SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 1996
Commission file number 0-22924
HILITE INDUSTRIES, INC.
(Exact name of registrant specified in its charter)
DELAWARE 75-2147742
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1671 S. BROADWAY
CARROLLTON, TEXAS 75006
(Address of principal executive offices) (Zip code)
(972) 466-0475
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 November 8, 1996, the Company had 4,900,000 shares of Common Stock
outstanding.
<PAGE>
HILITE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE
Part I FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1996
(Audited) and September 30, 1996 (Unaudited).............3
Consolidated Statements of Income for the Three
Months Ended September 30, 1996 and 1995
(Unaudited)..............................................4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995
(Unaudited)..............................................5
Notes to Interim Consolidated Financial
Statements (Unaudited)...................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................8
Part II. OTHER INFORMATION..................................................10
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<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September June
30, 1996 30, 1996
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ -- $ --
Accounts receivable, less allowance for doubtful accounts of
$96,344 and $91,100 at Sept. 30 and June 30, respectively 11,538,621 11,356,477
Tooling receivables ......................................... 17,000 760,982
Inventories ................................................. 8,595,094 8,845,457
Income tax receivable ....................................... -- 235,615
Deferred income taxes ....................................... 472,627 472,627
Prepaid expenses and other .................................. 631,660 542,089
------------ ------------
Total current assets .................................... 21,255,002 22,213,247
------------ ------------
Property, plant and equipment, at cost ......................... 39,507,768 38,139,671
Less: accumulated depreciation and amortization ................ (11,130,322) (10,349,569)
------------ ------------
Property, plant and equipment, net ............................. 28,377,446 27,790,102
Goodwill, net of amortization .................................. 6,112,797 6,195,290
------------ ------------
TOTAL ASSETS ................................................... $ 55,745,245 $ 56,198,639
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ....................... $ 8,996,490 $ 8,607,287
Long-term debt - current portion ............................ 2,320,672 2,320,672
Income taxes payable ........................................ 18,885 --
------------ ------------
Total current liabilities ............................... 11,336,047 10,927,959
------------ ------------
Note payable ................................................... 5,319,788 5,933,659
Long-term debt ................................................. 11,163,009 11,738,709
Deferred income taxes .......................................... 2,077,589 2,077,589
Subordinated debt .............................................. 1,785,184 1,860,184
------------ ------------
Total non-current liabilities ........................... 20,345,570 21,610,141
Shareholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized,
none issued and outstanding ............................. -- --
Common stock, $.01 par value; 15,000,000 shares authorized,
4,900,000 issued and outstanding ........................ 49,000 49,000
Additional paid-in capital .................................. 9,105,674 9,105,674
Retained earnings ........................................... 14,908,954 14,505,865
------------ ------------
Total shareholders' equity .............................. 24,063,628 23,660,539
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................... $ 55,745,245 $ 56,198,639
============ ============
</TABLE>
The accompanying notes are an integral part
of these interim consolidated financial statements.
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<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Income
Three Months Ended
September 30,
1996 1995
----------- -----------
(Unaudited)
Net sales ........................................ $18,053,604 16,669,849
Cost of sales .................................... 14,972,495 12,911,341
----------- -----------
Gross profit ..................................... 3,081,109 3,758,508
Selling, general and administrative expenses ..... 2,028,998 1,794,944
----------- -----------
Operating income ................................. 1,052,111 1,963,564
Interest expense, net ............................ 414,521 334,118
----------- -----------
Income before income taxes ....................... 637,590 1,629,446
Income tax provision ............................. 234,500 595,599
----------- -----------
Net income ....................................... $ 403,090 $ 1,033,847
=========== ===========
Per share data:
Earnings per share ............................... $ .08 $ .21
=========== ===========
Weighted average number of shares outstanding .... 4,900,000 4,900,000
=========== ===========
The accompanying notes are an integral part of these interim consolidated
financial statements.
