<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 March 31, 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 May 13, 1997
- ------------------------------------- ----------------------------
Common stock, $1 par value per share 4,948,760
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HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(Unaudited)
March September 30,
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 337,534 $ 472,408
Trade accounts receivable (net of allowance of $3,027,861 and $2,439,406) 26,729,383 26,252,884
Finance contracts receivable 1,985,140 2,224,480
Notes receivable 521,946 560,884
Inventories 17,536,676 18,364,597
Income tax receivable 795,117 1,463,000
Deferred income taxes 2,293,769 1,772,129
Prepaid expenses 1,849,264 2,683,711
Net assets held for sale at realizable value 3,200,000 4,228,059
------------ ------------
Total current assets 55,248,829 58,022,152
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 14,776,171 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 $3,345,704 and $3,092,432) 12,435,264 12,636,147
Unamortized trademarks 361,786 312,775
Finance contracts receivable (less amounts due within one year) 3,970,280 4,449,628
Other 146,261 237,481
------------ ------------
Total other assets 17,247,714 17,970,154
------------ ------------
Total assets $ 87,272,714 $ 91,709,959
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 542,741 $ 3,132,975
Trade accounts payable 17,060,377 17,785,859
Income taxes payable 915,869 1,013,979
Accrued expenses and other liabilities 8,366,611 7,202,989
Long-term debt due within one year 3,210,021 3,485,641
------------ ------------
Total current liabilities 30,095,619 32,621,443
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt (less amounts due within one year) 22,688,479 22,334,613
Deferred income taxes 180,713 192,372
Other 2,819,480 3,010,109
------------ ------------
Total long-term liabilities 25,688,672 25,537,094
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $5 par value; authorized, 300,000 shares; issued, none 0 0
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 7,938,299 7,686,944
Retained earnings 21,229,441 23,408,806
Cumulative translation adjustment (1,350,013) (1,077,325)
------------ ------------
33,113,283 35,313,981
Less treasury stock 346,796 shares, at cost 1,624,860 1,762,559
------------ ------------
Total stockholders' equity 31,488,423 33,551,422
============ ============
Total liabilities and stockholders' equity $ 87,272,714 $ 91,709,959
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net product sales $ 30,395,572 $ 30,305,804 $ 60,056,370 $ 56,267,256
Financing revenue and other 167,535 209,780 337,680 369,714
------------ ------------ ------------ ------------
30,563,107 30,515,584 60,394,050 56,636,970
OPERATING COSTS AND EXPENSES:
Cost of products sold 24,112,804 22,078,768 45,884,078 40,876,083
Selling, general and administrative expenses 9,730,355 7,913,081 16,669,715 14,768,281
Interest expense 520,229 393,559 1,085,988 749,717
Other expenses 116,499 94,482 115,412 265,648
Special charges 0 1,298,411 0 1,541,924
------------ ------------ ------------ ------------
Total expenses 34,479,887 31,778,301 63,755,193 58,201,653
------------ ------------ ------------ ------------
Loss before income taxes (3,916,780) (1,262,717) (3,361,143) (1,564,683)
Benefit for income taxes (1,488,376) (225,000) (1,277,234) (460,000)
------------ ------------ ------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS (2,428,404) (1,037,717) (2,083,909) (1,104,683)
------------ ------------ ------------ ------------
Loss from discontinued operations - Mexico 0 (240,323) 0 (471,927)
Loss from discontinued operations - HRS (157,819) (1,092,176) (83,515) (1,223,467)
------------ ------------ ------------ ------------
NET LOSS ($ 2,586,223) ($ 2,370,216) ($ 2,167,424) ($ 2,800,077)
============ ============ ============ ============
Weighted average number of shares outstanding 4,929,531 4,913,375 4,924,414 4,907,322
============ ============ ============ ============
PER SHARE OF COMMON STOCK:
Loss before discontinued operations ($ 0.49) ($ 0.21) ($ 0.42) ($ 0.23)
Loss from discontinued operations ($ 0.03) ($ 0.27) ($ 0.02) ($ 0.34)
------------ ------------ ------------ ------------
Net loss ($ 0.52) ($ 0.48) ($ 0.44) ($ 0.57)
============ ============ ============ ============
Cash dividends per common share $ 0.000 $ 0.088 $ 0.000 $ 0.175
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 4
HMI INDUSTRIES INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
===================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,167,424) ($2,800,077)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,470,202 1,954,302
Provision for loss on asset write-down 160,000 0
Provision for losses on receivables 1,906,721 323,840
Deferred income taxes (533,299) (108,174)
Changes in operating assets and liabilities:
Increase in receivables (1,625,594) (2,968,252)
Decrease in inventories 827,921 1,447,316
Decrease (increase) in prepaid expenses 834,447 (1,650,373)
