<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1997
--------------
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 (IRS Employer Identification No.)
Incorporation or organization)
3631 Perkins, Cleveland, Ohio 44114
----------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 432-1990
-------------
- -----------------------------------------------------------------------
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 ninety (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.
Class Outstanding at August 14, 1997
----- ------------------------------
Common stock, $1 par value per share 4,988,760
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<PAGE> 2
HMI INDUSTRIES INC
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(Unaudited)
June 30, September 30,
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 568,388 $ 472,408
Trade accounts receivable (net of allowance of $3,795,674 and $2,439,406) 20,708,077 26,252,884
Finance contracts receivable 1,221,949 2,224,480
Notes receivable 206,111 560,884
Inventories 12,563,631 18,364,597
Income tax receivable 1,392,049 1,463,000
Deferred income taxes 3,860,442 1,772,129
Prepaid expenses 779,289 2,683,711
Other current assets 631,259 --
Net assets held for sale at realizable value 5,312,000 4,228,059
------------ ------------
Total current assets 47,243,195 58,022,152
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 12,407,759 15,717,653
------------ ------------
OTHER ASSETS:
Long-term notes receivable (less amounts due within one year) 334,123 334,123
Cost in excess of net assets of acquired businesses
(net of amortization of $3,444,687 and $3,092,432) 11,155,578 12,636,147
Unamortized trademarks 359,500 312,775
Finance contracts receivable (less amounts due within one year) 2,443,897 4,449,628
Other 236,834 237,481
------------ ------------
Total other assets 14,529,932 17,970,154
------------ ------------
Total assets $ 74,180,886 $ 91,709,959
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 516,662 $ 3,132,975
Trade accounts payable 14,829,062 17,785,859
Income taxes payable 682,118 1,013,979
Accrued expenses and other liabilities 8,596,029 7,202,989
Long-term debt due within one year 4,293,868 3,485,641
------------ ------------
Total current liabilities 28,917,739 32,621,443
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt (less amounts due within one year) 20,415,165 22,334,613
Deferred income taxes 133,519 192,372
Other 1,271,705 3,010,109
------------ ------------
Total long-term liabilities 21,820,389 25,537,094
------------ ------------
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 8,000,899 7,686,944
Retained earnings 12,923,281 23,408,806
Cumulative translation adjustment (1,339,518) (1,077,325)
------------ ------------
24,880,218 35,313,981
Less treasury stock 306,796 shares, at cost 1,437,460 1,762,559
------------ ------------
Total stockholders' equity 23,442,758 33,551,422
------------ ------------
Total liabilities and stockholders' equity $ 74,180,886 $ 91,709,959
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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HMI INDUSTRIES INC
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 28,310,115 $ 23,818,758 $ 85,452,587 $ 73,807,134
Financing revenue and other 155,167 180,982 492,847 550,696
------------ ------------ ------------ ------------
28,465,282 23,999,740 85,945,434 74,357,830
OPERATING COSTS AND EXPENSES:
Cost of products sold 23,167,648 17,405,822 68,128,568 52,561,179
Selling, general and administrative expenses 6,714,853 7,248,336 22,429,164 21,445,688
Interest expense 620,630 514,829 1,704,447 1,264,546
Other expenses 108,210 185,619 314,844 399,580
Special charges 2,342,746 43,516 2,342,746 1,246,195
------------ ------------ ------------ ------------
Total expenses 32,954,087 25,398,122 94,919,769 76,917,188
------------ ------------ ------------ ------------
Loss before income taxes (4,488,805) (1,398,382) (8,974,335) (2,559,358)
Benefit for income taxes (539,096) (386,714) (2,227,341) (704,859)
------------ ------------ ------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS (3,949,709) (1,011,668) (6,746,994) (1,854,499)
------------ ------------ ------------ ------------
Income (loss) from discontinued operations (less applicable income
tax benefits of $146,292, $233,286, $405,532 and $375,141 ) 93,467 (1,087,706) (286,727) (3,044,951)
Loss on disposals, including provision of $300,000 for operating
losses during phase-out period (less applicable
income tax benefits of $673,759, $0, $673,759, $0) (3,439,298) (800,000) (3,439,298) (800,000)
------------ ------------ ------------ ------------
NET LOSS $ (7,295,540) $ (2,899,374) $(10,473,019) $ (5,699,450)
============ ============ ============ ============
Weighted average number of shares outstanding 4,961,985 4,914,408 4,936,938 4,909,684
============ ============ ============ ============
PER SHARE OF COMMON STOCK:
