<PAGE> 1
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
--
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to_______________________________
Commission file number_______________________________________________________
HMI Industries Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1202810
- ----------------------------- -----------------------
( State or other jurisdiction ( I.R.S. Employer
of incorporation or Identification Number)
organization)
3631 Perkins Avenue, Cleveland, Ohio 44114
- --------------------------------------------------------------------------------
( Address of principal executive offices )
( Zip Code)
(216) 432-1990
- --------------------------------------------------------------------------------
( Registrant's telephone number, including area code)
- ------------------------------------------------------------------------
( 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
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 4,923,470 SHARES
OUTSTANDING AS OF FEBRUARY 26, 1996
<PAGE> 2
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Assets
------------
(Unaudited)
December 31 September 30
1995 1995
<S> <C> <C>
Current assets: ----------- ------------
Cash and cash equivalents $840,746 $570,759
Trade accounts receivable, net 25,332,144 26,025,887
Finance contracts receivable 3,139,504 2,587,085
Notes receivable 994,675 1,049,389
Inventories 19,083,275 16,681,891
Deferred income taxes 1,427,527 1,248,854
Prepaid expenses 2,918,703 2,148,088
----------- ------------
Total current assets 53,736,574 50,311,953
----------- ------------
Property, plant and equipment, net 14,898,270 15,012,400
----------- ------------
Other assets:
Long-term notes receivable 334,123 334,123
Cost in excess of net assets acquired, net 12,893,796 12,985,128
Deferred income taxes 383,003 377,245
Unamortized trade marks 1,418,272 1,557,078
Finance contracts receivable 4,083,508 3,561,278
Other 196,308 134,726
----------- ------------
Total other assets 19,309,010 18,949,578
----------- ------------
$87,943,854 $84,273,931
=========== ===========
Liabilities and Stockholders' Equity
--------------------------------------------
Current liabilities:
Line of credit $ 1,972,123 $ 2,204,384
Trade accounts payable 13,664,239 10,940,597
Dividends payable 429,759 429,716
Income taxes payable 2,749,550 2,768,079
Accrued expenses and other liabilities 6,535,362 7,673,887
Long-term debt due within one year 2,298,701 2,026,759
----------- ------------
Total current liabilities 27,649,734 26,043,422
----------- ------------
Long-term liabilities:
Long-term debt (less amounts due within one year) 16,321,009 14,050,715
Deferred income taxes 481,322 542,741
Other 2,391,625 1,297,740
----------- ------------
Total long-term liabilities 19,193,956 15,891,196
----------- ------------
Stockholders' equity:
Preferred stock, $5 par value; authorized,
300,000 shares; issued, none
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 7,526,508 7,521,851
Retained earnings 33,174,674 34,034,294
Cumulative translation adjustment (3,050,433) (2,663,904)
----------- ------------
42,946,305 44,187,797
Less treasury stock 394,026 shares, at cost 1,846,141 1,848,484
----------- ------------
Total stockholders' equity 41,100,164 42,339,313
----------- ------------
$87,943,854 $ 84,273,931
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE> 3
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 and 1994
<TABLE>
<CAPTION>
Three Months Ended December 31,
(Unaudited)
1995 1994
--------------- ------------------------
<S> <C> <C>
Revenues:
Net sales $28,156,830 $32,068,094
Financing revenue 259,208 346,036
------------ ------------
28,416,038 32,414,130
Operating costs and expenses:
Cost of products sold 19,494,910 21,687,683
Selling, general and administrative expenses 8,978,641 7,553,595
------------ ------------
28,473,551 29,241,278
------------ ------------
Operating income (loss) (57,513) 3,172,852
Other income (expense)
Interest and other income 6,785 20,186
Interest expense (356,158) (341,332)
Goodwill and trademark amortization (257,975) (383,479)
Acquisition related costs 0 (100,000)
------------ ------------
(607,348) (804,625)
------------ ------------
Income (loss) before income taxes (664,861) 2,368,227
Provision for income taxes (235,000) 657,285
------------ ------------
