<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 June 30, 1996
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 of (I.R.S. Employer Identification Number)
incorporation or 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 4,924,370 Shares
---------------------------------------------
Outstanding as of August 12, 1996
---------------------------------------------
<PAGE> 2
HMI INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
(Unaudited)
June 30, September 30,
1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS --
Current Assets:
Cash and cash equivalents ................................ $ 462,414 $ 570,759
Trade accounts receivable, net ........................... 24,816,713 26,025,887
Finance contracts receivable ............................. 3,277,287 2,587,085
Notes receivable ......................................... 598,435 1,049,389
Inventories .............................................. 15,377,749 16,681,891
Deferred income taxes .................................... 943,423 721,666
Prepaid expenses ......................................... 2,648,624 2,148,088
------------ ------------
Total current assets ................................. 48,124,645 49,784,765
------------ ------------
Property, plant and equipment, net ......................... 16,584,173 15,012,400
------------ ------------
Other assets:
Long-term notes receivable ............................... 334,123 334,123
Cost in excess of assets acquired, net ................... 12,731,374 12,985,128
Deferred income taxes .................................... 296,617 496,537
Unamortized trademarks ................................... 243,111 1,557,078
Finance contracts receivable ............................. 4,813,253 3,561,278
Other .................................................... 3,331,518 134,726
------------ ------------
Total other assets ................................... 21,749,996 19,068,870
------------ ------------
Total assets ......................................... $ 86,458,814 $ 83,866,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY --
Current liabilities:
Line of credit ........................................... $ 571,000 $ 2,204,384
Trade accounts payable ................................... 12,356,050 10,940,597
Dividends payable ........................................ 430,883 429,716
Income taxes payable ..................................... 1,186,917 2,737,429
Accrued expenses and other liabilities ................... 7,577,195 7,673,887
Long-term debt due within one year ....................... 3,908,081 2,026,759
------------ ------------
Total current liabilities ............................. 26,030,126 26,012,772
------------ ------------
Long-term liabilities:
Long-term debt (less amounts due within one year) ........ 22,181,460 14,050,715
Deferred income taxes .................................... 105,456 165,495
Other .................................................... 3,097,749 1,297,740
------------ ------------
Total long-term liabilities .......................... 25,384,665 15,513,950
------------ ------------
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 ........................... 7,637,869 7,521,851
Retained earnings ........................................ 27,043,397 34,034,294
Cumulative translation adjustment ........................ (3,146,815) (2,663,904)
------------ ------------
36,830,007 44,187,797
Less treasury stock 381,186 shares, at cost .............. 1,785,984 1,848,484
------------ ------------
Total stockholders' equity ........................... 35,044,023 42,339,313
------------ ------------
Total liabilities and stockholders' equity ........... $ 86,458,814 $ 83,866,035
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 1
<PAGE> 3
HMI INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales ........................................... $ 26,698,531 $ 32,520,104 $ 84,188,812 $ 98,444,533
Financing revenue and other ......................... 190,760 211,787 727,537 799,645
------------ ------------ ------------ ------------
26,889,291 32,731,891 84,916,349 99,244,178
Operating costs and expenses:
Cost of products sold ............................... 19,832,132 23,623,949 61,378,231 69,909,861
Selling, general and administrative expenses ........ 8,626,633 7,140,505 24,794,596 20,836,695
Interest expense .................................... 514,830 368,729 1,264,547 1,097,671
Other expenses ...................................... 209,126 199,076 510,603 553,596
Special charges ..................................... 243,512 -- 1,541,923 --
------------ ------------ ------------ ------------
Total expenses .................................... 29,426,233 31,332,259 89,489,900 92,397,823
------------ ------------ ------------ ------------
Income (loss) before income taxes ..................... (2,536,942) 1,399,632 (4,573,551) 6,846,355
Provision for income taxes ............................ (620,000) 549,893 (1,080,000) 2,093,277
------------ ------------ ------------ ------------
Income (loss) before discontinued operations .......... (1,916,942) 849,739 (3,493,551) 4,753,078
