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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to
Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the
fiscal year ended Commission File
November 30, 2003 #09-9599
HIA, INC.
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(Exact name of registrant as specified in its charter)
New York 16-1028783
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(State or other jurisdiction of (Federal employer
Incorporation or Organization) identification number)
4275 Forest Street
Denver, Colorado 80216
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(Address of principal executive office)
(303) 394-6040
---------------------------------------------
(Issuer'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, Par Value $.01
--------------
(Title of Class)
The check mark below indicates whether the Issuer (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 twelve months (or reports), and (2) has been subject
to such filing requirements for the past ninety days.
YES X NO
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. (X).
Indicate by check mark whether the Issuer is an accelerated filer (as defined
in Rule 12b-2 of the Act):
YES NO X
--------- ---------
The Issuer had net sales of $31,088,000 for the fiscal year ended November 30,
2003.
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of January 01, 2004 was $931,000 based on market value of stock as compiled
by finance.yahoo.com.
The number of shares of the only class of Common Stock of the Issuer
outstanding as of January 01, 2004 was 9,303,310.
PART I
Item 1. Business
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(a) General Development of Business
- -----------------------------------
HIA, Inc. (the "Company" or "HIA") was incorporated in 1974. The Company is
a holding company with all of its business conducted through its wholly
owned subsidiary, CPS Distributors, Inc. ("CPS"). Through CPS, the Company
distributes turf irrigation equipment and commercial, industrial and
residential well pumps and equipment on a wholesale basis. The principal
executive offices of the Company are located at 4275 Forest Street, Denver,
Colorado 80216, telephone (303) 394-6040.
(b) Narrative Description of Business
- -------------------------------------
General - The Company acquired CPS, over a hundred-year-old company based
in Denver, Colorado, in February 1984. CPS serves customers in the Rocky
Mountain region in five states consisting of Colorado, Wyoming, New Mexico,
Kansas and Nebraska. CPS carries a variety of brand name products,
including pumps and water systems, water conditioning equipment, pump and
well accessories, pipe valves and fittings and sprinkler system equipment.
The Company's net sales for industrial, commercial and residential pumps
and turf irrigation equipment represented approximately 10% and 90%,
respectively, of net sales for 2003, approximately 10% and 90%,
respectively, of net sales for 2002 and 14% and 86%, respectively, of net
sales for 2001.
On September 15, 2003, the Company sent to all its shareholders a tender
offer for up to 1,000,000 shares of its common stock for a purchase price
of $.50 per share. The total amount expected to be disbursed, as a result
of the tender offer was $540,000 ($500,000 for the common stock and $40,000
for the legal and transfer agent fees). The offer expired on October 13,
2003. The total amount was to be financed by Wells Fargo Banking using the
existing line of credit.
The purposes of the offer was to (1) offer the shareholders the opportunity
to sell some or all of their shares on a basis that was more favorable than
could probably be achieved in the open market (the closing price as of
August 29th, 2003 was $.18 per share) and (2) extend an offer which
represented a good investment opportunity for the Company and its existing
shareholders.
The Company filed the necessary Schedule TO and related documents with the
SEC on September 15, 2003. Amendment 1 was filed on October 7, 2003 which
clarified some non-substantive information required by the Securities and
Exchange Commission. Amendment 2 was filed on October 10, 2003 which
extended the expiration date from October 13, 2003 to October 31, 2003.
Amendment 3 increased the tender offer by 500,000 shares for a total offer
of 1,500,000 shares ($540,000 to $790,000).
The offer expired on October 31, 2003. A total of 1,430,390 shares of common
stock were tendered for a total purchase price of $735,000 (including
$20,000 incurred for legal, transfer agent and other related costs).
On July 3, 2002, the Company purchased 420,000 shares of common stock from
a non-affiliated stockholder for approximately $.56 per share, a total
purchase price of $235,000.
On August 15, 2002 the Company entered into a new loan financing agreement
with Wells Fargo Bank increasing the maximum line of credit to $5,750,000
and specifically authorizing up to $1,000,000 for the repurchase of HIA
common stock.
Marketing - CPS's line of products has changed in response to the supply
and demand forces of the marketplace. The management of CPS believes that
its two divisions (i.e., turf and irrigation equipment and industrial,
commercial and residential pumps and equipment) reduce the cyclicality of
sales and earnings that would otherwise be affected by product line shifts
caused by economic and demographic changes; however, the Company is subject
to the ups and downs of the overall construction activity in the Rocky
Mountain region. The Company purchases approximately 22% of its products
volume from one manufacturer. However, the products purchased can be
obtained from other competing manufacturers but not as a consolidated
product group.
CPS's sales and service engineers provide technical support to assist
customers in developing a system specifically tailored to the customers'
needs.
The irrigation and landscape industry in the Rocky Mountain region will be
facing a critical dilemma in the next few years. The continued drought in
the region has forced municipal water suppliers and government agencies to
restrict water usage, especially for domestic landscape and irrigation
purposes. The desire of homeowners and businesses to maintain lush
blue-grass lawns and expansive gardens will be in direct conflict with
conservation measures dictated by these public and private organizations
until such time as the drought conditions recede or are eliminated.
It is the position of the Company that (considering drought conditions will
continue for the next few years) the market for its products will be
reduced, although not significantly. A 15% to 25% reduction in sales would
not necessarily place the Company in a substantially negative financial
condition. The Company has flexibility within its expense structure to
accommodate such a decline without losing a significant amount of money.
However, declines in excess of those amounts would necessarily cause the
Company to reorganize its operations and possibly the strategic direction of
the Company would need to be changed in order to survive. The Company, at
this time, does not think that these kinds of drastic measures would need to
be put into place.
General conservation measures could be a positive event for the industry,
particularly when considering the business generated by homeowners desiring
to modify their existing irrigation and landscape systems to make them more
drought tolerant. Consumer education required to make these changes in
planning using creative landscape techniques is not new to the industry,
particularly in the dry Southwest region of the country. Colorado, in
particular, and its governmental representatives (in addition to
conservation methods) are looking at increasing water supplies through the
addition of new dams and making existing dams and reservoirs larger and more
efficient. The Company's employees are diligently working with government
agencies and trade organizations to insist that changes in policy are made
in a positive manner with the clear intent of continuing the vitality and
prosperity of our industry.
Customer Base and Seasonality - CPS's customers include contractors,
dealers and municipalities with the majority of sales derived from
contractors. The Company believes neither its aggregate sales nor those of
any of its business units are concentrated in or materially dependent upon
any single customer or small group of customers.
Quotation activity is especially intense in the winter and spring months
(December to April) when contracts are reviewed and eventually awarded for
spring or summer construction. Since approximately 90% of CPS's business is
composed of turf and irrigation products, its sales are concentrated from
March to October and are therefore seasonal in nature.
Competition - The Company operates in a highly competitive market.
Manufacturers have abandoned the exclusive relationships with their
distributors. As a result, the Company is competing with other wholesalers
of the same products.
Most manufacturers have also abandoned prices based on volume buying and
have gone to a pricing system based on a percentage of purchases over the
previous years' business. This change allows smaller wholesalers to buy at
the same price levels as the larger wholesalers. Therefore, a mid-to-large
sized wholesalers, such as CPS, no longer has a price advantage to cover
the higher operating costs of a larger operation.
CPS offers standard discounts on merchandise to its customers. Additional
discounts are given based on quantity of order or annual volume of
purchases, depending on product and competitive conditions. The Company has
monthly specials on certain of its inventory and provides discounts for
orders placed at trade shows. The majority of the programs offered are
based on discounts received from the Company's suppliers. Therefore, there
is no material effect on operating results from providing these discounts.
Each territory salesperson receives a draw against commission. Commission
is determined as a percentage of the gross profit generated from sales to
the accounts in the sales representative's territory. Sales quotas are
established for each area.
CPS emphasizes customer service, convenient availability of products and
knowledge of the industry. However, pricing, currently an important factor,
is expected to continue in importance because the competition can provide
the same products and warranties.
CPS has seven major competitors in its market area for turf and irrigation
equipment and six major competitors in its market area for industrial,
commercial and residential pumps and equipment. It is estimated by
management that CPS has over 15% of the total market in Colorado for
residential pumps and over 38% of the total market in Colorado for turf and
irrigation equipment. Some of CPS's competitors have financial resources
greater than CPS.
Management believes CPS has an established reputation as a distributor of
quality product lines such as Rainbird, Hunter, Lasco and Jacuzzi. CPS
competes primarily on service and, to a lesser extent, on price, quality
and reliability of products, technical services and availability of
products.
Employees - At November 30, 2003, the Company employed 88 persons, of which
24 were warehouse and branch counter employees and 64 were sales and
administrative employees. The Company considers its employee relations to be
good. None of the Company's employees is covered by union contracts or
collective bargaining agreements.
The Company uses computer resources for its order entry, inventory, payroll
and accounting function.