Loss before discontinued operations $ (0.80) $ (0.21) $ (1.37) $ (0.38)
Income(loss) from discontinued operations $ 0.02 $ (0.22) $ (0.05) $ (0.62)
Loss on disposals $ (0.69) $ (0.16) $ (0.70) $ (0.16)
------------ ------------ ------------ ------------
Net loss $ (1.47) $ (0.59) $ (2.12) $ (1.16)
============ ============ ============ ============
Cash dividends per common share $ -- $ 0.088 $ -- $ 0.263
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
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HMI INDUSTRIES INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,473,019) $ (5,699,450)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,149,830 2,938,767
Provision for loss on asset write-down 160,000 --
Loss on disposal of discontinued operations, net of taxes 3,439,298 --
Compensation expense 407,015 --
Provision for losses on receivables 2,760,031 1,017,980
Deferred income taxes (1,375,959) (179,324)
Changes in operating assets and liabilities:
Decrease (increase) in receivables 5,043,343 (2,285,102)
Decrease in inventories 2,444,765 984,253
Decrease (increase) in prepaid expenses 1,396,717 (833,894)
Increase in other current assets (412,509) --
Increase (decrease) in accounts payable (2,039,108) 1,551,114
Increase in accrued expenses and other liabilities 243,772 2,081,249
Increase (decrease) in income taxes payable (227,098) (1,550,512)
Other, net (376,184) 279,539
------------ ------------
Net cash provided by (used in) operating activities 3,140,894 (1,695,380)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 1,120,916 489,783
Capital expenditures (775,585) (5,668,514)
------------ ------------
Net cash provided by (used in) investing activities 345,331 (5,178,731)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 28,894,000 5,866,616
Payment of line of credit (28,929,000)
Proceeds from mortgage 55,077 2,214,923
Payment of long term debt (3,410,322) (2,359,886)
Proceeds from financing -- 2,334,392
Dividends paid -- (1,290,279)
------------ ------------
Net cash (used in) provided by financing activities (3,390,245) 6,765,766
------------ ------------
Effect on exchange rate changes on cash -- --
------------ ------------
Net increase (decrease) in cash and cash equivalents 95,980 (108,345)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 472,408 570,759
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 568,388 $ 462,414
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 5
PART I - ITEM 1
- ---------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In the opinion of the Company, these consolidated condensed financial statements
contain all of the adjustments necessary to present fairly the financial
position as of June 30, 1997, and the results of operations for the three and
nine months ended June 30, 1997 and 1996, and cash flows for the nine months
then ended.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis for Preparation of the Consolidated Condensed Financial Statements
------------------------------------------------------------------------
The consolidated condensed financial statements included in this report have
been prepared, without audit, by the Company from the consolidated statements of
HMI Industries Inc and its subsidiaries, pursuant to the rules and regulations
of the Securities and Exchange Commission. Although the Company believes that
the disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including significant accounting
policies, normally included in annual financial statements have been condensed
or omitted pursuant to such rules and regulations.
It is suggested that these consolidated condensed financial statements, which
are subject to year-end audit adjustments, be read in conjunction with the
Company's latest Annual Report on Form 10-K.
Cost in Excess of Net Assets of Acquired Businesses
---------------------------------------------------
Cost in excess of net assets of acquired businesses are being amortized on a
straight-line basis over a 40-year period. Cost in excess of net assets acquired
of $881,121 which related to the acquisition of Tube Form in 1970 have been
included in the anticipated loss on disposal for the Tubular business recorded
in June 1997.
Assets Held for Sale
--------------------
In June 1997, the Company recorded a pretax charge of $2,382,500 in connection
with the disposal of Tube-Fab Ltd., and the Tubular business, both divisions
within the Manufacturing sector. In addition, the Company made a decision to
sell Health-Mor Personal Care Corporation, resulting in a pretax charge of
$917,100. These charges reflect the expected loss from the disposition of net
assets, and anticipated operating losses from the measurement date though the
estimated dates of disposal. The assets and liabilities of these businesses at
June 30, 1997, primarily working capital and property, plant and equipment, have
been reclassified to net assets held for sale and are stated at their realizable
value. These assets are expected to be sold by December 31, 1997.
