UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended August 31, 2002
Commission File Number 0-9599
HIA, INC.
(Exact name of Registrant as specified in its charter)
New York 16-1028783
State or other jurisdiction I.R.S. Employer
incorporation or organization Identification Number
4275 Forest Street
Denver, Colorado 80216
(Address of principal executive offices, zip code)
(303) 394-6040
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__x__ No___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 9,861,526 shares of the
Registrant's $.01 par value common stock were outstanding at August 31, 2002.
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements. . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Financial Condition
and Results of Operations . . . . . . . . . . . . . . .11
Part II. Other Information
Item 1. Legal Proceedings . . . . . .. . . . . . . . . . . . . 15
Item 2. Changes in Securities and Use of Proceeds. . . . . . . 15
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . 15
Item 5. Certificate Pursuant to Section 1350 of Chapter 63
and 906 . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Part 1.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of August 31, 2002
and November 30, 2001. . . .. . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the three and nine months
ended August 31, 2002 and 2001 . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the nine months
ended August 31, 2002 and 2001 . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements .. . . . . . . . . . 8
Forward Looking Statements
Statements made in this Form 10-Q 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,"
"estimated," "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.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Information as of November 30, 2001 is based upon an audited balance sheet. All
other information is unaudited.)
August 31, November 30,
2002 2001
---- ----
ASSETS
Current Assets:
Cash $ 5,000 $ 1,000
Accounts receivable, net of allowance for
doubtful accounts of $218,000 and $146,000 5,448,000 3,452,000
Inventories 4,963,000 3,784,000
Other current assets 156,000 204,000
---------- -------------
Total current assets 10,572,000 7,441,000
---------- -------------
Property and equipment, at cost:
Leasehold improvements 337,000 289,000
Equipment 1,381,000 1,347,000
--------- ---------
1,718,000 1,636,000
Less accumulated depreciation
and amortization 1,378,000 1,216,000
--------- ---------
Net property and equipment 340,000 420,000
Other assets 188,000 195,000
Goodwill, net of amortization 1,151,000 1,151,000
of $383,000 and $383,000
Non-compete agreement, net of amortization
of $49,000 and $37,000 101,000 113,000
--------- -------------
TOTAL ASSETS $12,352,000 $9,320,000
=========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(Information as of November 30, 2001 is based upon an audited balance sheet. All
other information is unaudited).
August 31, November 30,
LIABILITIES 2002 2001
---- ----
Current Liabilities:
Note payable to bank $2,864,000 $1,815,000
Current maturities of long-term obligations 449,000 487,000
Accounts payable 1,405,000 477,000
Checks written in excess of deposits 355,000 207,000
Accrued expenses and other current liabilities 1,246,000 593,000
----------- -------------
Total current liabilities 6,319,000 3,579,000
----------- -------------
Long-term Obligations:
Notes payable, less current maturities 946,000 1,165,000
Capital lease obligations, less current maturities 14,000 117,000
------------- ------------
Total long-term obligations 960,000 1,282,000
----------- -----------
TOTAL LIABILITIES 7,279,000 4,861,000
----------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock of $.01 par value;
authorized 20,000,000 shares: issued
13,108,196; outstanding 9,861,526
and 10,126,525 131,000 131,000
Additional paid-in capital 3,109,000 3,109,000
Retained earnings 2,633,000 1,831,000
----------- ----------
5,873,000 5,071,000
Less treasury stock: 3,246,670 and
2,981,671 shares at cost (800,000) (612,000)
------------- ---------------
Total stockholders' equity 5,073,000 4,459,000
---------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $12,352,000 $9,320,000
================== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended Three Months Ended
------------------- --------------------
Aug 31, 2002 Aug 31, 2001 Aug 31, 2002 Aug 31, 2001
Net sales $25,509,000 $24,786,000 $11,186,000 $11,728,000