Loss from discontinued operations ..................... (182,432) (57,009) (1,405,899) (627,989)
Loss on disposal ...................................... (800,000) -- (800,000) --
------------ ------------ ------------ ------------
Net income (loss) ..................................... $ (2,899,374) $ 792,730 $ (5,699,450) $ 4,125,089
============ ============ ============ ============
Weighted average number of shares outstanding ......... 4,914,408 4,998,330 4,909,684 4,991,361
============ ============ ============ ============
Earnings per common share:
Income (loss) before discontinued operations ........ $ (0.39) $ 0.17 $ (0.71) $ 0.95
Loss from discontinued operations ................... $ (0.04) $ (0.01) $ (0.29) $ (0.13)
Loss from disposal .................................. $ (0.16) $ -- $ (0.16) $ --
------------ ------------ ------------ ------------
Net income (loss) ................................... $ (0.59) $ 0.16 $ (1.16) $ 0.83
============ ============ ============ ============
Cash diviends per common share ........................ $ 0.088 $ 0.088 $ 0.263 $ 0.263
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 4
HMI INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................... $(5,699,450) $ 4,125,089
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization .................................. 2,938,767 2,772,765
Provision for losses on receivables ............................ 1,017,980 483,933
Amortization of deferred non-compete agreement ................. -- 300,000
Deferred income taxes .......................................... (179,324) 320,126
Changes in operating assets and liabilities:
Decrease (increase) in receivables ................................. (2,285,102) (2,571,842)
Decrease (increase) in inventories ................................. 984,253 (3,098,785)
Decrease (increase) in prepaid expenses ............................ (833,894) 4,588
Increase (decrease) in accounts payable ............................ 1,551,114 1,294,241
Increase (decrease) in accrued expenses and other liabilities ...... 2,081,249 (1,701,121)
Increase (decrease) in income taxes payable ........................ (1,550,512) 195,682
Other, net ......................................................... 762,450 13,992
----------- -----------
Net cash provided (used) in operating activities ........... (1,212,469) 2,138,668
----------- -----------
Cash flows from investing activities:
Proceeds from sale of building ....................................... 489,783 --
Capital expenditures ................................................. (5,668,514) (2,635,273)
----------- -----------
Net cash used in investing activities ...................... (5,178,731) (2,635,273)
----------- -----------
Cash flows from financing activities:
Proceeds from line of credit ......................................... 5,866,616 5,169,333
Proceeds from mortgage ............................................... 2,214,923 --
Payment of long term debt ............................................ (2,359,886) (1,136,438)
Proceeds from financing .............................................. 2,334,392 --
Dividends paid ....................................................... (1,290,279) (1,278,786)
Sale of treasury shares .............................................. -- 166,491
----------- -----------
Net cash provided by financing activities .................. 6,765,766 2,920,600
----------- -----------
Effect on exchange rate changes on cash ................................ (482,911) (2,663,454)
----------- -----------
Net decrease in cash and cash equivalents .............................. (108,345) (239,459)
Cash and cash equivalents, beginning of period ......................... 570,759 690,177
----------- -----------
Cash and cash equivalents, end of period ............................... $ 462,414 $ 450,718
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 5
HMI INDUSTRIES INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(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 June 30, 1996 and September
30, 1995, the results of operations for the three months and nine months
ended June 30, 1996 and 1995 and the cash flows for the nine months ended
June 30, 1996 and 1995. Independent public accountants have not audited the
June 30, 1996 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 was 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. The Company does not anticipate a
material loss from the purchase of these inventories; consequently no
provision for loss has been recorded.
(4) Inventories at June 30, 1996 and September 30, 1995 consist of the
following:
<TABLE>
<CAPTION>
June 30, September 30,
----------- -------------
<S> <C> <C>
Finished Goods $ 7,621,000 $ 6,274,061
Work-in-process, raw
materials and supplies 7,756,749 10,407,830
----------- -----------
$15,377,749 $16,681,891
</TABLE>
(5) The Company has adopted a plan to sell its steam cleaning rental leasing
operations distributed through grocery chains and supermarkets in Canada.
