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 March 31, 1998
Commission file number 0-22924
HILITE INDUSTRIES, INC.
(Exact name of registrant specified in its charter)
Delaware 75-2147742
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1671 S. Broadway
Carrollton, Texas 75006
(Address of principal (Zip code)
executive offices)
(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 May 11, 1998, the Company had 4,900,000 shares of Common
Stock outstanding.
<PAGE>
HILITE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
Page
Part I FINANCIAL STATEMENTS
Item 1. Consolidated Financial
Statements
Consolidated Balance Sheets
as of March 31, 1998 and
June 30, 1997 3
Consolidated Statements of
Operations for the Three
and Nine Months Ended
March 31, 1998 and 1997 4
Consolidated Statements of
Cash Flows for the Three
and Nine Months Ended
March 31, 1998 and 1997 5
Notes to Interim
Consolidated Financial
Statements 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations. 9
Part II. OTHER INFORMATION 15
<PAGE>
<TABLE>
HILITE INDUSTRIES, INC.
Consolidated Balance Sheets
March 31, June 30,
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable, less
allowance for doubtful accounts
of $253,071 and $195,427 at
March 31 and June 30, respectively 12,545,248 9,991,098
Tooling receivables 709,865 96,734
Inventories 10,914,737 10,075,786
Deferred income taxes 1,774,082 1,774,082
Prepaid expenses and other 816,769 739,803
Total current assets 26,760,701 22,677,503
Property, plant and equipment
at cost 40,704,462 38,400,240
Less: accumulated depreciation
and amortization (14,582,284) (12,077,533)
Property, plant and
equipment, net 26,122,178 26,322,707
Assets held for disposal 2,191,283 2,330,800
Goodwill, net of amortization 3,955,256 5,888,167
TOTAL ASSETS $ 59,029,418 $ 57,219,177
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 12,610,775 $ 11,875,962
Long-term debt--current portion 2,422,950 2,422,950
Income taxes payable 425,932 49,883
Total current liabilities 15,459,657 14,348,795
Long-term debt 16,022,184 16,486,252
Deferred income taxes 2,595,392 2,595,392
Subordinated debt 0 1,785,184
Total non-current liabilities 18,617,576 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 16,042,511 12,848,880
Dividends paid (245,000)
Total shareholders' equity 24,952,185 22,003,554
TOTAL LIABILITIES AND $ 59,029,418 $ 57,219,177
SHAREHOLDERS' EQUITY ========== ==========
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 22,106,855 $ 18,754,695 $ 63,763,644 $ 53,180,631
Cost of sales 17,592,124 15,755,508 50,962,220 46,083,667
---------- ---------- ---------- ----------
Gross profit 4,514,731 2,999,187 12,801,424 7,096,964
Selling, general and 2,067,652 2,120,866 6,778,701 6,034,335
administrative expenses------- --------- ---------- ---------
Operating income 2,447,079 878,321 6,022,723 1,062,629
Interest expense, net 186,759 436,773 986,777 1,267,675
--------- -------- --------- ---------
Income (loss) before 2,260,320 441,548 5,035,946 (205,046)
income taxes
Income tax provision 797,393 303,127 1,842,315 31,791
--------- -------- --------- ---------
Net income (loss) $ 1,462,927 $ 138,421 $ 3,193,631 $ (236,837)
========= ======== ========= =========
Per share data:
Basic and fully-diluted
earnings (loss) per $ 0.30 $ 0.03 $ 0.65 $ (0.05)
share
Weighted average number
of shares outstanding4,900,000 4,900,000 4,900,000 4,900,000
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Nine Months Ended March 31
1998 1997
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 3,193,631 $ (236,837)
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 2,530,898 2,631,750
Amortization 227,972 247,477
Increase in net deferred income taxes 0 237,853
--------- ---------
Cash provided from operations before
changes in operating assets and
liabilities 5,952,501 2,880,243
Changes in operating assets and
liabilities:
Increase in accounts receivable (2,554,150) (207,296)
(Increase) decrease in tooling
receivable (613,131) 760,982
Increase in inventories (838,951) (1,583,226)
Increase in prepaid expenses and
other current assets (76,966) (226,568)
Increase in accounts payable and
accrued expenses 654,568 828,437
Increase (decrease) in income taxes
payable 376,049 (205,414)
--------- ----------
Total changes in operating assets
and liabilities (3,052,581) (633,085)
----------- ---------
Net cash provided by operations 2,899,920 2,247,158
Cash flows used in investing activities:
Net additions to property, plant
and equipment (2,190,852) (3,915,429)
----------- -----------
Net cash used in investing activities (2,190,852) (3,915,429)
Cash flows from financing activities:
Payment of cash dividend (245,000) $ 0
Repayment of debt and capital lease (1,817,204) (1,737,464)
Repayment of subordinated debt 0 (75,000)
Net increase in note payable 1,353,136 3,480,735
--------- ---------
Net cash from financing activities (709,068) 1,668,271
--------- ---------
Net decrease in cash and cash equivalents 0 0
Cash and cash equivalents at beginning
of period 0 0
---------- ---------
Cash and cash equivalents at end of
period $ 0 $ 0
========== ============
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
<PAGE>
HILITE INDUSTRIES, INC.
