-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K1xRfugkfDXbcbKDpVuOtsgS1lL/nlL9HtEvhLx55ey9TwW2qOS2qQUPl2++vIzw qKD0zoY7kpVtnolLJHx9FQ== 0000950152-96-000018.txt : 19960105 0000950152-96-000018.hdr.sgml : 19960105 ACCESSION NUMBER: 0000950152-96-000018 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19960104 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMI INDUSTRIES INC CENTRAL INDEX KEY: 0000046445 STANDARD INDUSTRIAL CLASSIFICATION: STEEL PIPE & TUBES [3317] IRS NUMBER: 361202810 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 002-30905 FILM NUMBER: 96501109 BUSINESS ADDRESS: STREET 1: 3500 PAYNE AVE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2164321990 MAIL ADDRESS: STREET 1: 3500 PAYNE AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH MOR INC DATE OF NAME CHANGE: 19920703 10-K405 1 HMI INDUSTRIES 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to . ----------- -------- Commission File No. 1-6220 HMI Industries Inc. -------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-1202810 ----------------------------- ------------------------------ (State or other jurisdiction (IRS Employer Identification No.) of 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 Securities registered pursuant to Section 12(b) of the Act: NONE (*) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value per share ------------------------------------- (Title of Class) 1 2 Indicate by check mark whether 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 days. YES X NO ----------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES X NO -------- -------- Aggregate market value of voting stock held by non-affiliates of registrant computed by reference to the closing price on the NASDAQ Stock Exchange on December 18, 1995 was approximately $21,800,000. Number of shares outstanding of each of registrant's classes of common stock: Class Outstanding December 18, 1995 - ------------------------------------ ----------------------------- Common stock, $1 par value per share 4,911,530 DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference in this Form 10-K. 1. Portions of the Proxy Statement for the 1996 Annual Meeting, incorporated into Part III (Items 10, 11, 12 and 13). Index to Exhibits is found on page 46. This report consists of 68 pages. 2 3 TABLE OF CONTENTS - -----------------
PART I. Page - ------- ---- Item 1. Business (a) General Development of Business . . . . . . . . . 4 (b) Financial Information About Industry Segments . . 5 (c) Narrative Description of Business . . . . . . . . 5 Consumer Goods. . . . . . . . . . . . . . . . 5 Manufactured Products . . . . . . . . . . . . 9 Commercial and Industrial Stamped Components . 9 Metal Formed Tubular Products . . . . . . 10 Tools, Dies and Specialty Machinery. . . . 11 Employees . . . . . . . . . . . . . . . . . . 11 Environmental Policies and Controls . . . . . 12 Methods of Production and Raw Materials . . . 12 (d) Financial Information About Foreign and Domestic Operations and Export Sales. . . . . . 12 Executive Officers of the Registrant. . . . . . . 13 Item 2. Properties . . . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders. 15 PART II. - -------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . 16 Item 6. Selected Financial Data . . . . . . . . . . . . . . 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . 18 Item 8. Financial Statements and Supplementary Data . . . . 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 22 PART III. - --------- Item 10. Directors and Executive Officers of Registrant. . . 23 Item 11. Executive Compensation . . . . . . . . . . . . . . 23 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 23 Item 13. Certain Relationships and Related Transactions. . . 23 PART IV. - -------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . 24 SIGNATURES . . . . . . . . . . . . . . . . . 25 INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 27 INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . 46
3 4 PART I. - ------ Item 1. Business. - ------ -------- (a) General Development of Business ------------------------------- HMI Industries Inc. (the "Company" or "registrant") was known as Health-Mor Inc. until January, 1995. The Company was reorganized in 1968 as a Delaware corporation, succeeding an Illinois corporation originally formed in 1928. The business of the Company is carried out through two primary divisions. The Consumer Goods Division manufactures and sells floor care and air filtration products, primarily portable bagless vacuum cleaners sold under the trade names "Filter Queen," "Princess" and "Majestic," central vacuum cleaning systems sold under the trade names "Vacu-Queen" and "Majestic II", portable canister vacuums sold under the trade names "Optima" and "ElektraPure", and an upright vacuum sold under the trade name "Princess 2000". This division also sells needleless insulin injectors under the AdvantaJet name, and certain tubular consumer products, both of which are manufactured by subsidiaries in the Manufactured Products Division. The operations of the Consumer Goods Division are carried on through the operations at the Payne and Perkins Avenue facilities in Cleveland, Ohio, and the following wholly-owned subsidiaries: HMI Incorporated (incorporated in Ontario, Canada); Health-Mor Mexicana S.A. de C.V. (incorporated in Mexico); Experimental Distributing Inc. (incorporated in Ohio); Home Impressions Inc. (incorporated in Delaware); HMI Personal Care Corp. (incorporated in Delaware); Health-Mor International, Inc., which meets the qualifications under the Internal Revenue Code as a foreign sales corporation (incorporated in the U.S. Virgin Islands); Health-Mor B.V. (incorporated in the Netherlands); Health-Mor Acceptance Corporation (incorporated in Delaware), HMI Acceptance Corporation (incorporated in Ontario, Canada)and Health-Mor Acceptance PTY Ltd. (incorporated in Sydney, Australia). The Manufactured Products Division engages in the fabrication and sale of commercial and industrial stamped components, metal formed tubular products and machined components, and the manufacture of needleless insulin injectors. The operations of this division are carried out by wholly-owned subsidiaries of the Company; Bliss Manufacturing Company (incorporated in Ohio), Tube Form Inc., (incorporated in Ohio), and Tube-Fab Ltd., (incorporated in Ontario, Canada). In 1995 the Company introduced the Captiva brand of filtration products, including furnace and air conditioning filters, electrostatic cone filters and a portable room air cleaner. The electrostatic cone filter and portable room air cleaner provide a level of filtration that is greater than HEPA standards (High Efficiency Particulate Air), which has been an industry standard for years. The company also introduced the Optima brand canister 4 5 vacuum cleaner through its Home Impressions unit. This canister unit uses a bag filter and will be marketed through retail stores worldwide. Through the new HMI Personal Care Corp., the Company is aggressively marketing the Activa line of diabetic care products. Foremost among these is the needleless insulin injector now called AdvantaJet (formerly called Preci-Jet and Freedom Jet). Injectors for sensitive and tougher skin are also available, as are a variety of lifestyle products that will enhance the normalcy of diabetic patients. (b) Financial Information About Industry Segments --------------------------------------------- The net sales and operating income of each industry segment and the identifiable assets attributable to each industry segment for the years ended September 30, 1995, 1994 and 1993 are set forth in Note 11 (Business Segments) of the Notes to the Consolidated Financial Statements found on page 41. (c) Narrative Description of Business --------------------------------- Consumer Goods - -------------- The principal products of the Consumer Goods Division of the Company are floor care and air filtration products, primarily portable vacuum cleaners and central vacuum cleaning systems. Portable bagless vacuum cleaners are sold under the trade names "Filter Queen," "Princess," and "Majestic". Portable canister vacuums are sold under the trade names "Optima" and "ElektraPure." The product line also includes an upright vacuum cleaner sold under the trade name "Princess 2000". The central vacuum cleaning systems are sold under the trade names "Vacu-Queen" and "Majestic II." The bagless portable and portable canister vacuums consist of a canister type suction cleaner, motorized vacuum cleaning head with a revolving brush ("Pow-R-Nozzle"), hose, wand, brushes and other cleaning tools. The Company also offers accessories for use with its bagless and canister vacuum cleaners, most of which are attached to the exhaust outlet and may be used as room deodorizers, air circulators, and for other blowing operations such as the spraying of liquids. The central vacuum cleaning systems use the motorized vacuum cleaning head with a revolving brush, as well as the hose, wand, brushes and other cleaning tools. The Company also manufactures straight suction attachments, which do not have a motorized vacuum cleaning head. The Filter Queen cleaning system has been registered by Underwriters Laboratories and Canadian Standards Authority as an Air Filtration Device, which support filtration claims and potentially expand the market of customers. 5 6 The Company manufactures a commercial model of its Princess and Optima vacuum cleaners, which it sells to business and industrial users. The Company also manufacturers vacuum cleaner power nozzle heads for other vacuum cleaner companies on a private label basis. The floor care products of the Consumer Goods Division are marketed throughout the United States, Canada, Mexico and forty-five other countries. With the exception of Mexico, the Company markets the Filter Queen Majestic through independent distributors who sell in the home directly through their own independent representatives and who also sell indirectly through the representatives of smaller independent local distributors. In Mexico, the distribution channel is comprised of Company employees. In certain foreign markets, the Princess and the ElektraPure are also marketed in a similar manner. Optima is marketed through retail stores, while the Princess 2000 is marketed on a direct basis. The Company recently opened a direct distributorship in Toledo, Ohio, under the name Experimental Distributing, Inc. which it will use to test new marketing strategies, lead programs and other direct sales techniques. Home Impressions Inc. is dedicated to marketing products related to home convenience and comfort. The product offerings are manufactured by the Company's existing divisions as well as being sourced from other manufacturers. New marketing techniques and distribution channels are utilized on a national and international basis. Catalog distribution, infomercials and telemarketing are some of the venues being tested by the Company as a means to exploit this significant business potential. A line of products manufactured by the tubular products group of the Company under the name "Precise Contours" is a new direction for this division, producing products for the first time for the consumer marketplace. Initial offerings include telescopic flag poles, door and window security bars and a door jam. Other products also include a luggage cart, water broom and a wood rack. The Home Impressions product line also includes a retail product grouping of floor care products, including the "Optima", "Princess 2000", "ElektraPure" and "Vacu-Queen". Except for the "Princess 2000," these products are sold primarily through specialty retail vacuum stores in North America. The "Princess 2000" will continue to be sold through a direct sales network which was established in 1993. This network began in the United States with the "Princess 2000" upright vacuum cleaner by utilizing direct sales strategies and incorporating new, lower cost, lower investment selling techniques to allow greater flexibility in the hiring and training of independent sales associates. Home Impressions will begin selling the "Precise Counters" product line, "Optima" and "Vacu-Queen" internationally at the retail level. 