Increase (decrease) in accounts payable (725,482) 1,857,928
Increase in accrued expenses and other liabilities 972,993 1,107,478
Increase (decrease) in income taxes payable 569,773 (632,021)
Other, net 145,459 518,945
--------------------------
Net cash provided by (used in) operating activities 1,835,717 (949,088)
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 1,120,916 0
Capital expenditures (579,519) (3,477,278)
--------------------------
Net cash provided by (used in) investing activities 541,397 (3,477,278)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 380,000 4,289,728
Proceeds from construction loan 0 1,490,052
Payment of long term debt (2,891,988) (2,064,231)
Proceeds from financing 0 2,334,392
Dividends paid 0 (859,475)
--------------------------
Net cash (used in) provided by financing activities (2,511,988) 5,190,466
--------------------------
Effect on exchange rate changes on cash 0 (367,202)
--------------------------
Net (decrease) increase in cash and cash equivalents (134,874) 396,898
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 472,408 570,759
==========================
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 337,534 $ 967,657
==========================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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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 March 31, 1997, and the results of operations for the three and
six months ended March 31, 1997 and 1996, and cash flows for the six months then
ended.
1. 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.
2. ASSETS HELD FOR SALE
At March 31, 1997 assets held for sale include the assets of Household Rental
Systems recorded at their estimated net 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.
3. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
4. DISCONTINUED OPERATIONS
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 six month period
ended March 31, 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 six months ended March 31, 1997 and
1996. Net assets of Household Rental Systems are included in assets held for
sale.
4
<PAGE> 6
5. INVENTORIES
Inventories at March 31, 1997 and September 30, 1996 consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
---------- ------------
<S> <C> <C>
Finished goods $7,045,474 $ 6,943,970
Work-in-progress, raw materials
and supplies 10,491,202 11,420,627
=========== ===========
$17,536,676 $18,364,597
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</TABLE>
6. 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.
In March 1997, the Australian Unsecured Demand Authorization, payable on demand
or February 28, 1997, was extended through September 30, 1997. 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 and a commitment letter from its lender to provide a
restructured credit facility commencing June, 1997 with an October 1, 1998
maturity. As of March 31, 1997, the outstanding balance on the Company's line
of credit was $17,880,000.
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
March 31, 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 through March 31, 1997.
5
<PAGE> 7
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 March 31, 1997 were
$30,395,600, a slight increase of $89,800 from $30,305,800 in the comparable
quarter for 1996. Net product sales of $60,056,400 for the six months ended
March 31, 1997 represent a 6.7% increase as compared to $56,267,300 for the six
months ended March 31, 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
$2,974,600 and $5,402,000 for the quarter and six months ended March 31, 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, $2,916,400 and $1,644,900, for the three and six months ended
March 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 March 31, 1997 was $6,282,800
or 20.7% compared to $8,227,000 or 27.1 % in the quarter ended March 31, 1996.
Gross Profit for the six months ended March 31, 1997 was 23.6% compared to
27.4% for the comparable period in 1996. Gross margins were substantially
affected by product mix as the Manufactured Products Group had significant
sales gains at its Bliss operations while sales in the Consumer Goods Division
declined. Lower margins in the Manufacturing versus Consumer segments generated
the mix impact on gross margins. In the Consumer Goods Division, margins were
impacted by a charge of $990,000 to reserve for the write-off of obsolete and
slow moving inventory related to certain non-core products and an unusable
portion of capitalized barter credits. In the Manufactured Products Group,
gross margins were negatively impacted by continued operational difficulties at
the Bliss Tubular Division, and pricing pressures from a market with excess
capacity.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general, and
administrative expenses were $1,817,274 higher for the quarter ended March 31,
1997 compared to the quarter ended March 31, 1996. Selling, general, and
administrative expenses for the six months ended March 31, 1997 were $1,904,434
higher than the comparable period in 1996.
