SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
ON
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended June 30, 1997
Commission file number 0-22924
HILITE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2147742
- - --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value (Title of Class)
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 [_]
Based upon the closing price on the NASDAQ National Market System on September
12, 1997, the aggregate market value of the voting stock held by non-affiliates
of the registrant was $6,463,000.
As of September 12, 1997, the Company had 4,900,000 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which Definitive Proxy Statement is anticipated to be
filed within 120 days after the end of the registrant's fiscal year ended June
30, 1997 is incorporated by reference in Part III hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Yes [X] No [_]
<PAGE>
================================================================================
The purpose of this amendment is to correct a typographical error appearing in
the Balance Sheet on page F-2.
================================================================================
PART IV
ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) and (2) Consolidated Financial Statements and Schedules
The consolidated financial statements and schedules of Hilite Industries, Inc.
are included in Part IV of this report on the pages indicated below: Page
Report of Independent Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995 F-3
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6 - F-15
Consolidated Financial Statement Schedules:
II. Valuation and Qualifying Accounts and Reserves
for the years ended June 30, 1997, 1996 and 1995 F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Hilite Industries, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 19 present fairly, in all material
respects, the financial position of Hilite Industries, Inc. and its subsidiary
at June 30, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's m anagement; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
August 12, 1997, except as to the last paragraph of Note 7, which is as of
September 18, 1997.
F-1
<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of June 30,
---------------------------
1997 1996
------------ ------------
ASSETS
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ -- $ --
Accounts receivable, less allowance for doubtful accounts of
$195,427 at June 30, 1997 and $91,100 at June 30, 1996 ... 9,991,098 11,356,477
Tooling receivable ......................................... 96,734 760,982
Inventories ................................................ 10,075,786 8,845,457
Income taxes receivable .................................... -- 235,615
Deferred income taxes ...................................... 1,774,082 472,627
Prepaid expenses and other current assets .................. 739,803 542,089
Total current assets ..................................... 22,677,503 22,213,247
Property, plant and equipment ................................ 38,400,240 38,139,671
Less accumulated depreciation and amortization ............... (12,077,533) (10,349,569)
------------ ------------
Property, plant and equipment, net ........................... 26,322,707 27,790,102
------------ ------------
Assets held for disposal ..................................... 2,330,800 --
Goodwill, net of accumulated amortization .................... 5,888,167 6,195,290
------------ ------------
TOTAL ASSETS ................................................. $ 57,219,177 $ 56,198,639
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................... $ 11,875,962 $ 8,607,287
Long-term debt - current portion ........................... 2,422,950 2,320,672
Income taxes payable ....................................... 49,883 --
------------ ------------
Total current liabilities ................................ 14,348,795 10,927,959
------------ ------------
Long-term debt ............................................... 16,486,252 17,672,368
Subordinated debt ............................................ 1,785,184 1,860,184
Deferred income taxes ........................................ 2,595,392 2,077,589
------------ ------------
Total non-current liabilities ............................ 20,866,828 21,610,141
------------ ------------
Commitments and Contingencies (See Note 11.)
