HEI, Inc. Announces Fourth Quarter And Fiscal Year 2012 Results

HEI, Inc. (Pink Sheets: HEII) ( http://www.heii.com) today announced its financial results for the fourth quarter and fiscal year 2012, which ended December 29, 2012.

Sales for the fourth quarter of 2012 were $11,426,000 compared to $9,201,000 for the fourth quarter of 2011. The Company generated a net loss of ($245,000) for the fourth quarter of 2012 compared to a net income of $364,000 for the fourth quarter of 2011. Sales for the full fiscal year of 2012 were $40,020,000, compared to $37,415,000 for 2011. The Company generated a net loss of ($1,257,000) for the full fiscal year of 2012 compared to a net income of $1,051,000 for 2011.

Sales were up 24.2% ($2,225,000) year-over-year in the fourth quarter as a result of increases in the Company’s Victoria operation which was partially offset by decreased sales in the Company’s other two operating divisions. Gross margins were down on a consolidated basis with Victoria gross margins improving as a result of improved efficiencies associated with the increased sales volumes while the decline in the other two operating divisions' gross margins were a result of lower sales volumes and lower margin product mixes compared to the prior year. The net loss for fiscal 2012 included an increase to our reserve for inventory obsolescence of $889,000, which had no cash impact during the year. Net cash flow provided by operating activities was $2,399,000 for fiscal year 2012 compared to $1,219,000 for fiscal year 2011.

"The return to profitability for 2012 in our Victoria, Minnesota division was a result of the military radio systems component contracts we secured during the year, as well as strong demand from our telecom and other customers which improved our operational effectiveness. Unfortunately, Victoria’s turnaround was not enough to compensate for the slowdown in both the Boulder and Tempe facilities. We are entering 2013 with strong backlogs and strong demand from our new and existing customers, along with an increased focus on sales and customer expansion," commented HEI CEO, Mark B. Thomas.

The audited financial statements for the year ended December 29, 2012 are included in the 2012 Annual Report which can be found on our website at the following link: http://www.heii.com/HEICorporate/NewsEvents/tabid/63/Default.aspx

 
HEI, Inc. designs, develops and manufactures ultra-miniature microelectronics, high density interconnect flexible and rigid-flex substrates, electromechanical hardware, and embedded software with complex user interface solutions for customers engaged in the medical, hearing, telecommunications, military, aerospace, and industrial markets. HEI provides its customers with a single point of contact that can take an idea from inception to a fully functional and cost effective product utilizing innovative design solutions and by the application of state-of-the-art materials, processes and manufacturing capabilities.
 
Corporate & HEI –Victoria (Microelectronics Contract Manufacturing)   1495 Steiger Lake Lane, Victoria, MN 55386
HEI – Boulder (Design and Development, Box Build and ATE) 4801 North 63rd Street, Boulder, CO 80301
HEI – Tempe (Quick Turn and Production High Density Interconnect Flex and Rigid-Flex)   610 South Rockford Drive, Tempe, AZ 85281
 

FORWARD LOOKING INFORMATIONInformation in this news release, which is not historical, includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “continue,” and similar words. Statements contained in this press release, including the implementation of business strategies, growth of specific markets, improved results and estimated HEI revenue, cash flow and profits, are forward looking statements. All such forward-looking statements involve risks and uncertainties including, without limitation, adverse business and market conditions, the ability of HEI to secure and satisfy customers, the availability and cost of materials from HEI’s suppliers, HEI’s ability to satisfy financial or other obligations or covenants set forth in its financing agreements, adverse competitive developments, change in or cancellation of customer requirements, collection of receivables and outstanding debt, HEI’s ability to control fixed and variable operating expenses, and other risks detailed in previous HEI SEC filings. Since HEI is no longer reporting to the SEC, readers are cautioned to weigh the potential for additional risk factors based on ongoing business activities and the current economic conditions. The information set forth herein should be read in light of such risks. We undertake no obligation to update these statements to reflect ensuing events or circumstances, or subsequent actual results.
 