Item 2. Properties
- ------------------
The Company's leased facilities in Denver, Colorado are comprised of an
aggregate of 32,265 square feet of offices and warehouse on 166,000 square
feet of land. This building serves as the main warehouse of CPS and the
executive offices of the Company. The lease has a ten-year term, beginning
March 1995, with monthly rent at $9,500 for the first five years, after
which the monthly rent is adjusted by the percentage increase in the
Consumer Price Index. The Company has an option to purchase the related
property at the end of the initial ten-year term at a price approximating
the market value at that time, subject to certain conditions. The Company
also has two five-year options to extend the lease term, one at the
beginning of the eleventh year and one at the beginning of the 16th year.
The Company is to pay for all taxes, insurance and maintenance on the
property.
The Company sold its property in Casper, Wyoming, which consisted of 6,159
square feet of office/warehouse space on 33,600 square feet of land in a
private transaction with an unrelated third party. The sale took place on
September 18, 2001. The property was sold for $58,000 less commissions and
related costs of $5,131. The Company executed a contract for deed with the
buyer which called for payment of $53,000 ($5,000 paid down at closing)
amortized over 15 years at an interest rate of 8.75% per annum, principal
and interest payments made monthly. The Company recorded a capital gain on
the sale of $1,956.
The Company leased a new warehouse facility in Casper, Wyoming on February
18, 2000 with 14,544 square feet of office/warehouse space situated on 2.65
acres of land.
The Company also leases 9,954 square feet of office/warehouse space on
21,781 square feet of land in Colorado Springs, Colorado; 10,100 square
feet of office and warehouse space on 14,000 square feet of land in Fort
Collins, Colorado; 10,000 square feet of office and warehouse space in
Thornton, Colorado; 10,000 square feet of office and warehouse space in
Littleton, Colorado; 13,400 square feet of warehouse/office space in
Englewood, Colorado; 9,120 square feet of office and warehouse space in
Cheyenne, Wyoming and 6,400 square feet of office and warehouse space in
Broomfield, Colorado.
On April 1, 2002, the Company leased a facility in Lakewood, Colorado with
15,000 square feet of warehouse and office space. The facility is located
conveniently next to a major highway and services the west-central territory
of the metropolitan Denver area, a territory previously not serviced by the
Company.
On May 25, 1999, CPS acquired Western Pipe Supply Company (WPS) in Longmont,
Colorado and contracted with the former owner to lease its existing two
facilities. One warehouse facility is located in Boulder, Colorado
consisting of 8,000 square feet of office and warehouse space situated on
1.8 acres of land. The main warehouse facility is located in Longmont,
Colorado consisting of 14,340 square feet of warehouse and office space
situated on 3.9 acres of land. Both facilities utilize the available land
for outside storage and customer pickup of pipe and accessories. Both leases
are for a five-year period with an option to renew the lease for another
five years.
The Company believes its leased facilities are adequate to meet its needs
for the next several years and anticipates that it would encounter little
difficulty in locating alternative facilities should its requirements
change.
Item 3. Legal Proceedings
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As part of its ordinary course of business, the Company is involved in
certain litigious activities from time to time. No litigation exists at
November 30, 2003 or to the date of this report that management or its legal
counsel believe will have a material impact on the financial position or
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
There were no matters submitted to a shareholder vote during the fiscal year
ended November 30, 2003.
PART II
Item 5. Market for the Company's Common Stock and Related Security Holders
- --------------------------------------------------------------------------
Matters
-------
The principal market on which HIA's common stock is traded is the over-
the-counter market. Although at least one market maker continues to quote
prices for HIA's common stock, the Company is not aware of any established
public trading market for HIA's common stock since June 6, 1986.
The following table sets forth the high and low closing bid quotations for
the common stock for the fiscal years ended November 30, 2003, 2002, and
2001. The quotations reflect inter-dealer prices, without adjustment for
retail mark-ups, mark-downs or commissions and may not necessarily represent
actual transactions.
Fiscal year ended November 30, 2003 Bid Quotations
High Low
--------------------------
First Quarter .22 .21
Second Quarter .22 .17
Third Quarter .25 .17
Fourth Quarter .51 .18
Fiscal year ended November 30, 2002 Bid Quotations
High Low
--------------------------
First Quarter .37 .19
Second Quarter .35 .22
Third Quarter .27 .16
Fourth Quarter .28 .16
The approximate number of holders of record of HIA's common stock as of
November 30, 2003 was 800.
The Company has never declared any dividends with respect to HIA's common
stock. The Company has not in the past and is currently restricted from
paying cash dividends under its existing line-of-credit agreement.
During fiscal 2003, 2002 and 2001, the Company issued 750,000, 50,000 shares
and 600,000 shares from treasury to its executive officers for cash proceeds
of $150,000, $15,000 and $150,000 in conjunction with their exercise of
options previously granted. All of the foregoing shares were sold in
reliance upon exemptions afforded by Section 4(2) of the Securities Act and
Regulation D promulgated under the Securities Act.
Forward Looking Statements
--------------------------
Statements made in this Form 10-K that are historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 ("The ACT") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by
the use of terms such as "may," "will," "expect," "believes," "anticipate,"
"estimate," "approximate," or "continue," or the negative thereof. The
Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak
only as of the date made. Any forward-looking statements represent
management's best judgements as to what may occur in the future. However,
forward-looking statements are subject to risks, uncertainties and important
factors beyond the control of the Company that could cause actual results
and events to differ materially from historical results of operations to
revise any forward-looking statements to reflect events or circumstances
after the date of such statement or to reflect the occurrence of anticipated
or unanticipated events.
Item 6. Selected Financial Data
- -------------------------------
The following table sets forth selected consolidated financial data for each
of the Company's last five fiscal years:
__________________________Years Ended November 30,_________________________
2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Net Sales $31,088,000 $31,205,000 $31,270,000 $32,141,000 $26,133,000
Net Income $ 720,000 $ 696,000 $ 365,000 $ 378,000 $ 488,000
Net Income
Per Common
Share $ .07 $ .07 $ .04 $ .04 $ .05
Cash Dividend Per - - - - -
Common Share
AT YEAR END
Total Assets $ 9,567,000 $ 8,644,000 $ 9,320,000 $10,181,000 $ 9,305,000
Long-Term $ 646,000 $ 860,000 $ 1,282,000 $ 1,772,000 $ 2,106,000
Obligations
The following table sets forth selected unaudited consolidated financial data
for each of the Company's last eight fiscal quarters:
___________________________________2003____________________________________
Nov. 30, 2003 Aug. 31, 2003 May 31, 2003 Feb. 28, 2003
------------- ------------- ------------ -------------
Net Sales $ 7,385,000 $ 11,943,000 $ 8,237,000 $ 3,523,000
Gross Profit $ 2,516,000 $ 3,958,000 $ 2,719,000 $ 1,178,000
Net Income $ 43,000 $ 811,000 $ 419,000 ($ 553,000)
Income (Loss) $ .01 $ .08 $ .04 $ (.06)
Per share
___________________________________2002____________________________________
Nov. 30, 2002 Aug. 31, 2002 May 31, 2002 Feb. 28, 2002
------------- ------------- ------------ -------------
Net Sales $ 5,696,000 $ 11,186,000 $ 10,605,000 $ 3,718,000
Gross Profit $ 2,075,000 $ 3,811,000 $ 3,404,000 $ 1,075,000
Net Income ($ 106,000) $ 590,000 $ 774,000 ($ 562,000)
Income (Loss) $ (.01) $ .06 $ .08 $ (.06)
Per share
Item 7. Management's Discussion and Analysis or Plan of Operation
- -----------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
For the year ended November 30, 2003, the Company's net income was $720,000
compared to $696,000 for the year ended November 30, 2002 (previous year). Net
income increased by $24,000 primarily as a result of a decrease in interest
expense of $60,000. Changes in operating results are further explained in the
Results of Operations section of this report.
During the year ended November 30, 2003, the Company provided net cash from
operations of $460,000 as compared to $1,683,000 for the previous year. The
decrease of $1,223,000 was primarily attributable to the increase in accounts
receivable of $1,438,000, the increase in accounts payable of $863,000, the
decrease in other current liabilities of $452,000, the decrease in inventories
of $134,000, the decrease in the allowance for doubtful accounts of $198,000
and the increase in other current assets of $104,000.
The increase in accounts receivable was primarily attributable to the increase
in sales in the fourth quarter of 2003 as compared to the same quarter of 2002
of $1,689,000. The decrease in inventories was primarily due to the continued
diligence of the Company's purchasing department and inventory control
constraints implemented with the installation of the new computer system in
February of 2000. The decrease in current liabilities was primarily
attributable to the increase in bonuses payable to management and officers in
2002 of $249,000 due to the increased operating income for 2002 as compared to
2001 (previous year) and the decrease of $73,000 as a result of having a net
income tax liability in 2002 as compared to a net tax overpayment in 2003. The
increase in other current assets of $104,000 was primarily attributable to the
overpayment of income taxes of $60,000 at the end of 2003 and the addition of
$65,000 of notes receivable in 2003 due to the conversion of three significant
trade receivables to promissory notes. The decrease in the allowance for
doubtful accounts of $198,000 was primarily due to the write-down of the reserve
in 2003 as a result of an improved economy and the substantial redirection of
concern regarding continued drought conditions in the Rocky Mountain region. The
increase in accounts payable of $863,000 was primarily due to the increased
sales in the fourth quarter of 2003 as compared to the same quarter in 2002.