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000 shares authorized,
none issued and outstanding .............................. -- --
Common stock, $.01 par value; 15,000,000 shares authorized,
4,900,000 isssued and outstanding at June 30, 1997 and
1996...................................................... 49,000 49,000
Additional paid-in capital ................................. 9,105,674 9,105,674
Retained earnings .......................................... 12,848,880 14,505,865
------------ ------------
Total stockholders' equity ............................... 22,003,554 23,660,539
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 57,219,177 $ 56,198,639
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Year Ended June 30,
----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................ $73,492,117 $72,641,500 $44,899,515
Cost of sales ........................................ 63,938,186 57,710,737 34,849,251
----------- ----------- -----------
Gross profit ......................................... 9,553,931 14,930,763 10,050,264
Selling, general and administrative expenses ......... 10,339,722 7,575,953 4,286,120
----------- ----------- -----------
Operating income (loss) .............................. (785,791) 7,354,810 5,764,144
Interest income ...................................... -- 9,390 124,873
Interest expense ..................................... 1,713,763 1,668,763 254,376
----------- ----------- -----------
Income (loss) before income taxes .................... (2,499,554) 5,695,437 5,634,641
Income tax provision (benefit) ....................... (842,569) 2,063,580 2,016,000
----------- ----------- -----------
Net income (loss).................................... $(1,656,985) $ 3,631,857 $ 3,618,641
=========== =========== ===========
Per share data:
Earnings (loss) per share............................ $ (0.34) $ 0.74 $ 0.74
=========== =========== ===========
Weighted average number of shares outstanding ........ 4,900,000 4,900,000 4,900,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)...................................... $ (1,656,985) $ 3,631,857 $ 3,618,641
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Depreciation ...................................... 3,517,792 3,005,474 1,649,518
Goodwill amortization ............................. 307,123 316,968 --
Restructuring charge .............................. 2,738,352 --
Increase (decrease) in net deferred income taxes .. (783,652) 647,962 481,000
------------ ------------ ------------
Cash provided from operations before changes in
operating assets and liabilities .................... 4,122,630 7,602,261 5,749,159
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable ...... 1,365,379 (2,491,920) 280,734
(Increase) decrease in tooling receivable ....... 664,248 (106,215) (385,618)
Increase in inventories ......................... (1,370,079) (149,820) (1,807,335)
(Increase) decrease in prepaid expenses and
other current assets .......................... (370,017) 332,406 371,154
Increase (decrease) in accounts payable and
accrued expenses .............................. 1,285,554 (80,014) (1,306,850)
Increase (decrease) in income taxes payable ..... 285,498 (248,952) (188,747)
------------ ------------ ------------
Total changes in operating assets and liabilities .. 1,860,583 (2,744,515) (3,036,662)
------------ ------------ ------------
Net cash provided by operations ........................ 5,983,213 4,857,746 2,712,497
------------ ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net ...... (4,824,375) (5,764,817) (8,589,351)
Acquisition of subsidiary ............................ -- (7,789,000) --
------------ ------------ ------------
Net cash used in investing activities .................. (4,824,375) (13,553,817) (8,589,351)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from acquisition financing .................. -- 15,397,000 --
Repayment of subordinated debt ....................... (75,000) --
Proceeds from long-term debt ......................... 1,212,258 1,841,085 2,600,000
Repayments of long-term debt ......................... (2,296,096) (9,662,557) (916,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities .... (1,158,838) 7,575,528 1,684,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ... -- (1,120,543) (4,192,854)
Cash and cash equivalents at beginning of period ....... -- 1,120,543 5,313,397
------------ ------------ ------------
Cash and cash equivalents at end of period............. $ -- $ -- $ 1,120,543
============ ============ ============
</TABLE>
As part of the acquisition of North American Spring and Stamping Corp. on July
21, 1995, $2,000,000 in subordinated notes were issued to the sellers as
consideration for the purchase price. The issuance of the subordinated notes
increased the price for the acquisition. See Note 2 of Notes to the Consolidated
Financial Statements.
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
HILITE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994 ....... 4,900,000 49,000 9,105,674 7,255,367 16,410,041
Net income for the year ended
June 30,1995 .............. -- -- -- 3,618,641 3,618,641
----------- ----------- ----------- ----------- -----------
Balance June 30, 1995 ....... 4,900,000 49,000 9,105,674 10,874,008 20,028,682
Net income for the year ended
June 30,1996 .............. -- -- -- 3,631,857 3,631,857
----------- ----------- ----------- ----------- -----------
Balance June 30, 1996 ....... 4,900,000 49,000 9,105,674 14,505,865 23,660,539
Net loss for the year ended
June 30,1997 .............. -- -- -- (1,656,985) (1,656,985)
----------- ----------- ----------- ----------- -----------
Balance June 30, 1997 ....... 4,900,000 $ 49,000 $ 9,105,674 $12,848,880 $22,003,554
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
HILITE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hilite Industries, Inc. ("Hilite" or the "Company") is engaged in the
manufacture of products used primarily in the automotive industry. The
Company's products are sold primarily to manufacturers of automobiles
and their suppliers, pursuant to credit terms customarily extended in
the industry. The Company operates separately under the names Pitts
Industries ("Pitts"), Surfaces, Machine Parts Company ("MAPCO") and
North American Spring and Stamping Corp. ("NASS"). Pitts manufactures
electromagnetic clutches for various applications. Surfaces manufactures
brake proportioning valves for automotive brake systems. MAPCO
manufactures mounting brackets, fan blades and pulleys. NASS
manufactures specialty springs, stamping products and assemblies.