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<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operations:
Net income ............................................................ $ 403,090 $ 1,033,847
Adjustments to reconcile net income to net cash provided by operations:
Depreciation ....................................................... 864,911 543,461
Amortization ....................................................... 82,492 54,046
Increase in net deferred income taxes .............................. -- 28,208
------------ ------------
Cash provided from operations before changes in operating
assets and liabilities ............................................. 1,350,493 1,659,562
Changes in operating assets and liabilities:
Increase in accounts receivable .................................... (182,144) (2,054,037)
Decrease in tooling receivable ..................................... 743,982 555,552
(Increase) decrease in inventories ................................. 250,363 (92,282)
Increase in prepaid expenses and other current assets .............. (89,571) (261,155)
Increase in accounts payable and accrued expenses .................. 389,203 743,722
Increase in income taxes payable ................................... 254,500 547,491
------------ ------------
Total changes in operating assets and liabilities ..................... 1,366,333 (560,709)
------------ ------------
Net cash provided by operations .......................................... 2,716,826 1,098,853
------------ ------------
Cash flows used in investing activities:
Acquisition of subsidiary ............................................. -- (7,789,000)
Net additions to property, plant and equipment ........................ (1,452,255) (1,451,478)
------------ ------------
Net cash used in investing activities .................................... (1,452,255) (9,240,478)
------------ ------------
Cash flows from financing activities:
Proceeds from acquisition financing ................................... -- 15,397,000
Repayment of debt and capital lease ................................... (575,700) (8,036,350)
Repayment of subordinated debt ........................................ (75,000) --
Net increase (decrease) in note payable ............................... (613,871) 225,077
------------ ------------
Net cash from financing activities ....................................... (1,264,571) 7,585,727
------------ ------------
Net decrease in cash and cash equivalents ................................ -- (555,898)
Cash and cash equivalents at beginning of period ......................... -- 1,120,543
------------ ------------
Cash and cash equivalents at end of period ............................... $ -- $ 564,645
============ ============
</TABLE>
Non-cash transaction: As part of the acquisition, $2,000,000 in
subordinated notes were issued to the selling shareholders as consideration for
the purchase price. The issuance of the subordinated notes increased the value
of goodwill recorded.
The accompanying notes are an integral part of these
interim consolidated financial statements.
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<PAGE>
HILITE INDUSTRIES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Hilite Industries,
Inc. (the "Company") at September 30, 1996 and for the three-month
period ended September 30, 1996, are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which the
Company considers necessary for a fair presentation. The June 30,
1996 consolidated balance sheet was derived from the consolidated
balance sheet included in the Company's audited Consolidated
Financial Statements as included in the Company's Annual Report on
Form 10-K.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
in the Company's audited Consolidated Financial Statements, and
should be read in conjunction with the Company's audited Consolidated
Financial Statements. Operating results for the three-month period
ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30,
1997.
2. INVENTORIES
Inventories at September 30, 1996 and June 30, 1996 consisted of the
following:
September 30 June 30
(Unaudited) (Audited)
Raw materials........... $3,274,957 $3,432,454
Work in process......... 2,171,453 2,194,099
Finished goods.......... 3,148,684 3,218,904
---------- ----------
$8,595,094 $8,845,457
========== ==========
3. DEBT
Effective July 21, 1995, the Company, in conjunction with its
acquisition of North American Spring and Stamping Corp.("NASS") or
("Specialty Components and Assemblies division"), executed an
amendment to its existing loan agreement ("the Agreement") with a
bank to reflect new credit facilities totaling $26,700,000. The
credit facilities consist of the following:
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<PAGE>
1) A revolving line of credit of $10,000,000, of which
$5,590,000 was used to complete financing on the
acquisition, with interest payable monthly. As of
September 30, 1996, $5,320,000 had been used on the line
of credit and $4,680,000 is available. The interest rate
on the line of credit is LIBOR plus 1 1/2% which resulted
in a blended rate ranging from 7.75% to 8.19% at September
30, 1996. The revolving line of credit expires on July 21,
1998. An annual commitment fee of 1/4% is payable
quarterly on the average unused portion of the revolving
line of credit,
2) Term loans with an original principal balance of
$13,700,000 and a balance at September 30, 1996 of
$11,421,000. Principal payments on the term loan of
approximately $163,000 together with interest are payable
monthly. The maturity date of the term loans is August 1,
2002. The interest rate on the term loans, LIBOR plus 1
1/2%, ranged between 7.37% and 7.67% at September 30,
1996. The term loans were used for funding the acquisition
and for refinancing existing Company debt,
3) An equipment acquisition facility of $3,000,000 for the
financing of equipment purchases. Any term loans issued
under this facility will bear interest, at the Company's
option, at either prime rate or LIBOR plus 1 1/2% (7.13%
at September 30, 1996). As of September 30, 1996,
$1,348,000 had been used under this facility and
$1,652,000 is available. Principal payments on the
equipment acquisition facility of approximately $25,000
together with interest are payable monthly;
In addition to the above credit facility, the Company also has a
fifteen year real estate note with the same bank that expires on
November 1, 2007. The note, which has an original principal amount of
$960,000 and a $715,000 outstanding balance at September 30, 1996, is
payable in monthly installments of $5,333 plus interest at the prime
rate (8.25% at September 30, 1996). The real estate note's due date
can be accelerated, at the bank's option, to July 21, 1998.
