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Saturday, October 29, 2005

HIA, Inc. (HIAI)

Back in 1984, HIA acquired CPS, which is now a hundred-year-old company selling well water equipment in Colorado.

Revenues have been remarkably stable between $31 and $33 million going back to 2000. Net income has steadily increased from $378K to $809K in 2004. Per share earnings went from 4 cents in 2000 to 8 cents fully diluted in 2004.

Directors and officers own 77.6% of the business.
Carl J. Bently, 71, (Chairman since 1996) owns 25%
Alan C. Bergold, 56, (President since 1996) owns 30.1%
Donald L. Champlin, 53 (Executive VP since 1996) owns 25.8%
these include only a small proportion of stock options.

Unqualified auditor opinion from Hein & Associates of Denver.

Current assets are inventories and AR, steady from the year earlier.
$8 million current assets, $1.4 million net PP&E, $1.2 million goodwill.
Current liabilities are mostly line-of-credit, accrued payroll, AP, construction loan, etc.
Current ratio is a little less than 2.
Very little long term debt.
$5.9 million equity, $11 million assets.

Gross margins are consistently around 30%.
Operating margins are consistently around 4%.
Income taxes consistently between $400K and $500K.
Net income was $809K (vs $720K in 2003, $696K in 2002)
The increase from 2003 was due to a number of ordinary factors.

Share count has decreased over the years from treasury stock purchases.

Cash flow from operations shows lots of cash produced in 2002 and a big investment of $1.3 million in 2004. From 2002 to end of 2004, cash flow from ops matches earnings with the exception of the large investment.

Lots of flow out-of and into the line-of-credit, roughly $9 million to $10 million per year.
Long term debt interest rate is 8% and 8.125%.
Maturities are well staggered so that no year has more than $158K maturing.
Operating lease obligations are $939K in 2005 and decreasing significantly from there.

Tax benefit of $26K in 2004 and $36K in 2002.

750K options outstanding end of year 2004.
9,273,435 shares outstanding end of year 2004.
Total diluted shares is around 10 million

In Q2, both inventories and AR increased dramatically over 80%!
net PP&E jumped from $1.3 million to $4.4 million (goodwill remained unchanged)

Sales increased slightly in Q2, but more in Q1. Gross profit is down. Operating income is down. Net income is down. All of this is both for 1st half and Q2. This is all due to competitive pricing pressures from national distributors. The increase is sales is due to general economic conditions in the region.

The company is doing a reverse stock split in order to go dark. Here's their discussion of it.
we anticipate that there will be eight remaining owners of HIA stock, consisting of HIA’s three directors and principal shareholders, Carl. J. Bentley, Alan C. Bergold and Donald L. Champlin, as well as five other HIA employees. The remainder of the shareholders, including all of the public shareholders of HIA, will own fractional shares for which they will be entitled to receive cash at the rate of $0.60 per pre-split share....
In order to free HIA from the obligation of public reporting, we only need to reduce the number of shareholders to less than 300. However, we thought it would be unfair to the public shareholders to leave some of them in the position of holding stock in a private company which had no obligation to make information publicly available and no semblance of a public market. Accordingly, we concluded that it was preferable to do the reverse split on a basis that cashed out all of the public shareholders.
Decent people, right to the end.

The latest ask on the stock is 60 cents, so no chance of arbitrage. This one is truly going private. Adios.

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