6 7 Central vacuum cleaning systems are marketed worldwide under the trade name "Vacu-Queen" through retail distributors and under the trade name "Majestic II" through direct distributors. The Company also markets the Vacu-Queen to building contractors and developers for installation in newly constructed homes and apartments. In 1994, the Company initiated the direct distribution of a line of environmentally friendly household cleaning products. The line of six products is currently being sold through the Filter Queen network under the brand name `Down to Earth'. Household Rental Systems ("HRS") provides steam cleaners and carpet shampooers for rent to consumers through the Filter Queen direct distribution network under the names "Easy Off" in Canada and "Easy Way" in the United States. HRS also rents steam cleaners and carpet shampooers to consumers through leading grocery chains, drug stores and hardware stores in Canada. The Company estimates that HRS controls approximately 80% of this market in Canada. Independant direct distributors also rent machines to consumers through in-home delivery and pick up. The Easy-Way and Easy Off product lines are full lines of cleaning solutions for use with HRS products, with other similar products or individually. These products are sold by existing retail and Distributor organizations. HRS products meet strong competition for the steam cleaners and carpet shampooers from seven major competitors, most of which are larger than HRS or are part of larger companies with greater resources than HRS. HMI Personal Care Corp. markets the AdvantaJet needle-free insulin injector, the Comfort Care Bed, and other health care products. Customer service is crucial to this product line. Local advertising, telemarketing and seminars are used to reach those consumers who can benefit from the AdvantaJet. HMI Personal Care Corp. works with medical professionals and consumer groups to target the customer base. There are two other devices which compete with the AdvantaJet. The Company owns a number of patents in the United States, Canada, United Kingdom, Japan, and various European countries covering the needleless insulin injectors. Active distributor agreements are in effect to distribute this product in the Japan, Korea, Spain, Italy, France and certain countries in Africa and the Middle East. The Company meets strong competition in the sale of its vacuum cleaners and central vacuum systems. In the case of sales through in-home solicitation, this competition is primarily with vacuum cleaner equipment in use in the home at the time of the sales presentation. In the case of sales through retail vacuum cleaner stores, this competition is with the vacuum cleaner equipment in use in the home at the time of the customer's inquiry and 7 8 with other brands of vacuum cleaners and central vacuum systems sold by the particular store. There are approximately twenty-one significant vacuum cleaner manufacturers, plus many regional and private label manufacturers, who make over forty brand name vacuum cleaners in the United States. Most of these are sold through department stores, discount houses, appliance shops and by catalog, generally at substantially lower prices than the Filter Queen, and often at lower prices than the Optima and ElektraPure. There are approximately twenty manufacturers in the United States and Canada of central vacuum systems. There are nine companies which compete significantly with the Company in the United States and eight companies which compete significantly with the Company in Canada in distribution of vacuum cleaners by in-home solicitation. Many of its competitors in the sale of vacuum cleaners are substantially larger and have greater resources than the Company. The Company believes that its vacuum cleaners are competitive with other vacuum cleaners because of their performance and warranty. It is the practice of the Company, along with other companies in the vacuum cleaner industry, to maintain significant amounts of inventory to meet the rapid delivery requirements of customers. The Consumer Goods Division of the Company operates without a backlog. The Company's Product Development Department, established to create, engineer and oversee the market launch of new and innovative products, introduced the "Majestic Triple Crown" throughout the world in 1994 and the Captiva family of filtration products in 1995. Management believes these products (furnace and air conditioning filters, electrostatic cone filter and a portable room air cleaner) will create unparalleled air filtration in the vacuum cleaner, filtration and other industries. This department also developed the Optima canister vacuum cleaner, introduced in mid-1995. The Company is expanding its parts and service business by utilizing its extensive customer data base to market accessories and new products and services designed as part of the Company's "Friend for Life" philosophy. The Direct Support Plus program is designed to maintain contact with customers, encourage add-on sales and generate referrals by utilizing these same data bases and the Distributor network. The parts and service business is expanding overseas. The Company's financing program, through its subsidiaries, Health-Mor Acceptance Corporation and HMI Acceptance Corporation continues to be expanded. Health-Mor Acceptance PTY Ltd. was incorporated in Sydney Australia, to offer consumer financing of the Company's products in that country. Filter Queen distributors cite the program's original objective of increasing dealer retention for its continued value to the distribution network. Risk is limited through agreements between the companies and the distribution network which provide for the disbursement of funds to the distribution network after funds are received by the Company from 8 9 the customer. The Company holds trademark or trade name registration on the principal trademarks and trade names used by the Consumer Goods Division. These trademarks have been registered in the United States, Canada and other countries in which the Company has distributors which sell a significant number of units. The Company has entered into oral or written distributorship agreements with various companies and individuals throughout the world. The Company owns a number of patents in the United States, Canada and other countries on various features of the Filter Queen, Vacu-Queen and related products. The Company does not believe that its business is materially dependent on any patent or group of patents. In 1995, one customer of the Consumer Goods Division accounted for 12% of the Company's consolidated revenues. American Home, Inc., Tokyo, Japan, is the Company's largest distributor. In the event that this distributor were to go out of business, switch to a competing product or switch to products other than floor care products, and the lost revenues were not replaced by sales to new or existing distributors, the loss could have a material adverse effect on the Company. The relationship with American Home is considered stable. The Company realizes that sales fluctuations can occur in this Distributor's primary market, and such fluctuations, if severe enough, could have a material impact on the Company's revenues. Manufactured Products - --------------------- The Manufactured Products Division of the Company consists of commercial and industrial stamped components, metal formed tubular products, machined components, tools, dies and specialty products and production of needle-less insulin injection systems. Commercial and Industrial Stamped Components - -------------------------------------------- Bliss Manufacturing Company ("Bliss"), a wholly-owned subsidiary of the Company, engages in the manufacture of various types of sheet metal stamping and sub-assemblies, and painting and welding in conjunction therewith, for customers in the automotive manufacturing, materials handling equipment, military, and plumbing industries. The products manufactured by Bliss are sold primarily to original equipment manufacturers, mostly in the Midwest. In 1995, as in 1994, Bliss continued to increase its capacity with state-of-the-art technology by adding additional computer controlled presses and a plasma cutting machine. This equipment provides the flexibility to produce low volume and prototype work for customers on a quick turn around basis without the need for costly dies. A new large press line currently being installed in its Newton Falls plant will enhance Bliss' capabilities in this area. 9 10 The ISO 9002 approval granted to Bliss by Freightliner and Volvo has provided additional opportunities as well for special truck order requests. The customers of Bliss issue releases for parts depending upon their own requirements. Therefore, Bliss operates without a backlog. The business of Bliss is significantly dependent upon several automotive manufacturers. One customer of Bliss, Ford Motor Company, accounted for almost 11% of the registrant's consolidated revenues in 1995. In the event that all Ford Motor Company business were to cease immediately, and the revenues were not replaced with sales to other customers, whether existing or new, the loss could have a material adverse effect on the registrant and its subsidiaries, taken as a whole. However, the registrant believes that its relationship with Ford Motor Company is good and, although it anticipates the loss of business for particular parts from time to time as the products in which those parts are incorporated are discontinued or substantially changed, the registrant believes that it can, at least in part, make up for such losses through existing or new customers. Metal Formed Tubular Products - ----------------------------- Tube Form Inc. ("Tube Form"), a wholly-owned subsidiary of the Company, engages in the bending and sale of steel, aluminum and copper tubing. Tube Form markets its products principally throughout the United States primarily to industrial consumers in the appliance, vacuum cleaner, machine tool, marine, pneumatic, hydraulic and trucking industries. Tube Form has begun the manufacture of a new line of products for the consumer marketplace under the name brand name "Precise Contours." Initial product offerings include telescopic flag poles, door and window security bars and a door jam. Other products also include a luggage cart, water broom and a wood rack. Tube Form experiences strong competition from thousands of competitors, none of whom has any sizable share of the market for such products. Aggregate sales backlog on September 30, 1995 and 1994 were approximately $3,614,000 and $3,760,000, respectively. It is expected that this operation will fill its entire backlog in the current fiscal year. Precision Tube Formers, a division of Tube Form, operates in similar markets to Tube Form but also supplies tubular assemblies to the aerospace market in the United States. 10 11 Tube-Fab Ltd. ("Tube-Fab"), a wholly-owned subsidiary of the Company, is engaged in the manufacture of high quality tubular products for the aircraft, military, communications and specialty architectural industries. Tube-Fab experiences strong competition from numerous competitors, none of whom has any sizable share of the market for such products. Sales backlog on September 30, 1995 and 1994 was approximately $570,000 and $1,350,000, respectively. It is expected that this backlog will be filled during the current fiscal year. Tools, Dies and Specialty Machinery - ----------------------------------- Machined Products Division ("MPD"), a division of Tube-Fab, engages in the manufacture and sale of precision machined components for aircraft engines for the aerospace industry. The work performed is primarily subcontract work for engine manufacturers. In addition, MPD continues its work with Spar Aerospace manufacturing components for the Canadarm Joint Motor Modules for the Space Station Freedom. MPD has numerous competitors in the machining field, none of whom has any sizable market share. MPD also manufactures the needless insulin injection system sold by HMI Personal Care Corp. Sales backlog for MPD as of September 30, 1995 and 1994 was approximately $439,000 and $391,000, respectively. It is expected that this backlog will be filled during the current fiscal year. Employees - --------- The Company and its subsidiaries employed 1,187 persons at September 30, 1995 throughout the world. Environmental Policies and Controls - ----------------------------------- To the best of the Company's knowledge, it is in compliance with all applicable Federal, State and local laws relating to the protection of the environment. It does not anticipate that any laws or regulations relating to the protection of the environment will have any material effect on its earnings, capital expenditures, or competitive position. The Company does not anticipate making any material capital expenditures for environmental control facilities during the current and succeeding fiscal years. 11 12 Methods of Production and Raw Materials - --------------------------------------- The Consumer Goods Division of the Company assembles finished parts purchased from various suppliers. Tube Form and Tube-Fab purchase metal tubing from various suppliers and engage in finishing operations, such as bending, beading and flaring. MPD manufactures needle-less insulin injectors and precision machined parts for the aerospace industry. Bliss purchases steel (both coil and blank) from various suppliers and stamps metal parts for its customers. Bliss also engages in welding and painting of certain parts, including the painting of parts for other companies. The Company and its subsidiaries have good relationships with their suppliers and do not anticipate any problems in obtaining any necessary raw materials or, if necessary, in obtaining alternative sources of supply. (d) Financial Information About Foreign and Domestic Operations ----------------------------------------------------------- and Export Sales ---------------- Financial information relating to foreign and domestic operations for the years ended September 30, 1995, 1994 and 1993 are set forth in Note 11 (Business Segments) of the Notes to Consolidated Financial Statements found on page 41. 12 13 Executive Officers of the Registrant - ------------------------------------
Name Age Position and Terms of Service as Officer - ---- --- ---------------------------------------- Kirk W. Foley 53 Chairman and Chief Executive Officer (1) William M. Duvall 65 Chairman and Chief Executive Officer, Bliss Mfg. Co. (2) William A. Adams 49 President and Chief Operating Officer, Bliss Mfg. Co. (3) Kevin Dow 39 Vice President - Finance and Administration and Treasurer(4) (1) Mr. Foley served as President and Chief Executive Officer of the Company from 1989 to 1991, as Vice Chairman from 1988 to 1991 and as Chairman and Chief Executive Officer since 1991. Mr. Foley has served as Chairman of Tube-Fab Ltd., a subsidiary of the Company, since 1987 and has served as President of HMI Incorporated, a subsidiary of the Company, since 1988. (2) Mr. Duvall is Chairman of the Board of Bliss Manufacturing Co. and its Chief Executive Officer. Mr. Duvall served as President of Bliss from 1990 until 1993. (3) Mr. Adams has been the President and Chief Operating Officer of Bliss Manufacturing Co. since August, 1993. Mr. Adams was the Vice President and General Manager of Tridon, Inc. from 1992 to July, 1993. Mr. Adams was Vice President - Manufacturing and Technology for Tridon Ltd. from 1988 to 1992. (4) Mr. Dow has served as Vice President - Finance and Administration of the Company since 1989. He has served as Treasurer since August, 1995.