Net cash used in investing activities was $30,000 during 2003 compared to
$77,000 during 2002, a net decrease of $47,000, primarily as a result of reduced
purchases of property and equipment of $55,000 in 2003. During 2003, the Company
removed $446,000 of computer equipment which was 100% depreciated from the fixed
asset totals due to the equipment being replaced by new computer systems
installed during 2000. The equipment was leased and the lease was completely
paid at the time of disposal.
Net cash used in financing activities was $436,000 during 2003 compared to
$1,600,000 during 2002, a net decrease of $1,164,000. The decrease was primarily
attributable to the increase in line-of-credit balances of $1,085,000, the
increase in checks written against future deposits of $377,000 and the net
increase in the purchase of treasury stock of $360,000.
The increase in the line-of-credit balances of $1,085,000 and the increase in
checks written in excess of deposit of $377,000 were primarily attributable to
the purchase of $735,000 of treasury stock in November 2003, the increase of
$1,462,000 accounts receivable partially offset by the increase in accounts
payable and accrued liabilities of $411,000.
On September 15, 2003, the Company sent a tender offer to all its shareholders
which offered to re-purchase up to 1 million shares of HIA, Inc. common stock,
for $.50 per share. The expiration date of the offer was October 31, 2003. On
October 16, 2003 the Company sent a letter to all its shareholders amending the
original offer to re-purchase 1 million shares of its common stock to 1.5
million shares of its common stock (an increase of 500,000 shares) at the same
purchase price and the same expiration date. The Company paid a total of
$735,000 (including $20,000 of legal and transfer fees) for 1,430,390 shares of
common stock at an average price of $.51 per share.
During fiscal 2003, the Company purchased from non-affiliates a total of 1,825
shares of its common stock at an average price of $.33 per share. In addition,
the Company issued to key management (not officers or directors) under existing
stock option agreements, a total of 124,000 shares at an exercise price of $.30
per share. The Company acquired from non-affiliated stockholders 420,000 shares
of its common stock at an average price of $.56 per share during fiscal 2002,
834,006 shares of its common stock at an average price of $.32 per share during
fiscal 2001.
As of December 31, 2001, 105,000 shares of common stock options were subscribed
to by senior managers and executives of the Company, for a total purchase price
of $31,500. Three senior executive managers were given, as a bonus for 2001, an
additional 16,667 shares each (valued at $.30 per share), a total of $15,000.
As of December 31, 2000, 600,000 shares of common stock options were subscribed
to by Directors of the Company for a total purchase price of $150,000.
For the year ended November 30, 2002, the Company's net income was $696,000
compared to $365,000 for the year ended November 30, 2001 (previous year). Net
income increased by $331,000 primarily as a result of an increase in gross
profit of $693,000 and a decrease in interest expense of $162,000 partially
offset by an increase in sales, general and administrative expenses of $394,000
and an increase in income taxes of $117,000. These changes are further explained
in the Results of Operations section of this report.
During the year ended November 31, 2002, the Company provided net cash from
operations of $1,683,000 as compared to $1,076,000 for the previous year. The
increase of $607,000 was primarily attributable to the increase in net income
of $331,000, the increase in accounts receivable of $692,000, the decrease in
inventories of $659,000 and the increase in other current liabilities of
$250,000.
The increase in accounts receivable was primarily attributable to the increase
in average days outstanding in payment terms due to the sluggish economy and the
drought conditions in the Rocky Mountain region which severely curtailed the
cash flow from operations from some of the Company's customer base going into
the late fall and winter months. The decrease in inventories was primarily due
to the continued diligence of the Company's purchasing department and inventory
control constraints implemented with the installation of the new computer system
in February of 2000. Decreased sales of $787,000 in the fourth quarter of 2002
as compared to the same period in the previous year, reducing the requirement
for stocking of inventories, further attributed to the net reductions in
inventory levels. The increase in current liabilities was primarily attributable
to the increase in bonuses paid to management and officers of $249,000 due to
the increased operating income for 2002.
Net cash used in investing activities decreased by $77,000 during 2002 as
compared to a decrease of $7,000 during 2001, a net decrease of $70,000,
primarily as a result of additional purchases of property and equipment of
$43,000 in 2002.
Net cash used in financing activities increased by $1,600,000 during 2002 as
compared to an increase of $1,068,000 during 2001, a net increase of $532,000.
The increase was primarily attributable to the decrease in line-of-credit
balances of $240,000, the increase in checks written against future deposits
of $204,000 and the decrease in the proceeds from sale of treasury stock of
$103,000.
The decrease in the line-of-credit balances were primarily attributable to
the increase in net income of $331,000 during 2002 as compared to the previous
year.
The following is a two-year summary of working capital and current ratios:
2003 2002
---- ----
Working Capital $4,180,000 $4,087,000
Current Ratios 2.11 to 1 2.45 to 1
The decrease in the current ratio in 2003 was primarily due to the similar
amounts of increases in current liabilities (accounts payable and check
written against future deposits) and current assets (accounts receivable) of
approximately $900,000 each which in effect changed the resulting ratio in 2003.
As of November 30, 2003, the Company and its subsidiary had an available
line-of-credit totaling $5,750,000 of which $4,462,000 was available and unused.
The line of credit expires on June 30, 2004 however, management believes that
they will have the opportunity to renew upon expiration.
Management believes that the present working capital as well as its available
line-of-credit is adequate to conduct its present operations. The Company
does not have any additional purchase commitments nor does it anticipate any
additional material capital expenditure for fiscal 2004.
Results of Operations
- ---------------------
Comparison Fiscal 2003 vs. 2002
- -------------------------------
Net sales were down $117,000.
Gross profit percentage remained the same 33.3% in 2003 and 33.2% in 2002.
Selling, general and administrative expenses decreased by $10,000.
Other expense decreased by $38,000 primarily as a result of reduced interest
expense of $60,000. This decrease was primarily due to the decrease in the
average bank borrowings ($1,964,000) during 2003, $2,210,000 during 2002).
Weighted average interest rates on bank borrowings were 4.4% during 2003 and
4.8% during 2002. Additionally, there was a decrease of $39,000 of interest
paid on long term notes and leases due to the principal reductions on the
notes during 2003.
Net income increased by $24,000 for the year ended November 30, 2003, the
Company's net income was $720,000 as compared to $696,000 for the year ended
November 30, 2002 (previous year). Net income increased $24,000 primarily as
a result of an decrease in interest expense of $60,000.
Income Taxes
- ------------
At November 30, 2003, the Company has recorded a current net deferred tax
asset totaling $138,000 and has recorded a noncurrent net deferred tax
asset totaling $62,000. Based upon the Company's recent history of taxable
income and its projections for future earnings, management believes that
is more likely than not that sufficient taxable income will be generated
in the near term to utilize the net deferred tax assets. See Note 6 to the
Company's Consolidated Financial Statements.
The Company's effective tax rate for the year ended November 30, 2003 of
approximately 37.1% differs from the Company's blended Federal and State
tax rate of 37% due primarily to the non-deductible nature of the
amortization of goodwill for tax purposes and other non-deductible items
which is consistent with prior years.
Comparison Fiscal 2002 vs. 2001
- -------------------------------
Net sales were down $65,000. Net sales for the first two quarters of 2002 were
10% greater than the previous year's results, however, the lagging economy and
the continued drought conditions in the Rocky Mountain region suppressed sales
for the remaining two quarters of 2002, thereby creating a virtual match for
the two years being compared.
Gross profit percentage increased from 31% in 2001 to 33% in 2002, an increase
of 2%. This increase was primarily attributable to a continued effort by the
purchasing and marketing departments of the Company to secure better pricing
from vendors and target profitability on sales of specific lines of inventory.
Selling, general and administrative expenses increased by $394,000 primarily
due to the addition of a new branch located in Lakewood, Colorado during April,
2002. The additional expenses incurred by the new branch were $233,000 for 2002.
Other expense decreased by $149,000 primarily as a result of reduced interest
expense of $162,000. This decrease was primarily due to the decrease in the
average bank borrowings ($2,210,000) during 2002, $3,095,000 during 2001).
Weighted average interest rates on bank borrowings were 4.8% during 2002 and
7.4% during 2001. Additionally, there was a decrease of $39,000 of interest
paid on long term notes and leases due to the principal reductions on the notes
during 2002.