HEI, INC.
BALANCE SHEETS
   

December 29, 2012

December 31, 2011
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ - $ -

Accounts receivable, net of allowance for doubtful accounts of $45 and $35, respectively
4,538 5,489
Inventories, net 5,454 4,680
Deferred income taxes 804 447
Other current assets   712     253  
Total current assets   11,508     10,869  
 
Property and equipment:
Land 216 216
Building and improvements 4,337 4,337
Fixtures and equipment 28,554 26,676
Accumulated depreciation and amortization   (27,005 )   (25,788 )
Property and equipment, net 6,102 5,441
Security deposit 230 230
Other long-term assets   205     328  
Total assets $ 18,045   $ 16,868  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 3,129 $ 2,151
Accrued liabilities 1,019 701
Customer deposit liabilities 712 11
Current maturities of long-term liabilities   1,120     927  
Total current liabilities   5,980     3,790  
 
Long-term liabilities:
Deferred income taxes 804 447
Other long-term liabilities, less current maturities 2,465 2,443
Long-term debt, less current maturities   5,583     5,933  
Total long-term liabilities, less current maturities   8,852     8,823  
Total liabilities   14,832     12,613  
 
Commitments and contingencies
 
Shareholders’ equity:
Undesignated stock; 5,000,000 shares authorized; none issued - -
 

Convertible preferred stock, $.05 par; 167,000 shares authorized; 32,000 shares issued and outstanding; liquidation preference at $26 per share (total liquidation preference $832)
2 2
 

Common stock, $.05 par; 20,000,000 shares authorized; 10,973,390 issued and 10,262,501 outstanding shares at December 29, 2012; 11,155,023 issued and 10,120,023 outstanding at December 31, 2011
513 506
Additional paid-in capital 28,641 28,433
Accumulated deficit   (25,943 )   (24,686 )
Total shareholders’ equity   3,213     4,255  
Total liabilities and shareholders’ equity $ 18,045   $ 16,868  
 
HEI, INC.
STATEMENTS OF OPERATIONS
     
 
Fiscal Years Ended
December 29, 2012 December 31, 2011 January 1, 2011
(In thousands, except share and per share data)
 
Net sales $ 40,020 $ 37,415 $ 36,420
Cost of sales   35,724     31,586     31,736  
Gross profit 4,296 5,829 4,684
 
Operating expenses:
Selling, general and administrative   5,120     4,454     4,934  
Operating income (loss) (824 ) 1,375 (250 )
 
Interest expense, net (446 ) (364 ) (286 )
Other income (expense), net   17     40     167  
Income (loss) before income taxes (1,253 ) 1,051 (369 )
 
Income tax expense   (4 )   -     -  
Net income (loss) $ (1,257 ) $ 1,051   $ (369 )
 

Income (loss) per common share:
Basic $ (0.12 ) $ 0.11 $ (0.04 )
Diluted $ (0.12 ) $ 0.10 $ (0.04 )
 

Weighted average common shares outstanding:
Basic 10,180,352 9,979,516 9,766,000
Diluted 10,180,352 10,290,885 9,766,000
 
HEI, INC.
STATEMENTS OF CASH FLOWS
     
Fiscal Years Ended
December 29, 2012 December 31, 2011 January 1, 2011
(In thousands)
 
Cash flow from operating activities:
Net income (loss) $ (1,257 ) $ 1,051 $ (369 )

Adjustments to reconcile net income (loss) to cash flow from operating activities:
Depreciation and amortization 1,659 1,613 1,817
Change in allowance for doubtful accounts 10 (18 ) (77 )
(Gain) loss on disposal of property and equipment (6 ) (3 ) (19 )
Stock-based compensation expense 215 204 153
Amortization of long-term and unfavorable lease (39 ) - -
 
Changes in operating assets and liabilities:
Accounts receivable 941 (401 ) (1,428 )
Inventories (774 ) (321 ) (1,407 )
Other current assets (347 ) (17 ) 219
Accounts payable 978 (586 ) 987
Accrued liabilities 318 (17 ) (208 )
Customer deposit liabilities   701     (286 )   69  
Net cash flow provided by (used in) operating activities 2,399 1,219 (263 )
 
Cash flow from investing activities:
Additions to property and equipment (1,957 ) (1,194 ) (1,614 )
Proceeds from the sale of assets 54 20 -
Additions to patents   -     (29 )   (29 )
Net cash flow used in investing activities (1,903 ) (1,203 ) (1,643 )
 
Cash flow from financing activities:
Payment of debt issuance costs - - (23 )
Repayment of long-term debt (1,047 ) (812 ) (608 )
Proceeds from leases and long-term debt 490 784 716
Proceeds (repayments) of long-term debt - revolving line of credit, net   61     12     1,821  
Net cash flow provided by (used in) financing activities (496 ) (16 ) 1,906
 
Net decrease in cash and cash equivalents - - -
Cash and cash equivalents, beginning of year   -     -     -  
Cash and cash equivalents, end of year $ -   $ -   $ -  
 
Supplemental disclosures of cash flow information:
Interest paid $ 428 $ 331 $ 309
Taxes paid - - -
 
Supplemental disclosures of non-cash financing and investing activities:
Issuance of common stock for vested restricted stock awards $ 7 $ 12 $ 8
Capital lease assets acquired 400 252 -

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