Cost of sales 17,219,000 17,555,000 7,375,000 8,364,000
------------- ------------- ----------- ------------
Gross profit 8,290,000 7,231,000 3,811,000 3,364,000
Selling, general
& administrative
expenses 6,929,000 6,496,000 2,853,000 2,226,000
--------- ---------- ------------- ---------
Operating income 1,361,000 735,000 958,000 1,138,000
Other income (expense):
Interest income 61,000 68,000 34,000 4,000
Interest expense (184,000) (319,000) (68,000) (99,000)
Misc. income (expense) 34,000 36,000 12,000 39,000
------------ ------- ---------- --------------
Total other expense (89,000) (215,000) (22,000) (56,000)
Income before income
tax expense 1,272,000 520,000 936,000 1,082,000
Income tax expense 470,000 206,000 346,000 206,000
---------- --------- --------- ----------
NET INCOME $802,000 $314,000 $590,000 $876,000
======= ======== ======== ========
Net income per share
Basic $ .08 $ .03 $ .06 $ .09
Diluted $ .08 $ .03 $ .06 $ .09
Weighted average common shares outstanding:
Basic 10,173,825 10,189,974 10,015,526 10,192,581
Dilutive 10,215,491 10,267,141 10,015,526 10,229,054
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended
Aug 31, 2002 Aug 31, 2001
OPERATING ACTIVITIES:
Net Income $802,000 $314,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 174,000 279,000
Stock Compensation 15,000 - 0 -
Changes in current assets and
current liabilities:
Accounts receivable (1,996,000) (2,333,000)
Inventories (1,179,000) (801,000)
Other current assets 48,000 14,000
Accrued expenses and other current liabilities 653,000 206,000
Accounts payable 928,000 1,943,000
Decrease (increase) in other assets 7,000 (6,000)
----------------- -------------
NET CASH USED IN
OPERATING ACTIVITIES (548,000) (384,000)
--------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment (82,000) (42,000)
NET CASH USED IN
INVESTING ACTIVITIES (82,000) (42,000)
--------------- -----------
FINANCING ACTIVITIES:
Proceeds from note payable to bank 7,749,000 8,437,000
Payments on borrowings on note payable to bank (6,700,000) (7,608,000)
Repayments of long-term debt (219,000) (217,000)
Payments on capital lease obligations (141,000) (129,000)
Increase in checks written in excess of deposits 148,000 42,000
Purchase of treasury stock (235,000) (249,000)
Sale of treasury stock 32,000 150,000
------------- ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 634,000 426,000
------------- ------------
NET DECREASE IN CASH 4,000 --
CASH, BEGINNING OF PERIOD 1,000 --
------------- ----------------
CASH, END OF PERIOD $ 5,000 $ -
============ ==============
The accompanying notes are an integral part of the consolidated financial
statements
HIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions of Form 10-Q and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statement. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair
presentation have been included. Operating results for the nine months ended
August 31, 2002 are not necessarily indicative of the results that may be
obtained for the year ending November 30, 2002. These statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Registration's Form 10-K for the year ended November 30, 2001
filed with the Securities and Exchange Commission on February 28, 2002.
B. Net Income Per Common Share
----------------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
provides for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of shares
outstanding for the period (10,173,825 and 10,015,526 for the nine months and
three months ended August 31, 2002). Diluted earnings per share reflect the
potential of securities that could share in the earnings of the Company, similar
to fully diluted earnings per share.
For the nine months ended August 31, 2002 and August 31, 2001, total stock
options in the amount of 295,000 and 295,000 are not considered in the
computation of diluted earnings per share as their inclusion would be
anti-dilutive. Included in the dilutive earnings per share computation are
750,000 options.
C. Stockholders' Equity
Purchase of Treasury Stock
On October 31, 2000, the Company sent to all its stockholders a tender offer for
up to 3,000,000 shares of its common stock for a purchase price of $.25 per
share. The offer expired on December 15, 2000 and on January 4, 2001, a total of
732,956 shares of common stock were tendered for a total purchase price of
$183,239. A total of $56,677 was incurred for legal, accounting, transfer agent
and other related costs, related to this tender offer.