Notes to Interim Financial Statements (Unaudited)
1. BUSINESS AND BASIS OF PRESENTATION
The interim financial statements of Hilite Industries, Inc.
("Hilite") at March 31, 1998 and for the nine-month period ended
March 31, 1998, 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. As used herein, unless the context
otherwise requires, the term the 'Company' refers collectively to
Hilite and Hilite's directly and indirectly wholly-owned subsidiaries
Hilite Industries - Texas, Inc., North American Spring and Stamping
Corp. ('NASS'), Hilite Industries - Delaware, Inc. and Hilite
Industries Automotive, LP, the Company's principal operating entity.
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 nine-month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 1998.
2. INVENTORIES
Inventories at March 31, 1998 and June 30, 1997 consisted of the
following:
March 31 June 30
Raw materials $ 4,497,221 $ 3,916,344
Work in process 2,363,175 2,254,960
Finished goods 4,054,341 3,904,482
--------- ---------
$10,914,737 $10,075,786
=========== ===========
<PAGE>
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
connection with this plan, the Company recorded a charge to pre-tax
earnings in fiscal 1997 totaling 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 for which no future economic
benefit will be received (approximately $1,600,000) and other costs
(approximately $200,000). For the three and nine months ending March
31, 1998 approximately $278,000 and $765,000, respectively, had been
charged against the accrual for terminating contractual obligations
and approximately $5,000 and $25,000, respectively, had been charged
against the accrual for other costs.
4. LAWSUIT SETTLEMENT
In May 1997 the Company initiated a suit in the United States
District Court for the Northern District of Illinois (Eastern
Division) against the former owners of NASS. The Company alleged,
among other things, that the Former owners made material
misrepresentations in connection with the acquisition of NASS. On
February 13, 1998 an agreement was reached between the Company and
the former owners of NASS to settle the suit. Under the terms of the
Settlement Agreement, the Company is relieved of its obligation to
pay approximately $2 million in principal and interest under the Note
issued as part of the consideration for the acquisition of NASS. The
reduction in the principal amount of the note was credited against
goodwill. The Company will not be required to make any future
payments under the employment and non-compete agreements with the
former owners and, in addition, the former owners reimbursed the
Company for a portion of its legal fees incurred in connection with
the law suit. The former owners, however, remain bound by the non-
competition provisions in their respective employment agreements. In
addition, the parties executed limited mutual general releases.
5. 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:
<PAGE>
1) A revolving line of credit of up to $12,000,000 subject to
availability requirements. As of March 31, 1998, $7,854,000 had been
used on the line of credit and $4,146,000 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 7.14% to
8.00% at March 31, 1998. 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 March 31, 1998 of $8,526,000. 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 March 31, 1998,
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 March 31, 1998, 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 $619,000 outstanding balance at
December 31, 1997, is payable in monthly installments of $5,333 plus
interest at the prime rate (8.50% at March 31, 1998) 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 $899,000 and 549,000, respectively, at March
31, 1998, are payable in monthly installments of $24,961 and $10,757,
respectively at LIBOR plus 1 1/2% (7.25% and 7.73%, respectively, at
March 31, 1998) 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.
6. CONTINGENCIES
On January 28, 1998, the Company announced that it had been
notified by a division of Ford Motor Company that a part manufactured
by the Company's specialty components and assemblies division may be
involved in a recall regarding a fuel gauge accuracy problem with
certain 1997 model year vehicles. Based upon information currently
available to the Company, management believes that this matter will
be resolved in a manner not materially adverse to the Company.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
Results of Operations
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
Net sales for the quarter ended March 31, 1998 were $22,107,000
compared to $18,755,000 for the quarter ended March 31, 1997,
representing a increase of $3,352,000 (17.9%). Brake valve sales
increased 31.2% to $7,298,000 in the third fiscal quarter of 1998
from $5,561,000 in the prior year. The increase resulted from new
programs which commenced since the third quarter of the prior year
such as the P-90 and W-Car programs for GM, the relief valve and
UPN150 programs for Bosch and an actuator assembly for Chrysler.
