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, 1997
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
incorporation or organization) Identification No.)
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 11, 1997, the Company had 4,900,000 shares of Common Stock
outstanding.
<PAGE>
HILITE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page
Part I FINANCIAL STATEMENTS
--------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and September 30, 1997............................ 3
Consolidated Statements of Income for the
Three Months Ended September 30, 1997 and 1996.... 4
Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 1997
and 1996 ......................................... 5
Notes to Interim Consolidated Financial
Statements........................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 8
Part II. OTHER INFORMATION.......................................... 10
-2-
<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ -- $ --
Accounts receivable, less allowance for doubtful accounts of
$178,043 and $195,427 at Sept. 30 and June 30, respectively 10,903,683 9,991,098
Tooling receivables ......................................... 437,925 96,734
Inventories ................................................. 10,525,817 10,075,786
Deferred income taxes ....................................... 1,774,082 1,774,082
Prepaid expenses and other .................................. 981,345 739,803
------------ ------------
Total current assets ...................................... 24,622,852 22,677,503
------------ ------------
Property, plant and equipment, at cost ........................ 39,685,246 38,400,240
Less: accumulated depreciation and amortization ............... (12,931,072) (12,077,533)
------------ ------------
Property, plant and equipment, net ............................ 26,754,174 26,322,707
Assets held for disposal ...................................... 2,330,800 2,330,800
Goodwill, net of amortization ................................. 5,806,763 5,888,167
------------ ------------
TOTAL ASSETS .................................................. $ 59,514,589 $ 57,219,177
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ....................... $ 13,174,109 $ 11,875,962
Long-term debt - current portion ............................ 2,422,950 2,422,950
Income taxes payable ........................................ 110,290 49,883
------------ ------------
Total current liabilities ................................. 15,707,349 14,348,795
------------ ------------
Long-term debt ................................................ 16,631,127 16,486,252
Deferred income taxes ......................................... 2,595,392 2,595,392
Subordinated debt ............................................. 1,785,184 1,785,184
------------ ------------
Total non-current liabilities ............................. 21,011,703 20,866,828
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 ........................................... 13,640,863 12,848,880
------------ ------------
Total shareholders' equity ................................ 22,795,537 22,003,554
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $ 59,514,589 $ 57,219,177
============ ============
</TABLE>
The accompanying notes are an integral part of these
interim consolidated financial statements.
-3-
<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Income
Three Months Ended
September 30,
--------------------------
1997 1996
----------- -----------
Net sales ........................................ $21,030,298 $18,053,604
Cost of sales .................................... 16,965,895 14,972,495
----------- -----------
Gross profit ..................................... 4,064,403 3,081,109
Selling, general and administrative expenses ..... 2,403,496 2,028,998
----------- -----------
Operating income ................................. 1,660,907 1,052,111
Interest expense, net ............................ 390,476 414,521
----------- -----------
Income before income taxes ....................... 1,270,431 637,590
Income tax provision ............................. 478,305 234,500
----------- -----------
Net income ....................................... $ 792,126 $ 403,090
=========== ===========
Per share data:
Earnings per share ............................... $ .16 $ .08
=========== ===========
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.
- 4 -
<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net income ........................................ $ 792,126 $ 403,090
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation ................................. 853,538 864,911
Amortization ................................. 81,403 82,492
----------- -----------
Cash provided from operations before changes in
operating assets and liabilities .............. 1,727,067 1,350,493
Changes in operating assets and liabilities:
(Increase) in accounts receivable ............ (912,585) (182,144)
(Increase) decrease in tooling receivable .... (341,191) 743,982
(Increase) decrease in inventories ........... (450,031) 250,363
(Increase) in prepaid expenses and
other current assets ....................... (70,849) (89,571)
Increase in accounts payable and
accrued expenses ........................... 1,123,401 389,203
Increase in income taxes payable ............. 60,409 254,500
----------- -----------
Total changes in operating assets and liabilities (590,846) 1,366,333
----------- -----------
Net cash provided by operations ..................... 1,136,221 2,716,826
----------- -----------
Cash flows used in investing activities:
Net additions to property, plant and equipment .... (1,281,096) (1,452,255)
----------- -----------
Net cash used in investing activities ............... (1,281,096) (1,452,255)
----------- -----------
Cash flows from financing activities:
Repayment of debt and capital lease ............... (605,737) (575,700)
Repayment of subordinated debt .................... -- (75,000)
Net increase (decrease) in note payable ........... 750,612 (613,871)
----------- -----------
Net cash from financing activities .................. 144,875 (1,264,571)
----------- -----------
Net decrease in cash and cash equivalents ........... -- --
Cash and cash equivalents at beginning of period .... -- --
----------- -----------
Cash and cash equivalents at end of period .......... $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
interim consolidated financial statements.