Kevin Dow, Vice President-Finance and Administration, is the first cousin of Barry L. Needler, a director. 13 14 Item 2. Properties The following table sets forth by industry segment, the location, character and size (in square feet) of the real estate used in the operations of the Company and its subsidiaries at September 30, 1995:
Square Feet ---------------- Location Character Owned Leased - -------- --------- ----- ------ CONSUMER GOODS DIVISION Floor Care Products - ------------------- United States of America - ------------------------ Cleveland, Ohio Office, Plant & 315,420(1) Warehouse Toledo, Ohio Office 2,400 Bradley, Illinois Office & warehouse 7,516 Mexico - ------ Mexico City Offices 13,500 Canada - ------ Rexdale, Ontario Office 7,000 Mississauga, Ontario Warehouse 11,902 Moncton, New Brunswick Office & Warehouse 3,000 Dorval, Quebec Office & Warehouse 4,762 Winnipeg, Manitoba Office & Warehouse 2,473 Calgary, Alberta Office & Warehouse 4,500 Edmonton, Alberta Office & Warehouse 2,026 Burnaby, British Columbia Office & Warehouse 4,500 MANUFACTURED PRODUCTS DIVISION Metal Formed Tubing - ------------------- Bedford Heights, Ohio Office, Plant & 76,238 Warehouse Mississauga, Ontario Office & Plant 26,000
14 15 Tools, Dies & Specialty Machinery - --------------------------------- Charlottetown, Office, Plant & 20,000 Prince Edward Island Warehouse Metal Stamping - -------------- Newton Falls, Ohio Office, Plant & 400,000 Warehouse Youngstown, Ohio Office, Plant & 150,000 Warehouse
(1) The Company is in the process of moving its production and office facilities to a new location with 210,000 square feet. The old production and office facility of 105,420 square feet will be sold upon the Company vacating the facility. The Company owns a 25,000 square foot building in Lombard, Illinois which was leased during 1994 with an option to purchase at any time under the ten year lease term. Under the terms of the agreement, the lessee is responsible for all operating expenses related to the property and the lease payments equal the debt service for the outstanding indebtedness incurred for the original purchase of the property. All other property owned or leased by registrant is fully utilized by registrant or is leased to third parties. Item 3. Legal Proceedings Claims arising in the ordinary course of business are pending against the Company. Although these are in various stages of the litigation process, management believes that none of these matters will have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable 15 16 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The common stock of the Company was listed and traded on the American Stock Exchange under the symbol HMI through December 19, 1994. On December 20, 1994, the Company ceased to trade on that exchange and moved to the NASDAQ Stock Market under the symbol HMII. As of September 30, 1995, there were approximately 292 stockholders of record. A summary of the dividends declared and the quarterly high and low sales price of the Company's common stock on the Nasdaq Stock Exchange or American Stock Exchange for the years ended September 30, 1995 and 1994, are as follows:
1995 High Low Dividend 1st Quarter 16 1/2 13 1/4 $ .0830 2nd Quarter 16 3/4 15 $ .0875 3rd Quarter 17 15 1/4 $ .0875 4th Quarter 16 1/4 14 $ .0875
1994 High Low Dividend 1st Quarter 14 3/8 11 1/4 $ .075 2nd Quarter 19 1/8 12 7/8 $ .083 3rd Quarter 16 5/8 12 1/2 $ .083 4th Quarter 14 5/8 13 $ .083
The declaration and payment of quarterly dividends is at the discretion of the Board of Directors, which may raise, lower or omit the dividend in any quarter. It is expected that dividends will continue to be declared and paid quarterly. Under the terms of the Note Purchase Agreement entered into by the Company in November 1990, dividend payments can not exceed 50% of the cumulative net income of the Company since 1990 over a base amount established in the agreement. The restriction remains in effect until the notes are paid in full in 1997. 16 17 Item 6. Selected Financial Data
Five Year Summary of Operations For the nine For the years ended September 30, month ended September 30, 1995 1994 1993 1992 1991 Net Revenues From Continuing Operations $137,594,631 $134,986,961 $100,826,935 $84,887,587 $60,792,156 Operating Costs and Expenses (B) $128,115,705 $124,002,401 $ 91,252,491 $78,136,308 $55,752,363 Other Income (Expense), net $ (1,798,451) $ (1,422,167) $ (1,741,843) $(1,831,594) $(1,279,273) Income From Continuing Operations Before Income Taxes $ 7,680,475 $ 9,562,393 $ 7,832,601 $ 4,919,685 $ 3,760,520 Income Margin on continuing operations before income taxes 5.6% 7.1% 7.8% 5.8% 6.2% Income Taxes $ 2,065,800 $ 3,115,304 $ 2,665,837 $ 1,846,600 $ 1,087,473 Income Tax Rate 26.9% 32.6% 34.0% 37.5% 28.9% Income From Continuing Operations $ 5,614,675 $ 6,447,089 $ 5,166,764 $ 3,073,085 $ 2,673,047 Income Margin on Continuing Operations 4.1% 4.8% 5.1% 3.6% 4.4% Loss From Discontinued Operations -- -- $ (297,000) -- $ (206,000) Cumulative Effect- Change of Accounting for Income Taxes -- $ 719,016 -- -- -- Net Income $ 5,614,675 $ 7,166,105 $ 4,869,764 $ 3,073,085 $ 2,467,047 Net Income Margin 4.1% 5.3% 4.8% 3.6% 4.1% PER SHARE DATA: Net Revenues From continuing Operations $ 28.22 $ 27.61 $ 20.78 $ 17.52 $ 12.54 Income From Continuing Operations 1.15 $ 1.32 $ 1.07 $ .63 $ .55 Loss From Discontinued Operations $ -- $ -- $ (.06) $ -- $ (.04) Net Income $ 1.15 $ 1.47 $ 1.01 $ .63 $ .51 Cash Dividends $ .346 $ .324 $ .301 $ .301 $ .226 Weighted Average Number of Common Shares Outstanding 4,876,599 4,888,395 4,851,192 4,846,011 4,847,651 Total Assets $ 84,273,931 $ 77,431,812 $ 65,102,787 $54,909,802 $53,237,530 Long-Term Debt $ 14,050,715 $ 13,176,973 $ 8,800,956 $ 9,159,316 $10,516,050 Stockholders' Equity $ 42,339,313 $ 39,717,582 $ 34,442,194 $31,482,159 $29,873,471 Book Value Per Share $ 8.68 $ 8.13 $ 7.10 $ 6.50 $ 6.16 Working Capital $ 25,607,284 $ 22,941,184 $ 18,189,328 $16,499,832 $16,126,038 Ratio of Current Assets to Current Liabilities 1.98 1.99 1.9 2.3 2.4 Percent of Earnings on Average Stockholders' Equity 13.7% 19.3% 14.8% 10.0% 8.4% Percent of All Dividends to Net Income 30.1% 22.1% 30.1% 47.7% 44.6% Stock High 17 19 1/8 13 3/4 8 1/4 6 3/4 Stock Low 13 1/4 11 1/4 5 5/8 5 1/8 4 3/8 Average Annual Price to Earnings Ratio 13.2 10.3 9.6 10.5 10.8 Average Annual Dividend Yield 2.3% 2.1% 3.1% 4.5% 4.1%
(A) The Company adopted a fiscal year ending September 30 during 1991, therefore the Five Year Summary includes data as of and for the years ended September 30, 1995, 1994, 1993 and 1992, and for the nine months ended September 30, 1991. In 1994 the Company acquired the assets of Household Rental Systems. On January 13, 1994 and August 6, 1992 the Company declared 3 for 2 common stock splits in the form of dividends payable February 22, 1994 and September 22, 1992. All share and per share information has been restated to reflect the effects of such splits in the Five Year Summary of Operations. (B) Depreciation expense from continuing operations was $2,353,681, $2,043,761, $1,761,731, and $1,707,279 for the years ended September 30, 1995, 1994, 1993 and 1992 respectively, and $1,216,491 for the nine months ended September 30, 1991. 17 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES The working capital balance at September 30, 1995 was $25,607,000 an increase of 12% from the September 30, 1994 balance of $22,941,000 and an increase of 41% from the September 30, 1993 balance of $18,189,000. The effect of foreign exchange fluctuations is primarily limited to the Canadian and Mexican operations. The Consolidated Statements of Cash Flows incorporates the effects of foreign exchange in each of the categories presented. The impact of the devaluation in Mexico during the year of $1,700,000 has been reflected as a component of equity based on the nature of the Company's investment and intended timing of repayment of the amounts due. The value of the Mexican Peso versus the US dollar continues to fluctuate. In managements' opinion, the amount of additional adjustments, if, any, would not have a material effect on consolidated shareholders' equity. The Company's cash decreased $119,000 during the year ended September 30, 1995. Accounts receivable increased by $2,306,000 and finance contracts receivables increased by $278,000. These increases reflect the sales growth in the Consumer Goods Division, particularly in international markets. Finance Contracts Receivable increases (non-current increased by $980,383) reflect the success of this program in assisting and in supporting the Company's distribution channel in Australia, Canada, Mexico and the United States of America. This amount was reduced as stated above, due to the devaluation of the Mexican Peso during the year. Inventories increased by $1,896,000 on account of the introduction of Optima, Captiva and Empress products in the Consumer Goods Division and planned increases in finished goods to meet Consumer Goods Division demand. Unamortized trademarks of $1,557,000 represent amounts paid at the time of the Household Rental Systems acquisition which will be expended during the remainder of the term of the license agreements. Accounts payable increased by $435,000, due to the increases in amounts payable to the participants in the Consumer Goods Division distribution channel as funds are collected on finance Contracts Receivable in inventories and on account of the increase in inventories. At September 30, 1995, $5,000,000 of the unsecured, 9.86%, seven year private placement term notes were outstanding. This debt, obtained in November 1990 to finance the acquisition of Bliss Manufacturing Company, requires annual principal payments in November of each year of $1,666,667 through 1997. Capital expenditures during 1995 were $4,807,000, compared to $4,070,000 in 1994. In 1995, capital expenditures in the Consumer 18 19 Goods operation were $2,712,000 and in the Manufactured Products Division $2,095,000. The largest addition during the year was the acquisition of a 210,000 square foot facility in Cleveland to relocate the production and assembly operations of the Consumer Goods Division and the Company's corporate activities. Amounts expended in this regard totaled $690,000. Capital acquisitions in the Household Rental Systems operations