During January and February 2001, the Company acquired from non-affiliate
stockholders 33,500 shares of its common stock at a price of $.25 per share.
On January 1, 2001, the Board of Directors granted an option to each of the
officers of the Company to purchase a total of 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 $.30 per share) which
were granted on December 20, 2001 when the market price was $.21 per share. As
of August 31, 2002, 270,000 options remain under this stock option offer.
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.
Shareholders' Agreement
On February 14, 2001, the Company and Carl J. Bentley, Alan C. Bergold and Don
Champlin (collectively, the "Shareholders") entered into an amended
Shareholders' Agreement. Upon the death of any Shareholder, the Shareholders and
the Company shall purchase, and the executor, administrator, surviving spouse,
or other legal representative of the Deceased Shareholder's estate shall sell
the shares of common stock of the Company owned by the Deceased shareholder at
the time of his death. The price per share of each share of common stock
purchased upon the death of any Shareholder shall be the greater of nine times
the average net profit of the Company as defined in the Shareholders' Agreement
for the prior fiscal year divided by the number of shares of common stock of the
Company issued and outstanding as of the end of such fiscal year or $1.35 per
share. In order to fund the purchase of shares of common stock upon the death of
a Shareholder, each Shareholder purchased life insurance policies on the lives
of the other two Shareholders. If the aggregate number of the Deceased's shares
of common stock is greater than the aggregate number of the Deceased's shares of
common stock remaining after the purchase by each of the surviving Shareholders
for an amount equal to the purchase price multiplied by the number of such
remaining shares of common stock. stock. The Company shall pay the Deceased
Shareholder's estate in 120 monthly installments with interest at 6% per year.
D. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for under the purchase method. For all business combinations for which
the date of acquisition is after June 30, 2001, SFAS 141 also establishes
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain, rather than deferred and amortized. SFAS
142 changes the accounting for goodwill and other intangible assets after an
acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and
intangible assets with indefinite lives will no longer be amortized; 2) goodwill
and intangible assets with indefinite lives must be tested for impairment at
least annually; and 3) the amortization period for intangible assets with finite
lives will no longer be limited to forty years. SFAS 142 is effective for fiscal
years beginning after December 15, 2001, with early application permitted in
certain circumstances. The Company does not believe that the adoption of SFAS
141 will have a material effect on its financial position, results of
operations, or cash flows. The Company has adopted SFAS 142 in the first quarter
of the fiscal year ending November 30, 2002.
In accordance with SFAS No. 142, the Company discontinued the amortization of
goodwill effective December 1, 2001. Results of operations prior to the adoption
of SFAS No. 142 are not restated. The following reconciles the reported net
income and earnings per share to that which would have resulted had SFAS No. 142
been applied to the nine month period ended August 31, 2001.
August 31, 2001
Reported net income $314,000
Add: Goodwill amortization, net of tax 114,000
-----------
Adjusted net income $428,000
========
Reported basic income per share $ .03
Add: Goodwill amortization, net of tax, per basic
share .01
-------------
Adjusted basic income per share $ .04
In June 2001, the FASB also approved for issuance SFAS 143 "Asset Retirement
Obligations." SFAS 143 establishes accounting requirements for retirement
obligations associated with tangible long-lived assets, including (1) the timing
of the liability recognition, (2) initial measurement of the liability, (3)
allocation of asset retirement cost to expense, (4) subsequent measurement of
the liability and (5) financial statement disclosures. SFAS 143 requires that an
asset retirement cost should be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a systematic and
rational method. The Company will adopt the statement effective no later than
January 1, 2003, as required. The transition adjustment resulting from the
adoption of SFAS 143 will be reported as a cumulative effect of a change in
accounting principle. The Company does not believe that the adoption of this
statement will have a material effect on its financial position, results of
operations, or cash flows.