Net income (loss) ($429,861) $1,710,942
============ ============
Weighted average number of shares
outstanding 4,886,927 4,978,529
============ ============
Earnings per common share:
Net income (loss) ($0.09) $0.34
============ ============
Cash dividends per common share $ 0.0875 $0.081
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE> 4
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31,1995 and 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($429,861) $1,710,942
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 977,151 926,680
Provision for losses on receivables 161,920 248,481
Amortization of deferred non-compete agreement -- 100,000
Deferred income taxes (244,065) --
Changes in operating assets and liabilities:
Increase in receivables (488,112) (8,269)
Increase in inventories (2,401,384) (1,889,980)
Decrease (increase) in prepaid expenses (770,615) 185,311
Increase (decrease) in accounts payable 2,723,642 (1,140,355)
Decrease in accrued expenses
and other liabilities (44,640) (2,189,241)
Decrease in income taxes payable (20,314) (719,794)
Other, net (82,419) 4,582
----------- ------------
Net cash used in operating activities (618,697) (2,771,643)
----------- ------------
Cash flows from investing activities:
Purchase of equipment (605,046) (421,950)
----------- ------------
Net cash used in investing activities (605,046) (421,950)
----------- ------------
Cash flows from financing activities:
Proceeds from line of credit 3,267,739 6,091,097
Payment of long term debt (1,814,584) (1,596,275)
Proceeds from equipment financing 856,820 --
Dividends paid (429,716) (406,200)
Sale of treasury shares -- 41,650
----------- ------------
Net cash provided by financing activities 1,880,259 4,130,272
----------- ------------
Effect of exchange rate changes on cash (386,529) (1,197,266)
----------- ------------
Net increase (decrease) in cash and cash equivalents 269,987 (260,587)
Cash and cash equivalents, beginning of period 570,759 690,177
----------- ------------
Cash and cash equivalents, end of period $840,746 $429,590
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE> 5
HMI INDUSTRIES INC.
-------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
December 31, 1995
-----------------
(1) Certain prior year amounts have been reclassified to conform to the 1996
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 December 31, 1995 and
September 30, 1995, the results of operations and cash flows for the three
months ended December 31, 1995 and 1994. Independent public accountants
have not audited the December 31, 1995 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 10-K.
(3) In January 1996, the operations of Holland Electro B.V. in Rotterdam were
placed into bankruptcy, triggering the Conditional Purchase Agreement the
Company had with a Dutch bank in the amount of $1,104,000. As a result,
the Company is required to take possession of finished goods and
work-in-progress inventories. It has always been the plan that these
inventories would be sold to existing customers and that some assembly and
purchasing would be required to liquidate these inventories. That plan
has been adopted and the inventories are currently being sold. The
Company continues to use certain molds it purchased through Holland
Electro B.V. to produce the ElektraPure product line. It is anticipated
that the proceeds from the asset liquidation and the continued utilization
of molds may result in minimal exposure to the Company, and consequently
no provision for loss has been made at this time.
(4) Inventories at December 31, 1995 and September 30, 1995 consist of the
following:
<TABLE>
<S> <C> <C>
December 31, September 30,
------------ -------------
Finished Goods $ 6,977,189 $ 6,274,061
Work-in-process, raw
materials and supplies 12,106,086 10,407,830
----------- -----------
$19,083,275 $16,681,891
</TABLE>
<PAGE> 6
HMI INDUSTRIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
NET SALES - Net product sales for the quarter decreased to $28,157,000 for the
three months ended December 31, 1995 as compared to $32,068,000 in the
comparable quarter. As indicated in the Form 10-K for the year ending September
30, 1995, the two events that contributed to this decline in sales were the
labor disruption at Bliss Manufacturing and the erosion of the Mexican market.