- 5 -
<PAGE>
HILITE INDUSTRIES, INC.
Notes to Interim Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The interim financial statements of Hilite Industries, Inc. (the
"Company") at September 30, 1997 and for the three-month period ended
September 30, 1997, are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair presentation. The June 30, 1997 balance sheet was
derived from the balance sheet included in the Company's audited
Financial Statements as included in the Company's Annual Report on Form
10-K.
The accompanying unaudited 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, and should be read in conjunction with the
Company's audited Financial Statements. Operating results for the
three-month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year
ending June 30, 1998.
2. INVENTORIES
Inventories at September 30, 1997 and June 30, 1997 consisted of the
following:
Sept. 30 June 30
----------- -----------
Raw materials.................... $ 4,845,023 $ 3,916,344
Work in process.................. 2,106,822 2,254,960
Finished goods................... 3,573,972 3,904,482
----------- -----------
$10,525,817 $10,075,786
=========== ===========
3. RESTRUCTURING CHARGE
As a result of operating problems and inefficiencies at the NASS
division, the Company's Board of Directors approved a plan, in June
1997, to substantially restructure the NASS operations. In conjunction
with this plan, the Company recorded a charge to pre-tax earnings in
fiscal 1997 totalling approximately $2,700,000. The charge is comprised
of a reduction (approximately $900,000) in the net book value of certain
assets primarily machinery, equipment and tooling, to their estimated
fair value, net of estimated selling costs, accrual of certain costs
which the Company expects to incur in terminating contractual
obligations, but
- 6 -
<PAGE>
for which no future economic benefit will be received (approximately
$1,600,000) and other costs (approximately $200,000). For the three
months ending September 30, 1997 approximately $220,000 had been charged
against the accrual for terminating contractual obligations and
approxiamtely $10,000 had been charged against the accrual for other
costs.
4. DEBT
Effective September 18, 1997, the Company executed an amendment to its
existing loan agreement ("the Agreement") with a bank to reflect new
terms in the Company's credit facilities. Under the new terms the credit
facilities consist of the following:
1) A revolving line of credit of up to $12,000,000 subject to
availability requirements. As of September 30, 1997, $7,251,000
had been used on the line of credit and $3,696,000 is available.
The interest rate on the line of credit is either LIBOR plus 1
1/2% or prime rate less 1/2% which resulted in a blended rate
ranging from 7.084% to 8.00% at September 30, 1997. The
revolving line of credit expires on July 21, 1999. 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, 1997 of $9,491,000. 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% was 7.53% at September 30, 1997. The term
loans were used for funding the acquisition of North American
Spring and Stamping Corp. on July 21, 1995 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%. As of September 30,
1997, no amounts were outstanding under this facility;
In addition to the above credit facility, the Company also has a fifteen
year real estate note and two five year equipment term notes with the
same bank. The real estate note, which has an original principal amount
of $960,000 and a $651,000 outstanding balance at September 30, 1997, is
payable in monthly installments of $5,333 plus interest at the prime
rate (8.50% at September 30, 1997) and expires on November 1, 2007. The
equipment term notes which have original principal amounts of $1,497,000
and $645,000, respectively, and outstanding balances of $1,048,000 and
613,000, respectively, at September 30, 1997, are payable in monthly
installments of $24,961 and $10,757, respectively at LIBOR plus 1 1/2%
(7.13% and 7.73%, respectively, at September 30, 1997) and expire on May
31, 2001 and 2002, respectively. Both the real estate and equipment
notes' due date can be accelerated, at the bank's option, to July 21,
1999.