In October 2001, the FASB also approved SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
new accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, for the disposal of segments of
a business. Statement 144 requires that those long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have not yet occurred. Statement 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. The Company does not believe that
the adoption of this statement will have a material effect on its financial
position, results of operations, or cash flows.
In April 2002, the FASB approved for issuance Statements of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds previous
accounting guidance, which required all gains and losses from extinguishment of
debt be classified as an extraordinary item. Under SFAS 145 classification of
debt extinguishment depends on the facts and circumstances of the transaction.
SFAS 145 is effective for fiscal years beginning after May 15, 2002 and adoption
is not expected to have a material effect on the Company's financial position or
results of its operations.
In July 2002, the FASB issued Statements of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS
146). SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.
E. Supplemental Disclosure of Cash Flow Information
Cash payments for interest were $184,000 and $319,000 for the nine months ended
August 31, 2002 and 2001. Cash payments for income taxes were $232,000 and
$229,000 for the nine months ended August 31, 2002 and 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The net cash used in operating activities increased by $164,000 for the nine
months ended August 31, 2002 as compared the nine months ended August 31, 2001
primarily due to an increase in net income of $488,000, a decrease in accounts
receivable of $337,000 and an increase in accrued expenses and other current
liabilities of $447,000 partially offset by the decrease in depreciation and
amortization of $105,000, an increase in inventories of $378,000, and an
decrease in accounts payable of $1,015,000. The decrease in accounts receivables
were primarily due to significantly higher balance of receivables at November
30, 2000 as compared to November 30, 2001 a difference of $480,000 somewhat
offset by the increase in sales (6.6%) in the 3rd quarter 2002 as compared to
the 3rd quarter 2001. The increase in accrued expenses and other current
liabilities was primarily due to an increase in the accrual of management bonus'
of $326,000, as a result of the higher earnings, and an increase in the accrual
for profit sharing of $58,000 for the nine months ended August 31, 2002 as
compared to August 31, 2001. The decrease in depreciation and amortization of
$105,000 was primarily due to the cessation of the amortizing of goodwill, which
took effect on December 1, 2001. The increase in inventories was primarily due
to the opening of a new branch in West Denver opened in March 2002. The decrease
in accounts payable was primarily due to the cash generated from income from
operating activities of $383,000 and the increase of $447,000 in accrued
expenses and current liabilities.
The net cash used in investing activities increased by $40,000 as a result of
the increase in purchases of fixed assets for the nine months ended August 31,
2002 as compared to the similar nine months in the prior year.
The net cash provided by financing activities increased by $208,000 was
primarily due to the increase in net borrowings to the bank of $220,000, the
increase in checks written in excess of deposits of $106,000 partially offset by
the decrease net sales of treasury stock of $104,000. The increase in net
borrowings to the bank was primarily due to the decrease in accounts payable.
The purchase of treasury stock for the nine months ended August 31, 2001 was a
result of the tender offer sent to all its shareholders on October 31, 2000 for
up to 3,000,000 shares of its common stock for a purchase price of $.25 per
share. The offer expired on December 15, 2000 and on January 4, 2001, a total of
732,956 shares of common stock were tendered for a total purchase price of
$183,239. A total of approximately $57,000 was incurred for legal, accounting,
transfer agent and other related costs, related to this tender offer. In
addition, during January and February 2001, the Company acquired from
non-affiliate stockholders 33,500 shares of its common stock at a price of $.25
per share.
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 $.30 per share) which
were granted on December 20, 2001 when the market price was $.21 per share. As
of August 31, 2002, 270,000 options remain under this stock option offer.
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.