On July 21, 1995, the Company acquired 100% of the outstanding common
stock of North American Spring and Stamping Corp. from its three
stockholders ("Selling Shareholders"). In consideration for the
transaction, the Company paid $17,397,000. The acquisition was accounted
for by the purchase method of accounting and NASS' assets and
liabilities were recorded at their fair value at the date of the
acquisition. The Company's consolidated statements of operations include
the results of operation of NASS subsequent to July 21, 1995.
The Company's significant accounting policies are as follows:
Cash and Cash Equivalents - Cash and cash equivalents include cash on
hand and short-term investments with original maturities of three months
or less.
Inventory - Inventories are stated at the lower of cost or market, cost
being determined on a first in-first out ("FIFO") basis.
Property, Plant and Equipment - Property, plant and equipment are
carried at cost. Depreciation and amortization are computed on the
straight line basis over the estimated useful lives of the assets as
follows:
Buildings and improvements 20 years or remaining useful life
Machinery and equipment 5 to 10 years
Other assets 3 years
Repair and maintenance expenditures are charged to operations as
incurred and expenditures for major renewals and betterments are
capitalized. When units of property are disposed of, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gains or losses are included in the results of operations.
Property, plant and equipment are reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an
asset or group of assets may not be recoverable. The impairment review
includes a comparison of future cash flows expected to be generated by
the asset or group of assets with their associated carrying value. If
the carrying value of the asset or group of assets exceeds expected cash
flows (undiscounted and without interest charges), an impairment loss is
recognized to the extent carrying amounts exceed fair value.
The Company routinely makes expenditures for tooling fixtures and
equipment required for production of specific products for customers.
These costs are often reimbursed by customers. To the extent that
expenditures exceed related reimbursements, the excess is capitalized
and included in property, plant and equipment (other) and depreciated
over the related production life. Net costs expended for tooling which
are expected to be reimbursed within one year are included in prepaid
expenses and other current assets. Net reimbursements in excess of
amounts expended which are expected to be fully expended are recorded in
accounts payable and accrued expenses until expended.
F-6
<PAGE>
Goodwill - The excess of cost over the fair value of net assets acquired
in an acquisition (goodwill) is being amortized over 20 years on a
straight-line basis. The recoverability of goodwill is assessed by the
Company on an ongoing basis by comparing the undiscounted value of
expected future operating cash flows to the carrying value of goodwill.
Accumulated amortization was $624,000 and $317,000 as of June 30, 1997
and 1996, respectively.
Revenue Recognition - Sales revenue and related cost of sales are
recognized as products are shipped. In the ordinary course of business,
certain products sold by the Company are subject to retroactive price
adjustments. No material retroactive price adjustments were recorded in
the financial statements for the 1997, 1996 or 1995 fiscal years. The
Company's management believes that there are no sales recorded in the
financial statements for periods which are subject to material
retroactive adjustment.
Research and Development - The Company is engaged in numerous research
and development projects. Costs associated with these projects are
charged to operations when incurred. Research and development costs,
which are included in general and administrative expenses, totaled
$882,000, $945,000 and $879,000 for the years ended June 30, 1997, 1996
and 1995, respectively. Of these expenditures, $240,000, $343,000 and
$596,000, respectively, were sponsored by customers and $642,000,
$602,000 and $283,000, respectively, were sponsored by the Company.
Income Taxes - Deferred income taxes are provided for using the
liability method. Under this method, deferred tax assets and liabilities
are recognized on the tax effect of differences between the financial
statement and tax basis of assets and liabilities using presently
enacted tax rates.