were $515,000 for steam cleaning and shampooing machines to increase the fleet of rental machines and begin the distribution of these machines in the USA market. New product tooling investments were $375,000 and tooling replacement costs totaled $197,000. During the year, the Company invested $228,000 in modifications and improvements to the computer hardware and software acquired in 1994. During the year the new filter cone manufacturing machine was completed at a total cost of $450,000 (of which $60,000 remains to be paid). Additions in the Manufactured Products Division include $622,000 to prepare the Bliss Manufacturing building in Newton Falls, Ohio for a new press line for additional capacity. Among the larger assets added at Bliss' stamping operations were three used 1,000 ton presses ($186,000), a turret punch press ($356,000), a plasma cutter ($113,000), and a brake press ($50,000), all of which add capacity for work received in 1995 and in anticipation of work targeted in upcoming periods. Other additions in this operation include $105,000 of building additions and improvements and $98,000 for various computer upgrading and office additions. Expenditures in the tubular products group were $86,000 for an automatic tube cutting machine, $41,000 for tooling upgrades and $68,000 for building improvements. The Company plans to continue making improvements to its recently acquired facility and plans on spending up to $3,000,000 during the next twelve months on improvements and modifications thereto. The date of relocation from the Company's existing Cleveland production facilities will take place in the second fiscal quarter of 1996. The Company has sold the existing facility which is set to close on January 31, 1996 and provide proceeds of approximately $500,000. The outstanding balance on the Company's line of credit was $9,704,000 at September 30, 1995, which bears interest at a half of a percent less than the prime lending rate. This facility was renegotiated in 1995 for $13,000,000 and is available through May 1997. The 1993 financing of the acquisition of Household Rental Systems was accomplished through the utilization of $5,000,000 of the line of credit. Interest expense for 1995 was primarily related to the Private Placement unsecured term notes and borrowing on the line of credit. Other interest relates to the Industrial Revenue Bonds on the Lombard property, interest on capital leases and interest paid on Distributors deposits. Management believes the Company's long-term liquidity needs will continue to be met by cash flow from operations, its access to the line of credit, and its potential to borrow from existing debt sources. 19 20 RESULTS OF OPERATIONS 1995 COMPARED WITH 1994 Net revenues for the twelve months in 1995 were $137,595,000 as compared to $134,987,000 in 1994 while operating income decreased from $10,985,000 to $9,479,000 in 1995. The continued erosion of the Mexican economy and its effect on sales and profits from the Mexican business, operating inefficiencies at the Company's Tube Form operations and the labor disruption at the Bliss Manufacturing operation during the last quarter combined to offset the growth experienced in the Consumer Goods Division business throughout Asia, Europe and the USA. The swift devaluation of the peso in Mexico and the subsequent collapse of the Mexican consumer economy caused a rapid sales decline and necessitated the write-off of receivables and consumer financing paper. Management estimates that these events reduced revenues by over $3.0 million and operating income by over $1.5 million. In order to hedge against further currency declines, a plan to produce carpet shampoo (rental) machines in Mexico was implemented in 1995. Although the Mexican situation has stabilized, an immediate turnaround in the economy there is not expected. Additionally, the Company's Tube Form operation experienced a decline in profitability due to the erosion of its efficiency of operations and corresponding cost increases. Management estimates that these developments reduced operating income by $1,050,000 in 1995. Plans to restructure Tube Form, thereby reducing operating and overhead costs, will be finalized and implemented in early 1996. The Company's gross margin on its entire operations were 32% as compared to 31% in 1994. Gross margins in the Consumer Goods Division were 43% (44% in 1994) and 18% in the Manufactured Products Division (unchanged from 1994). The slight decline in the Consumer Goods Division gross margin is due to the decline in the Mexican market which has historically had higher gross margins due to the fact that the Company owns the entire distribution channel, unlike the remainder of the operation. Generally, the effects of inflation on costs have not been a significant factor to the Company. For the most part, cost increases continue to follows the trend of inflation and the Company has been able and continues to be able to pass these increases through in the form of price increases without any significant effect on sales volume. In the minority of cases where there is customer resistance to raising prices due to increased costs, the Company has successfully pursued, in some cases, materials substitution to accomplish comparable gross margins. Selling, general and administrative expenses as a percentage of revenues were 26% in 1995 as compared to 23% in 1994. Selling expenses increased over 1994 as a result of the entry into new markets and to support the launch of new programs on a global basis. Other income consists of interest earned on cash balances and royalty income. Costs associated with non-compete agreements arising from acquisitions were expensed during the year leaving no unamortized costs at September 30, 1995, as compared to $400,000 at September 30, 1994. The effective tax rate for 1995 was 27% as compared to 33% for 1994. The 27% rate includes the benefit of tax loss carry forwards in Mexico due to the Company's implementation of a strategy to produce in Mexico the steam and shampooing machines previously purchased from a third party and used in existing Household Rental Systems business and to be used in the expanding USA market. It is anticipated that for 1996 the effective tax rate for the company will approach a more normalized rate of 37%. 20 21 RESULTS OF OPERATIONS 1994 COMPARED WITH 1993 Net Sales for the twelve months in 1994 were $134,987,000 as compared to $100,827,000 in 1993. The Manufactured Products Division continues to show solid growth in the Commercial and Industrial stamping operations. Consumer Goods Division revenues continue to grow through increased market penetration in existing markets, continued success in the Mexican operations and expansion abroad. Due to the mandate of the Financial Accounting Standards Board of Standard No. 109 - Accounting for Income Taxes, the Company included a one- time gain of $719,016 in Net Income. The Company's gross margin on its entire operations increased to 31% compared to 30% in 1993. Gross Margins in the Consumer Goods Division were 44% (40% in 1993) and 18% in the Manufactured Products Division (19% in 1993). The increase in gross margin in the Consumer Goods Division reflects the change of product mix by the addition of Household Rental Systems and the growth of the Mexican operations. Cost increases followed the trend of inflation and the Company was able to pass these increases through in the form of price increases without any significant effect on sales volume. Selling, general and administrative expenses as a percentage of sales from continuing operations was 23% in 1994 compared to 20% in 1993. The increase in selling costs are attributable to the growth in the Mexican operations and the addition of the Household Rental 21 22 Systems operations, both sales activities contribute the highest gross margins in the Company. Other income includes interest earned on cash balances and royalty income. The Company recorded $400,000 of amortization related to non-compete agreements arising from acquisitions. There remained $400,000 of unamortized amounts for these non-compete agreements at September 30, 1994. The effective tax rate for 1994 was 33% as compared to 34% for 1993. The 33% rate includes tax refunds received. The 34% rate includes a 2.6% benefit from the application of all available foreign tax credits taken in 1993. Item 8. Financial Statements and Supplementary Data Reference is made to the Index to Financial Statements included on page of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 21 23 PART III. Item 10. Directors and Executive Officers of Registrant See Item 13. Item 11. Executive Compensation See Item 13. Item 12. Security Ownership of Certain Beneficial Owners and Management See Item 13. Item 13. Certain Relationships and Related Transactions Information provided under the captions "Principal Holders of Voting Securities," "Election of Directors," "Committees and Compensation of the Board of Directors", "Security Ownership of Directors and Management", "Executive Compensation", and "Related Transactions" in the Proxy Statement for the 1996 Annual Meeting of Shareholders is incorporated herein by reference. See "Executive Officers of the Registrant" following Item 1 in this Report for information concerning executive officers. 23 24 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of this Report. 1. Financial Statements Reference is made to the Index To Financial Statements, included as page 27 of this report. 2. Financial Statement Schedules Reference is made to the Index To Financial Statements, included as page 27 of this report. 3. Exhibits Reference is made to the Index To Exhibits, included as page 46 of this report. (b) Reports on Form 8-K. No report on Form 8-K was filed during the last quarter of 1995. (c) Exhibits Reference is made to the Index To Exhibits, included as page of this report. (d) Financial Statement Schedules. Not Applicable 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) January 4, 1996 by /s/Kevin Dow --------------------------- KEVIN DOW Vice President - Finance and Administration and Principal Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Kirk W. Foley - ------------------------ KIRK W. FOLEY Chairman, Chief Executive Officer and Director 01/04/96 - -------- Date /s/ Robert J. Abrahams /s/ Donald L. Baker - ---------------------- -------------------- ROBERT J. ABRAHAMS DONALD L. BAKER Director Director 01/04/96 01/04/96 - -------- -------- Date Date /s/ Moffat Dunlap /s/ Grace McCarthy - -------------------- ------------------- MOFFAT DUNLAP GRACE MCCARTHY Director Director 01/04/96 01/04/96 - -------- -------- Date Date 25 26 /s/John S. Meany Jr. /s/ Barry L. Needler - -------------------- ---------------------- JOHN S. MEANY, JR. BARRY L. NEEDLER Director Director 01/04/96 01/04/96 - -------- -------- Date Date /s/Frank Rasmussen /s/ Ivan Winfield - -------------------- ------------------ FRANK RASMUSSEN IVAN WINFIELD Director Director 01/04/96 01/04/96 - -------- -------- Date Date 26 27 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants for the years ended September - --------------------------------- 30, 1995, 1994 and 1993...................................... 28 Financial Statements - -------------------- Consolidated Balance Sheets September 30, 1995 and 1994..... 29 Consolidated Statements of Income - for the years ended September 30, 1995,1994 and 1993............................ 30 Consolidated Statements of Stockholders' Equity for the years ended September 30, 1995, 1994 and 1993 .............. 31 Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1994 and 1993 ........................... 32 Notes to Consolidated Financial Statements................... 33 - 45