Power transmission component sales decreased slightly to $5,961,000
for the quarter ended March 31, 1998 from $5,977,000 in the same
period for fiscal 1997. The slight decrease is attributable to
decreased demand for machined brackets to Mitsubishi and a $500,000
one time sale of a bracket to Honda which occurred in the prior year
offset partially by increased sales of air-conditioning compressor
clutches for the heavy truck industry and 4-wheel drive transfer case
components for utility vehicles. Third quarter 1998 sales were
$8,848,000 for the specialty components and assemblies division, an
increase of 22.6% over last year's third quarter sales of $7,217,000.
The increase in sales is primarily due to significantly higher sales
of certain assemblies to Motorola, Inc. and approximately $600,000 of
price increases, some of which are for parts which are scheduled to
be discontinued by the Company and sourced to other suppliers. The
sourcing of parts to other suppliers has been slower than originally
anticipated, however, most of the parts are expected to be completely
phased out by the end of the fiscal year or early in fiscal 1999
according to Ford's most recent production schedules. 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 $4,515,000 (20.4% of net sales)
for the third quarter of the 1998 fiscal year compared to gross
profit of $3,000,000 (16.0% of net sales) for the third quarter of
the 1997 fiscal year. The impact of price and volume increases in
the specialty components and assemblies division and increased sales
volume on the brake valve division were the primary contributors to
the increased gross profit. The improvement in the gross profit
percentage is primarily attributable to pricing and production
improvements at the specialty component and assemblies division and
to the favorable impact of sales volume, without a corresponding
increase in fixed costs, at the brake valve division. These
improvements were offset, in part, by lower margins in the power
transmission components division due to start-up costs associated
with new business.
<PAGE>
Selling, general and administrative expenses were $2,068,000
(9.4% of net sales) in the third quarter of the 1998 fiscal year
compared to $2,121,000 (11.3% of net sales) in the third quarter of
the 1997 fiscal year. The decrease of $53,000 in selling, general
and administrative expenses is primarily due to a $144,000 adjustment
to legal costs associated with the settlement of a lawsuit. This
decrease was offset in part by higher research and development costs
and professional fees.
Interest expense was $187,000 for the three months ended March
31, 1998 compared to $437,000 for the three months ended March 31,
1997. The decrease in interest expense is due to a $190,000
adjustment to accrued interest resulting from the settlement of a
lawsuit with the former owners of NASS. The impact of changes in
interest rates were not significant.
Net income was $1,463,000 (6.6% of net sales) for the third
quarter of the 1998 fiscal year compared to net income of $138,000
(0.7% of net sales) for the same period of the prior fiscal year,
representing an increase of $1,325,000.
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March
31, 1997
Net sales for the nine months ended March 31, 1998 were
$63,764,000 compared to $53,181,000 for the nine months ended March
31, 1997, representing a increase of $10,583,000 (19.9%). Brake valve
sales increased 19.9% to $19,858,000 in the first nine months of
fiscal 1998 from $16,569,000 for the same period of 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, the relief valve and UPN150 programs for Bosch and an
actuator assembly for Chrysler. Power transmission component sales
increased from $15,837,000 in fiscal 1997 to $16,559,000 or 4.6% in
fiscal 1998. This increase is attributable to increased sales of
air-conditioning compressor clutches for the heavy truck industry and
increased sales for 4-wheel drive transfer case components partially
offset by decreased demand for machined brackets to Mitsubishi.
Sales for the first nine months of fiscal 1998 were $27,346,000 for
the specialty components and assemblies division, an increase of
31.6% over last year's sales of $20,776,000. The increase in sales
is primarily due to significantly higher sales of certain assemblies
to Motorola, Inc. and approximately $1,900,000 of price increases,
some of which are for parts which are scheduled to be discontinued by
the Company and sourced to other suppliers. The sourcing of parts to
other suppliers has been slower than originally anticipated, however,
most of the parts will be completely phased out by year end according
to Ford's most recent production schedules. The impact of price
changes in the period, other than those at the specialty components
and assemblies division, was not significant.