All of the notes and line of credit are collateralized by accounts
receivable, inventory, equipment and real estate of the Company.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Net sales for the quarter ended September 30, 1996 were $18,054,000 compared to
$16,670,000 for the quarter ended September 30, 1995, representing an increase
of $1,384,000 (8.3%). The increase primarily resulted from a full quarter's
sales from the specialty components and assemblies division, which was acquired
on July 21, 1995. The brake valve division sales increased $63,000 (1.1%) to
$5,587,000 in the current quarter from $5,524,000 in the first quarter of the
prior year. New brake valve business sourced since last year's first quarter
offset business that expired prior to and during the first quarter of the
current year. Power transmission component sales were $5,170,000 for the
quarter, a decrease of 3.2% from $5,343,000 in the first quarter of the prior
year. Increased sales of air conditioning clutches for the heavy truck market
were offset by declining demand for transmission clutches. The impact of price
changes was not significant.
The Company's gross profit of $3,081,000 (17.1% of net sales) for the first
quarter of the 1997 fiscal year represents a decrease of $677,000 compared to
the gross profit of $3,758,000 (22.5% of net sales) for the first quarter of the
1996 fiscal year. The decline in gross margin in the first quarter is almost
entirely attributable to the specialty components and assemblies division which
experienced operational problems resulting in the division's first net loss. The
Company previously announced that Ford Motor Company is reviewing the division's
status as a "Q1" supplier. Until this review is satisfactorily completed, which
may take six months or longer, the division will not be considered for new
business by Ford. This review does not affect the division's existing business
or the existing or future business at the Company's brake valve and power
transmission components division. In response to this review and other
operational problems, an accelerated plan of corrective action, including
management changes is being developed and implemented. In the first quarter of
the current year, significant overtime and temporary labor costs impacted gross
margins at this division. In the short term, the program is expected to require
the use of additional engineering and other resources.
Selling, general and administrative expenses were $2,029,000 (11.2% of net
sales) in the first quarter of the 1997 fiscal year compared to $1,795,000
(10.8% of net sales) in the first quarter of the 1996 fiscal year. The increase
of $234,000 in selling, general and administrative expenses is primarily due to
increases at the specialty components and assemblies division which reflects a
full quarter's expenses in the current year as opposed to the prior year which
included expenses from the acquisition date.
Net interest expense was $414,000 for the three months ended September 30, 1996
compared to $334,000 for the three months ended September 30, 1995. The increase
of $80,000 is primarily due to a full quarter's acquisition debt as opposed to
the prior year which carried the debt from the acquisition date.
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<PAGE>
Net income in the first quarter of the 1996 fiscal year was $403,000 (2.2% of
net sales), compared to net income of $1,034,000 (6.2% of net sales) in the
comparable period of the prior year.
Liquidity and Capital Resources
- -------------------------------
During the three month period ended September 30, 1996, the Company generated
cash flow from operations of $2,716,000 compared to $1,099,000 in the prior
year. This cash flow from operations was sufficient to fund capital expenditures
of $1,452,000 and to pay debt of $1,190,000. At September 30, 1996 the Company's
working capital was $9,919,000 compared to working capital of $11,285,00 at June
30, 1996. This decrease of $2,300,000 occurred because cash generated from
operations was used to fund capital expenditures and to pay debt. The current
ratio decreased to 1.9 to 1 at September 30, 1996 from 2.0 to 1 at June 30,
1996. During the three months ended September 30, 1996, the book value per share
increased to $4.91 at September 30, 1996 from $4.83 per share at June 30, 1996.
