Directors, each to serve a one-year term. The vote was as follows for each of the nominees.
Name Affirmative Authority Withheld ---- ----------- ------------------ Eugene W. Courtney 3,649,563 83,794 Anthony J. Fant 3,606,874 126,483 Mack V. Traynor 3,604,838 128,519 David W. Ortlieb 3,602,900 130,457 Edwin W. Finch, III 3,602,679 130,678 Steve E. Tondera, Jr. 3,600,488 132,869
2. Approval of 1998 Stock Option Plan. Voting on approval of the 1998 Stock Option Plan was as follows: 2,252,167 shares in favor, 243,612 opposed, 29,565 abstentions, and 1,208,013 broker non-votes. 3. Approval of 1998 Stock Option Plan for Non-employee Directors. Voting on approval of the 1998 Stock Option Plan for Non-employee Directors was as follows: 2,195,033 shares in favor, 205,564 opposed, 124,747 abstentions and 1,208,013 broker non-votes. 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 February 27, 1999. 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: 04/05/99 /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 (FDS)
5 1,000 6-MOS AUG-31-1999 SEP-01-1998 FEB-27-1999 858 0 3,649 0 2,311 15,454 13,633 7,531 21,846 3,061 3,835 0 0 205 14,447 21,846 13,188 13,188 10,409 10,409 2,533 0 82 164 58 106 0 0 0 106 .03 .03
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