The following is a summary of working capital and current ratio for the periods
presented:
August 31, 2002 November 30, 2001
--------------- -----------------
Working Capital $4,523,000 $3,862,000
Current Ratio 1.67 to 1 2.08 to 1
The Company's working capital increased by $661,000 during the nine months ended
August 31, 2002 as compared to November 30, 2001 primarily as a result of the
$802,000 net income. Management believes that the present working capital is
adequate to conduct its present operations. The Company does not anticipate any
additional material capital expenditures for the remainder of fiscal 2002. As of
August 31, 2002, the Company and its subsidiary have an available line-of-credit
of $5,750,000. As of August 31, 2002, $2,136,000 is unused under the line of
credit. In August of 2002, the Company executed a new loan agreement which
increased the maximum line of credit from $5,000,000 to $5,750,000 and extended
the expiration date of the overall agreement to June 30, 2004. The
line-of-credit agreement limits the payment of dividends by CPS Distributors,
inc. and its subsidiaries ("CPS") to HIA, Inc. CPS is the wholly-owned
subsidiary of HIA, Inc. The line-of-credit agreement also limits the payment of
any expenses of HIA, Inc. by CPS in excess of $50,000 during any twelve-month
period. This restriction does not have a significant impact on HIA, Inc.'s
ability to meet its cash needs as its cash needs are minimal. On June 12, 2001,
the Company executed an amendment to the loan agreement with Wells Fargo Bank
regarding a change in the debt covenants. The bank agreed to waive the minimum
debt service covenant for the 1st and 2nd quarters of fiscal 2001 and decrease
the covenant restrictions for the remainder of the term of the agreement.
The decrease in the current ratio as of August 31, 2002 as compared to November
30, 2001 is primarily attributable to the relative increase in accounts
receivable of $1,996,000 and the increase in inventories of $1,179,000 as
compared to the increase of notes payable to bank of $1,049,000 and the increase
of $1,729,000 in accounts payable and other current liabilities.
Income Taxes
As of August 31, 2002, the Company has recorded a current net deferred tax asset
totaling $152,000 and has recorded a noncurrent net deferred tax asset totaling
$36,000. Based upon the Company's recent history of taxable income and its
projections for future earnings, management believes that it is more likely than
not that sufficient taxable income will be generated in the near term to utilize
the net deferred tax assets.
Results of Operations
Three Months Ended August 31, 2002 Compared to Three Months Ended August 31,
2001.
Net sales for the three months ended August 31, 2002 were down $542,000 or 4.6%
as compared to August 31, 2001 primarily due to the drought conditions and
economic recession in the Rocky Mountain Region.
Cost of Sales were down $989,000 for the three months ended August 31, 2002 as
compared to the three months ended August 31, 2001 primarily as a result of the
cost of the decrease in sales of approximately $389,000 and the increase in
gross margin (lower cost to every $1 of sales) of 5.4% or a total effect of
lowering the cost of sales by approximately $600,000.
Gross profit was 34.1% during the three months ended August 31, 2002 as compared
to 28.7% during the three months ended August 31, 2001 an increase of 5.4%. The
increase was primarily due to the combination of improved discounts from
vendors, better pricing to customers/more selective pricing on slower moving
items of inventory to customers and a positive variance in write-offs of
obsolete/shrinkage of inventory of $255,000.
Selling, general and administrative expenses increased $627,000 for the three
months ended August 31, 2002 as compared to August 31, 2001 primarily due to the
increase in expenses for the new Lakewood branch (opened March 2002) of $88,000,
the increase of payroll of $283,000, the increase of the allowance reserve for
doubtful accounts of $113,000. The increase in payroll is primarily due to an
increase in the accrual of management bonuses of $180,000, as a result of the
higher earnings, and an increase in the accrual for profit sharing of $36,000.
The increase in the allowance reserve for doubtful accounts is due to the
reduced collection probabilities for customers directly effected by the drought
and economic conditions.
Other expenses decreased by $34,000 for the three months ended August 31, 2002
as compared to the three months ended August 31, 2001 primarily due to the
increase in interest income generated due to past due receivables of $30,000,
the decrease in interest expense of $31,000 offset substantially by a decrease
in miscellaneous income of $27,000. The decrease in interest expense was
primarily due to the reduction of the prime rate of interest.