Net income increased by $331,000 for the year ended November 30, 2002, the
Company's net income was $696,000 compared to $365,000 for the year ended
November 30, 2001 (previous year). Net income increased by $331,000 primarily
as a result of an increase in gross profit of $693,000 and a decrease in
interest expense of $162,000 partially offset by an increase in sales, general
and administrative expenses of $394,000 and an increase in income taxes of
$117,000.
Income Taxes
- ------------
At November 30, 2002, the Company has recorded a current net deferred tax
asset totaling $170,000 and has recorded a noncurrent net deferred tax
asset totaling $53,000. Based upon the Company's recent history of taxable
income and its projections for future earnings, management believes that
is more likely than not that sufficient taxable income will be generated
in the near term to utilize the net deferred tax assets. See Note 6 to
the Company's Consolidated Financial Statements.
The Company's effective tax rate for the year ended November 30, 2002 of
approximately 38% differs from the Company's blended Federal and State tax
rate of 37% due primarily to the non-deductible nature of the amortization
of goodwill for tax purposes and other non-deductible items which is
consistent with prior years.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
Our significant accounting policies are outlined within Item 8 as Note 2 to the
consolidated financial statements. Some of those accounting policies require us
to make estimates and assumptions that affect the amounts reported by us. The
following items require the most significant judgment and often involve complex
estimation:
Allowance for doubtful accounts: We continuously monitor payments from our
customers and maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. When
we evaluate the adequacy of our allowances for doubtful accounts, we take into
account various factors including our accounts receivable aging, customer
credit-worthiness, historical bad debts, and geographic risk. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. As of
November 30, 2003, our net accounts receivable balance was $3,612,000.
Inventory: Inventory is stated at the lower of cost or net realizable value.
Cost is based on a first-in, first-out basis. We review net realizable value
of inventory in detail on an on-going basis, with consideration given to
deterioration, obsolescence, and other factors. If actual market conditions are
less favorable than those projected by management, and our estimates prove to be
inaccurate, additional write-downs or adjustments to recognize additional cost
of sales may be required. As of November 30, 2003, our inventory balance was
$4,079,000.
Goodwill and intangible assets: We review the value of our long-lived assets,
including goodwill, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully
recoverable or that the useful lives of these assets are no longer appropriate.
As of November 30, 2003, we had $1,234,000 of goodwill and intangible assets
remaining on the balance sheet, the value of which we believe is realizable
based on the estimated future cash flows.
Recent Accounting Pronouncements
- --------------------------------
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity," was issued in May 2003
and requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that
embody obligations for the issuer. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and is otherwise
effective at the beginning of the first interim period beginning after
June 15, 2003. We believe the adoption of SFAS No. 150 will have no
immediate impact on our financial position or results of operations. The
FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to
be made by the guarantor about its obligation under certain guarantees that
it has issued. The adoption of FIN No. 45 did not have a material impact on
our financial position or results of operations. FIN No. 46 requires that a
company that controls another entity through interest other than voting
interest should consolidate such controlled entity in all cases for interim
periods beginning after June 15, 2003. We do not believe the adoption of
FIN No. 46 will have a material impact on our financial position or results
of operations.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
The Company does not have material market risk on market risk sensitive
instruments. It has no exposure to fluctuations in currency exchange rates or
commodity prices. Its only interest rate risk arises from its bank
line-of-credit.
The Company's long-term debt consists of fixed rate loans and capital
leases that are unaffected by interest rate fluctuations and have fair values
approximately equal to their carrying values. It's operating line-of-credit
bears interest at lender prime (4.00% at November 30, 2003). For the year ended
November 30, 2003, the Company's total interest expense was $172,000. Assuming
outstanding borrowings under the Company's revolving line-of-credit at the same
levels that prevailed during fiscal 2003, a 10% decrease or increase in the
prime rate prevailing at year-end 2002 (i.e., from 4.00% to 4.5% or 3.5%) would
result in a decrease or increase of $10,000 in the Company's interest expense
in fiscal 2004.
Item 8. Financial Statements
- ----------------------------
The response to this item is submitted as a separate section of this
report.
Item 9a. Controls and Procedures
- --------------------------------
As of the end of the period covered by this report, the Company evaluated
the effectiveness of the design and operation of its disclosure controls and
procedures and its internal controls and procedures for financial reporting.
This evaluation was done under the supervision and with the participation of
management, including the President and Chief Financial Officer. In accord with
SEC requirements, the President and Chief Financial Officer notes that, since
the date of the evaluation to the date of this Annual Report, there have been
no significant changes in internal controls or in other factors that could
significantly affect internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses. Based upon the
Company's evaluation, the President and Chief Financial Officer has concluded
that the Company's disclosure controls are effective to ensure that material
information relating to the Company is made known to management, including the
President and Chief Financial Officer, particularly during the period when the
Company's periodic reports are being prepared, and that the Company's internal
controls are effective to provide reasonable assurance that the Company's
financial statements are fairly presented in conformity with generally accepted
accounting principles.
PART III
Item 10. Directors and Executive Officers of the Company
- ---------------------------------------------------------
(a) Identification of Directors
The list presented below sets forth the names and ages of all directors
of the Company indicating all positions and offices with the Company
held by each such person and his term of office as director and the
period during which he has served as such.
Name Age Positions Director Since
---- --- --------- --------------
Carl J. Bentley 70 Chairman of the Board 1994
and Director
Alan C. Bergold 55 President, Treasurer 1981
and Director
Donald L. Champlin 52 Executive Vice President, 1994
Secretary and Director
(b) Identification of Executive Officers
The list presented below sets forth the names and ages of all executive
officers of the Company indicating all positions and offices held by
such person and the period during which he has served as such.
Year First
Name Age Positions Elected (1)
---- --- --------- -----------
Carl J. Bentley 70 Chairman of the Board 1996
and Director 1994
Alan C. Bergold 55 President, Treasurer 1996
and Director 1981
Donald L. Champlin 52 Executive Vice President, 1996
Secretary
and Director 1994
(1) All officers serve at the discretion of the Board of Directors.
(c) Business Experience
- -----------------------
The material presented below sets forth a brief account of the business
experience during at least the past five years of each director, executive
officer and significant employee.
Carl J. Bentley, age 70, was appointed Chairman of the Board in October
1996. He joined the Company as General Manager of CPS in July 1985. In
November 1986, he became President and a member of the Board of Directors
of CPS. He was appointed to the Company's Board of Directors in 1994.
Alan C. Bergold, age 55, was appointed President in October 1996 and
Executive Vice President of the Company in July 1983. He served as Vice
President and Secretary of the Company from 1981 to 1983. Mr. Bergold has
been a director of the Company since 1981.
Donald L. Champlin, age 52, was appointed Executive Vice President in
October 1996. He joined the Company as Pump Product Manager in October
1983. In February 1989, he became Vice President of Marketing and a member
of the Board of Directors of CPS. He was appointed to the Company's Board
of Directors in 1994.
(d) Involvement in Certain Legal Proceedings
- --------------------------------------------
None.
(e) Promoters and Control Persons
- ---------------------------------
Not applicable.
(f) Section 16(a) Beneficial Ownership Reporting Compliance
- -----------------------------------------------------------
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during fiscal 2003 and Forms 5 and amendments thereto furnished
to the Company with respect to fiscal 2003, if any, and written representations
furnished to the Company as to the absence of any requirement for the filing of
Forms 5, the Company believes that its officers, directors and 10% beneficial
owners have filed on a timely basis all required Forms 3, 4 and 5 under Section
16(a) of the Exchange Act due in or in respect of the 2003 fiscal year.
(g) Code of Ethics
- ------------------
The Company endeavors to adhere to the requirements as dictated by the SEC
and provide assurances to outside investors and interested parties that the
Company's officers, directors and principal financial manager adhere to a
reasonably responsible code of ethics. The Company keeps a copy of the code on
file at its office located at 4275 Forest Street, Denver, Colorado 80216. For
a copy of the code, without charge, send a written request to HIA, Inc.,
Attention: Shareholder Relations at the aforementioned address.
(h) Audit Committee Financial Expert
- ------------------------------------
The Company has no independent directors. The full Board of Directors serves
on the audit committee and performs the functions so required. There is no
independent financial expert hired or retained by the Company to serve on the
audit committee or to advise the committee. However, the Company considers Alan
C. Bergold (President) to be sufficiently capable in matters of finance and
accounting to serve as a financial expert for the audit committee in lieu of
hiring an independent financial expert.
