<PAGE> 1
FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 1995
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OR
--
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________________to_________________
Commission file number__________________________________________
HMI Industries Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-1202810
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( State or other jurisdiction ( I.R.S. Employer
of incorporation or Identification Number)
organization)
3500 Payne Avenue, Cleveland, Ohio 44114
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( Address of principal executive offices )
( Zip Code)
(216) 432-1990
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( Registrant's telephone number, including area code)
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( Former name, former address and former fiscal year, if
changed since last report)
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 for 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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $1 Par Value 5,295,556 Shares
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Outstanding as of May 12, 1995
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<TABLE>
HMI INDUSTRIES INC.
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INDEX TO FORM 10-Q
------------------
JUNE 30, 1995
-------------
<CAPTION>
PAGE
----
<S> <C>
PART I. Financial Information
Consolidated Condensed Balance Sheets -
June 30, 1995 and September 30, 1994 1
Consolidated Condensed Statements of Income
- for the three and nine months ended
June 30, 1995 and 1994 2
Consolidated Condensed Statements of
Cash Flows - for nine months ended
June 30, 1995 and 1994 3
Notes to the Consolidated Condensed
Financial Statements 4
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 5-7
PART II. Other Information 8
Signature 8
</TABLE>
<PAGE> 3
<TABLE>
HMI INDUSTRIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, 1995 and September 30, 1994
(unaudited)
<CAPTION>
Assets June 30 September 30
------ 1995 1994
------------ ------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 450,718 $ 690,177
Trade accounts receivable, net 25,095,185 23,719,891
Finance contracts receivable 3,656,126 3,647,592
Notes receivable 387,203 430,461
Inventories 19,745,569 15,585,921
Deferred income taxes 793,911 1,125,186
Prepaid expenses 702,101 1,006,686
------------ ------------
Total current assets 50,830,813 46,205,914
------------ ------------
Property, Plant and Equipment, Net 14,129,258 13,217,261
------------ ------------
Other Assets:
Long-term notes receivable 334,123 334,123
Cost in excess of net assets acquired 13,142,770 13,362,786
Deferred income taxes 515,350 507,458
Trademarks 1,601,025 2,430,498
Finance contracts receivable 1,989,481 1,242,142
Other 117,636 131,630
Total other assets 17,700,385 18,008,637
------------ ------------
Total Assets $ 82,660,456 $ 77,431,812
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Line of credit $ 5,756,393 $ 587,060
Trade accounts and dividends payable 11,492,860 10,912,167
Accrued expenses and other liabilities 5,538,105 7,239,226
Income taxes payable 3,318,027 2,501,300
Long-term debt due within one year 2,019,024 2,024,977
------------ ------------
Total current liabilities 28,124,409 23,264,730
------------ ------------
Long-Term Liabilities
Long-term debt less current portion 12,812,283 13,942,768
Deferred income taxes 503,475 506,732
------------ ------------
Long-term liabilities 13,315,758 14,449,500
------------ ------------
Stockholders' Equity
Common stock, $1 par value; authorized
10,000,000 shares; issued, 5,295,556 shares 5,295,556 5,295,556
Capital in excess of par value 7,310,588 7,223,367
Retained earnings 34,110,771 30,111,101
Cumulative translation adjustment (3,532,470) (869,016)
------------ ------------
43,184,445 41,761,008
Less treasury stock 419,295 shares, at cost 1,964,156 2,043,426
------------ ------------
41,220,289 39,717,582
------------ ------------
Total Liabilities & Stockholders' Equity $ 82,660,456 $ 77,431,812
============ ============
<FN>
See accompanying notes to consolidated condensed financial statements
</TABLE>
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<PAGE> 4
<TABLE>
HMI INDUSTRIES INC.
