<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 March 31, 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)
<TABLE>
<S> <C>
Delaware 36-1202810
------------------------------ -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
</TABLE>
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 May 9, 1996
<PAGE> 2
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Assets
------
(Unaudited)
March 31 September 30
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $967,657 $570,759
Trade accounts receivable, net 28,334,536 26,025,887
Finance contracts receivable 2,184,160 2,587,085
Notes receivable 981,035 1,049,389
Inventories 15,234,575 16,681,891
Deferred income taxes 872,585 721,666
Prepaid expenses 3,798,461 2,148,088
----------- -----------
Total current assets 52,373,009 49,784,765
----------- -----------
Property, plant and equipment, net 16,650,373 15,012,400
----------- -----------
Other assets:
Long-term notes receivable 334,123 334,123
Cost in excess of net assets acquired, net 12,796,173 12,985,128
Deferred income taxes 296,617 496,537
Unamortized trade marks 1,286,999 1,557,078
Finance contracts receivable 4,368,320 3,561,278
Other 131,135 134,726
----------- -----------
Total other assets 19,213,367 19,068,870
----------- -----------
$88,236,749 $83,866,035
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Line of credit $994,112 $2,204,384
Trade accounts payable 12,798,525 10,940,597
Dividends payable 430,804 429,716
Income taxes payable 2,105,408 2,737,429
Accrued expenses and other liabilities 7,579,853 7,673,887
Long-term debt due within one year 3,453,934 2,026,759
----------- -----------
Total current liabilities 27,362,636 26,012,772
----------- -----------
Long-term liabilities:
Long-term debt (less amounts due within one year) 19,883,753 14,050,715
Deferred income taxes 8,320 165,495
Other 2,499,252 1,297,740
----------- -----------
Total long-term liabilities 22,391,325 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 7,634,886 7,521,851
Retained earnings 30,373,654 34,034,294
Cumulative translation adjustment (3,031,106) (2,663,904)
----------- -----------
40,272,990 44,187,797
Less treasury stock 382,086 shares, at cost 1,790,202 1,848,484
----------- -----------
Total stockholders' equity 38,482,788 42,339,313
----------- -----------
$88,236,749 $83,866,035
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE> 3
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $30,804,470 $35,789,509 $57,490,281 $65,924,429
Financing revenue and other income 310,468 257,397 576,461 623,619
----------- ----------- ----------- -----------
31,114,938 36,046,906 58,066,742 66,548,048
Cost of sales 22,260,696 24,798,272 41,546,099 46,285,913
Selling, general and administrative expenses 8,515,975 7,576,335 16,167,966 13,886,464
Interest expense 393,559 387,610 749,717 728,942
Other expenses 149,337 100,000 341,159 200,000
Special charges 1,298,411 ---- 1,298,411 ----
----------- ----------- ----------- -----------
Total expenses 32,617,978 32,862,217 60,103,352 61,101,319
----------- ----------- ----------- -----------
Income (loss) before income taxes (1,503,040) 3,184,689 (2,036,610) 5,446,729
Provision for income taxes (225,000) 886,098 (460,000) 1,543,383
----------- ----------- ----------- -----------
Income (loss) before discontinued operations (1,278,040) 2,298,591 (1,576,610) 3,903,346
Loss from discontinued operations (1,092,176) (677,173) (1,223,467) (570,986)
----------- ----------- ----------- -----------
Net income (loss) ($2,370,216) $1,621,418 ($2,800,077) $3,332,360
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 4,913,375 4,996,431 4,907,322 4,987,876
=========== =========== =========== ===========
Earnings per common share:
Income (loss) before discontinued operations ($0.26) $0.46 ($0.32) $0.78
Loss from discontinued operations (0.22) (0.14) (0.25) (0.11)
----------- ----------- ----------- -----------
Net income (loss) ($0.48) $0.32 ($0.57) $0.67
=========== =========== =========== ===========
Cash dividends per common share $0.0875 $0.0875 $0.1750 $0.175
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE> 4
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($2,800,077) $3,332,360