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the consolidated financial statements, the notes thereto or in Management's Discussion and Analysis of Financial Condition and Results of Operations. 27 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders, HMI Industries Inc. We have audited the accompanying consolidated balance sheets of HMI Industries Inc. and its subsidiaries as of September 30, 1995 and 1994 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HMI Industries Inc. and its subsidiaries as of September 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1995 in conformity with generally accepted accounting principles. As described in Notes 1 and 8 to the Consolidated Financial Statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in 1994. /s/ Coopers & Lybrand L.L.P. Cleveland, Ohio December 15, 1995 28 29 CONSOLIDATED BALANCE SHEETS
September 30, September 30, ASSETS 1995 1994 CURRENT ASSETS: Cash and cash equivalents $ 570,759 $ 690,177 Accounts receivable (net of allowance $1,549,897 and $1,120,860 for doubtful accounts) 26,025,887 23,719,891 Finance contracts receivable 3,925,838 3,647,592 Notes receivable 1,049,389 430,461 Inventories: Finished goods 7,074,061 5,985,143 Work-in-progress, raw material and supplies 10,407,830 9,600,778 Deferred income taxes 1,248,854 1,125,186 Prepaid expenses 1,348,088 1,006,686 ----------- ----------- Total current assets 51,650,706 46,205,914 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT Land 800,640 814,305 Buildings and improvements 10,427,581 8,614,001 Machinery and equipment 19,483,281 17,176,306 ----------- ----------- 30,711,502 26,604,612 Less accumulated depreciation 15,699,102 13,387,351 ----------- ----------- Net property, plant and equipment 15,012,400 13,217,261 ----------- ----------- OTHER ASSETS: Finance contracts receivable (less amounts due within one year) 2,222,525 1,242,142 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 $2,740,965 and $2,363,305) 12,985,128 13,362,786 Deferred income taxes 377,245 507,458 Unamortized trademarks 1,557,078 2,430,498 Other 134,726 131,630 ----------- ----------- Total other assets 17,610,825 18,008,637 ----------- ----------- $84,273,931 $77,431,812 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ 2,204,384 $ 587,060 Trade accounts payable 10,940,597 10,505,967 Dividends payable 429,716 406,200 Income taxes payable 2,768,079 2,501,300 Accrued expenses and other liabilities 7,673,887 7,239,226 Long-term debt due within one year 2,026,759 2,024,977 ----------- ----------- Total Current liabilities 26,043,422 23,264,730 ----------- ----------- LONG-TERM LIABILITIES: Long-term debt (less amounts due within one year) 14,050,715 13,176,973 Deferred income taxes 542,741 506,732 Other 1,297,740 765,795 ----------- ----------- Total long-term liabilities 15,891,196 14,449,500 ----------- ----------- 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 7,521,851 7,223,367 Retained earnings 34,034,294 30,111,101 Cumulative translation adjustment (2,663,904) (869,016) ----------- ----------- 44,187,797 41,761,008 Less common stock in treasury, at cost (1,848,484) (2,043,426) ----------- ----------- Total stockholders' equity 42,339,313 39,717,582 ----------- ----------- $84,273,931 $77,431,812 =========== ===========
See notes to consolidated financial statements. 29 30 CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 30, REVENUES: 1995 1994 1993 Net product sales $136,573,798 $133,602,990 $100,411,123 Financing revenues 1,020,833 1,383,971 415,812 ------------ ------------ ------------ 137,594,631 134,986,961 100,826,935 ------------ ------------ ------------ OPERATING COSTS AND EXPENSES: Cost of products sold 92,895,554 92,524,746 70,785,767 Selling, general and administrative expenses 35,220,151 31,477,655 20,466,724 ------------ ------------ ------------ 128,115,705 124,002,401 91,252,491 ------------ ------------ ------------ OPERATING INCOME 9,478,926 10,984,560 9,574,444 ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest and other income 53,796 314,315 169,134 Interest expense (1,452,247) (1,336,482) (1,156,111) Acquisition related costs- Non-compete agreement amortization (400,000) (400,000) (754,866) ------------ ------------ ------------ (1,798,451) (1,422,167) (1,741,843) ------------ ------------ ------------ Income from continuing operations before income taxes 7,680,475 9,562,393 7,832,601 ------------ ------------ ------------ PROVISION FOR INCOME TAXES: Current 2,023,808 3,424,738 3,000,458 Deferred expense (benefit) 41,992 (309,434) (334,621) ------------ ------------ ------------ 2,065,800 3,115,304 2,665,837 ------------ ------------ ------------ INCOME FROM CONTINUING OPERATIONS 5,614,675 6,447,089 5,166,764 Loss from discontinued operations net of income taxes ($.06 per share) -- -- (297,000) Cumulative effect-change of accounting for income taxes (Note-1 $.15 per share) -- 719,016 -- ------------ ------------ ------------ NET INCOME $ 5,614,675 $ 7,166,105 $ 4,869,764 ============ ============ ============ PER SHARE OF COMMON STOCK: Income from continuing operations $ 1.15 $ 1.32 $ 1.07 Net income $ 1.15 $ 1.47 $ 1.01
See notes to consolidated financial statements. 30 31 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
Common stock ------------ Capital in Cumulative Treasury Stock Total Issued Excess of Retained Translation -------------------- Stockholders' Shares Amount Par Value Earnings Adjustment Shares Amount Equity ------ ------ ---------- -------- ---------- ------- ----------- ------------- Balance at September 30, 1992 3,530,396 $3,530,396 $7,189,627 $22,886,987 ($18,824) 299,722 ($2,106,027) $31,482,159 Net income 4,869,764 4,869,764 Cash dividends- $.452 per share (1,464,738) (1,464,738) Treasury shares issued 5,960 (1,500) 10,540 16,500 Foreign currency translation adj (461,491) (461,491) --------- ---------- ---------- ----------- ----------- ------- ----------- ----------- Balance at September 30, 1993 3,530,39 3,530,396 7,195,587 26,292,013 (480,315) 298,222 (2,095,487) 34,442,194 Net income 7,166,105 7,166,105 Cash dividends- $.324 per share (1,581,857) (1,581,857) Treasury shares issued 27,780 (11,200) 52,061 79,841 Stock split 1,765,160 1,765,160 (1,765,160) 149,111 -- Foreign currency translation adjustment (388,701) (388,701) Balance at --------- ---------- ---------- ----------- ----------- ------ ----------- ----------- September 30, 1994 5,295,556 5,295,556 7,223,367 30,111,101 (869,016) 436,133 (2,043,426) 39,717,582 Net income 5,614,675 5,614,675 cash dividend $.346 per share (1,691,482) (1,691,482) Treasury shares issued 298,484 (41,607) 194,942 493,426 Foreign currency translation adjustment (1,794,888) (1,794,888) --------- ---------- ---------- ----------- ----------- ------ ----------- ----------- Balance at September 30, 1995 5,295,556 $5,295,556 $7,521,851 $34,034,294 ($2,663,904) 394,526 ($1,848,484) $42,339,313 ========= ========== ========== =========== =========== ======= =========== ===========
31 32 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,614,675 $ 7,166,105 $ 4,869,764 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,768,822 3,380,062 2,139,390 Provision for losses on receivables 641,562 998,846 354,072 Provision for loss on asset write down -- -- 450,000 Compensation Expense 380,576 -- -- Deferred income taxes (53,923) (1,350,425) (532,328) Changes in operating assets and liabilities: Increase in receivables (5,916,069) (4,911,232) (6,920,018) Increase in inventories (2,191,579) (1,503,059) (3,726,447) Decrease (increase) in prepaid expenses (429,965) 63,588 427,138 Increase in trade accounts payable 3,301,638 2,454,217 3,172,657 Increase (decrease) in accrued expenses and other liabilities (1,545,968) (1,794,399) 3,657,687 Increase (decrease) in income taxes payable (245,319) 721,657 1,204,968 Other, net (186,780) 295,924 (638,231) ----------- ----------- ----------- Net cash provided by operating activities 3,137,670 5,521,284 4,458,652 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business -- (4,875,000) -- Capital additions (3,805,326) (3,509,116) (1,429,026) Proceeds from the disposition of fixed assets -- 8,000 134,796 Collection of notes receivable 300,000 ----------- ----------- ----------- Net cash used in investing activities (3,805,326) (8,076,116) (1,294,230) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Debt transactions- Increase in debt 4,117,324 6,328,482 52,635 Payments on debt (2,012,371) (1,832,605) (2,084,619) ----------- ----------- ----------- Cash provided by (used in) debt transactions 2,104,953 4,495,877 (2,031,984) ----------- ----------- ----------- Equity transactions- Dividends paid (1,669,565) (1,541,970) (1,464,742) Sale of treasury shares 112,850 79,841 16,500 ----------- ----------- ----------- Cash used in equity transactions (1,556,715) (1,462,129) (1,448,242) ----------- ----------- ----------- Cash provided by (used in) financing activities 548,238 3,033,748 (3,480,226) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (119,418) 478,916 (315,804) Cash and cash equivalents at beginning of year 690,177 211,261 527,065 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 570,759 $ 690,177 $ 211,261 =========== =========== ===========