INCOME STATEMENT HIGHLIGHTS (unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
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<S> <C> <C>
OPERATIONS
Income:
Net Product Sales $ 34,029,079 $ 36,831,408 $103,010,492 $98,946,564
Financing Revenue 211,787 382,101 799,645 965,867
------------ ------------ ------------ ------------
Total Revenues $ 34,240,866 $ 37,213,509 $103,810,137 $99,912,431
------------ ------------ ------------ ------------
Operating Costs and Expenses
Cost of Products sold 22,576,850 25,651,181 68,766,554 68,672,631
Financing related expenses 27,621 228,401 167,676 643,931
Selling, general and administrative expense 8,338,603 7,866,183 24,732,551 21,254,162
Trademark amortization 230,903 289,062 789,758 674,479
Acquisition related costs 100,000 100,000 300,000 300,000
------------ ------------ ------------ ------------
Total Operating Costs and Expenses 31,273,977 34,134,827 94,756,539 91,545,203
------------ ------------ ------------ ------------
Operating Income 2,966,889 3,078,682 9,053,598 8,367,228
Other Income (Expense)
Interest and other income 1,000 0 36,849 71,032
Interest expense (368,729) (334,915) (1,097,671) (1,021,044)
------------ ------------ ------------ ------------
Total Other Income (Expense) (367,729) (334,915) (1,060,822) (950,012)
------------ ------------ ------------ ------------
Income Before Income Taxes $ 2,599,160 $ 2,743,767 $ 7,992,776 $ 7,417,216
Provision for Income Taxes 989,681 1,042,631 2,714,320 2,805,049
Net Income Before One Time Cumulative
Effect of Change in Accounting Principle ------------ ------------ ------------ ------------
for Income Taxes $ 1,609,479 $ 1,701,136 $ 5,278,456 $ 4,612,167
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CHANGE IN ACCOUNTING PRINCIPLE
One Time Cumulative Effect of Change in
Accounting Principle for Income Taxes 0 0 0 719,016
------------ ------------ ------------ ------------
Net Income $ 1,609,479 $ 1,701,136 $ 5,278,456 $ 5,331,183
============ ============ ============ ============
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EARNINGS PER SHARE - Operations
Weighted Average Number of Shares 4,998,330 4,882,721 4,991,361 4,879,335
Outstanding ============ ============ ============ ============
Earnings Per Common Share:
Net Income from Continuing Operations $0.32 $0.35 $1.06 $0.95
Net Income Before One Time Cumulative
Effect of Change in Accounting Principle ------------ ------------ ------------ ------------
for Income Taxes $0.32 $0.36 $1.06 $0.95
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EARNINGS PER SHARE - After Change in Accounting Principle
One Time Cumulative Effect of Change in
Accounting Principle for Income Taxes $0.15
------------ ------------ ------------ ------------
Net Income $0.32 $0.35 $1.06 $1.10
============ ============ ============ ============
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<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<PAGE> 5
<TABLE>
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
for the nine months ended June 30, 1995 and 1994
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $5,278,456 $5,331,183
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,772,765 2,483,845
Provision for losses on receivables 483,933 530,463
Amortization of deferred non-compete
agreements 300,000 300,000
Deferred income taxes 320,126 (1,006,695)
Changes in operating assets and
liabilities net of acquisitions:
Increase in receivables (2,571,842) (7,304,278)
Increase in inventories (4,159,648) (415,044)
(increase) decrease in prepaid expenses 4,588 (132,051)
Increase in accounts payable 580,693 2,381,538
Decrease in accrued expenses
and other liabilities (1,701,121) (442,361)
Increase in income taxes payable 816,727 223,229
Other, net 13,991 (45,130)
-------- --------
Net cash provided by operating activities 2,138,668 1,904,699
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (2,635,273) (1,854,775)
Acquisition of businesses 0 (4,875,000)
Payment of long term note receivable 0 300,000
-------- --------
Net cash used in investing activities (2,635,273) (6,429,775)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt transactions:
Proceeds from line of credit 5,169,333 7,381,538
Payment of long term debt (1,136,438) (1,238,412)
-------- --------
Cash provided by debt transactions 4,032,895 6,143,126
-------- --------
Equity transactions:
Dividends paid (1,278,786) (1,175,658)
Sale of treasury shares 166,491 61,507
-------- --------
Cash used in equity transactions (1,112,295) (1,114,151)
-------- --------
Net cash provided by financing activities 2,920,600 5,028,975
-------- --------
Effect of exchange rate changes on cash (2,663,454) (411,816)
-------- --------
Net increase in cash and cash equivalents (239,459) 92,083
Cash and cash equivalents, beginning of period 690,177 211,261
-------- --------
Cash and cash equivalents, end of period $450,718 $303,344
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements
</TABLE>
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<PAGE> 6
HMI INDUSTRIES INC.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
June 30, 1995
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(1) Certain prior year amounts have been reclassified to conform to the 1995
classifications.
(2) The consolidated financial statements included in this report have been
prepared by the Company from the consolidated statements of HMI Industries
Inc. and its subsidiaries. In the opinion of the Company, these
consolidated financial statements contain all of the adjustments necessary
to present fairly the financial position as of June 30, 1995 and September
30, 1994, the results of operations and cash flows for the three and nine
months ended June 30, 1995 and 1994. Independent public accountants have
not examined these statements.