The work disruption at Bliss Manufacturing by the U.A.W. continued late into
December 1995, at which time the Company entered into a six-year labor contract
with its own labor association. While this contract adds stability in the
Company's labor force, the erosion of customer confidence and the uncertainty
during the previous two quarters caused a decline of $3,700,000 in sales for
the quarter ending December 31, 1995 as compared to the quarter ending
December 31, 1994. As a direct result, the contribution of Bliss Manufacturing
to the consolidated operations of the Company was reduced by $1,100,000 for the
quarter. The erosion of customer confidence in Mexico caused a decline in
Mexican revenues of $975,000 for the quarter ending December 31, 1994 to
$794,000 in the current quarter. In the remainder of the Consumer Goods
Division, sales in the Household Rental Systems Division were lower by
$316,000. The sales growth in the international markets for the Company's
Consumer Goods products offset some softness in the North American market in
the quarter. Total product sales in the Consumer Goods Division were
$15,482,000 for the quarter ending December 31, 1995 as compared to $15,297,000
for the quarter ending December 31, 1994.
GROSS PROFIT - Gross profit for the quarter ended December 31, 1995 was
$8,662,000 or 30.8% as compared to $10,380,000 or 32.4% in the quarter ending
December 31, 1994. In the Consumer Goods Division, the decline in the higher
gross margin sales in the Mexican market, an increase in unit cost of
production within the North American operations and approximately $200,000 of
overhead costs incurred as a result of the duplication of production facilities
contributed to lower gross profit. The duplication of production facilities
will continue through March 1996 until the Consumer Goods production is moved
into its new facility. In the Manufactured Products Division, the tubular
operations had increased costs and very low margins. In January 1996, the US
tubular operations were placed under the management of Bliss Manufacturing and
will be relocated to existing space in Bliss' Newton Falls, Ohio production
facility. By relocating this operation, the tubular business will benefit from
Bliss' extensive customer base, quality and engineering programs and lower
overhead costs. These changes should allow these operations to return to
previously experienced gross margins and profitability. The relocation will
take place over the second and third fiscal quarters. The costs of the
relocation are expected to be minimal.
<PAGE> 7
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased by $1,400,000 for the quarter as compared to
the quarter ending December 31, 1994. As a percent of sales, selling, general
and administrative costs were 31.6% for the quarter ending December 31, 1995 as
compared to 23.3% for the quarter ending December 31, 1994. The increase as a
percentage of sales is attributable to the business structure in Mexico which
remained constant while sales declined sharply. The Company has instituted an
aggressive program of overhead cost reduction which is expected to allow the
Mexican operation to break even by the end of the second fiscal quarter.
Additionally, the level of sales expenses in the North American Consumer Goods
Division increased while the operation experienced a decline in sales for the
quarter. The costs of product enhancements which are expensed and the costs
of dealing with the Bliss labor disruption referred to above also contributed
to an increase in selling, general and administrative costs.
FINANCING REVENUE - Financing revenues represent the interest and fees
generated by the Company's Australian, Mexican, Canadian and United States
subsidiaries generated on the contracts financed.
INTEREST EXPENSE - Interest on short term borrowings during the quarter ended
December 31, 1995 was $253,000 as compared to $181,000 in the quarter ending
December 31, 1994. The 9.86%, seven year, unsecured term notes comprise
$103,000 and $160,000 of the three month interest expense in the 1995 and 1994
fiscal quarters.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The working capital balance at December 31, 1995 was $26,087,000, an increase
of 1% from the September 30, 1995 balance of $24,269,000.
The effect of foreign exchange fluctuations is primarily limited to the
Canadian and Mexican operations. The impact of the devaluation in Mexico
during the quarter ended December 31, 1995 was $386,000 and has 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, should not have a material effect on
consolidated shareholders' equity.
The Company's cash increased $270,000 during the quarter ended December 31,
1995. Accounts receivable decreased by $694,000 while finance contracts
receivables increased by $1,075,000. Inventories increased by $2,401,000 as the
result of increased purchases in December of steel to take advantage of cost
incentives, softer sales in the North American Consumer Goods operations and
the inventories required for the Company's new products in the filtration and
consumer products markets. Prepaid expenses increased by $771,000 as the
result of costs incurred in the quarter which were deferred and will be
amortized over the period in which benefit is to be received as well as the
deferral of specific costs related to the introduction of the Company's room
air cleaner (Defender), new attachments and the ActivaJet needle less insulin
injector. New market and product development outlays will be amortized over
their respective benefit and income periods. Unamortized trademarks of
$1,418,000 represent amounts paid at the time of the Household Rental Systems
acquisition
<PAGE> 8
which will be amortized during the remainder of the term of the license
agreement. Accounts payable increased by $2,724,000, primarily due to the
increase in inventory levels in December 1995.