Revenues and expenses related to this business have been classified as
discontinued operations for the three and nine month periods ended June 30,
1996 and 1995. The Company recorded an estimated loss on disposal of the
operation of $800,000 during the quarter. Net assets of Household Rental
Systems are included in other assets as assets held for sale.
(6) During the quarter, the Company assumed a mortgage of $323,000 and relieved
a note receivable for $302,000 in exchange for $625,000 of fixed assets.
<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 ended June 30, 1996 were
$26,699,000, a decrease of 18% from $32,520,000 in the comparable quarter for
1995. Net sales for the nine months ended June 30, 1996 were $84,189,000 as
compared to $98,445,000 for the nine months ended June 30, 1995, a 14% decline.
The sales decline was primarily the result of the UAW disruption at Bliss
Manufacturing last August as described in the Company's 1995 10-K. Sales for
the quarter and for the nine months have not fully recovered and the UAW strike
at General Motors in March 1996 further hampered the rebound of sales for Bliss
Manufacturing. The Consumer Goods Division also experienced a decline in sales
for the quarter as a result of a decrease of sales to the Company's Asian and
North American markets.
As reported in the second fiscal quarter, the Company has adopted a plan to sell
its steam cleaning rental leasing operations distributed through grocery chains
and supermarkets in Canada. Revenues and expenses related to this segment of
Household Rental Systems have been classified as discontinued operations for the
three and nine month periods ended June 30, 1996 and 1995. The Company recorded
an estimated loss on disposal of the operation of $800,000 during the quarter.
FINANCING REVENUE AND OTHER INCOME -- Financing revenues represent the interest
and fees generated on the contracts financed by the Company's Australian,
Mexican, Canadian and United States subsidiaries.
GROSS PROFIT -- Gross profit for the quarter ended June 30, 1996 was $6,866,000
or 25.7% as compared to $8,896,000 or 27.4% in the quarter ending June 30, 1995.
Gross profit for the nine months ended June 30, 1996 was 27.1% compared to 29.0%
for the comparable period in 1995. In the Consumer Goods Division, increased
production costs as a result of material price increases, production scheduling
difficulties within the North American and European production units and volume
decreases within the North American and Asian market resulted in a decrease in
margins. The decrease in sales at Bliss generated lower gross margins as a
result of the fixed cost element included in its cost of sales. This combined
with low margins within the US tubular operations at Tube Form were the primary
causes of decreased gross profit within the Manufactured Products division. The
US tubular operations were moved to Bliss' Newton Falls, Ohio production
facility during the quarter. The tubular operations experienced difficulties in
the quarter due to production set-up and an untrained workforce. These problems
have been resolved and management anticipates that by relocating this
operation, the tubular business should benefit from Bliss' extensive customer
base, operating management, quality and engineering programs and lower overhead
costs. These changes should allow these operations to experience
increased gross margins and profitability.
<PAGE> 7
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased by $1,486,000 for the quarter as compared to
the quarter ending June 30, 1995 and by $3,958,000 for the nine months ended
June 30, 1996 as compared to the nine months ended June 30, 1995. As a percent
of revenues, selling, general and administrative costs were 32.1% for the
quarter ending June 30, 1996 as compared to 21.8% for the quarter ending June
30, 1995. The increase in selling, general and administrative costs for the
quarter and for the nine months as a percentage of sales and in dollars is
attributable to the addition of new businesses and products by the Company
without corresponding increases in sales as of yet. These businesses such as HMI
Personal Care Corporation are in the start-up phase of their operations. Also
included in selling, general and administrative costs for the quarter is a
provision of $200,000 to record the Mexican finance contract portfolio at its
estimated net realizable value. The Company is currently investigating
opportunities on exiting the direct sales business within Mexico and creating an
independent distributor for this market. The Company also incurred additional
costs during the first three months of fiscal 1996 as a result of the Bliss
labor disruption.