See notes to consolidated financial statements 32 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of HMI Industries Inc. ("the Company") and the following wholly-owned subsidiaries; Tube Form, Inc. (Tube Form), Tube-Fab Ltd. (Tube-Fab), Bliss Manufacturing Company (Bliss), Health-Mor B.V., Health-Mor International, Inc., HMI Incorporated (HMI Inc.), Health-Mor Acceptance Corporation, HMI Acceptance Corporation, Health-Mor Acceptance Pty. Ltd., Health-Mor Mexicana S.A. de C.V., HMI Personal Care Products, Home Impression Inc. And experimental Distributing Inc. All material intercompany transactions have been eliminated in the consolidated financial statements. CASH EQUIVALENTS Cash equivalents consist of short-term highly liquid negotiable instruments with a maturity within 90 days from the date of purchase. 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 will not be amortized unless there is a decrease in its value. The Company regularly assesses the aggregate carrying value of such excess based upon the profitability and performance of the acquired businesses. If there is a diminution in value, recorded balances will be adjusted. INVENTORIES Inventories are stated at the lower of cost or market and are valued using the last-in, first-out (LIFO) and the first-in, first out (FIFO) cost methods. Inventories on the LIFO method were 54.0% and 55.8% of inventories in 1995 and 1994, respectively. If the FIFO method had been used for all inventories, their value would have been approximately $18,496,000 and $16,758,000 at September 30, 1995 and 1994, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation is provided on the straight-line and declining balance methods over estimated useful lives of 10 to 40 years for buildings and improvements and 3 to 10 years for machinery and equipment. Improvements which extend the useful life of property, plant and equipment are capitalized, and maintenance and repairs are expensed. When property, plant and equipment is retired or othwise disposed of, the cost and accumulated depreciation are removed from the appropriate accounts and any gain or loss is included in current income. 33 34 INCOME TAXES The Company accounts for income taxes pursuant to the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 was adopted on October 1, 1993 and applied prospectively from that date. Under SFAS 109, the tax consequences in the future years for differences between the financial and tax basis of assets and liabilities at year end are reflected as deferred income taxes. The impact of adopting SFAS 109 was an increase in net income of $719,016 or $.15 per share in fiscal 1994. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest was $1,477,552, $1,417,816, and $1,156,111 for the years ended September 30, 1995, 1994 and 1993, respectively. During 1994, the Company acquired approximately $941,000 of fixed assets which were financed through capitalized lease obligations. During 1995, the Company acquired approximately $470,000 of fixed assets which were not paid for as of September 30, 1995. Additionally, approximately $754,000 of accounts receivable were converted to notes receivable. INCOME PER SHARE On January 13, 1994, the Board of Directors declared a 3 for 2 common stock split in the form of dividends payable on February 22, 1994. All share and per share information has been restated to reflect the effect of such split. Income per share of common stock is based upon the weighted-average number of common shares and common share equivalents outstanding. The weighted-average number of common shares and common share equivalents outstanding during 1995, 1994 and 1993 was 4,876,599, 4,888,395 and 4,851,192 respectively. RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the 1995 presentation. 2. DISCONTINUED OPERATIONS On January 26, 1989 the Company adopted a formal plan to discontinue the operations of HMI Credit, a wholly-owned subsidiary, and to dispose of all related assets. During the fiscal period ended September 30, 1991, all records were transferred to storage and the building in Lombard, Illinois was closed. During the year ended September 30, 1993, the real estate market in the greater Chicago area required that management review the carrying value of the property. A write down of $450,000 ($297,000 net of tax) was recorded and is reflected as a loss from discontinued operations. During the fiscal year 1994 and continuing throughout 1995, the property was leased to a third party, with an option to purchase at any time during the ten year lease term. The tenant is responsisble 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. The minimum lease payments under the 34 35 terms of the agreement approximate $144,000 per year for the next five years. The related bonds are payable in equal monthly installments of $12,000, including interest at 5.4% with the final installment due May 1, 2004. The land and building have been reclassified to fixed assets and the debt obligation has been included in its respective long-term categories in the accompanying financial statements. 3. NOTES RECEIVABLE Long-term notes receivable consist of the following:
1995 1994 ---- ---- Related parties (Note 13) $ 629,710 $611,480 Other 753,802 153,104 ---------- -------- 1,383,512 764,584 Less amounts due within one year 1,049,389 430,461 ---------- -------- $ 334,123 $334,123 ========== ========
4. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following:
1995 1994 ---- ---- Accrued compensation $2,499,538 $3,050,643 Accrued taxes 780,098 432,504 Accrued interest 212,197 237,322 Pension and profit sharing 826,775 1,481,963 Employees savings accounts generally bearing interest at 7% 130,731 131,873 Other 3,224,548 1,904,921 ---------- ---------- $7,673,887 $7,239,226 ========== ==========
5. LINE OF CREDIT The Company has a $13,000,000 line of credit with a bank at prime less 1% (7.75% at September 30, 1995) of which $9,704,384 was outstanding at September 30, 1995. The commitment is available through May, 1997, and $7,500,000 of the outstanding amount has been classified as long-term debt as of September 30, 1995. Commitment fees for unused amounts on the line of credit are insignificant. 35 36 6. LONG-TERM DEBT Long-term debt consists of the following:
1995 1994 ---- ---- Seven year, 9.86% promissory notes, interest payable semi-annually and principal payments commencing November, 1992 through 1997 $ 5,000,000 $ 6,666,666 Distributor deposits bearing interest of (5.12% to 7.0%) at September 30, 1995 payable 180 days after termination of distributor agreement 1,530,126 1,142,229 Capitalized lease obligations bearing interest at 3.74% to 8.0% due in monthly installments of $26,346 (including interest) through July, 1999 976,600 1,237,626 Bank line of credit-Note 5 7,500,000 5,000,000 Industrial Revenue Development Bonds bearing interest of 5.4%, due in monthly installments of $12,000, through May, 2004 1,070,748 1,155,429 ----------- ----------- 16,077,474 15,201,950 Less amounts due within one year 2,026,759 2,024,977 ----------- ----------- $14,050,715 $13,176,973 =========== ===========
The principal amount of long-term debt payable in the five years ending September 30, 1996 through 2000 is $2,026,759, $9,551,571, $2,050,778, $279,942 and $120,172, The weighted average interest rate on short term borrowing at September 30, 1995 and 1994 was 8.41% and 9.13%, respectively. The Company believes the Bank line of credit will be renewed upon its expiration in May, 1997. The seven year promissory notes and the Bank line of credit contain various covenants pertaining to maintenance of certain financial ratios. In addition, dividend payments can not exceed 50% of the cumulative net income since 1990 over a base amount established by the promissory note agreements. 36 37 7. LONG-TERM COMPENSATION PLAN The Company adopted the Helath-Mor Inc. 1992 Omnibus Long-Term Compensation Plan ("Plan") in 1992. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards, phantom stock and/or performance shares to key employees of the Company and its Subsidiaries and stock options for the non employee directors of the Company. Options granted under the plan expire up to ten years after the date of grant if not exercised and may be exercisable in whole or in part at the discretion of the Committee established by the Board of Directors. The option price may not be less than the fair market value at the date of the grant. Additional information regarding shares subject to option is as follows:
SHARES SUBJECT AVERAGE OPTION TO OPTION PRICE PER SHARE -------------- --------------- Outstanding September 30, 1992 199,125 $ 7.40 Granted 74,625 7.87 Exercised (2,250) 7.33 ------- September 30, 1993 271,500 7.53 Granted 54,000 13.08 Exercised (11,200) 7.44 ------- September 30, 1994 314,300 8.49 Granted 94,000 16.18 Exercised (13,594) 7.35 Cancelled (13,031) 7.54 ------- SEPTEMBER 30, 1995 381,675 10.46 =======
At September 30, 1995, 225,000 shares were reserved for the plan. The Company does not expect to adopt the recognition provisions of the recently issued SFAS No. 123 "Accounting for Stock-Based Compensation". Disclosures required by new accounting standard will be included in future financial statements pursuant to the effective date criteria. 8. INCOME TAXES The provision for income taxes relating to continuing operations consists of the following:
1995 1994 1993 ---- ---- ---- Current: Federal $1,844,078 $3,017,619 $2,634,747 State and local 154,730 357,119 345,711 Foreign 25,000 50,000 20,000 ---------- ---------- ---------- 2,023,808 3,424,738 3,000,458 Deferred expense (benefit) 41,992 (309,434) (334,621) ---------- ---------- ---------- $2,065,800 $3,115,304 $2,665,837 ========== ========== ==========
37 38 A reconciliation of the provision for income taxes at the Federal statutory rate to that included in the Consolidated Statements of Income related to earnings from continuing operations is as follows:
1995 1994 1993 ---- ---- ---- Tax at Federal statutory rate of 34% $2,611,793 $3,251,214 $2,663,084 Increases (reductions) in taxes resulting from: State income taxes, net of related Federal income tax benefit 102,122 235,699 228,169 Foreign Sales Corporation earnings (548,500) (208,000) (234,000) Amortization of cost in excess of net assets of acquired businesses 128,404 128,404 128,404 Reversal of valuation allowance on net operating loss (496,537) -- -- Foreign income taxes, net 25,000 (33,906) 87,823 Foreign tax credits utilized -- -- (200,000) Other--net 243,518 (258,107) (7,643) ---------- ---------- ---------- $2,065,800 $3,115,304 $2,665,837 ========== ========== ==========
Effective October, 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The new requirements resulted in a "cumulative adjustment from a change in accounting principle" of $719,016, representing reversal of amounts previously expensed. The statement was applied prospectively, and prior year financial statements have not been restated. 38 39 The components of deferred tax assets and liabilities are comprised of the following at September 30,
1994 1995 ----------- ---------- Gross deferred tax assets: Operating loss carryforward $ 496,537 -- Receivable and inventory reserves 408,830 $ 493,270 Accrued compensation 107,236 396,218 Benefits insurance reserves 115,290 119,350 Lombard property reserves 302,400 308,000 State franchise taxes 60,480 116,348 Other 131,209 195,263 ---------- ---------- 1,621,982 1,628,449 ---------- ---------- Gross deferred tax liabilities: Deferred DISC income 91,954 125,499 Depreciation 477,327 408,257 ---------- ---------- 569,281 533,756 ---------- ---------- Net deferred tax asset $1,052,701 $1,094,693 ========== ==========
The most significant impact of this pronouncement was the consideration of the need to provide a valuation allowance for the Company's deferred tax asset. The Company has determined that it should fully reserve against this potential tax asset to the extent it represents excess available tax net operating loss carryforwards for certain foreign subsidiaries and divisions. Accordingly, such benefits will be realized only as, and if, they are used to reduce future tax expense. The Mexican NOL was recognized as an asset in 1995 due to revised operating plans contractually guaranteed for that unit. Object to evaluation of the continuing need for such valuation allowance, or until fully realized. Income taxes paid during the years ended September 30, 1995, 1994 and 1993 were $1,622,986, $3,543,281 and $1,923,295, respectively. In October, 1993, the Company agreed to modifications in its federal income tax returns filed for the years 1988 to 1990 resulting from an Internal Revenue Service audit. The proposed adjustments included a foreign tax credit carryforward of approximately $200,000 ($.06 per share) which was utilized for the year ended September 30, 1993. Foreign net operating loss carryforwards (including Mexico) approximately $2,627,000 for tax are available to offset future taxable income. The carryforwards will expire in 2003 through 2010. Undistributed earnings of foreign subsidiaries are reinvested in their operations and therefore, no provision is made for additional income taxes that might be payable on such earnings. 39 40 9. PROFIT SHARING AND PENSION PLANS Bliss and Tube Form have defined contribution plans which cover substantially all employees. The Bliss plan contribution is at management's discretion and is allocated based on a percentage of each employee's wages. The Tube Form plan requires an annual contribution of a specified percentage of each employees wage, with a minimum contribution of $660 per employee. The Company and Tube-Fab have qualified profit sharing plans which cover substantially all employees. The overall contribution to the Company's plan and the allocation method is at the discretion of the Board of Directors. The allocation to the participants is based on either a fixed amount per participant, a percentage of eligible wages, or a combination of a fixed amount and a percentage of eligible wages. The required annual contribution to the Tube-Fab plan is based upon a percentage of net income after certain adjustments. The allocation to the participants is based upon a formula established in the plan. Profit sharing and pension plan expense for all plans for the years ended September 30, 1995, 1994 and 1993 was $1,042,741, $1,547,125 and $1,304,650, respectively. 10. COMMITMENTS AND CONTINGENCIES GUARANTEES AND LEASES The Company has guaranteed certain surety bonds totalling $1,260,000 executed by distributors. The Company is obligated under certain operating leases for facilities which expire on various dates through 1995. The minimum annual lease payments under these agreements including renewal options, if exercised, are $97,284, $82,936, $82,936 and $58,746 for the years ending September 30, 1996, 1997, 1998 and 1999, respectively. Rental expense for all leases and other short-term needs was $756,000, $919,000 and $562,000 for the years ended September 30, 1995, 1994 and 1993, respectively. LITIGATION Various claims arising in the ordinary course of business are pending against the Company. In the opinion of management none of these matters will have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. EXECUTIVE COMPENSATION AGREEMENT 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 and emphasize the Company's objectives of maintaining a stable, long-term organization, increasing shareholder liquidity, expanding the Company's equity base and focusing efforts on increasing the return on capital employed. 40 41 11. BUSINESS SEGMENTS
For the years ended September 30, 1995 1994 1993 ---- ---- ---- Net Revenues Consumer Goods Division $ 69,480,065 $ 68,259,662 $ 49,692,415 Manufactured Products Division 68,114,566 66,727,299 51,134,520 ------------ ------------ ------------ $137,594,631 $134,986,961 $100,826,935 ============ ============ ============ Operating Income Consumer Goods Division $ 3,612,321 $ 4,364,873 $ 3,786,095 Manufactured Products Division 5,866,605 6,619,687 5,788,349 ------------ ------------ ------------ $ 9,478,926 $ 10,984,560 $ 9,574,444 ============ ============ ============ Depreciation: Consumer Goods Division $ 1,166,171 $ 937,874 $ 801,382 Manufactured Products Division 1,187,510 1,105,887 960,359 ------------ ------------ ------------ $ 2,353,681 $ 2,043,761 $ 1,761,741 ============ ============ ============ Assets: Consumer Goods Division $ 53,947,318 $ 46,591,028 $ 35,762,931 Manufactured Products Division 30,326,613 30,840,784 29,339,831 ------------ ------------ ------------ $ 84,273,931 $ 77,431,812 $ 65,102,762 ============ ============ ============ Capital Expenditures: Consumer Goods Division $ 2,712,382 $ 2,180,386 $ 728,999 Manufactured Products Division 2,094,979 1,328,730 1,146,019 ------------ ------------ ------------ $ 4,807,361 $ 3,509,116 $ 1,875,018 ============ ============ ============ Export Sales and Royalties: All Foreign Countries $ 30,014,691 $ 21,886,491 $ 19,001,555 ============ ============ ============ Operating Income: North American $ 7,918,439 $ 9,660,250 $ 8,229,356 Foreign 1,560,487 1,324,310 1,345,088 ------------ ------------ ------------ $ 9,478,926 $ 10,984,560 $ 9,574,444 ============ ============ ============
41 42 Assets and liabilities are translated at current exchange rates, and income and expenses are translated using weighted average exchange rates. The effects of these translation adjustments, as well as gains and losses from certain intercompany transactions, are reported in a separate component of shareholders' equity. Such adjustments will affect net income only upon sale or liquidation of the underlying foreign investments, which is not contemplated at this time. Exchange gains and losses from transactions in a currency other than the local currency of the entity involved are included in income. Net transaction and translation adjustments are not significant. Canadian and Mexican sales are not considered export sales. The Company's major foreign operations are located in Canada and Mexico. Business activities are conducted principally in local currency. Identifiable assets of Canadian and Mexican operations were $14,319,414 and $15,937,169 at September 30, 1995 and 1994, respectively. Identifiable revenues of Canadian and Mexican operations for the years ended September 30, 1995, 1994 and 1993 were $18,687,652, $21,618,946 and $11,746,724, respectively. Sales by the Manufactured Products segment to two customers were approximately 19% and 25% of the Company's total sales in 1995 and 1994, respectively. Sales to one customer in the Consumer Goods segment represent 12% and 8% of the Company's total sales in 1995 and 1994 respectively. At September 30, 1995 and 1994, the Company's receivables from companies in the automotive industry were approximately 9% and 23%, respectively, of the consolidated receivables. 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
1995 ---- DEC. 31 MARCH 31 JUNE 30 SEPT. 30 ----------- ----------- ----------- ----------- Net revenues $32,414,130 $37,155,141 $34,240,866 $33,784,494 Gross profit as previously reported $10,559,040 $12,232,669 $12,708,767 $ 8,178,108 Adjustments of cost of goods sold (178,629) (339,243) (1,256,538) 1,774,410 ----------- ----------- ----------- ----------- Restated gross profit $10,380,411 $11,893,426 $11,452,229 $ 9,952,518 =========== =========== =========== =========== Net income as previously reported $ 1,827,051 $ 1,841,926 $ 1,609,480 $ 336,218 Adjustments to net income (116,109) (220,508) (816,750) 1,153,367 ----------- ----------- ----------- ----------- Restated net income $ 1,710,942 $ 1,621,418 $ 792,730 $ 1,489,585 =========== =========== =========== =========== Per share of common stock: Net income as previously reported $ 0.37 $ 0.37 $ 0.32 $ 0.10 Adjustments to net income -0.02 -0.04 -0.16 0.22 ----------- ----------- ----------- ----------- Restated net income $ 0.35 $ 0.33 $ 0.16 $ 0.32 =========== =========== =========== ===========
The first three quarters of 1995 have been restated as shown above. Inventory analysis revealed 42 43 that costs in the Tubular operations were understated for some items previously sold under contract and erroneous accounting entries relating to inventory errors from the Consumer Goods business unit. These errors occurred during fiscal 1995 and have been resolved.