These consolidated financial statements should be read in conjunction with
the financial statements and the notes included in the Company's latest
annual report on Form 10K.
(3) The Company is contingently liable under a Conditional Purchase Agreement
to a Netherland bank in the amount of $1,260,000. If the contingent
liability were called upon by the bank, the Company would take possession
of certain finished goods and work in process inventories and sell them
into existing markets.
(4) Inventories at June 30, 1995 and September 30, 1994 consist of the
following:
<TABLE>
<CAPTION>
(unaudited)
June 30 September 30
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<S> <C> <C>
Finished Goods $4,851,571 $5,985,143
Work in process, raw materials
and supplies 14,893,998 9,600,778
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$19,745,569 $15,585,921
=========== ============
</TABLE>
(5) Effective October 1, 1993, the Company adopted Financial Accounting
Standard (FAS) No. 109, "Accounting for Income Taxes". The adoption of
this accounting principle resulted in the recognition of a ONE TIME
CUMULATIVE TAX BENEFIT of $719,016 or $0.15 per share during the
quarter ended December 31, 1993. The statement has been applied
prospectively and prior year financial statements were not restated.
4
<PAGE> 7
HMI INDUSTRIES INC
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MANAGEMENTS' DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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LIQUIDITY AND CAPITAL RESOURCES -
---------------------------------
MATERIAL CHANGES IN FINANCIAL POSITION
--------------------------------------
The working capital balance at June 30, 1995 was $22,706,000 a decrease of 1%
from the September 30, 1994 balance of $22,941,000.
The effect of foreign exchange is primarily limited to the Canadian and Mexican
operations. The Consolidated Statements of Cash Flows incorporates the effects
of foreign exchange in each of the categories presented. There was little
change in the US dollar as compared to the Mexico peso during the quarter. The
adjustments of $2,575,000 during the first six months rising from the
devaluation of the Mexican peso have been reflected as a component of equity
based on the nature of the Company's investment and intended timing of
repayment of the amounts due. The value of the Mexican Peso versus the US
dollar continues to fluctuate. In managements' opinion, the amount of
additional adjustments, if any, would not have a material effect on
consolidated shareholders' equity.
The Company's cash decreased by $239,000 for the nine months ended June 30,
1995. Trade receivables increased by $1,375,000, inventories increased by
$4,160,000, trade payables increased by $581,000 and accrued expenses and other
liabilities decreased by $1,701,000. The increase in inventories since
September 30, 1994 reflects the increase in Consumer Goods finished goods
inventories from previous low levels, the addition of raw materials for the new
products and the slightly slower than projected shipping in June. Inventory
levels are anticipated to decrease over the next quarter.
The Company acquired all of the assets and business of the HRS Division of
Reckitt & Colman Canada, Inc. in December 1993 for $4,875,000. The acquisition
was financed by the Company's line of credit. The purchase price included
$3,375,000 which was assigned to certain license agreements related to use of
trade marks in the US and Canada. The amount is being amortized over 18 months
to 4 years. Unamortized balances are reflected in the accompanying balance
sheets. The acquisition agreement also provides for a contingent Earn Out of
$1,875,000 to be paid out over a 10 year period dependent upon business
expansion and revenue generation.
At June 30, 1995, $5,000,000 of the unsecured, 9.86%, seven year private
placement notes were outstanding. This debt was obtained in 1990 to finance
the acquisition of Bliss Manufacturing Company. A portion of the Company's
line of credit ($5,000,000) has been classified as long term based on the
agreement with the bank dated July 1994.
5
<PAGE> 8
Capital expenditures during the nine months ended June 30, 1995 were $2,635,000
as compared to $1,855,000 in the previous year. The largest outlay in June
1995 was $665,000 to acquire a production and office facility for the Consumer
Goods operations in Cleveland, Ohio. The Company is planning to spend an
additional $3,000,000 during the next three quarters to renovate the facility.
Outlays in the Consumer Goods Division include $446,000 for tooling additions
and improvements, $156,000 for computer software and $297,000 for new steam
cleaning equipment for the HRS operations. Additions in the Manufactured
Products Division include $77,000 for tubular fabrication machinery and
equipment and $738,000 for machinery and equipment for the industrial and
commercial stamping operations. These latter additions at Bliss Manufacturing
Co. were added to specifically meet the customer demand and increase both
capacity and efficiencies. Future capital expenditure commitments include
$125,000 for the 1995 completion of a new filter cone manufacturing machine.
The outstanding balance on the Company's line of credit was $10,756,393 at June
30, 1995. The increase in the outstanding balance is principally due to the
debt reductions, inventory increases and the addition of the above-mentioned
capital expenditures.