4
<PAGE> 6
Assets held for sale also include at June 30, 1997, the assets of Household
Rental Systems recorded at their estimated net realizable value. An additional
charge of $813,400 on the disposal of this asset was recorded in June to reflect
its current realizable value.
The former Bedford Heights, Ohio facility for the Tubular operation, which was
recorded as an asset held for sale at September 30, 1996, was sold in December
1996.
Reclassification
----------------
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
2. DISCONTINUED OPERATIONS
As of June 30, 1997, the Company reported Tubular and Tube Fab Ltd., its tubular
and aerospace businesses, as well as Health-Mor Personal Care Corp., its
personal care business, as discontinued operations. Accordingly, the
consolidated financial statements of the Company have been reclassified to
report separately the net assets and operating results of these discontinued
operations. Financial results for periods prior to the dates of discontinuance
have been restated to reflect continuing operations. Sales applicable to the
discontinued operations prior to the dates of discontinuance were $6,458,600 and
$8,709,200 for the nine months ended June 30, 1997 and 1996, respectively.
During the fourth quarter of 1996, the Company adopted a plan to exit its direct
sales operation in Mexico. Revenues and expenses related to this business have
been classified as discontinued operations for the three and nine month period
ended June 30, 1996.
In March 1996, the Company 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 months ended June 30, 1997 and
1996. Net assets of Household Rental Systems are included in assets held for
sale.
3. INVENTORIES
Inventories at June 30, 1997 and September 30, 1996 consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
------------------- -------------------
<S> <C> <C>
Finished goods $ 5,504,954 $ 6,943,970
Work-in-progress, raw materials
and supplies 7,058,677 11,420,627
=================== ===================
$ 12,563,631 $ 18,364,597
=================== ===================
</TABLE>
5
<PAGE> 7
4. DEBT
In November 1996, the Company made another annual principal payment of
$1,666,666 on the unsecured, 9.86%, seven year private placement term notes,
leaving a balance of $1,666,667. The final principal payment on this debt,
obtained in November 1990 to finance the acquisition of Bliss Manufacturing
Company, is required in November 1997. Management will be meeting with the
lender in August to discuss the possibility of refinancing this note.
In March 1997, the Australian Unsecured Demand Authorization, payable on demand
or February 28, 1997, was extended through September 30, 1997. Management
expects to obtain refinancing on this loan. An extension was also obtained, in
April 1997, for the bank credit facility, utilized by the Netherlands operation.
The facility, originally payable March 1997, is now available through December
1997.
In November 1996, the Company increased the line of credit facility from
$17,500,000 to $19,500,000 with a principal payment of $2,000,000 due by
February 28, 1997. Under the Company's line of credit agreement, a principal
amount of $2,500,000 was due no later than January 2, 1997. In December 1996,
the proceeds from the sale of the Bedford Heights, Ohio tubular facility were
utilized to pay down the $2,500,000 principal amount to $1,379,100. In January
1997, proceeds from a federal income tax refund were used to pay the remaining
principal amount due. Effective February 28, 1997, the Credit Facility Agreement
was amended to increase the line of credit from $17,000,000 to $20,000,000 with
$5,000,000 of the commitment due March 31, 1997. In March 1997, the availability
of the $20,000,000 facility was extended through April. On May 14, 1997, the
Company obtained an extension of the $20,000,000 facility through May 31, 1997.
Effective June, 1997, the Company entered into a $20 million credit facility
with its lender which replaced the February, 1997 amended and restated credit
agreement. The new credit agreement expires on October 1, 1998 and requires an
unused facility fee, computed at 0.25% per annum on the Unused Revolving Loan
Facility amount, payable monthly. The secured facility consists of a $13 million
revolving credit facility and $7 million in term loans. The term loans require
monthly principal payments of $98,501. Interest rates accrue at a rate of prime
on the revolving credit facility and up to prime plus 2.25% on the term loans.
As of June 30, 1997, the outstanding balance on the Company's credit facility
was $17,465,000.
The agreements relating to the Company's outstanding debt include various
covenants that limit its ability to incur additional indebtedness, and restrict
paying dividends, as well as require it to meet various financial covenants. At
June 30, 1997 the Company was not in compliance with certain of these covenants
contained in its credit agreements; however, the Company obtained a waiver on
these covenants.