<PAGE>
The sales growth in the brake valve division during the first
nine months of fiscal 1998, which is primarily due to new business,
is 20% as compared to the same period in the fiscal 1997 and
substantially exceeds previous Company estimates of 15%. The strong
sales growth is expected to continue into the fourth quarter.
Assuming another favorable year for the automotive industry, a sales
growth rate of 15% for fiscal 1999 seems achievable.
Sales for the power transmission components division have
increased about 5% for the first nine months of the 1998 fiscal year.
Sales growth for this division has been affected by slower than
expected start-up of new business for 4-wheel drive transfer case
components and a decline in sales to Mitsubishi. However, the new
business is now in full production and fourth quarter sales for the
division are expected to be up approximately 20% over the third
quarter. As a result, the expected sales increase for fiscal year
1998 should only be slightly below the previous estimate of 12%.
Sales growth for fiscal year 1999 is expected to approximate 12%.
With the sourcing of products to other suppliers being
substantially completed in the fourth quarter at the specialty
components and assemblies division, sales are expected to decline by
approximately 15% in the fourth quarter over third quarter sales.
Strong non-automotive sales have helped to offset some of the
decreased sales of products being sourced to other suppliers, but the
Company expects some softening of the non-automotive sales in the
fourth quarter and in fiscal 1999.
The Company's gross profit was $12,801,000 (20.1% of net sales)
for the first nine months of the 1998 fiscal year compared to gross
profit of $7,097,000 (13.3% of net sales) for the first six months of
the 1997 fiscal year. The impact of price and volume increases in the
specialty components and assemblies division and increased sales
volume on the brake valve division were the primary contributors to
the increased gross profit dollars. The improvement in the gross
profit percentage is primarily attributable to pricing and
productivity improvements at the specialty component and assemblies
division and to the favorable impact of sales volume, without a
corresponding increase in fixed costs, at the brake valve division.
Also contributing to the improvement over the prior year was that a
charge was taken last year of approximately $920,000 related to
engineering and quality control costs and expenses of the specialty
components and assemblies division. These improvements were offset,
in part, by lower margins in the power transmission components
division due to start-up costs associated with new business.
Selling, general and administrative expenses were $6,799,000
(10.6% of net sales) in the first nine months of the 1998 fiscal year
compared to $6,034,000 (11.3% of net sales) in the first nine months
of the 1997 fiscal year. The increase of $765,000 in selling,
general and administrative expenses is primarily due to increased
commissions, professional fees and research and development costs.
<PAGE>
Interest expense was $987,000 for the nine months ended March
31, 1998 compared to $1,268,000 for the nine months ended March 31,
1997. The decrease is primarily due to a $190,000 adjustment to
accrued interest resulting from the settlement of a lawsuit with the
former owners of NASS. The impact of changes in interest rates were
not significant.
Net income was $3,194,000 (5.0% of net sales) for the first nine
months of the 1998 fiscal year compared to a loss of $237,000 (-0.4%
of net sales) for the same period of the prior fiscal year,
representing an increase of $3,431,000 or $0.70 per share.
Liquidity and Capital Resources
During the nine-month period ended March 31, 1998, the Company's
net cash provided from operations before changes in operating assets
and liabilities was $5,952,000 compared to $2,880,000 in the same
period of the prior year, primarily due to the increase in net income
over the prior year. At March 31, 1998 the Company's working capital
was $11,724,000 compared to working capital of $8,329,000 at June 30,
1997. The current ratio was 1.8 to 1 at March 31, 1998 and 1.6 to
1.0 at June 30, 1997. The book value per share increased to $5.09 at
March 31, 1998 from $4.49 per share at June 30, 1997.
Cash from operations was used for changes in operating assets
and liabilities of $3,475,000 through the first nine months of the
current year compared to $633,000 during the same period of the prior
year. The increase is primarily due to a $3,167,000 increase in
accounts and tooling receivables. The increase in accounts
receivable is a result of the high level of sales occurring late in
the quarter. The average number of days sales outstanding for
receivables was 52 days at March 31, 1998 compared to 44 days at
June 30, 1997. The increase in the average number of days sales
outstanding is primarily due to a non-typical acceleration in payment
by a significant customer in June 1997 which temporarily lowered the
average number of days sales outstanding at June 30, 1997. The 52
days outstanding at March 31, 1998 is consistent with prior periods.
As of March 31, 1998, no significant amounts were considered
uncollectible. Also, inventories increased by approximately $839,000
primarily due to the increased sales level and due to the new
programs started in the current year.