Item 11. Executive Compensation
- -------------------------------
Summary Compensation Table
--------------------------
The following table reflects cash and non-cash compensation paid or accrued
by the Company during the fiscal years ended November 30, 2003, 2002 and
2001 to or for the account of the chief executive officer and each
executive officer whose cash compensation exceeded $100,000, and all
executives of the Company as a group:
Annual Compensation Long-term Compensation
--------------------------------- --------------------------------------------------
Name and Year Other Restricted Securities
Principal Ended Annual Stock Underlying LTIP All Other
Position Nov. 30 Salary Bonus Compensation Award Options/SARs Payouts Compensation
--------- ------- ------ ----- ------------ ---------- ------------ ------- ------------
Carl J. Bentley 2003 $218,500 $161,983 $ 12,000 $ - - $ - $ 6,798
Chairman of 2002 201,650 156,357 12,000 - - - 5,060
the Board 2001 185,000 96,723 12,000 - 250,000 - 6,720
Alan C. Bergold 2003 $216,000 $161,983 $ 12,000 - - $ - $ 13,968
President 2002 199,150 156,347 12,000 - - - 16,218
2001 182,500 96,723 12,000 - 250,000 - 16,876
Donald L. Champlin 2003 $216,000 $161,983 $ 12,000 - - $ - $ 14,959
Executive 2002 199,150 156,347 12,000 - - - 17,727
Vice-President 2001 182,500 96,723 12,000 - 250,000 - 18,708
The preceding table does not include any amounts for non-cash compensation,
including personal benefits, paid to the above-listed officers. The
Company believes that the value of such non-cash benefits and compensation
paid during the periods presented did not exceed the lessor of $50,000 or
10% of the cash compensation reported.
The Company compensated the directors for payments they made on life
insurance policies on the life of each of the director's lives in order to
substantially complete the purchase of the other director's common stock
ownership in case of death of a director. The details of the stock purchase
agreement are included in the employment agreement of the officers with the
Company. The agreement basically calls for the first right of refusal by
the Company to purchase the deceased directors stock for a price per share
in relation to net book value.
The Company has employment agreements as follows:
Carl J. Bentley (1): $218,500 annual salary per year, adjusted for cost of
living plus seven percent per annum base increase; plus eight and one-half
percent bonus of net pretax income exclusive of contributions to the 401(k)
and profit sharing plan; term of five years beginning May 31, 2001.
Alan C. Bergold (1): $216,000 annual salary per year, adjusted for cost of
living plus seven percent per annum base increase; plus eight and one-half
percent bonus of net pretax income exclusive of contributions to the 401(k)
and profit sharing plan; term of five years beginning May 31, 2001.
Donald L. Champlin (1): $216,000 annual salary per year, adjusted for cost of
living plus seven percent per annum base increase; plus eight and one-half
percent bonus of net pretax income exclusive of contributions to the 401(k)
and profit sharing plan; term of five years beginning May 31, 2001.
(1) There is a provision for payment of one year's compensation as a result of
the sale of all or substantially all of the Company's assets.
(b) Option/SAR Grants in Last Fiscal Year
- -----------------------------------------
% of Total
Options/SARs
Number of ____Granted to______
Securities Exercise Market Grant
Underlying Employees or Base Price Date
Options/SARs in Fiscal Price/ on Date Expiration Present
------------ --------- ------- ------ -------- -------
NONE
(c) Aggregated Option/SAR Exercises and Last Fiscal Year and Year-End
- ---------------------------------------------------------------------
Option/SAR Values
-----------------
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/
Shares Options/SARs SARs at
Acquired Value at FY-end FY-end
Name on Exercise Realized (all exercisable) (all exercisable)
-------- ----------- -------- --------------- ---------------
NONE
Refer to Note 8 to the Consolidated Financial Statements for description
of Stock Option Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
- ----------------------------------------------------
The following table shows the beneficial ownership of Common Stock by each
person known by the Company to own beneficially more than 5 percent of the
outstanding shares of its Common Stock. The Company has no other class of
voting securities.
Common Stock
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
Carl J. Bentley 2,366,153 (1) 24.9%
4275 Forest Street
Denver, CO 80216
Alan C. Bergold 2,852,646 (1) 30.0%
4275 Forest Street
Denver, CO 80216
Donald L. Champlin 2,439,797 (1) 25.7%
4275 Forest Street
Denver, CO 80216
(1) Includes 200,000 shares, which may be acquired pursuant to the
exercise of stock options exercisable on or before December 31, 2005.
(b) Security Ownership of Management
- -------------------------------------
The following table shows the equity securities beneficially owned by all
directors of the Company and all directors and officers of the Company as
a group.
(1) Directors
- -------------
Common Stock
------------
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
Carl J. Bentley 2,366,153 (1) 24.9%
4275 Forest Street
Denver, CO 80216
Alan C. Bergold 2,852,646 (1) 30.0%
4275 Forest Street
Denver, CO 80216
Donald L. Champlin 2,439,797 (1) 25.7%
4275 Forest Street
Denver, CO 80216
(1) Includes 200,000 shares, which may be acquired pursuant to the
exercise of stock options exercisable on or before December 31, 2005.
(2) Directors and Officers as a Group
- -------------------------------------
Amount and Nature of Percent
Title of Class Beneficial Ownership of Class
-------------- -------------------- --------
Common Stock 7,658,596 (1) 77.3%
(par value $.01)
(1) Includes 600,000 shares, which may be acquired pursuant to the
exercise of stock options exercisable on or before December 31, 2005.
(c) Changes in Control
- ----------------------
None.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a) Transactions With Management and Others
- -------------------------------------------
On January 1, 2001, the Board of Directors granted an option to each of the
officers of the Company to purchase 750,000 shares of treasury stock at $.20
per share by December 31, 2003. The options' exercise price was greater than
the common stock's market price at the date of grant.
On July 18, 2001, the Board of Directors granted common stock options to ten
middle and senior managers of the Company. The options totaled 460,000 shares
of which 165,000 shares of options expired on December 31, 2001 if not
subscribed by that date. The option price was $.30 per share. The remainder
of the options were to be exercised no later than December 31, 2002. As of
December 31, 2001, 105,000 shares were subscribed to by the managers which
meant that the remaining 60,000 options expired as of that date. Three senior
managers were given, as a bonus for 2001, an additional 16,667 shares (valued
at $0.30 per share) which were granted on December 20, 2001 when the market
price was $.21 per share.
On July 3, 2002, the Company purchased 420,000 shares of common stock from a
non-affiliated stockholder for approximately $.56 per share, a total purchase
price of $235,000.
As of December 31, 2002, senior managers subscribed to 124,000 shares of options
at a price of $.30 per share. The remaining options outstanding, a total of
171,000 shares, expired on that date.
On September 15, 2003, the Company sent a tender offer to all its shareholders
which offered to re-purchase up to 1 million shares of HIA, Inc. common stock,
for $.50 per share. The expiration date of the offer was October 31, 2003. On
October 16, 2003 the Company sent a letter to all its shareholders amending the
original offer to re-purchase 1 million shares of its common stock to 1.5
million shares of its common stock (an increase of 500,000 shares) at the same
purchase price and the same expiration date. The Company paid a total of
$735,000 (including $20,000 of legal and transfer fees) for 1,430,390 shares of
common stock at an average price of $.51 per share.
During fiscal 2003, the Company purchased from non-affiliates a total of 1,825
shares of its common stock at an average price of $.33 per share. In addition,
the Company issued to key management (not officers or directors) under existing
stock option agreements, a total of 124,000 shares at an exercise price of $.30
per share. The Company acquired from non-affiliated stockholders 420,000 shares
of its common stock at an average price of $.56 per share during fiscal 2002,
834,006 shares of its common stock at an average price of $.32 per share during
fiscal 2001.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions with Promoters
Not applicable.
PART IV
Item 15. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
- --------
(a) The documents listed below have been filed as exhibits to this report. As
used in this exhibit list, "Form 10" means the Company's Registration
Statement on Form 10 filed with the Securities and Exchange Commission in
March 1981.
3.1 Articles of Incorporation (incorporated by reference to
Exhibits 3.1 and 3.2 to Form 10).
3.2 By-laws (incorporated by reference to Exhibit 3.3 to the Form 10).
21 Subsidiary of the Company.
(b) During the last quarter of the period covered by this report the Company
filed a Current Report on Form 8-K dated November 15, 2001 reporting a
change of accountants pursuant to Item 4 of that form.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HIA, INC.
