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

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

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

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


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

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

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

HEI, Inc. designs, develops and manufactures ultra-miniature microelectronics, high density interconnect flexible and rigid-flex substrates, electromechanical hardware, and embedded software with complex user interface solutions for customers engaged in the medical, hearing, telecommunications, military, aerospace, and industrial markets. HEI provides its customers with a single point of contact that can take an idea from inception to a fully functional and cost effective product utilizing innovative design solutions and by the application of state-of-the-art materials, processes and manufacturing capabilities.

Corporate & HEI -Victoria (Microelectronics Contract Manufacturing)

1495 Steiger Lake Lane, Victoria, MN 55386

HEI - Boulder (Design and Development, Box Build and ATE)

4801 North 63rd Street, Boulder, CO 80301

HEI - Tempe (Quick Turn and Production High Density Interconnect Flex and Rigid-Flex)

610 South Rockford Drive, Tempe, AZ 85281

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

HEI, INC.

BALANCE SHEETS

December 29, 2012

December 31, 2011

(In thousands, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents

$

-

$

-

Accounts receivable, net of allowance for doubtful accounts of $45 and $35, respectively

4,538

5,489

Inventories, net

5,454

4,680

Deferred income taxes

804

447

Other current assets

712

253

Total current assets

11,508

10,869

Property and equipment:

Land

216

216

Building and improvements

4,337

4,337

Fixtures and equipment

28,554

26,676

Accumulated depreciation and amortization

(27,005

)

(25,788

)

Property and equipment, net

6,102

5,441

Security deposit

230

230

Other long-term assets

205

328

Total assets

$

18,045

$

16,868

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

3,129

$

2,151

Accrued liabilities

1,019

701

Customer deposit liabilities

712

11

Current maturities of long-term liabilities

1,120

927

Total current liabilities

5,980

3,790

Long-term liabilities:

Deferred income taxes

804

447

Other long-term liabilities, less current maturities

2,465

2,443

Long-term debt, less current maturities

5,583

5,933

Total long-term liabilities, less current maturities

8,852

8,823

Total liabilities

14,832

12,613

Commitments and contingencies

Shareholders' equity:

Undesignated stock; 5,000,000 shares authorized; none issued

-

-

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

2

2

Common stock, $.05 par; 20,000,000 shares authorized; 10,973,390 issued and 10,262,501 outstanding shares at December 29, 2012; 11,155,023 issued and 10,120,023 outstanding at December 31, 2011

513

506

Additional paid-in capital

28,641

28,433

Accumulated deficit

(25,943

)

(24,686

)

Total shareholders' equity

3,213

4,255

Total liabilities and shareholders' equity

$

18,045

$

16,868

HEI, INC.

STATEMENTS OF OPERATIONS

Fiscal Years Ended

December 29, 2012

December 31, 2011

January 1, 2011

(In thousands, except share and per share data)

Net sales

$

40,020

$

37,415

$

36,420

Cost of sales

35,724

31,586

31,736

Gross profit

4,296

5,829

4,684

Operating expenses:

Selling, general and administrative

5,120

4,454

4,934

Operating income (loss)

(824

)

1,375

(250

)

Interest expense, net

(446

)

(364

)

(286

)

Other income (expense), net

17

40

167

Income (loss) before income taxes

(1,253

)

1,051

(369

)

Income tax expense

(4

)

-

-

Net income (loss)

$

(1,257

)

$

1,051

$

(369

)

Income (loss) per common share:

Basic

$

(0.12

)

$

0.11

$

(0.04

)

Diluted

$

(0.12

)

$

0.10

$

(0.04

)

Weighted average common shares outstanding:

Basic

10,180,352

9,979,516

9,766,000

Diluted

10,180,352

10,290,885

9,766,000

HEI, INC.

STATEMENTS OF CASH FLOWS

Fiscal Years Ended

December 29, 2012

December 31, 2011

January 1, 2011

(In thousands)

Cash flow from operating activities:

Net income (loss)

$

(1,257

)

$

1,051

$

(369

)

Adjustments to reconcile net income (loss) to cash flow from operating activities:

Depreciation and amortization

1,659

1,613

1,817

Change in allowance for doubtful accounts

10

(18

)

(77

)

(Gain) loss on disposal of property and equipment

(6

)

(3

)

(19

)

Stock-based compensation expense

215

204

153

Amortization of long-term and unfavorable lease

(39

)

-

-

Changes in operating assets and liabilities:

Accounts receivable

941

(401

)

(1,428

)

Inventories

(774

)

(321

)

(1,407

)

Other current assets

(347

)

(17

)

219

Accounts payable

978

(586

)

987

Accrued liabilities

318

(17

)

(208

)

Customer deposit liabilities

701

(286

)

69

Net cash flow provided by (used in) operating activities

2,399

1,219

(263

)

Cash flow from investing activities:

Additions to property and equipment

(1,957

)

(1,194

)

(1,614

)

Proceeds from the sale of assets

54

20

-

Additions to patents

-

(29

)

(29

)

Net cash flow used in investing activities

(1,903

)

(1,203

)

(1,643

)

Cash flow from financing activities:

Payment of debt issuance costs

-

-

(23

)

Repayment of long-term debt

(1,047

)

(812

)

(608

)

Proceeds from leases and long-term debt

490

784

716

Proceeds (repayments) of long-term debt - revolving line of credit, net

61

12

1,821

Net cash flow provided by (used in) financing activities

(496

)

(16

)

1,906

Net decrease in cash and cash equivalents

-

-

-

Cash and cash equivalents, beginning of year

-

-

-

Cash and cash equivalents, end of year

$

-

$

-

$

-

Supplemental disclosures of cash flow information:

Interest paid

$

428

$

331

$

309

Taxes paid

-

-

-