All of the notes and line of credit are collateralized by accounts
receivable, inventory, equipment and real estate of the Company.
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Net sales for the quarter ended September 30, 1997 were $21,030,000 compared to
$18,054,000 for the quarter ended September 30, 1996, representing a increase of
$2,976,000 (16.5%). Brake valve sales increased 6.9% to $5,975,000 in the first
fiscal quarter of 1998 from $5,587,000 in the prior year. The increase resulted
from new programs which commenced since the first quarter of the prior year such
as the P-90 and W-Car programs for GM and the relief valve for Bosch. Power
transmission component sales increased from $5,170,000 in fiscal 1997 to
$5,759,000 or 11.4%. This increase is attributable to increased sales of
air-conditioning compressor clutches for the heavy truck industry and increased
schedules for 4-wheel drive transfer case components. First quarter sales were
$9,296,000 for the specialty components and assemblies division, an increase of
27.4% over last year's first quarter sales of $7,297,000. The increase in sales
is primarily due to significantly higher sales of certain assemblies to
Motorola, Inc. and approximately $700,000 of price increases, some of which are
for parts which are scheduled to be discontinued by the Company and sourced to
other suppliers by the third quarter as part of the restructuring plan for the
specialty components and assemblies division approved by the Board of Directors
in June 1997. The impact of price changes in the quarter, other than those at
the specialty components and assemblies division, was not significant.
The Company's gross profit was $4,064,000 (19.3% of net sales) for the first
quarter of the 1998 fiscal year compared to gross profit of $3,081,000 (17.1% of
net sales) for the first quarter of the 1997 fiscal year. All three divisions
experienced an increase in gross profit with the specialty components and
assemblies division having the largest increase. The impact of the price
increases in the specialty components and assemblies division was the primary
contributor to the increased gross profit; the Company's sales volume increase,
without a corresponding increase in fixed costs, also contributed to the
increased gross profit.
Selling, general and administrative expenses were $2,403,000 (11.4% of net
sales) in the first quarter of the 1998 fiscal year compared to $2,029,000
(11.2% of net sales) in the first quarter of the 1997 fiscal year. The increase
of $374,000 in selling, general and administrative expenses is primarily due to
increased legal and consulting costs and increased research and development
costs. Approximately $230,000 of costs associated with terminating contractual
obligations (primarily sales representative agreements) and other costs were
charged against an accrual established in the prior year as part of the
restructuring charge for the specialty components and assemblies division.
Approximately $60,000 was recorded in the first quarter of fiscal 1998
associated with a new sales representative agreement.
Interest expense was $390,000 for the three months ended September 30, 1997
compared to $415,000 for the three months ended September 30, 1996. The decrease
is due to lower average debt balances. The impact of changes in interest rates
were not significant.
- 8 -
<PAGE>
Net income was $792,000 (3.8% of net sales) for the first quarter of the 1998
fiscal year compared to $403,000 (2.2% of net sales) for the same period of the
prior fiscal year, representing an increase of $389,000 (96.5%).
Liquidity and Capital Resources
- -------------------------------
During the three-month period ended September 30, 1997, the Company's net cash
provided from operations was $1,136,000 compared to $2,717,000 in the same
period of the prior year. At September 30, 1997 the Company's working capital
was $8,916,000 compared to working capital of $8,329,000 at June 30, 1997. The
current ratio was 1.6 to 1 at both September 30, 1997 and June 30, 1997. During
the three months ended September 30, 1997, the book value per share increased to
$4.65 at September 30, 1997 from $4.49 per share at June 30, 1997.