Use of Estimates - Financial statements prepared in conformity with
generally accepted accounting principles require management to make
estimates and assumptions about reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and
reported amounts of revenue and expenses. Management must also make
estimates and judgments about future results of operations related to
specific elements of the business in assessing recoverability of assets
and recorded values of liabilities. Actual results could differ from
these estimates.
Stock-Based Compensation - The Company adopted, on a disclosure basis
only, Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, in fiscal 1996. The Company continues to
measure compensation costs under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees.
Reclassifications - Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. NASS ACQUISITION
On July 21, 1995, the Company acquired 100% of the outstanding common
stock of North American Spring and Stamping Corp. from its three
stockholders. In consideration for the transaction, the Company paid
$17,397,000. The amount paid at closing included:
Cash paid to Selling Shareholders......................... $ 7,789,000
Cash used to refinance certain long-term debt of NASS..... 7,608,000
------------
Total cash portion of acquisition...................... 15,397,000
Subordinated notes payable ("Subordinated Notes") issued
to the Selling Shareholders.............................. 2,000,000
------------
Total........................................ $ 17,397,000
============
F-7
<PAGE>
The Subordinated Notes bear interest at 9% and the interest is payable
quarterly. Interest payments on these notes were suspended effective
April 30, 1997 pending the outcome of the claim against the Selling
Shareholders (See footnote 11.). During the year ended June 30, 1996
certain adjustments were made to the purchase price as a result of tax
considerations which lowered the Subordinated Notes balance to
$1,860,184. The Subordinated Notes mature on July 21, 2002 at which time
the entire balance is due to the Selling Shareholders. The Company may
elect to prepay the Subordinated Notes at any time prior to the maturity
date at its discretion.
The acquisition was accounted for by the purchase method of accounting
and NASS' assets and liabilities were recorded at their fair value at
the date of the acquisition. The Company's consolidated statements of
operations include the results of operations of NASS subsequent to July
21, 1995. In connection with the acquisition, goodwill of $6,512,000 was
recorded.
Supplemental Proforma Results of Operations (Unaudited)
The following unaudited proforma summary presents the consolidated
results of operations as if the acquisition occurred at the beginning of
fiscal 1995 and does not purport to be indicative of what would have
occurred had the acquisition actually been made as of such date or of
results which may occur in the future.
1996 1995
---- ----
Net sales.............. $ 73,744,530 $ 74,140,211
Net income............. 3,597,833 4,113,712
Net income per share... 0.73 0.84
Adjustments made in arriving at the proforma unaudited results of
operations include the difference in depreciation expense resulting from
the change in the carrying value of property and equipment to their
estimated fair values, differences in cost of sales for the change in
inventory valued on the FIFO method of inventories rather than the LIFO
method and increase in goodwill amortization resulting from the
transaction.
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. The
restructuring plan includes the orderly discontinuance of a significant
number of commodity-type products currently manufactured and distributed
by NASS. A leased warehouse facility is scheduled to be closed and
certain contracts including a sales representative arrangement has been
terminated. In addition, certain members of NASS management have been
released. It is expected that the orderly discontinuance of these
products and transitions with customers will occur over an approximate
nine-month period.
In conjunction with this plan, the Company recorded a charge to pre-tax
earnings totaling approximately $2,700,000 ($1,000,000 in cost of sales
and $1,700,000 in selling, general and administrative costs). 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 for which no future economic benefit will
be received (approximately $1,600,000) and other costs (approximately
$200,000). Operating losses, which may occur during the phase-out
period, have not been accrued.