Net income decreased by $286,000 for the three months ended August 31, 2002 as
compared to the three months ended August 31, 2001 primarily due to the
additional gross profit of $447,000 decreased by the increased in selling,
general and administrative expenses of $627,000 and the additional income tax
expense of $140,000.
Nine Months Ended August 31, 2002 Compared to Nine Months Ended August 31, 2001.
Net sales increased by $723,000 for the nine months ended August 31, 2002 as
compared to August 31, 2001 primarily due to the Company's continued increase of
the aggregate irrigation market in the Rocky Mountain Region.
Gross profit was 32.5% during the nine months ended August 31, 2002 as compared
to 29.2% during the nine months ended August 31, 2001 an increase of 3.3%
primarily due to the combination of better pricing from vendors, better pricing
to customers and more selective pricing on slower moving items of inventory to
customers.
Selling, general and administrative expenses increased by $433,000 during the
nine months ended August 31, 2002 as compared to August 31, 2001 primarily due
to the increase of payroll of $424,000, the increase in expenses for the new
Lakewood branch (opened March 2002) of $165,000 primarily offset by the decrease
in amortization expense of $105,000. The increase in payroll was primarily due
to an increase in the accrual of management bonuses of $326,000, as a result of
the higher earnings, and an increase in the accrual for profit sharing of
$58,000 for the nine months ended August 31, 2002 as compared to August 31,
2001. The decrease in depreciation and amortization of $105,000 was primarily
due to the cessation of the amortizing of goodwill, which took effect on
December 1, 2001.
Other expenses decreased by $126,000 during the nine months ended August 31,
2002 as compared to August 31, 2001 primarily due to the reduction of interest
expense. The decrease was attributable to the average interest rate of 6.24% for
the nine months ended August 31, 2002 as compared to the average interest rate
of 8.76% for the nine months ended August 31, 2001 and the lower average
line-of-credit balance of $2,418,000 for the first nine months of fiscal 2002 as
compared to $3,310,000 for the first nine months of fiscal 2001.
Net income increased $488,000 for the nine months ended August 31, 2002 as
compared to the nine months ended August 31, 2001 primarily due to the increase
in gross profit of $1,059,000 and a decrease in interest expense of $135,000
partially offset by an increase in selling, general and administrative expenses
of $433,000 and an increase in income tax of $264,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk through interest rates related to its
investment of current cash and cash equivalents. These funds are generally
highly liquid with short-term maturities, and the related market risk is not
considered material. The Company's note payable to bank has a variable interest
rate. A 10% increase in short-term interest rates on the note payable to bank of
$2,864,000 would increase the Company's yearly interest expense by approximately
$15,000, assuming borrowed amounts remain outstanding at current levels. The
Company's management believes that fluctuation in interest rates in the near
term will not materially affect the Company's consolidated operating results,
financial position or cash flow.
Part II
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Certification Pursuant to Section 1350 of Chapter 63
Exhibit A - Certification Pursuant to Section 906
Item 6. Exhibits and Reports on Form 8-K
NONE
Item 5.
Certification Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
I, Alan C. Bergold the [CEO/CFO] of HIA, Inc. , certify
---------------------------- -----------------
that: (i) the [report] fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and (ii) the information contained
in the [report] fairly presents, in all material respects, the financial
condition and results of operations of HIA, Inc.
-----------------
/s/ Alan C,. Bergold
Chief Financial Officer &
President
Exhibit A
CERTIFICATION
I, Alan C. Bergold, certify that:
---------------
1. I have reviewed this quarterly report on Form 10-Q of HIA, Inc.;
---------
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 15, 2002 /s/ Alan C. Bergold
Chief Financial Officer & President
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HIA, INC.
Date:October 15, 2002 /s/ Alan C. Bergold
Alan C. Bergold
Chief Financial Officer &
President