SPECIAL CHARGES -- In connection with the move of two of the Company's
production facilities and a review and rationalization of the Company's product
lines, the Company performed a study of slow-moving and obsolete inventory which
resulted in a write-off of inventory and the creation of an inventory reserve
amounting to non-recurring special charges (as well as the cost associated with
the moves) of $244,000 for the quarter and $1,542,000 for the nine months ended
June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The working capital balance at June 30, 1996 was $22,095,000 a decrease of 7%
from the September 30, 1995 balance of $23,772,000. Decreases in working capital
are primarily attributable to decreases in receivables which decreased by
$2,285,000 at June 30, 1996 as compared to September 30, 1995. This decrease is
attributable to strong sales in September as compared to June thus decreasing
current receivables. Inventory levels have decreased since September 30, 1995 as
the result of the inventory reserves recorded during the period and as a result
of the focus on a just-in-time inventory system. Prepaid expenses increased as a
result of costs incurred during fiscal 1996 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. Accounts payable increased by
$1,551,000, primarily due to a tighter cash position.
Capital expenditures for the nine months ended June 30, 1996 were $5,669,000.
The Company has incurred $2,737,000 since September 30, 1995 for renovations of
its new Consumer Goods production facility in Cleveland. Normal capital
expenditures for the nine months ended June 30, 1996 within the Consumer Goods
Division were $1,778,000 and $1,154,000 within the Manufactured Products
Division.
During the nine month period ended June 30, 1996, the Company made another
annual principal payment on the unsecured, 9.86%, seven year private placement
term notes, leaving a balance of
<PAGE> 8
$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 $15,571,000 at June
30, 1996, bearing interest at prime less one percent on $13,000,000 and at
prime less one-half percent on the balance over $13,000,000. The prime rate at
June 30, 1996 was 8.25%. The increase in the line of credit of $5,867,000 since
September 30, 1995 has funded investments in new products such as the Defender
and ActivaJet and current operating activities.
The Company is in the process of renovating its production facility acquired in
June 1995. The Company negotiated a construction loan in March 1996 for
$2,300,000 to finance the renovation project. The Company had draws on the
construction loan of $2,215,000 during the nine months ended June 30, 1996. The
Company sold its existing production facility in April 1996 which provided
proceeds of $490,000.
The Company borrowed $1,040,000 to fund the operations of its Australian finance
company during the nine month period ended June 30 ,1996 which was secured by
the Australian finance contract portfolio. Additionally, the Company received
financing of $1,294,000 during the nine months ended June 30, 1996 for the
purchase of equipment for the Manufactured and Consumer Goods businesses.
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 June 30, 1996 was $483,000 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 management's opinion, the amount of additional
adjustments, if any, should not have a material effect on consolidated
shareholders' equity.
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
JUNE 30, 1996
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 there to duly authorized.
HMI Industries Inc.
----------------------------------------
Registrant
Date: August 14, 1996 \s\ Kelley L. Crookston
----------------------------------------
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 462,414
<SECURITIES> 0
<RECEIVABLES> 35,893,565
<ALLOWANCES> 2,387,877
<INVENTORY> 15,377,749
<CURRENT-ASSETS> 48,124,645
<PP&E> 33,297,097
<DEPRECIATION> 16,712,924
<TOTAL-ASSETS> 86,458,814
<CURRENT-LIABILITIES> 26,030,126
<BONDS> 0
<COMMON> 5,295,556
0
0
<OTHER-SE> 29,748,467
<TOTAL-LIABILITY-AND-EQUITY> 86,458,814
<SALES> 84,188,812
<TOTAL-REVENUES> 84,916,349
<CGS> 61,378,231
<TOTAL-COSTS> 88,225,353
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,264,547
<INCOME-PRETAX> (4,573,551)
<INCOME-TAX> (1,080,000)
<INCOME-CONTINUING> (3,493,551)
<DISCONTINUED> (2,205,899)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,699,450)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