F-8
<PAGE>
4. INVENTORIES
Inventories at June 30, 1997 and 1996 consisted of the following:
1997 1996
---- ----
Raw materials............... $ 3,916,344 $ 3,432,454
Work in process............. 2,254,960 2,194,099
Finished goods.............. 3,904,482 3,218,904
----------- -----------
$10,075,786 $ 8,845,457
=========== ===========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1997 and 1996 consisted of the
following:
1997 1996
---- ----
Land........................ $ 1,150,000 $ 1,150,000
Building and improvements... 6,855,531 6,428,585
Machinery and equipment..... 29,834,599 29,644,173
Other....................... 560,110 916,913
------------ ------------
38,400,240 38,139,671
Less accumulated depreciation
and amortization........... (12,077,533) (10,349,569)
------------ ------------
$ 26,322,707 $ 27,790,102
============ ============
Progress payments for machinery ordered and not placed in service
totaling $1,635,000 and $1,149,000 as of June 30, 1997 and 1996,
respectively, are included in machinery and equipment. Open commitments
to purchase machinery and equipment at June 30, 1997 totaled $1,353,000.
As part of the restructuring plan at NASS, net fixed assets of
$2,330,800 (fixed assets of $3,476,318 and accumulated depreciation of
$1,146,518) were reclassified on the balance sheet as assets held for
disposal. During fiscal year 1997, retirements of fully depreciated
machinery and equipment were $644,310. There were no significant
disposals during fiscal year 1996 and 1995.
Routine repairs and maintenance charged to expense were $1,847,735,
$1,355,757 and $1,334,532 for the years ended June 30, 1997, 1996 and
1995, respectively.
F-9
<PAGE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 1997 and 1996
consisted of the following:
1997 1996
---- ----
Trade accounts payable...... $ 5,531,022 $ 5,193,615
Restructuring accrual....... 2,082,026 --
Accrued payroll and payroll
related.................... 1,447,151 1,196,754
Accrued employee benefit
plan costs................. 698,539 660,181
Accrued health plan claims.. 291,961 235,335
Accrued occupational injury
plan costs................. 475,000 50,640
Other accrued expenses...... 1,350,263 1,270,762
----------- -----------
Total....................... $11,875,962 $ 8,607,287
=========== ===========
7. LONG-TERM DEBT
Long-term debt at June 30, 1997 and 1996 consisted of the following:
1997 1996
---- ----
Consolidated term loans..... $ 9,973,385 $11,905,952
Revolving line of credit.... 6,500,477 5,933,659
Equipment acquisition
term notes payable......... 1,768,673 1,422,762
Real estate term note
payable.................... 666,667 730,667
----------- -----------
18,909,202 19,993,040
Less current portion........ (2,422,950) (2,320,672)
----------- -----------
$16,486,252 $17,672,368
=========== ===========
Effective July 21, 1995, the Company, in conjunction with its
acquisition of NASS, 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, as of June 30, 1997,
consist of the following:
1) Term loans of $13,700,000 original principal balance and
$9,973,385 outstanding at June 30, 1997. 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 term loans bear interest at a blended rate
of 6 month and 12 month LIBOR plus 1 1/2% (7.428% at June 30,
1997). The term loans were used for funding the acquisition of
NASS and for refinancing Company debt,
2) A revolving line of credit of $10,000,000 with interest payable
monthly at either the bank's prime rate less 1/2% (8.00% at June
30, 1997) or a blended rate of 6 month and 12 month LIBOR plus 1
1/4 % (7.9375%) at June 30, 1997. As of the balance sheet date,
the revolving line of credit was due to expire on July 21, 1998
and is reflected as a long-term liability on the financial
statements. A commitment fee of 1/4%, per annum, is charged on
the average unused portion of the revolving line of credit to
the bank, payable quarterly. As of June 30, 1997, $6,500,477 had
been used on the line of credit, of which $5,590,000 was used to
complete financing on the acquisition of NASS, and $3,499,523 is
available,
F-10
<PAGE>
(3) An equipment acquisition facility of $3,000,000 for the
financing of equipment purchases with term loans of $2,142,440
original principal balance used under the facility and
$1,768,673 outstanding and $1,231,327 available under the
facility at June 30, 1997. Any term notes payable issued under
this facility bear interest, at the Company's option, at either
prime rate or LIBOR plus 1 1/2% (7.727% at June 30, 1997).