Consistent with executive management's redirected strategic focus for HMI, the
Company decided to write-down $1,900,000 of certain assets (primarily accounts
receivable) during the
6
<PAGE> 8
second quarter of fiscal 1997. The Company has embarked on a marketing strategy
that will shorten its order to cash cycle times and allow the Company to focus
on its core businesses. Included in the 1996 second quarter results was a
special charge of $1,300,000 related to the consolidation of the Consumer Goods
production operation and the realignment of the Manufactured Products segment.
Selling, general and administrative expense, adjusted for the charge, were
essentially flat.
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 $731,400 and $455,900 during the six months ended March 31,
1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The working capital balance at March 31, 1997 was $25,153,200, a decrease
of 1.0% from the September 30, 1996 balance of $25,401,000.
The Company's cash decreased $134,900 during the six months ended March 31,
1997. Receivables increased by $1,625,600 primarily as a result of increases in
trade receivables of $2,383,200, offset by a decrease in finance contracts
receivables. The increase in trade receivables was primarily due to an increase
in sales for the comparable period. Inventory levels decreased $827,900 since
September 30, 1996 as the result of an increase to the obsolescence reserve for
the write-off of non-core products and continued focus on inventory management.
The write down of unusable barter credits resulted in the decrease in prepaid
expenses. Accounts payable decreased $725,500 due to an improvement in the
Company's restricted cash position. Accrued expenses and other liabilities
increased $973,000 relating to increased employee benefit accruals and
professional services in the Manufacturing and Consumer Goods Divisions.
Capital expenditures for the six months ended March 31, 1997 and 1996 were
$579,500 and $3,477,278, respectively. For the six months ended March 31, 1997,
capital expenditures in the Consumer Goods Division were $396,200 and $183,300
in the Manufactured Products Division. For the six months ended March 31, 1996,
the Company incurred $1,876,000 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.
In March 1997, the Australian Unsecured Demand Authorization, payable on demand
or February 28, 1997, was extended through September 30, 1997. 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
7
<PAGE> 9
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 and a
commitment letter from its lender to provide a restructured credit facility
commencing June, 1997 with an October 1, 1998 maturity. As of March 31, 1997,
the outstanding balance on the Company's line of credit was $17,880,000.
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
March 31, 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 through March 31, 1997.
PART II - OTHER INFORMATION
- ---------------------------
Item 5. Other Information
President and Chief Executive Officer Kirk W. Foley announced his retirement on
May 14, 1997. Effectively immediately, Chairman of the Board, James R. Malone
has assumed the role of Chief Executive Officer, while Chief Financial Officer
Mark A. Kirk has become President and Chief Operating Officer. Mr. Malone will
continue to serve as Chairman of the Board and Mr. Kirk as Chief Financial
Officer. Mr. Foley will remain on the Board of Directors.
8
<PAGE> 10
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: May 15, 1997 \s\ Mark A. Kirk
------------ -----------------------------
President and Chief
Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 337,534
<SECURITIES> 0
<RECEIVABLES> 36,234,610
<ALLOWANCES> 3,027,861
<INVENTORY> 17,536,676
<CURRENT-ASSETS> 55,248,829
<PP&E> 31,096,853
<DEPRECIATION> 16,320,682
<TOTAL-ASSETS> 87,272,714
<CURRENT-LIABILITIES> 30,095,619
<BONDS> 0
<COMMON> 5,295,556
0
0
<OTHER-SE> 26,192,867
<TOTAL-LIABILITY-AND-EQUITY> 87,272,714
<SALES> 60,056,370
<TOTAL-REVENUES> 60,394,050
<CGS> 45,884,078
<TOTAL-COSTS> 62,669,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,085,988
<INCOME-PRETAX> (3,361,143)
<INCOME-TAX> (1,277,234)
<INCOME-CONTINUING> (2,083,909)
<DISCONTINUED> (83,515)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,167,242)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