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,954,302 1,839,721
Provision for losses on receivables 323,840 364,694
Amortization of deferred non-compete agreement --- 200,000
Deferred income taxes (108,174) (8,205)
Changes in operating assets and liabilities:
Increase in receivables (2,968,252) (2,488,153)
Decrease (increase) in inventories 1,447,316 (1,442,912)
Increase in prepaid expenses (1,650,373) (359,604)
Increase in accounts payable 1,857,928 2,210,208
Increase (decrease) in accrued
expenses and other liabilities 1,107,478 (1,858,476)
Decrease in income taxes payable (632,021) (66)
Other, net 518,945 31,435
----------- ----------
Net cash provided (used) in operating activities (949,088) 1,821,002
----------- ----------
Cash flows from investing activities:
Capital expenditures (3,477,278) (1,491,873)
----------- ----------
Net cash used in investing activities (3,477,278) (1,491,873)
----------- ----------
Cash flows from financing activities:
Proceeds from line of credit 4,289,728 4,086,656
Proceeds from construction loan 1,490,052 ---
Payments of long term debt (2,064,231) (1,361,907)
Proceeds from long-term borrowings 2,334,392 ---
Dividends paid (859,475) (833,748)
Sale of treasury shares --- 89,615
----------- ----------
Net cash provided by financing activities 5,190,466 1,980,616
----------- ----------
Effect of exchange rate changes on cash (367,202) (2,224,473)
----------- ----------
Net increase in cash and cash equivalents 396,898 85,272
Cash and cash equivalents, beginning of period 570,759 690,177
----------- ----------
Cash and cash equivalents, end of period $967,657 $775,449
=========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements
<PAGE> 5
HMI INDUSTRIES INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 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 March 31, 1996 and
September 30, 1995, the results of operations for the three months and six
months ended March 31, 1996 and 1995 and the cash flows for the six months
ended March 31, 1996 and 1995. Independent public accountants have not
audited the March 31, 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 March 31, 1996 and September 30, 1995 consist of the
following:
<TABLE>
<CAPTION>
March 31, September 30,
------------ -------------
<S> <C> <C>
Finished Goods $ 6,033,746 $ 6,274,061
Work-in-process, raw
materials and supplies 9,200,829 10,407,830
----------- -----------
$15,234,575 $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 six month periods ended March
31, 1996 and 1995. At this time, the Company does not anticipate a loss
from the disposal of this operation. Accordingly, no provision has been
recorded.
<PAGE> 6
Net assets of Household Rental Systems are included in the Consolidated Balance
Sheet and are summarized as follows:
<TABLE>
<S> <C>
Current assets $1,164,746
Equipment 2,180,724
Intangibles 1,135,459
Current liabilities (1,127,323)
------------
Net assets $ 3,353,606
============
</TABLE>
<PAGE> 7
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 March 31, 1996 were
$30,804,000, a decrease of 14% from $35,790,000 in the comparable quarter for
1995. Net sales for the six months ended March 31, 1996 were $57,490,000 as
compared to $65,924,000 for the six months ended March 31, 1995, a 13% 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
during the quarter were also affected by the UAW strike at General Motors in
March 1996. Bliss Manufacturing has experienced steady growth in sales since
an agreement was reached with the Employees labor association in December.
Barring no other UAW disruptions within its customers' operations, management
expects sales for Bliss to continue to increase during the second half of
fiscal 1996.
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 six month periods
ended March 31, 1996 and 1995. At this time, the Company does not anticipate a
loss from the disposal of this operation. Accordingly, no provision was
recorded.
FINANCING REVENUE AND OTHER INCOME - Financing revenues represent the interest
and fees generated by the Company's Australian, Mexican, Canadian and United
States subsidiaries generated on the contracts financed.