Principal payments on the equipment acquisition facility of
approximately $35,700 together with interest are payable monthly
and have a five year term;
In addition to the above credit facility, the Company 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
$666,667 outstanding balance at June 30, 1997, is payable in monthly
installments of $5,333 plus interest at the prime rate (8.50% at June
30, 1997).
All of the notes and line of credit are collateralized by the accounts
receivable, inventory, equipment and real estate of the Company. 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 revolving line of credit. The Agreement contains
certain covenants relating to tangible effective net worth, debt and
cash flow coverage ratio.
Principal payments on long-term debt, excluding the revolving line of
credit, due in each of the next five fiscal years and thereafter are
$2,422,950, $2,422,950, $2,422,950, $2,348,067, $2,123,421 and $668,387,
respectively. Interest payments during the years ended June 30, 1997,
1996 and 1995 were $1,662,215, $1,659,373 and $283,377, respectively.
As of August 30, 1997, the bank increased the revolving line of credit
to $12 million and extended the expiration date to July 21, 1999.
Effective September 18, 1997 the bank increased the remaining
availability under the agreement from $1,231,327 to $3,000,000.
8. INCOME TAXES
The provision for federal income taxes for the years ended June 30,
1997, 1996 and 1995 consisted of the following:
1997 1996 1995
---- ---- ----
Current:
Federal ................ $ (205,251) $1,274,580 $1,411,000
State .................. 145,699 113,000 123,000
Deferred ............... (783,017) 676,000 482,000
---------- ---------- ----------
Total ................... $ (842,569) $2,063,580 $2,016,000
========== ========== ==========
The following is a reconciliation between the Company's income tax
expense calculated using the statutory federal income tax rate and the
tax expense calculated using the effective income tax rate for the years
ended June 30, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Pretax book income at
statutory rate..............$ (849,897) $1,936,450 $1,916,000
State taxes..................... 33,257 113,000 123,000
Other........................... (25,929) 14,130 (23,000)
---------- ---------- ----------
$ (842,569) $2,063,580 $2,016,000
========== ========== ==========
F-11
<PAGE>
The components of net deferred tax assets and liabilities at of June 30,
1997 and 1996 consisted of the following:
1997 1996
---- ----
Deferred assets:
Book accruals and reserves
in excess of cumulative tax
deductions...................... $ 1,599,293 $ 413,627
Inventory capitalization........... 174,789 59,000
----------- -----------
Total.............................. $ 1,774,082 $ 472,627
=========== ===========
Deferred liability - tax
depreciation in excess of book.... $ 2,595,392 $ 2,077,589
=========== ===========
Tax payments during the years ended June 30, 1997, 1996 and 1995 were $139,000,
$1,630,000 and $1,725,000, respectively.
9. SALES TO MAJOR CUSTOMERS
The Company's five largest customers with their percentages of the
Company's net sales for the 1997, 1996 and 1995 fiscal years were as
follows:
Percentage of Net Sales
-----------------------
Customer 1997 1996 1995
---- ---- ----
Ford........................................ 30% 30% 23%
Chrysler.................................... 7 7 1
Borg-Warner................................. 6 7 17
General Motors.............................. 6 9 12
Bosch (formerly AlliedSignal)............... 6 7 10
The Company's customers are primarily in the automotive industry and, as
a result, the Company is impacted by the overall economic conditions
within the industry.
10. TRANSACTIONS WITH RELATED PARTIES
During the year ended June 30, 1997, 1996 and 1995 the Company paid
management fees of $235,000 to Lineberger & Co., LLC, an entity owned by
the Company's Chairman of the Board.
In connection with the acquisition of North American Spring and Stamping
Corp. on July 21, 1995, Lineberger & Co., LLC was paid a transaction fee
of $150,000.
11. CONTINGENCIES
In May 1997 the Company initiated a suit in the United States District
Court for the Northern District of Illinois (Eastern Division) against
the Selling Shareholders of NASS (now known as the specialty components
and assemblies division). The Company alleges, among other things, that
the Selling Shareholders made material misrepresentations in connection
with the Company's acquisition of NASS and the Company is seeking that
the Selling Shareholders pay substantial damages to the Company and/or
that the transaction be rescinded. The Selling Shareholders have
responded in
F-12
<PAGE>
court by denying all claims of the Company and countersuing for recovery
of legal costs. Management of the Company intends to vigorously
prosecute this action.