The Company's capital expenditures were $1,768,000 for the nine
months ended March 31, 1998. The Company presently estimates capital
expenditures for the year ending June 30, 1998 will approximate
$3,000,000, unless new business opportunities require additional
capital commitments. As of March 31, 1998, commitments, net of
progress payments, were $750,000 for capital expenditures and
$900,000 for tooling which is expected to be reimbursed by customers.
<PAGE>
The Company utilized cash to pay down long term debt by a net of
$464,000 in the first nine months of fiscal 1998, while for the
similar period in the prior year, additional bank financing of
$1,668,000 was required. 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 March 31, 1998, $7,854,000 was outstanding and
$4,146,000 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.
During the third quarter, the Company agreed to a settlement of
its lawsuit with the Former owners of NASS (See Note 4 to the
Financial Statements). As a result of that settlement, the Company's
subordinated debt of $1,785,000 and accrued interest of $190,000 was
eliminated and goodwill reduced by $1,700,000.
Through the first nine months of fiscal 1998, the Company has
distributed dividends totaling $245,000 as part of a previously
announced a quarterly cash dividend program. On April 23, 1998, the
Company announced a third quarter, 2 1/2 cent dividend to be
distributed in May 1998. With 4,900,000 shares currently
outstanding, a cash requirement of $122,500 will be paid in the
fourth quarter. Subsequent dividends will depend on future operating
results.
On January 28, 1998, the Company announced that it had been
notified by a division of Ford Motor Company that a part manufactured
by the Company's specialty components and assemblies division may be
involved in an Owner Notification Program regarding a fuel gauge
accuracy problem with certain 1997 model year vehicles. Based upon
information currently available to the Company, management believes
that this matter will be resolved in a manner not materially adverse
to the Company.
On March 23, 1998, the Company announced that Ford Motor Company
had restored the Q1 status of the Company's specialty components and
assemblies division. The division had been placed on Q1 probation in
September 1996 due to certain quality issues. The division is still
on probation for quality issues at Visteon, a division of Ford Motor
Company, and the division will continue to make the necessary
improvements to regain its Q1 rating with Visteon. The regaining of
Q1 status with Ford is a significant achievement for the specialty
components and assemblies division in that they will now be eligible
to quote new business with Ford Motor Company. The brake valve and
power transmission component division's have continued to maintain
their Q1 status with Ford throughout this period.
<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 Management's Discussion and Analysis of results of
operation and financial condition and other sections of this document
contain forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. Words such as 'expects,' 'anticipates,' 'intends,' 'plans,'
'believes,' 'seeks,' 'estimates,' or variations of such words and
similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance
and involve 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 automotive and non-automotive build rates, customer
sourcing decisions, manufacturing process efficiencies, cost and
timing of start-up of new products and risks related to technological
changes in components which affect the life of the product. Further,
there can be no assurance that the contingency related to a possible
involvement of the Company in a Ford Owner Notification Program
will be resolved in a manner consistent with the Company's
expectations or without affecting the Company's attempt to regain
its Q1 status at the Ford Visteon division. These 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') and
Forms 10-Q filed quarterly with the SEC, copies of which are
available from the SEC or may be obtained upon request from the
Company.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
Cash Dividend
On April 23, 1998, the Company announced a 2 1/2 cent cash
dividend to be distributed in May 1998. Through the first nine
months of fiscal 1998, $245,000 has been distributed. Subsequent
dividends will depend upon future operating results.
Regaining of Q1 status with Ford
On March 23, 1998, the Company announced that Ford Motor Company
had restored the Q1 status of the Company's specialty components and
assemblies division. The division had been placed on Q1 probation in
September 1996 due to certain quality issues. The division is still
on probation for quality issues at Visteon, a division of Ford Motor
Company, and the division will continue to make the necessary
improvements to regain its Q1 rating with Visteon. The regaining of
Q1 status with Ford is a significant achievement for the specialty
components and assemblies division in that they will now be eligible
to quote new business with Ford Motor Company. The brake valve and
power transmission component division's have continued to maintain
their Q1 status with Ford throughout this period.
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.
<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: May 11, 1998 /s/ Daniel W. Brady
---------------
Daniel W. Brady
Chief Executive Officer
Date: May 11, 1998 /s/ Roy Wiegmann
------------
Roy Wiegmann
Chief Financial Officer
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<PERIOD-END> MAR-31-1998
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