GROSS PROFIT - Gross profit for the quarter ended March 31, 1996 was $8,544,000
or 27.7% as compared to $10,991,000 or 30.7% in the quarter ending March 31,
1995. Gross profit for the six months ended March 31, 1996 was 27.7% compared
to 29.7% for the comparable period in 1995. In the Consumer Goods Division,
increased production costs as a result of material price increases and
production scheduling difficulties within the North American and European
production units and volume decreases within the North American 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 substantially moved to
Bliss' Newton Falls, Ohio production facility in April 1996. 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses increased by $940,000 for the quarter as compared to
the quarter ending March 31, 1995 and by
<PAGE> 8
$2,282,000 for the six months ended March 31, 1996 as compared to the six
months ended March 31, 1995. As a percent of revenues, selling, general and
administrative costs were 27.4% for the quarter ending March 31, 1996 as
compared to 21.0% for the quarter ending March 31, 1995. The increase in
selling, general and administrative costs for the quarter and for the six
months as a percentage of sales and in dollars is attributable to the addition
of new businesses 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 or are businesses used to enhance the sales
of the core Consumer Goods segment of the Company (i.e. finance company
operations). Selling, general and administrative costs as a percentage of
sales have increased as result of the decrease in sales at Bliss and Mexico.
The Company's corporate structure has not been changed as a result of the
decrease in sales at Bliss as the decrease is anticipated to be a temporary
situation. Changes have been made within the Mexican operation, but the full
benefit from these changes have not fully been realized during the period. 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 a one-time special charge (as well as the cost associated
with the moves) of $1,300,000.
LIQUIDITY AND CAPITAL RESOURCES
The working capital balance at March 31, 1996 was $25,010,000 an increase of 5%
from the September 30, 1995 balance of $23,772,000. Increases in working
capital are primarily attributable to increases in receivables which increased
by $1,837,370 at March 31, 1996 as compared to September 30, 1995. This
increase is attributable to strong sales in March as compared to September thus
increasing current receivables. Inventory levels have decreased since
September 30, 1995 as the result of the inventory reserves recorded during the
quarter 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 $1,858,000, primarily due to a tighter cash
position.
Capital expenditures for the six months ended March 31, 1996 were $3,477,000.
The Company has incurred $1,876,000 since September 30, 1995 for renovations of
its new Consumer Goods production facility in Cleveland. Normal capital
expenditures for the six months ended March 31, 1996 within the Consumer Goods
Division were $951,000 and $650,000 within the Manufactured Products Division.
During the six month period ended March 31, 1996, 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
<PAGE> 9
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 $13,994,000 at
March 31, 1996, bearing interest at a 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 March 31, 1996 was 8.25%. The increase in the borrowings of $4,290,000
since September 30, 1995 has funded investments in new products such as the
Defender and ActivaJet and current operating activities. During February 1996,
the Company negotiated an increase in its line of credit to $16,000,000 to meet
anticipated requirements.
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 $1,490,000 during the quarter. 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 quarter which was secured by the Australian finance
contract portfolio. Additionally, the Company received financing of $1,294,000
during the six months ended March 31, 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 March 31, 1996 was $367 ,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> 10
HMI INDUSTRIES INC.
PART II - OTHER INFORMATION AND SIGNATURE
MARCH 31, 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: May 15, 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> MAR-31-1996
<CASH> 967,657
<SECURITIES> 0
<RECEIVABLES> 31,009,308
<ALLOWANCES> 1,693,737
<INVENTORY> 15,234,575
<CURRENT-ASSETS> 52,373,009
<PP&E> 33,256,226
<DEPRECIATION> 16,605,854
<TOTAL-ASSETS> 88,236,749
<CURRENT-LIABILITIES> 27,362,636
<BONDS> 0
<COMMON> 5,295,556
0
0
<OTHER-SE> 33,187,232
<TOTAL-LIABILITY-AND-EQUITY> 88,236,749
<SALES> 57,490,281
<TOTAL-REVENUES> 58,066,742
<CGS> 41,546,099
<TOTAL-COSTS> 60,853,069
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749,717
<INCOME-PRETAX> (2,036,610)
<INCOME-TAX> (460,000)
<INCOME-CONTINUING> (1,576,610)
<DISCONTINUED> (1,223,467)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,800,077)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