6
<PAGE> 8
5. LONG-TERM COMPENSATION PLAN
Under the Company's Health-Mor Inc. 1992 Omnibus Long-Term Compensation Plan
("the Plan") the Board of Directors, in May 1997, approved a grant to two
executives of 20,000 shares each, of common stock subject to certain
restrictions. The shares will vest over a maximum period of eight months and are
subject to each executive's continued employment and other various restrictions.
In July 1997, the Board of Directors granted stock and stock options under the
Plan to three of its executives. Each executive was awarded 25,000 shares of
restricted stock, with 12,500 vesting on October 1, 1997 and the balance on
January 2, 1998. An additional 75,000 shares of restricted common stock will be
issued in 1998 contingent upon certain conditions and continued employment. In
addition, they each received options to purchase 75,000 shares of common stock
at $5.68 per share, of which 35,210 options are incentive stock options, half
exercisable on July 2, 1997 and the remaining on January 2, 1998. The remaining
39,790 options are non-qualified stock options that become exercisable on July
2, 1998. All options expire July 2, 2002, to the extent not exercised.
6. LEASES
During the fiscal year 1994 and continuing throughout 1996, the property owned
by the Company in Lombard, Illinois that was the office facilities for the
discontinued operations of HMI Credit Inc. was leased to a third party. The
lease included an option to purchase the property at any time during the ten
year lease term. The tenant was responsible for all operating expenses related
to the property and the lease payments equal the debt service for the variable
rate industrial revenue development bonds originally issued to finance the
property.
On July 7, 1997, the tenant exercised his right to purchase the property at a
price equal to the remaining principal debt service for the variable rate
industrial revenue development bonds. The principal amount of $884,400 relating
to these bonds is recorded in debt on the Company's books at June 30, 1997.
7. EXECUTIVE COMPENSATION AGREEMENT AND OTHER SPECIAL CHARGES
During 1994, the Company negotiated a five year Compensation Agreement with the
Chief Executive Officer, Kirk W. Foley which was ratified at the 1995 Annual
shareholders' Meeting. The Agreement combines salary, incentive compensation,
loans, stock options and Phantom Stock to employ Mr. Foley. On May 14, 1997 Mr.
Foley's employment with the Company was terminated triggering certain benefit
payments.
7
<PAGE> 9
Also in May 1997, the Company announced and completed a reduction of personnel
which affected approximately forty people (hourly and salaried) at its
Cleveland, Ohio Consumer Goods facility. The Canadian corporate office was also
scaled down, with all accounting functions being brought into the Cleveland,
Ohio office, reducing staff by approximately 11 people in the Canadian office.
Total special charges of $2,342,700 relating to the layoffs announced in May
and Mr. Foley's termination benefit package were recorded in the third quarter
of 1997. The balance in the related reserve at June 30, 1997 was $ 2,165,600,
of which $300,000 was previously recorded as compensation expense in fiscal
year 1996 in accordance with Mr. Foley's employment agreement.
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
-------------- -----------
December 31, March 31,
1996 1997
-------------- -----------
<S> <C> <C>
Net revenues $ 28,271,126 $ 29,209,026
Gross profit $ 6,840,926 $ 5,340,628
Loss before discontinued operations $ (124,588) $ (2,672,697)
Loss from discontinued operations $ (15,405) $ (364,789)
Loss on disposal $ --- $ ---
Net loss $ (139,993) $ (3,037,486)
Per share of common
stock:
Loss before discontinued operations $ (.03) $ (.54)
Loss from discontinued operations $ --- $ (.07)
Loss on disposal $ --- $ ---
Net loss $ (.03) $ (.61)
</TABLE>
The first two quarters of 1997 have been restated as shown above. Inventory
analysis performed in conjunction with the third quarter physical inventory
revealed $1.1 million of raw material procurements from a supplier which were
recognized in the third quarter that related to the two previous quarters and
additionally, inventory adjustments of $582,800 were required to reflect
product costs not properly recognized in the first two quarters.