Capital expenditures during the quarter were $605,000. In the Consumer Goods
Division, the additions included $109,000 for tooling, $24,000 for equipment
and $50,000 for steam cleaning machines. In the Manufactured Products
Division, the outlays were $55,000 for an overhead crane, $45,000 for a new
forklift, $80,000 towards the new Bliss Manufacturing press line, $70,000 for a
tube bending machine. Capital outlays also include $47,000 for computer
hardware and software and $126,000 in improvements to the renovated Cleveland
production facility.
In January 1996, the operations of Holland Electro B.V. in Rotterdam were
placed into bankruptcy, triggering the Conditional Purchase Agreement the
Company had with a Dutch bank in the amount of $1,104,000. As a result, the
Company is required to take possession of finished goods and work-in-progress
inventories. It has always been the plan that these inventories would be sold
to existing customers and that some assembly and purchasing would be required
to liquidate these inventories. That plan has been adopted and the inventory
has begun to be sold. The Company continues to use certain molds it purchased
through Holland Electro B.V. to produce the ElektraPure product line. It is
anticipated that the proceeds from the asset liquidation and the continued
utilization of molds may result in minimal exposure to the Company, and
consequently no provision for loss has been made at this time.
During the quarter ended December 31, 1995 the Company made another annual
principal payment on the unsecured, 9.86%, seven year private placement term
notes, leaving a balance of $3,333,000. This debt, obtained in November 1990
to finance the acquisition of Bliss Manufacturing Company, requires annual
principal payments of $1,666,667 in November 1996 and 1997.
The outstanding balance on the Company's line of credit was $13,000,000 at
December 31, 1995, bearing interest at a half of a percent less than the prime
lending rate. The increase in the borrowings of $2,038,000 since September 30,
1995 was for the payment of annual bonus and profit sharing contributions in
December, the investments in new products and the annual principal payment on
the private placement term notes. During December 1995, the Company
negotiated an increase in its line of credit to $14,500,000 to meet anticipated
requirements.
The Company continued the renovation of the production facility acquired in
June 1995. The Company is negotiating a construction loan to be completed in
February for $2,300,000 to finance the remainder of the renovation project.
The Company will sell its existing production facility in March 1996 which
will provide proceeds of $490,000.
Management is focusing on the reduction of both inventories and accounts
receivables in order to reduce borrowings and increase cash flow. In addition,
management is pursuing the sales of portions of the finance contract portfolios
that it has funded from operating cash flows. During the next quarter,
management will pursue alternatives to its current borrowing structure which is
being utilized for future projects, products and capital items. Management
believes that its potential to borrow from existing debt sources and the
aggressive program of asset management will meet the liquidity needs of the
Company.
<PAGE> 9
HMI INDUSTRIES INC.
-------------------
PART II - OTHER INFORMATION AND SIGNATURE
-----------------------------------------
DECEMBER 31, 1995
-----------------
Exhibits and Reports on Form 8-K
--------------------------------
Item 6
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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 there to duly authorized.
HMI Industries Inc.
Registrant
Date: February 26, 1996 \s\Kevin Dow
-----------------------
KEVIN DOW
Vice President and
Chief Financial Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 840,746
<SECURITIES> 0
<RECEIVABLES> 27,858,636
<ALLOWANCES> 1,531,817
<INVENTORY> 19,083,275
<CURRENT-ASSETS> 53,736,574
<PP&E> 31,316,548
<DEPRECIATION> 16,418,278
<TOTAL-ASSETS> 87,943,854
<CURRENT-LIABILITIES> 27,649,734
<BONDS> 0
<COMMON> 5,295,556
0
0
<OTHER-SE> 35,804,608
<TOTAL-LIABILITY-AND-EQUITY> 87,943,854
<SALES> 28,156,830
<TOTAL-REVENUES> 28,416,038
<CGS> 19,494,910
<TOTAL-COSTS> 28,473,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,158
<INCOME-PRETAX> (664,861)
<INCOME-TAX> (235,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (429,861)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