The increase in cash flow from operations is primarily due to the decrease in
receivables in the current year compared to the large increase in receivable
balances in the prior year. The increase in receivable balances in the prior
year is primarily due to the timing of the acquisition which occurred
immediately following a two week shut down at most automotive assembly plants
for model changeover. The decrease in receivables in the current year is
primarily due to a decrease in tooling receivables by $744,000 due to tooling
programs being completed and collected prior to the beginning of the model year
in August. The average number of days outstanding was 56 days at September 30,
1996 compared to 52 days at June 30, 1996. As of September 30, 1996, no
significant amounts were considered uncollectible.
The Company's capital expenditures were $1,452,000 for the three months ended
September 30, 1996. The Company presently estimates capital expenditures for the
year ending June 30, 1996 will approximate $4,500,000, unless new business
opportunities require additional capital commitments. As of September 30, 1996,
commitments, net of progress payments, were $1,100,000 for capital expenditures
and $2,400,000 for tooling which is expected to be reimbursed from customers.
The Company's long-term debt includes consolidated term and mortgage notes
(original principal amounts of $13,700,000 and $960,000, respectively, and
current balances at September 30, 1996 of $11,421,000 and $715,000,
respectively) which are payable in monthly installments of $163,095 and $5,333,
respectively, plus interest at a blended rate of 6 month and 12 month LIBOR plus
1 1/2%. All amounts borrowed under the consolidated term and mortgage notes are
secured by the Company's real estate, accounts receivable, inventory, machinery
and equipment and have maturities of August 1, 2002 and November 1, 2007,
respectively. The consolidated term note limits dividends payable by the
Company.
The Company has a general credit facility of $10,000,000 and an equipment
acquisition facility of $3,000,000 (collectively the "Credit Facilities") for
working capital and capital equipment needs. The Credit Facilities mature on
July 21, 1998. As of September 30, 1996, $4,680,000 was available under
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<PAGE>
the general credit facility and $1,652,000 was available under the equipment
acquisition facility. An annual fee of one quarter of one percent is payable
monthly on the unused portion of the Credit Facilities. The bank has the right
to accelerate each of the maturity dates of the consolidated term note and real
estate note to coincide with the maturity date of the Credit Facilities.
Management anticipates that cash flow from operations and bank credit
availability will be adequate to fund the existing acquisition debt, anticipated
capital and tooling requirements and working capital needs for the next two
years.
Seasonality
- -----------
Net sales and operating results do not follow a predictable seasonal pattern
from quarter to quarter because the development, initial production and sales of
new products may occur at different times of the year. Generally, in these
periods certain inefficiencies are experienced which result in higher costs to
the Company. In addition, the Company usually experiences somewhat lower sales
in the quarters ended December 31 and September 30 as automobile manufacturers
traditionally close their plants for vacations or model changeovers during these
periods resulting in lower demand for the Company's products.
Inflation
- ---------
The Company believes that the relatively moderate rate of inflation has not had
a significant impact on the Company's revenues or profitability.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no exhibits attached to this report.
(b) There were no reports on Form 8-K filed during the quarter for which
this report is filed.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILITE INDUSTRIES, INC.
Date: November 13, 1996 /S/ DANIEL W. BRADY
-------------------------------
Daniel W. Brady
Chief Executive Officer
Date: November 13, 1996 /S/ ROY WIEGMANN
-------------------------------
Roy Wiegmann
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915197
<NAME> HILITE INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,634,965
<ALLOWANCES> (96,344)
<INVENTORY> 8,595,094
<CURRENT-ASSETS> 21,255,002
<PP&E> 39,507,768
<DEPRECIATION> (11,130,322)
<TOTAL-ASSETS> 55,745,245
<CURRENT-LIABILITIES> (11,336,047)
<BONDS> 0
0
0
<COMMON> 49,000
<OTHER-SE> 24,014,628
<TOTAL-LIABILITY-AND-EQUITY> 55,745,245
<SALES> 18,053,604
<TOTAL-REVENUES> 18,053,604
<CGS> 14,972,495
<TOTAL-COSTS> 17,001,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414,521
<INCOME-PRETAX> 637,590
<INCOME-TAX> 234,500
<INCOME-CONTINUING> 403,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 403,090
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<EPS-DILUTED> 0.08
</TABLE>