By:__________/s/___________
Alan C. Bergold,
President,
Treasurer and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
______________/s/_______________ Chairman of the Board Feb. 20, 2004
Carl J. Bentley and Director
______________/s/_______________ President, Feb. 20, 2004
Alan C. Bergold Treasurer and Director
______________/s/_______________ Executive Vice Feb. 20, 2004
Donald L. Champlin President, Secretary
and Director
HIA, Inc. and Subsidiaries
Consolidated Financial Statements
For the Years Ended
November 30, 2003, 2002 and 2001
INDEX TO CONSOLIDATED FINANCIAL STATEMENT
PAGE
----
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets - November 30, 2003 and 2002. . . . . . . . . . F-3
Consolidated Statements of Income - For the Years Ended
November 30, 2003, 2002 and 2001. . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity - For the
Years Ended November 30, 2003, 2002, and 2001 . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows - For the Years
Ended November 30, 2003, 2002, and 2001 . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . F-8
INDEPENDENT AUDITOR'S REPORT
Board of Directors
HIA, Inc. and Subsidiaires
Denver, Colorado
We have audited the accompanying consolidated balance sheets of HIA, Inc. and
Subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ending December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of HIA,
Inc. and Subsidiaries as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the three years in the period
ending December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
HEIN & ASSOCIATES LLP
Denver, Colorado
January 16, 2004
F-2
HIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30,
--------------------------
2003 2002
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash $ 1,000 $ 7,000
Accounts receivable, net of allowance
of $107,000 and $146,000, respectively 3,612,000 2,702,000
Inventories 4,079,000 4,011,000
Other current assets 270,000 184,000
Total current assets 7,962,000 6,904,000
PROPERTY AND EQUIPMENT:
Equipment 1,405,000 1,387,000
Leasehold improvements 349,000 337,000
----------- -----------
$ 1,754,000 $ 1,724,000
Less accumulated depreciation and amortization (1,594,000) (1,437,000)
----------- -----------
Net property and equipment 160,000 287,000
OTHER ASSETS:
Goodwill, net of accumulated
amortization of $383,000 1,151,000 1,151,000
Non-compete agreement, net of
accumulated amortization of $67,500
and $37,000 83,000 98,000
Other 211,000 204,000
----------- -----------
Total other assets $ 1,445,000 $ 1,453,000
----------- -----------
TOTAL ASSETS $ 9,567,000 $ 8,644,000
See accompanying notes to consolidated financial statements.
F-3
HIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
NOVEMBER 30,
--------------------------
2003 2002
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line-of-credit $ 1,288,000 $ 1,009,000
Current maturities of long-term debt 215,000 306,000
Current maturities of capital
lease obligations - 118,000
Accounts payable 974,000 294,000
Checks written against future deposits 342,000 86,000
Accrued payroll and bonuses 684,000 633,000
Income taxes payable - 73,000
Other current liabilities 279,000 298,000
Total current liabilities 3,782,000 2,817,000
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 646,000 860,000
Total liabilities $ 4,428,000 $ 3,677,000
COMMITMENTS (Notes 5 and 8)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 20,000,000
shares authorized; 13,108,196 and 13,108,196
issued and 9,303,310 and 9,861,525
outstanding, respectively 131,000 131,000
Additional paid-in capital 3,109,000 3,109,000
Retained earnings 3,247,000 2,527,000
Less treasury stock at cost; 3,804,886
and 3,246,671 shares (1,348,000) (800,000)
Total stockholders' equity $ 5,139,000 $ 4,967,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,567,000 $ 8,644,000
See accompanying notes to consolidated financial statements.
F-4
HIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30,
------------------------------------------------
2003 2002 2001
------------- ------------ -----------
NET SALES $ 31,088,000 $ 31,205,000 $ 31,270,000
COST OF SALES 20,717,000 20,840,000 21,598,000
------------ ------------ -----------
Gross profit 10,371,000 10,365,000 9,672,000
SELLING, GENERAL AND ADMINISTRATIVE 9,132,000 9,142,000 8,748,000
------------ ------------ -----------
OPERATING INCOME 1,239,000 1,223,000 924,000
OTHER INCOME (EXPENSE):
Interest income 67,000 87,000 84,000
Interest expense (172,000) (232,000) (394,000)
Miscellaneous income 38,000 40,000 56,000
------------ ------------ -----------
Total other expense (67,000) (105,000) (254,000)
------------ ------------ -----------
INCOME BEFORE INCOME TAXES 1,172,000 1,118,000 670,000
INCOME TAXES 452,000 422,000 305,000
------------ ------------ -----------
NET INCOME $ 720,000 $ 696,000 $ 365,000
NET INCOME PER COMMON SHARE:
Basic $ .07 $ .07 $ .04
Diluted $ .07 $ .07 $ .04
BASIC WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 10,105,661 10,096,000 10,184,000
------------ ------------ ------------
DILUTED WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 10,105,661 10,158,000 10,217,000
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
F-5
HIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------------ PAID-IN RETAINED ---------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
---------- ----------- ----------- ----------- --------- ---------- -------------
BALANCE, December 1, 2001 13,107,896 $ 131,000 $ 3,109,000 $ 1,466,000 2,747,665 $ (494,000) $ 4,212,000
Issuance of common stock 300 - - - - - -
Issuance of shares held
in treasury - - - - (600,000) 150,000 150,000
Acquisition of treasury stock - - - - 834,006 (268,000) (268,000)
Net income - - - 365,000 - - 365,000
---------- ----------- ----------- ----------- --------- ----------- -----------
BALANCE, November 30, 2001 13,108,196 131,000 3,109,000 1,831,000 2,981,671 (612,000) 4,459,000
Issuance of shares held
in treasury - - - - (155,000) 47,000 47,000
Acquisition of treasury stock - - - - 420,000 (235,000) (235,000)
Net income - - - 696,000 - - 696,000
---------- ----------- ----------- ----------- --------- ---------- -----------
BALANCE, November 30, 2002 13,108,196 131,000 3,109,000 2,527,000 3,246,671 (800,000) 4,967,000
Issuance of shares held
in treasury - - - - (874,000) 187,000 187,000
Acquisition of treasury stock - - - - 1,432,215 (735,000) (735,000)
Net income - - - 720,000 - - 720,000
---------- ----------- ----------- ----------- --------- ---------- -----------
BALANCE, November 30, 2003 13,108,196 $ 131,000 $ 3,109,000 $ 3,247,000 3,804,886 $(1,348,000) $ 5,139,000
See accompanying notes to consolidated financial statements.
F-6
HIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30,
-----------------------------------------------------
2003 2002 2001
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 720,000 $ 696,000 $ 365,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 172,000 236,000 374,000
Gain on sale property - (3,000) (2,000)
Allowance for doubtful accounts (119,000) 79,000 35,000
Allowance for inventory obsolescence 25,000 - 48,000
Deferred income taxes (23,000) (36,000) 18,000
Changes in operating assets and liabilities,
net of business combination:
Accounts receivable (791,000) 671,000 (21,000)
Inventories (93,000) (227,000) 432,000
Other current assets (70,000) 39,000 (15,000)
Accounts payable 680,000 (183,000) (319,000)
Other current liabilities (41,000) 411,000 161,000
------------- ------------ ------------
Net cash provided by operating activities 460,000 1,683,000 1,076,000
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (30,000) (85,000) (42,000)
Increase (decrease) in other assets - 8,000 35,000
------------- ------------ ------------
Net cash used in investing activities (30,000) (77,000) (7,000)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line-of-credit 10,454,000 8,859,000 10,087,000
Repayments on line-of-credit (10,175,000) (9,665,000) (10,653,000)
Repayments on long-term debt (305,000) (297,000) (291,000)
Repayments on capital lease obligations (118,000) (188,000) (176,000)
Acquisitions of treasury stock (735,000) (235,000) (268,000)
Proceeds from sale of treasury stock 187,000 47,000 150,000
Increase (decrease) in checks written
against future deposits 256,000 (121,000) 83,000
------------- ------------ ------------
Net cash used in financing activities (436,000) (1,600,000) (1,068,000)
------------- ------------ ------------
INCREASE (DECREASE) IN CASH (6,000) 6,000 1,000
CASH, beginning of year 7,000 1,000 -
------------- ------------ ------------
CASH, end of year $ 1,000 $ 7,000 $ 1,000
See accompanying notes to consolidated financial statements.
F-7
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------
Principles of Consolidation - The consolidated financial statements include
the accounts of HIA, Inc. (the "Company" or "HIA"), its wholly-owned
subsidiary CPS Distributors, Inc. ("CPS"), and CPS's wholly-owned subsidiary,
Western Pipe Supply ("WPS") and Water Systems, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Lines of Business - The principal business of HIA, conducted through its
subsidiary, is the wholesale business distribution of turf irrigation
equipment and pumps.
Use of Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
Financial Instruments - The following methods and assumptions were used to
estimate the fair value of each class of financial instruments for which it
is practicable to estimate that value.
Fair values of accounts receivables, accounts payable and other current
liabilities are assumed to approximate carrying values for these financial
instruments since they are short term in nature.
The note payable, long-term debt, and capital lease obligations bear interest
at fixed and floating rates of interest based upon lending institutions'
prime lending rate. Accordingly, their fair value approximates their
reported carrying amounts at November 30, 2003 and 2002.
Concentration of Risk - The Company's financial instruments that are exposed
to concentrations of credit risk consist primarily of cash and accounts
receivable. The Company invests temporary cash in demand deposits with
federally insured financial institutions. Such demand deposit accounts at
times may exceed federally insured limits. The Company has not experienced
any losses in such accounts.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers and generally short payment terms. The
Company reviews a customer's credit history before extending credit and
establishes an allowance for doubtful accounts based upon the credit risk of
specific customers, historical trends and other information. Generally, the
Company does not require collateral from its customers.