Management believes the Company's long term liquidity needs will continue to be
met by cash flow from operations, its access to the line of credit and its
potential to borrow from existing debt sources.
RESULTS OF CONTINUING OPERATIONS:
---------------------------------
NET SALES - Net product sales decreased from $36,831,000 for the three months
ended June 30, 1994 to $34,029,000 for the current quarter. Net product sales
for the nine months ended June 30, 1995 were $103,010,000 compared to
$98,947,000 for the same period ending June 30, 1994. Sales during the current
quarter were down due to the Mexican market and the inability to simultaneously
introduce the new Optima and Captiva product lines. After a successful
introduction of the Optima product during the last quarter, production
difficulties and the introduction problems caused production to be halted
resulting in lower sales during April, May and June. Production difficulties
are corrected and the Captiva filtration products will be available and
introduced during the next two quarters. In Mexico, the peso dollar
relationship has increased real prices and lowered consumer confidence. Due to
uncertainty of any short term turnaround in the Mexican economy and consumer
market, management will emphasize cost reduction and resource allocation to
develop our South American markets. The Commercial and Industrial Stamping
operations continue to accommodate customer requirements on short-term notice
and add sales opportunities.
GROSS PROFIT - Gross profit for the quarter ended June 30, 1995 was
$11,452,000 or 33.7% as compared to $11,180,000 or 30.4% in the 1994 period.
Gross profit for the nine months ended June 30, 1995 was $34,244,000 or 33.2%
as compared to $30,274,000 or 30.6% in the period ended June 30, 1994. The
Company remains focused on utilizing available capacity in the Tubular Products
6
<PAGE> 9
Group and to increase sales and profitability.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses as a percent of total revenues were 24.4% as compared
to 21.8% for the three months ended June 30, 1995 and 1994, respectively. For
the nine months ended June 30, 1995, these expenses were 24.0% compared to
21.9% for the prior comparable period. The Company-owned Mexican operation and
the HRS operations while contributing higher gross margins, also have higher
selling costs, which when combined with the expenditure on new products and
their introductions account for the percentage increase over the previous
quarter.
FINANCING REVENUE - Financing revenue represents the interest and fees
generated by the Company's Health-Mor Acceptance Corporation, Australian and
Mexican subsidiaries generated on the contracts financed.
INTEREST EXPENSE - The 9.86%, seven year, unsecured Term Notes, comprise
$129,000 and $152,000 of the three month interest expense for the quarters
ended June 30, 1995 and 1994, respectively. The balance of the interest
expense was comprised principally of short term borrowing interest of $221,000
(compared to $144,000 in 1994).
TRADEMARK AMORTIZATION - These expenses represent the allocation of the amounts
paid for the rights to use specific trademarks arising from the acquisition of
HRS over periods ranging from eighteen months to four years.
ACQUISITION RELATED COSTS - These costs represent amortization of non-compete
Agreements arising in the course of the Company's acquisitions.
ACCOUNTING CHANGE FOR INCOME TAXES - The Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 109 - Accounting for
Income Taxes which became effective for the Company in the current fiscal year.
The cumulative effect of the change in accounting principle was $719,016 and is
included in the results for the nine months ended June 30, 1994. This item
should not be considered a continuing item.
7
<PAGE> 10
HMI INDUSTRIES INC.
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PART II - OTHER INFORMATION AND SIGNATURE
-----------------------------------------
June 30, 1995
-------------
PART II - OTHER INFORMATION
---------------------------
NONE
SIGNATURE
---------
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 thereto duly authorized.
HMI Industries Inc.
---------------------------------
Registrant
Date: August 14, 1995 /s/Kevin Dow
---------------------------------
KEVIN DOW
Vice President and Chief
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 450,718
<SECURITIES> 0
<RECEIVABLES> 25,482,388
<ALLOWANCES> 0
<INVENTORY> 19,745,569
<CURRENT-ASSETS> 50,830,813
<PP&E> 14,129,258
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,660,456
<CURRENT-LIABILITIES> 28,124,409
<BONDS> 0
<COMMON> 5,295,556
0
0
<OTHER-SE> 35,924,733
<TOTAL-LIABILITY-AND-EQUITY> 82,660,456
<SALES> 34,029,079
<TOTAL-REVENUES> 34,240,866
<CGS> 22,576,850
<TOTAL-COSTS> 31,273,977
<OTHER-EXPENSES> 367,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368,729
<INCOME-PRETAX> 2,599,160
<INCOME-TAX> 989,681
<INCOME-CONTINUING> 1,609,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,609,479
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