8
<PAGE> 10
PART I - ITEM 2
- ---------------
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, 1997 were
$28,310,115, an increase of $4,491,357 from $23,818,758 in the comparable
quarter for 1996. Net product sales of $85,452,587 for the nine months ended
June 30, 1997 represent a 15.8% increase as compared to $73,807,134 for the nine
months ended June 30, 1996. Increased revenue was due primarily to new
automotive, heavy truck and fork truck business awarded to Bliss Manufacturing
in the Manufactured Products Division which had an overall sales increase of
$6,636,160 and $15,633,149 for the quarter and nine months ended June 30, 1997,
respectively, as compared to the corresponding periods in 1996. Sales increases
in the Manufactured Products Division were offset by product revenue declines in
the Consumer Goods Division. Consumer Goods sales decreased from comparable
periods in 1996, $2,144,803 and $3,987,696, for the three and nine months ended
June 31, 1997, respectively. The decrease in Consumer Goods sales resulted from
declining North American and Asian markets partially offset by new product sales
of the " Defender " room air cleaner and increased aftermarket sales.
FINANCING REVENUE AND OTHER INCOME - Financing revenues represent the interest
and fees generated on the contracts financed by the Company's Australian,
Canadian, and United States subsidiaries.
GROSS PROFIT - Gross profit for the quarter ended June 30, 1997 was $5,142,500
or 18.2% compared to $6,412,900 or 26.9% in the quarter ended June 30, 1996.
Gross Profit for the nine months ended June 30, 1997 was 20.3% compared to 28.8%
for the comparable period in 1996. Gross margins were negatively impacted by
lower sales in the Consumer Goods Division, additional obsolescence, returns
from the retail distribution channel, and higher than expected raw material
pricing. Gross margins in the Manufactured Products Division were negatively
impacted by market pressure and product mix changes. The product mix also
continues to negatively affect the overall gross margins as the Manufactured
Products Group had significant sales gains at its Bliss operations while sales
in the Consumer Goods Division declined.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses were $533,500 lower for the quarter ended June 30, 1997
compared to the quarter ended June 30, 1996. Selling, general, and
administrative expenses for the nine months ended June 30, 1997 were $983,500
higher than the comparable period in 1996.
9
<PAGE> 11
The increase in year-to-date expenses is attributable to a $1,900,000 write-down
of certain assets (primarily accounts receivable) taken in the second quarter of
fiscal 1997. Selling, general and administrative expense for the nine months
ended June 30, 1997, adjusted for the $1,900,000 charge, were below prior year
by $916,500. The overall decrease in expense is a result of management's
conscientious effort to reduce selling and administrative overhead costs.
SPECIAL CHARGES - In connection with the layoffs announced in May and the
termination of former Chief Executive Officer Kirk W. Foley the Company recorded
a special charge of $2,342,700 related to termination benefit payments. The
special charge in the comparable periods in prior year related to a study
performed in conjunction with the move of two of the Company's production
facilities and a review and rationalization of the company's product lines. This
study, performed on slow-moving and obsolete inventory, resulted in a write-off
of inventory and the creation of an inventory reserve, as well as the cost
associated with the moves.
INTEREST EXPENSE - Interest expense has increased as a result of additional
borrowings from the credit facility during fiscal year 1996. Interest on bank
lines of credit was $1,160,000 and $762,400 during the nine months ended June
30, 1997 and 1996, respectively.
INCOME TAXES - Benefit for income taxes increased to an effective rate of 24%
for the nine months ended June 30, 1997 as compared to 16% for the nine months
ended June 30, 1996. This increase resulted from the reduction in mix of
Canadian and Mexican losses in 1997 as compared to 1996, which the Company does
not recognize income tax benefits for due to the unlikelihood that these net
operating losses will be utilized in the future.
DISCONTINUED OPERATIONS - As of June 30, 1997, the Company reported Tubular and
Tube Fab Ltd., its tubular and aerospace businesses, as well as Health-Mor
Personal Care Corp., its personal care business, as discontinued operations.
Accordingly, the consolidated financial statements of the Company have been
reclassified to report separately the net assets and operating results of these
discontinued operations. Financial results for periods prior to the dates of
discontinuance have been restated to reflect continuing operations. Sales
applicable to the discontinued operations prior to the dates of discontinuance
were $6,458,600 and $8,709,200 for the nine months ended June 30, 1997 and 1996,
respectively.
Proceeds from the sale of the discontinued operations will be utilized to
paydown the Company's debt.
Liquidity and Capital Resources
-------------------------------
The working capital balance at June 30, 1997 was $18,325,500, a decrease of 28%
from the September 30, 1996 balance of $25,400,700. This decrease resulted from
management's focus on accelerating the rate of cash generated from business
operations.
The Company's cash increased $95,980 during the nine months ended June 30, 1997.