The primary cause of the decrease in cash provided by operations was due to the
$912,000 increase in accounts receivable. The increase in accounts receivable is
a result of the high level of sales, particularly late in the quarter. The
average number of days sales outstanding for receivables was increased slightly
to 47 days at September 30, 1997 compared to 44 days at June 30, 1997. Tooling
receivables also increased due to the increased number of new projects in
process. As of September 30, 1997, no significant amounts were considered
uncollectible.
Accounts payable and accrued expenses increased by approximately $1,123,000 due
to higher accounts payable balances associated with the higher sales level and
inventory increase. Inventory increased by approximately $450,000 primarily due
to the new programs added since June 30, 1997.
The Company's capital expenditures were $1,281,000 for the three months ended
September 30, 1997. The Company presently estimates capital expenditures for the
year ending June 30, 1998 will approximate $3,500,000, unless new business
opportunities require additional capital commitments. As of September 30, 1997,
commitments, net of progress payments, were $800,000 for capital expenditures
and $1,400,000 for tooling which is expected to be reimbursed from customers.
The Company's long-term debt includes consolidated term, equipment and mortgage
notes (current balances at September 30, 1997 of $9,491,000, 1,661,000 and
$651,000, respectively) which are payable in monthly installments of $163,095,
$35,718 and $5,333, respectively, plus interest at a blended rate of 6 month and
12 month LIBOR plus 1 1/2% or the bank's prime rate. All amounts borrowed under
the consolidated term, equipment and mortgage notes are secured by the Company's
real estate, accounts receivable, inventory, machinery and equipment. The
consolidated term note matures on August 1, 2002, the two equipment notes mature
on May 31, 2001 and 2002, and the mortgage note matures on November 1, 2007.
The Company has a general credit facility of up to $12,000,000 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, 1999. As of September 30, 1997, $7,251,000 was outstanding and
$3,696,000 was available under the general credit facility and $3,000,000 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.
On October 22, 1997, the Company announced a quarterly cash dividend program
with a 2 1/2 cent dividend to be distributed in November. With 4,900,000 shares
currently outstanding, the cash requirement will be $122,500 in the second
quarter.
- 9 -
<PAGE>
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.
Safe Harbor for Forward-looking Statements
- ------------------------------------------
Except for historical information contained herein, certain statements in this
release are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, among others, risks
associated with the manufacturing process and production yields and risks
related to technological changes in components which affect the life of the
product. Also, there can be no assurance that the corrective action program at
the specialty components and assemblies division will satisfy Ford's
requirements or time frame. Those and other risks are described in the Company's
Form 10-K for the year ended June 30, 1997 filed with the Securities and
Exchange Commission ("SEC"), copies of which are available from the SEC or may
be obtained upon request from the Company.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Cash Dividend
- -------------
On October 22, 1997, the Company announced a quarterly cash dividend program
with a 2 1/2 cent cash dividend to be distributed in November. Subsequent
dividends will depend upon future operating results.
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.
- 10 -
<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 11, 1997 /s/ Daniel W. Brady
------------------------ ----------------------------
Daniel W. Brady
Chief Executive Officer
Date: November 11, 1997 /s/ Roy Wiegmann
------------------------ ----------------------------
Roy Wiegmann
Chief Financial Officer
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915197
<NAME> HILITE INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,519,651
<ALLOWANCES> (178,043)
<INVENTORY> 10,525,817
<CURRENT-ASSETS> 24,622,852
<PP&E> 39,685,246
<DEPRECIATION> (12,931,072)
<TOTAL-ASSETS> 59,514,589
<CURRENT-LIABILITIES> 15,707,349
<BONDS> 0
0
0
<COMMON> 49,000
<OTHER-SE> 22,746,537
<TOTAL-LIABILITY-AND-EQUITY> 59,514,589
<SALES> 21,030,298
<TOTAL-REVENUES> 21,030,298
<CGS> 16,965,895
<TOTAL-COSTS> 19,369,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 390,476
<INCOME-PRETAX> 1,270,431
<INCOME-TAX> 478,305
<INCOME-CONTINUING> 792,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 792,126
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