In the normal course of business, the Company is subject to certain
claims and litigation related to on-the-job injuries. The Company does
not believe that any claims will have a material adverse effect on the
Company.
12. LEASE COMMITMENTS
The following is a schedule of future minimum lease payments under
operating leases with initial lease terms in excess of one year:
Operating
Leases
-----------
Year ending June 30,
1998................................. $ 362,531
1999................................. 352,593
2000................................. 210,520
2001................................. 83,399
2002................................. 4,624
Thereafter........................... --
-----------
Total minimum lease payments......... $ 1,013,667
===========
Total minimum lease payments have been reduced by $171,000 to reflect
the total minimum lease payments expected to be received under a
noncancelable sublease arrangement. Rental expense for the years ended
June 30, 1997, 1996 and 1995 was $500,047, $419,231 and $202,426,
respectively.
13. EMPLOYEE BENEFITS
The Company sponsors three defined contribution retirement plans for
Company employees. Employees are eligible to participate in the plan
upon attaining certain age and service requirements. Under these plans,
eligible employees may contribute amounts through payroll deductions.
Employer contributions are made either through matching contributions of
employee deductions or through a discretionary contribution. During the
years ended June 30, 1997, 1996 and 1995, a discretionary contribution
was expensed of $346,000, $360,000 and $231,000, respectively.
The Company has noncontributory defined benefit pension plans covering
NASS salaried and bargaining unit employees. Pension plan assets are
primarily invested in marketable equity securities and corporate and
government securities. Benefits are generally based on years of service,
age at retirement and the employee's compensation. The Company's funding
policy is to contribute amounts equal to, or exceeding, minimum funding
requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The projected benefit obligation, plan assets and net
periodic pension cost associated with these defined benefit pension
plans are not significant to the Company's consolidated financial
statements.
In December 1995, the Company froze all benefits in the NASS defined
benefit pension plan for salaried employees. In June 1997, the Board of
Directors of the Company approved the termination of the plan. Those
participants who are vested and receiving benefits will continue to
receive benefit
F-13
<PAGE>
payments through termination date when all remaining assets will be
distributed in accordance with the plan provisions.
The Company sponsors two self-funded employee benefit plans which
provide comprehensive medical benefits and life and accidental death and
dismemberment insurance to Company employees and their dependents.
Eligible employees include all employees (excluding union employees at
the NASS location) who work full-time (at least thirty hours per week)
and have completed either thirty or sixty days of continuous full-time
employment, depending on their classification. During the years ended
June 30, 1997, 1996 and 1995, the Company incurred expense of
$1,637,000, $1,230,000 and $1,084,000, respectively, under these plans.
Union employees at the NASS location receive medical benefits through a
trust administered by a third party. The Company paid premiums into the
trust during the years ended June 30, 1997 and 1996 totaling $682,000
and $613,000, respectively.
Prior to September 1, 1995 the Company elected to use a Texas
Occupational Injury Program in lieu of standard Texas workers'
compensation coverage as permitted by state law. Under this program,
occupational injuries sustained in the course and scope of an
individual's employment with the Company were handled by the Company
through self-insured and insured programs. On September 1, 1995, the
Company acquired Texas workers' compensation coverage which entitles all
employees, through premium payments made by the Company, to full work
related injury benefits as stipulated by state law. Employees at the
NASS facilities are covered under Illinois workers' compensation
coverage.
14. STOCK BASED COMPENSATION
During November 1993, the stockholders of the Company approved a stock
option plan and 100,000 shares of Common Stock were reserved for
issuance upon exercise of the options to be granted to employees,
officers and directors of the Company under the plan. Options
exercisable for 57,800 shares were granted at $9.00 per share, the
initial public offering price of the common stock. All options are
exercisable at June 30, 1997, and no options were exercised during the
years ending June 30, 1997, 1996 and 1995.