Receivables decreased by $5,043,300 primarily as a result of decreases in trade
receivables of $1,680,300 and a $3,008,300 decrease in finance contract
receivables. The decrease in finance contract receivables is attributed to the
write-off of approximately $3.1 million in contracts twelve months past due.
This write-off was offset by decreases in deferred payments related to the
finance contracts which are included in accrued expenses and other long-term
liabilities. Trade receivables decreased as a direct result in the decrease in
sales during the
10
<PAGE> 12
third quarter of fiscal 1997 as compared to fourth quarter of fiscal 1996.
Inventory levels decreased $2,444,800 since September 30, 1996 as the result of
the disposal of non-core products, an increase to the obsolescence reserve for
the write-off of the non-core products and continued focus on inventory
management. The write down of unusable barter credits resulted in the decrease
in prepaid expenses along with continued amortization of professional fees
incurred during business start-ups in 1996. Prepaids decreased a total of
$1,396,700. Accounts payable decreased $2,039,100 due to an improvement in the
Company's restricted cash position. Included in the increase of accrued expenses
and other liabilities is a $3,099,300 charge for the estimated loss on disposal
of discontinued operations.
Capital expenditures for the nine months ended June 30, 1997 and 1996 were
$775,585 and $5,669,000, respectively. For the nine months ended June 30, 1997,
capital expenditures in the Consumer Goods Division were $502,556 and $273,029
in the Manufactured Products Division. For the nine months ended June 30, 1996,
the Company incurred $2,737,000 for renovations of its new Consumer Goods
production facility in Cleveland, Ohio.
In November 1996, the Company made another annual principal payment of
$1,666,666 on the unsecured, 9.86%, seven year private placement term notes,
leaving a balance of $1,666,667. The final principal payment on this debt,
obtained in November 1990 to finance the acquisition of Bliss Manufacturing
Company, is required in November 1997. Management will be meeting with the
lender in August to discuss the possibility of refinancing this note.
In March 1997, the Australian Unsecured Demand Authorization, payable on demand
or February 28, 1997, was extended through September 30, 1997. Management
expects to obtain refinancing on this loan. An extension was also obtained, in
April 1997, for the bank credit facility, utilized by the Netherlands operation.
The facility, originally payable March 1997, is now available through December
1997.
In November 1996, the Company increased the line of credit facility from
$17,500,000 to $19,500,000 with a principal payment of $2,000,000 due by
February 28, 1997. Under the Company's line of credit agreement, a principal
amount of $2,500,000 was due no later than January 2, 1997. In December 1996,
the proceeds from the sale of the Bedford Heights, Ohio tubular facility were
utilized to pay down the $2,500,000 principal amount to $1,379,100. In January
1997, proceeds from a federal income tax refund were used to pay the remaining
principal amount due. Effective February 28, 1997, the Credit Facility Agreement
was amended to increase the line of credit from $17,000,000 to $20,000,000 with
$5,000,000 of the commitment due March 31, 1997. In March 1997, the availability
of the $20,000,000 facility was extended through April. On May 14, 1997, the
Company obtained an extension of the $20,000,000 facility through May 31, 1997.
Effective June, 1997, the Company entered into a $20 million credit facility
with its lender which replaced the February, 1997 amended and restated credit
agreement. The new credit agreement expires on October 1, 1998 and requires an
unused facility fee, computed at 0.25% per annum on the Unused Revolving Loan
Facility amount, payable monthly. The secured facility consists of a $13 million
revolving credit facility and $7 million in term loans. The term
11
<PAGE> 13
loans require monthly principal payments of $98,501. Interest rates accrue at a
rate of prime on the revolving credit facility and up to prime plus 2.25% on the
term loans. As of June 30, 1997, the outstanding balance on the Company's credit
facility was $17,465,000.
The agreements relating to the Company's outstanding debt include various
covenants that limit its ability to incur additional indebtedness, and restrict
paying dividends, as well as require it to meet various financial covenants. At
June 30, 1997 the Company was not in compliance with certain of these covenants
contained in its credit agreements; however, the Company obtained a waiver on
these covenants.
PART II - OTHER INFORMATION
- ---------------------------
Item 5. Other Information
12
<PAGE> 14
SIGNATURES
----------
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 thereunto duly authorized.
HMI Industries Inc.
-------------------
(Registrant)
Date: August 14, 1997 \s\ Mark A. Kirk
--------------- -----------------------
President and Chief
Financial Officer
13
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<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
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0
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