F-8
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivables and Credit Policies - Trade receivables consist of
uncollateralized customer obligations due under normal trade terms requiring
payment within 30 days of the invoice date. Past due receivables bear
interest at the rate of 1.5% annually. Payments on trade receivables are
applied to the earliest unpaid invoices. Management reviews trades
receivables periodically and reduces the carrying amount by a valuation
allowance that reflects management's best estimate of the amount that may not
be collectible.
Approximately 22% of the Company's inventory is purchased from one major
supplier. If the Company's relationship with this supplier were to cease,
management believes there are sufficient alternative suppliers, such that
there would not be a significant adverse impact on the operations of the
Company.
Inventories - Inventories consist of wholesale goods held for resale, which
are primarily valued at the lower of cost (as determined using first-in,
first-out method) or market.
Cost of Sales - Cost of sales consists of the actual cost of products
purchased for resale and related in-bound shipping charges.
Depreciation, Amortization, Property and Equipment - Property and equipment
are stated at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, which range from three to ten
years. Leasehold improvements and leased equipment are amortized over the
lesser of the estimated useful lives or over the term of the leases. Upon
sale or retirement, the cost and related accumulated depreciation of disposed
assets are eliminated from the respective accounts and the resulting gain or
loss is included in the statements of income. Depreciation expense was
$157,000, $221,000 and $207,000 for the years ended November 30, 2003, 2002,
and 2001.
Long-Lived Assets - Long-lived assets and identifiable intangibles, including
goodwill and the non-compete agreement, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. If the expected undiscounted future cash flow from the use of
the asset and its eventual disposition is less than the carrying amount of
the assets, an impairment loss is recognized and measured using the asset's
fair value.
Goodwill and Non-Compete Agreement - Goodwill and the non-compete agreement
relate to the acquisition of WPS in 1999. Goodwill in accordance with FASB
No. 142 is no longer amortized beginning in fiscal 2002. Had goodwill been
amortized in fiscal 2003 and 2002, the Company would have recorded an
additional $153,000 and $153,000 of amortization, which would have decreased
net income to $567,000 and $543,000, respectively. Additionally, the Company
tests goodwill for impairment annually or on an interim basis if an event or
circumstance occurs between the annual tests that may indicate impairment of
goodwill. The non-compete agreement is being amortized over a 10-year period
using the straight-line method. Amortization expense was $15,000, $15,000 and
$167,000 for the years ended November 30, 2003, 2002, and 2001.
Revenue Recognition - The Company recognizes revenue at the time goods are
shipped to customers in the normal course of business.
F-9
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes - Deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end, based on
enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Income tax expense
equals the tax payable for the period plus the net change during the period
in deferred tax assets and liabilities.
Advertising Costs - The Company recognizes advertising expense when incurred.
Advertising expense was approximately $31,000, $6,700 and $31,000 for the
years ended November 30, 2003, 2002, and 2001.
Net Income Per Common Share - Basic net income per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
net income per share reflects the potential dilution of securities that could
share in the earnings of an entity.
For the year ended November 30, 2003, there were no dilutive shares
outstanding. For the years ended November 30, 2002 and 2001, 62,000 and
32,728 shares, respectively, were included in dilutive shares outstanding
which related to employee stock options to purchase 750,000 shares of the
Company's common stock at $.20 per share. Employee stock options to purchase
460,000 and 600,000 shares of the Company's common stock at $.30 and $.25 per
share were not included in dilutive shares outstanding for the years ended
November 30, 2002 and 2001 as their exercise price exceeded the average
market price of the Company's common stock during the period.
Cash Equivalents - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Stock Option Plans - The Company applies Accounting Principles Board ("APB")
Opinion 25, "Accounting for Stock Issued to Employees," and the related
interpretations in accounting for all stock option plans. Under APB Opinion
25, no compensation cost has been recognized for stock options issued to
employees as the exercise price of the Company's stock options granted equals
or exceeds the market price of the underlying common stock on the date of
grant.
SFAS No. 123 requires the Company to provide pro forma information regarding
net income and net income per share as if compensation costs for the
Company's stock option plans and other stock awards had been determined in
accordance with the fair value based method prescribed in SFAS No. 123. The
Company estimates the fair value of each stock award at the grant date by
using the Black-Scholes option-pricing model with the following weighted-
average assumptions for 2001. No options were granted in 2003 and 2002.
2001
--------
Dividend yield 0%
Volatility 110%
Risk free interest rate 6.0%
Expected life 1.75 years
F-10
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the accounting provisions of SFAS No. 123, the Company's net income per
share would have been adjusted to the following pro forma amounts for the
years ended November 30:
2003 2002 2001
--------- --------- ----------
Net income - as reported $ 720,000 $ 704,000 $ 365,000
Effect of employee stock-based
compensation included in
reported net income - - -
Effect of employee stock-based
compensation per SFAS 123 - - (124,000)
Net income applicable to common --------- --------- ----------
stock - pro forma $ 720,000 $ 704,000 $ 241,000
========= ========= ==========
Basic and diluted:
Income per share - as reported $ .07 $ .07 $ .04
Per share effect of employee
stock-based compensation
included in reported net income - - -
Per share effect of employee
stock-based compensation per
SFAS 123 - - (.02)
Income per share applicable to --------- --------- ----------
common stock - pro forma $ .07 $ .07 $ .02
Comprehensive Income - Comprehensive income is comprised of net income and
all changes to the consolidated statement of stockholders' equity, except
those changes made due to investments by stockholders, changes in
paid-in-capital and distributions to stockholders. There is no difference
between net income and comprehensive income for the years ended November 30,
2003, 2002, and 2001.
Fourth Quarter Adjustments - The Company recorded in the fourth quarter of
the years ended November 30, 2003, 2002 and 2001, adjustments to properly
accrue for officer bonuses resulting in a decrease to net income of $59,000,
$21,000 and an increase to net income of $140,000 respectively.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity," was issued in May 2003 and
requires issuers to classify as liabilities (or assets in some circumstances)
three classes of freestanding financial instruments that embody obligations
for the issuer. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003 and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. We
believe the adoption of SFAS No. 150 will have no immediate impact on our
financial position or results of operations.
F-11
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to
be made by the guarantor about its obligation under certain guarantees that
it has issued. The adoption of FIN No. 45 did not have a material impact on
our financial position or results of operations. FIN No. 46 requires that a
company that controls another entity through interest other than voting
interest should consolidate such controlled entity in all cases for interim
periods beginning after June 15, 2003. We believe the adoption of FIN No. 46
did not have a material impact on our financial position or results of
operations.
2. NOTE PAYABLE AND LONG-TERM DEBT:
-------------------------------
Line-of-Credit Agreement - CPS and its subsidiary have a line-of-credit
agreement with a bank, which expires on June 30, 2004. The available loan
amount is the lesser of $5,750,000 or the computed borrowing base, as defined
by the terms of the agreement. The line-of-credit provides for interest at
the bank's prime rate (4.00% at November 30, 2003). The agreement is
collateralized by principally all of the Company's business assets including
accounts receivable, inventories and property and equipment, excluding owned
real estate. Additionally, the bank has the right of set-off under this
agreement. The agreement is also guaranteed by HIA.
The agreement contains several covenants, which, among other things, require
that the Company maintain certain financial ratios, minimum net worth and
minimum working capital as defined in the line-of-credit agreement.
In addition, the agreement limits the payment of dividends, the purchase of
property and equipment, and officer and stockholder compensation. As of
November 30, 2003, the Company was in compliance with these covenants.
As of November 30, 2003 and 2002, $1,288,000 and $1,009,000 were outstanding
under this line-of-credit agreement.
F-12
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT:
--------------
Long-term debt consisted of the following:
November 30,
----------------------------
2003 2002
---------- ----------
Subordinated note dated May 24, 1999;
monthly principal and interest
payments of $14,282 through June
2009, including interest at 8% per
annum. Collateralized by common
shares of WPS. $ 761,000 $ 866,000
Promissory note dated May 24, 1999;
monthly principal and interest
payments of approximately
$23,000 through May 2004,
including interest at 8.125%
per annum. Collateralized by
substantially all of the
Company's business assets including
accounts receivable, inventories
and property and equipment,
excluding owned real estate. 100,000 300,000
---------- ----------
Total long-term debt $ 861,000 $1,166,000
Less current maturities (215,000) (306,000)
---------- ----------
Long-term debt, less current
maturities $ 646,000 $ 860,000
Aggregate maturities of long-term debt at November 30, 2003 are as follows:
2004 $ 215,000
2005 124,000
2006 134,000
2007 146,000
2008 158,000
Thereafter 84,000
---------------
$ 861,000
F-13
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS:
-----------
Operating Leases - The Company leases its main warehouse under a
non-cancelable operating lease requiring monthly payments through February
2005. The Company has an option to purchase the related property at the end
of the initial ten-year term at a price approximating the market value at
that time, subject to certain conditions. The lease also provides for two
five-year options to extend the lease term.