Effective November 18, 1994 the Company granted ten year incentive stock
options to four of its officers to each purchase 3,000 shares of the
Company's Common Stock, par value $0.01 per share, at an exercise price
of $9.00, the fair market value at the date of grant. The options become
exercisable as to 1,000 shares on November 18, 1995, 1,000 shares on
November 18, 1996 and 1,000 shares on November 18, 1997.
Effective January 29, 1997, the Company granted ten year incentive stock
options to five of its officers and one other employee. The options,
exercisable for 30,200 shares, were granted at $5.13 per share, the fair
market value at the date of grant. All options are exercisable as of
June 30, 1997. The Company granted an additional 20,200 shares to the
officers and employee pending stockholder approval of an amendment to
the 1993 Stock Option Plan to increase the number of shares authorized
thereunder to 125,000. These options have been accounted for herein as
granted and vested as of June 30, 1997 as management and directors own
sufficient common stock to ensure the amendment will be adopted.
In conjunction with the public offering, 100,000 warrants were issued to
certain Underwriters. The exercise price for these warrants is $10.80
per share. At June 30, 1997 all of these warrants are outstanding and
exercisable.
F-14
<PAGE>
In fiscal 1996, the Company adopted the disclosure-only option under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"). If the Company had recorded
compensation expense in fiscal 1997 and 1996 for the stock options
granted in accordance with the provisions of FAS 123, the proforma net
income (loss) would have been ($1,754,457) and $3,631,857 and the pro
forma net income (loss) per share would have been ($0.36) and $0.74 for
the year ended June 30, 1997 and 1996, respectively. The estimated fair
value of the options granted during the year ended June 30, 1997, using
the Black-Scholes pricing model, is $147,017.
The significant assumptions used to estimate the fair value of the stock
options granted in fiscal 1997 include a risk-free rate of return of
6.70%, expected option life of ten years, expected volatility of 29.48%
and no expected dividend payments.
A summary of stock option activity is as follows:
Summary of Stock Options
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 69,800 $ 9.00 69,800 $ 9.00 57,800 $ 9.00
Options granted 50,400 $ 5.13 -- $ -- 12,000 $ 9.00
Options exercised -- $ -- -- $ -- -- $ --
Options canceled -- $ -- -- $ -- -- $ --
------ ------- ------ ------- ------ -------
Options outstanding at
end of year 120,200 $ 7.38 69,800 $ 9.00 69,800 $ 9.00
======= ======= ====== ======= ====== =======
Options exercisable at
end of year 116,200 $ 7.32 53,396 $ 9.00 40,998 $ 9.00
======= ======= ====== ======= ====== =======
</TABLE>
The following information is presented for stock options outstanding at
June 30, 1997.
Outstanding Exercisable
-------------------------------- ----------------------
Average Average Average
Life Exercise Exercise
Shares (in years) Price Shares Price
-------------------------------- ----------------------
69,800 7 $ 9.00 65,800 $ 9.00
50,400 10 $ 5.13 50,400 $ 5.13
------- ------- ------- -------
120,200 116,200
======= =======
F-15
<PAGE>
SCHEDULE II
HILITE INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
------------------------
Charged to
Balance Charged to other Increases/ Balance
at beginning costs and accounts (Deductions) at end
Description of period expenses describe describe of period
----------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1995 $ 70,000 $ -- $ -- $ -- $ 70,000
========= ========= ========= ======== =========
Year ended June 30, 1996 $ 70,000 $ -- $ -- $ 21,100 (1) $ 91,100
========= ========= ========= ======== =========
Year ended June 30, 1997 $ 91,100 $ 104,327 (2) $ -- $ -- $ 195,427
========= ========= ========= ======== =========
</TABLE>
(1) Amount represents reserve on receivables for North American Spring and
Stamping Corp., acquired on July 21, 1995.
(2) Amount represents specific reserves for primarily pricing disputes at
the specialty components and assemblies division.
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
October 16, 1997 /s/ Roy Wiegmann
----------------------------
Roy Wiegmann
Chief Financial Officer