The Company also leases vehicles, equipment and other warehouse space under
non-cancelable operating leases.
Total lease expense was approximately $1,171,000, $1,141,000 and $1,043,000
for fiscal 2003, 2002, and 2001.
As of November 30, 2003 future annual minimum lease payments under
non-cancelable operating leases are as follows:
Years Ending
November 30,
------------
2004 $ 1,009,000
2005 490,000
2006 289,000
2007 148,000
2008 98,000
-----------------
$ 2,034,000
Employment Agreements - The Company has entered into employment agreements
that extend to May 31, 2006 with three officers. The employment agreements
set forth annual compensation to its officers of between $216,000 and
$219,000 each. Compensation is adjusted annually based on the cost of living
index plus seven percent per annum base increase; plus an eight and one-half
percent bonus of net pretax income exclusive of the 401(k)/profit-sharing
contribution.
5. TAXES ON INCOME:
---------------
The provision for taxes on income for the years ended November 30, 2003,
2002, and 2001 consisted of the following:
2003 2002 2001
---------- ---------- ----------
Current:
Federal $ 381,000 $ 414,000 $ 259,000
State 48,000 44,000 28,000
---------- ---------- ----------
429,000 458,000 287,000
Deferred (benefit):
Federal 23,000 (36,000) 18,000
State - - -
---------- ---------- ----------
23,000 (36,000) 18,000
---------- ---------- ----------
$ 452,000 $ 422,000 $ 305,000
F-14
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of taxes on income at the federally statutory rate to the
effective tax rate is shown below:
2003 2002 2001
---------- ---------- ---------
Income taxes computed at the
federal statutory rate $ 398,000 $ 381,000 $ 228,000
State income taxes, net of
federal benefit 38,000 36,000 21,000
Amortization of goodwill - - 41,000
Other permanent differences 16,000 5,000 15,000
---------- ---------- ---------
Taxes on income $ 452,000 $ 422,000 $ 305,000
Temporary differences between the consolidated financial statements carrying
amounts and the tax basis of assets and liabilities that give rise to
significant portions of the net deferred tax assets at November 30, 2003 and
2002 relate to the following:
2003 2002
---------------------- ---------------------
Current Long-Term Current Long-Term
--------- ---------- --------- ---------
Inventories $ 98,000 $ - $ 86,000 $ -
Allowance for bad debt 40,000 - 84,000 -
Property and equipment - 34,000 - 23,000
Intangible assets - 26,000 - 28,000
Other - 2,000 - 2,000
--------- ---------- --------- ---------
Net deferred tax asset $ 138,000 $ 62,000 $ 170,000 $ 53,000
At November 30, 2003 and 2002, $138,000 and $170,000 of the net deferred
tax asset is classified as current and included in other current assets in
the accompanying consolidated balance sheets. The Company has recorded no
valuation allowance to offset the net deferred tax assets because management
believes that it is more likely than not that sufficient taxable income will
be generated in the foreseeable future to realize the net deferred tax
assets.
6. STOCKHOLDERS' EQUITY:
--------------------
Treasury Stock and Common Stock Options - On January 1, 2001, the Board of
Directors granted to the officers of the Company options to purchase 750,000
shares of treasury stock at $.20 per share through December 31, 2003. On July
1, 2001, the Board of Directors granted key employees of the Company options
to purchase 460,000 shares of treasury stock at $.30 per share with 153,333
shares expiring on December 31, 2001 and the remaining 306,667 shares
expiring on December 31, 2002. On January 1, 2000, the Board of Directors
granted to the officers of the Company options to purchase 600,000 shares of
treasury stock at $0.25 per share through December 31, 2000. The exercise
price of these grants was equal to the market price of the common stock at
the date of grant. No options were granted during 2002 and 2003.
F-15
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During fiscal 2003, 2002, and 2001, the Company issued 750,000 shares, 50,000
shares, and 600,000 shares from treasury to its officers for cash proceeds of
$150,000, $15,000 and $150,000 in conjunction with the officer's exercise of
their options to purchase the treasury stock of the Company. Additionally, in
fiscal 2003 and 2002, the Company also issued 124,000 and 105,000 shares from
treasury to its employees for cash proceeds of $37,200 and $31,500,
respectively, in conjunction with the exercises of their options to purchase
the treasury stock of the Company.
On September 15, 2003, the Company sent a tender offer to all its share-
holders which offered to re-purchase up to 1 million shares of HIA, Inc.
common stock, for $.50 per share. The expiration date of the offer was
October 31, 2003. On October 16, 2003 the Company sent a letter to all its
shareholders amending the original offer to re-purchase 1 million shares of
its common stock to 1.5 million shares of its common stock (an increase of
500,000 shares) at the same purchase price and the same expiration date. The
Company paid a total of $735,000 (including $20,000 of legal and transfer
fees) for 1,430,390 shares of common stock at an average price of $.51 per
share.
During fiscal 2003, the Company purchased from non-affiliates a total of
1,825 shares of its common stock at an average price of $.33 per share. In
addition, the Company issued to key management (not officers or directors)
under existing stock option agreements, a total of 124,000 shares at an
exercise price of $.30 per share. The Company acquired from non-affiliated
stockholders 420,000 shares of its common stock at an average price of $.56
per share during fiscal 2002, 834,006 shares of its common stock at an
average price of $.32 per share during fiscal 2001.
The following table summarizes information on stock option activity:
Weighted
Average
Number of Exercise Price Exercise Price
Shares Per Share Per Share
---------- -------------- --------------
Outstanding at
December 1, 2000 600,000 $ .25 $ .25
Granted 1,210,000 .20 - .30 .23
Exercised (600,000) .25 .25
--------- -------------- --------------
Outstanding at
November 30, 2001 1,210,000 .20 - .30 .23
Granted - - -
Exercised (155,000) .30 .30
Expired (10,000) - -
--------- -------------- --------------
Outstanding at
November 30, 2002 1,045,000 .20 - .30 .23
Granted - - -
Exercised (874,000) .20 - .30 .22
Expired (171,000) - -
--------- -------------- --------------
Outstanding at
November 30,2003 - $ - $ -
--------- -------------- --------------
F-16
HIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair value of options granted during the years ended
November 30, 2002 and 2001 was $.10, respectively. The exercise price of
all the options granted in 2002 exceeded the market price of the stock on
grant date. The exercise price of all the options granted in 2001 equaled
the market price of the stock on grant date.
7. EMPLOYEE BENEFITS:
-----------------
Profit Sharing Plan - The Company maintains a participant noncontributory
profit-sharing plan (the "Plan") for the benefit of all full-time employees
of the Company who are at least 18 years of age. Interests vest ratably
after two years and are fully vested after seven years. The Plan is funded
by the Company's contribution determined annually by the Board of Directors.
Contributions to the Plan were $97,000, $103,000 and $50,000 for the years
ended November 30, 2003, 2002, and 2001.
401(k) Plan - The Company has adopted a Section 401(k) profit sharing plan,
which is available for employees who are at least 18 years of age and who
have completed one year of service with the Company. Participants in the
plan may contribute up to 15% of their compensation, subject to certain
limitations. Under the plan, the Company may make discretionary
contributions to be determined on a year-to-year basis and may make
discretionary matching contributions. Company matching contributions vest
ratably over 6 years. For the years ended November 30, 2003, 2002, and 2001,
the Company contributed $38,000 and $35,000 and $35,000.
8. SIGNIFICANT SUPPLIERS:
---------------------
During fiscal years ended 2003, 2002 and 2001, the Company purchased
approximately 22%, 17% and 16% of its products from one manufacturer. The
products purchased can be obtained from other competing manufacturers but
not as a consolidated product group.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
-------------------------------------------------
In 2001, the Company had a sale of property for a note receivable of $53,000.
Cash payments for interest were $172,000, $232,000 and $394,000 for the years
ended November 30, 2003, 2002, and 2001. Cash payments for income taxes were
$559,000, $392,000 and $250,000, for the years ended November 30, 2003, 2002,
and 2001.
F-17
Exhibit 21
SUBSIDIARY OF THE COMPANY
Name State of Incorporation
- ------------------------ ----------------------
CPS Distributors, Inc. Colorado
Exhibit 31
CERTIFICATION
I, Alan C. Bergold, Don Champlin and Carl J. Bentley certify that:
1. I have reviewed this annual report on Form 10-K of HIA, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: __February 20, 2004__ ________/s/__________________
Alan C. Bergold, President and
Treasurer and Director
Date: __February 20, 2004__ ________/s/__________________
Don Champlin, Executive
Vice President and Secretary
Date: __February 20, 2004__ ________/s/__________________
Carl J. Bentley, Chairman
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of HIA, Inc (the "Company") on Form 10-K
for the period ending November 30, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"). I, Alan C. Bergold, the
President, Treasurer and Director of the Company, certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that;
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
______________/s/_____________
Alan C. Bergold,
President,
Treasurer and Director