1994 ---- Dec. 31 March 31 June 30 Sept. 30 ----------- ----------- ----------- ----------- Net revenues $28,898,029 $33,800,893 $37,213,509 $35,074,530 Gross profit $ 9,474,845 $11,128,768 $11,707,919 $10,150,683 Income from continuing operations $ 1,389,298 $ 1,521,733 $ 1,701,136 $ 1,834,922 Cumulative effect of change in accounting for income taxes $ 719,016 -- -- -- Net income $ 2,108,314 $ 1,521,733 $ 1,701,136 $ 1,834,922 Per share of common stock: Income from continuing operations $ 0.29 $ .31 $ .35 $ .37 Cumulative effect of change in accounting for income taxes $ .15 $ -- $ -- $ -- Net income $ .44 $ .31 $ .35 $ .37
13. RELATED PARTY TRANSACTIONS On October 15, 1991, the Company purchased for $139,000 certain computer equipment, computer software, and other assets from JCL Medical Systems Ltd. (JCL) based on independent appraisals. These assets are used in management of the Company's databases for Warranty Registration, Mail Order Programs and Distributor/Dealer Performance activities. At that time JCL was owned by two directors of the Company. At the same time, the Company entered into a four year agreement with JCL to provide computer program and supervision services, all of which relate to the maintenance and processing of the aforementioned databases for $168,000. These services were previously paid for on a monthly basis as incurred. The Company pays Fairway Inc., a corporation controlled by a director of the Company, an annual consulting fee of $100,000 for assisting in obtaining professional advice on Company matters. In 1989, the Company advanced $203,401 to three companies which were controlled by two directors of the Company. In accordance with the terms of the agreement of these advances, collectibility is assured by these directors or corporations they control. The advance bears interest a Canadian prime plus one and one-half percent (9.5% at September 30, 1995). The balance of $295,587 is reflected in current assets as a note receivable at September 30, 1995. In 1988, the Company loaned Amherst Tanti U.S. Inc., a corporation owned by an officer of 43 44 the Company, $334,123, which is reflected in other assets as long-term note receivable at September 30, 1995. This note shall be forgiven in the future if the net income of the Company reaches certain specified levels. 14. MAJOR VENDOR In 1991, the Company entered into an agreement that provided for the potential acquisition of Holland Electro B.V. of Rotterdam, the Netherlands, contingent upon attaining certain earnings targets in the two year period ended September 30, 1992. These earnings targets were not reached and accordingly, no consideration was paid. The Company has the ability, at its sole discretion, to effect the acquisition of Holland Electro B.V., in the future for no consideration. The Company has also entered into various agreements with Holland Electro B.V. to provide for the supply of certain floor care products for the Company's non-direct marketing channel. The agreements include the purchase of machinery and equipment, tooling, intellectual property and patents, licensing and distribution arrangements, warehousing and technical support. Holland Electro B.V. will supply Elektra Pure to the Company for North American distribution, and additional products to other world markets utilizing the tooling and intellectual property purchased by the company. The total consideration paid by the Company for these assets was $503,000. In addition, the licensing and distribution agreements require Holland Electro B.V. to pay the Company one Netherlands Guilder for each unit manufactured and the Company is obligated to pay Holland Electro B.V. $2.50 for each Holland Electro B.V. product sold by the Company. Net royalty revenue accrued by the Company was $22,000 in 1995, $25,000 in 1994 and $36,000 in 1993. The Company has paid in advance for inventory to be acquired from Holland Electro B.V. The advances, royalties and other receivables total $1,607,000 at September 30, 1995. During 1995 and 1994, the Company purchased $348,000 and $78,000 respectively, of product from Holland Electro B.V. During 1992, the Company completed the purchase of certain electric motor production equipment from Holland Electro B.V. for $406,000. The Company continues to negotiate the sale of these assets to a third party. The Company is contingently liable under a Conditional Purchase Agreement to Holland Electro B.V.'s bank in the amount of $1,200,000. If the contingent liability were called upon by the bank, the Company would take possession of finished goods and work in progress inventories and sell them into existing markets. In addition to the ongoing supply of the aforementioned products, the Holland Electro B.V. Rotterdam facility performs the services of a distribution center for the Company's European market. In addition to warehousing, the center manages the handling and documentation associated with all incoming and outbound shipments. Other activities include assistance with European regulatory approvals and providing office space and communication facilities for the Company's management. For these services, the Company has contracted with Holland Electro B.V. to pay approximately $33,000 monthly. 44 45 15. ACQUISITION On December 1, 1993, the Company purchased all of the assets of the Household Rental System Division of Reckitt & Colman Canada, Inc. for $4,875,000 utilizing internal cash and the Company's line of credit facility. In addition, a contingent Earn Out of $1,650,000 may be paid over a ten year period dependent upon business expansion and revenue generation. Household Rental Systems rents carpet cleaning machines and sells products to homeowners primarily through retail stores in Canada. The Agreement includes a license right for various time periods in Canada and the U.S. to the Easy-Off brand names in carpet care applications, which is owned by Reckitt & Colman (Overseas) Ltd. The amounts assigned to these agreements are being amortized over the life of the agreements. The accumulated amortization for these agreements as of September 30, 1995 and 1994 was $1,932,017 and $963,546, repectively. 45 46 INDEX TO EXHIBITS
Location ------------------------------------------------ Exhibit Page in Incorporated by Number Exhibit Title This Report Reference From - ---------- --------------- ------------------ ---------------- 3.1 Certificate of Pages 47 - 54 Incorporation 3.2 Bylaws Pages 55 - 68 10 Material Proxy Statement Contracts Annual Meeting of Stockholders January 19, 1995 Exhibit B 11 Statement re: Note 1 on Page Computation of 34 of the per share Financial earnings Statements 21 Subsidiaries of Page 4 Registrant 27 Financial Data Schedule
46 EX-3.1 2 EXHIBIT 3.1 1 Exhibit 3.1 CERTIFICATE OF INCORPORATION OF HMI INDUSTRIES INC. FIRST: The name of the company is HMI Industries Inc. SECOND: The address of its registered office in the State of Delaware is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes to be conducted or promoted is: To develop, manufacture, fabricate, assemble, purchase or otherwise acquire, lease, rent, store, sell, trade, exchange, job, import, export, deal in or deal with, or transfer or otherwise dispose of vacuum cleaners and other household and institutional appliances, and any accessories, parts, aids, materials, liquids or solvents used or usable in connection therewith. To conduct any lawful business or to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of this corporation. To acquire by purchase, subscription or otherwise, and to take receive, hold, own, use or otherwise employ, guarantee, sell, assign, exchange, transfer, mortgage, pledge, lend or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the governmental of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other 47 2 political subdivision or by any government agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof. To borrow or raise money for any of the purposes of the corporation and, from time to time without limit as to amount, to draw, make, accept, endorse, execute, issue and deliver promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment and full performance of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the assets of the corporation, whether real, personal or mixed (including intangibles) and whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such promissory notes, bonds, debentures and other instruments or obligations of the corporation for its corporate purposes. To purchase, receive, take by grant, gift, devise, bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and otherwise deal in and with real or personal property, or any interest therein, wherever situated, and to sell, convey, lease, exchange, transfer, assign or otherwise dispose of, or mortgage or pledge, all or any of the corporation's property and assets, or any interest therein, wherever situated. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of Delaware or by any other law of Delaware or by this certificate of incorporation together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the corporation. The business and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in no way limited or restricted by reference to, or inference from, the terms of any other clause in this certificate of incorporation, but business and purposes specified in each of the foregoing clauses of this article shall be regarded as independent business and purposes. FOURTH: The total number of shares of capital stock which the corporation shall have authority to issue is ten million three hundred thousand (10,300,000) shares, of which ten million (10,000,000) shares shall be common stock having a par value of One Dollar ($1.00) per share and three hundred thousand (300,000) shares shall be preferred stock having a par value of Five Dollars ($5.00) per share. Subject to the requirement of Section 242 (d) (1) of the General Corporation Law of Delaware, the authorized number of shares of either common or preferred stock may be increased or decreased by the affirmative vote 48 3 (taken without regard to class) of the holders of a majority of the capital stock of the corporation entitled to vote. The common stock and the preferred stock may be issued in classes or series from time to time with such voting powers and such designations, preferences, and relative, participation, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue of such common stock or preferred stock or any class or series thereof adopted by the Board of Directors pursuant to the authority hereby vested in it. Without limitation on the generality of the foregoing, the common stock and the preferred stock, and any class or series thereof, may have such voting powers, full or limited, or no voting powers, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such common stock or preferred stock, or any class or series thereof. The preferred stock, or any class of series thereof, may be made subject to redemption at such time or times and at such price or prices, may be made convertible into, or exchangeable for, shares of any other class or classes or of any other series of any class of stock of the corporation at such price or prices or at such rates of exchange and with such adjustments, and shall be subject to such provisions as to reissue upon redemption or purchase by or surrender to the corporation, including the prohibition thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such preferred stock or any class or series thereof; and further, each holder of such preferred stock and of any class or series thereof shall be entitled to receive dividends at such rates, on such conditions, with such preferences (whether cumulative or noncumulative) and at such times, and to have such rights upon the dissolution of, or upon any distribution of assets of, the corporation, as shall also be stated and expressed in the said resolution or resolutions adopted by the Board of Directors as aforesaid. FIFTH: The name and mailing address of the incorporation is as follows: Name Mailing Address ---- --------------- Charles D. Leist 135 W. LaSalle Street, Chicago, Illinois 60603 SIXTH: The board of directors shall initially consist of three members, the same being: Name Mailing Address ---- --------------- Frank C. Callahan 203 N. Wabash Avenue, Chicago, Illinois 60601 Albert E. Kramer 203 N. Wabash Avenue, Chicago, Illinois 60601 George P. Brit 203 N. Wabash Avenue, Chicago, Illinois 60601 SEVENTH: The corporation is to have perpetual existence. 49 4 EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, the by-laws may provide that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. NINTH: Each member of the board of directors and of any committee designated by the board of directors shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the board of directors or by any such committee, or in relying in good faith upon other records of the corporation. TENTH: Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. ELEVENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 50 5 TWELFTH: In the event that any Business Combination with any Related Person has not been approved, adopted or authorized by the affirmative vote of two-thirds of the Continuing Directors, the terms of such Business Combination either must be approved, adopted or authorized by at least 80% of the Voting Stock entitled to be voted (regardless of whether or not any vote of stockholders of the corporation is otherwise required by law or agreement), or must provide that the holders of all shares of each class, and of each series of each class, of outstanding Voting Stock shall be entitled to receive (and such Related Person shall be obligated to assure the receipt of) cash, securities and other property having a fair value as determined by a majority of the Continuing Directors, and Other Consideration, if any, of aggregate value per share not less than the higher of (1) the highest prices per share that such Related Person paid to acquire any shares of such class or series, as the case may be, pursuant to a tender offer, cash purchase, open market transaction or privately negotiated sale not effected on the open market at any time prior to the record date set to determine the stockholders entitled to vote on the proposed Business Combination, and (2) the Highest Recent Price per share. For the purposes of this article twelfth: (I) The term 'Business Combination' shall mean (a) any merger, consolidation or exchange of shares of the corporation and/or any of its subsidiaries with or into, or proposed by or on behalf of, any Related Person, regardless of which entity is the survivor; (b) any sale, lease, exchange, transfer, mortgage or any other security device, or other disposition of assets (other than the sales of products or services in the ordinary course of business) of the corporation (including any securities of subsidiaries) and/or any of its subsidiaries collectively having an aggregate net book value exceeding 50% of the stockholders' equity in the corporation according to the corporation's most recently published annual or quarterly consolidated balance sheet, to any Related Person, in one or more transactions; (C) any sale, lease, exchange, transfer, mortgage or any other security device, or other disposition, of assets having a fair value, as determined by a majority of the Continuing Directors, exceeding 50% of the stockholder's equity in the corporation according to its most recently published annual or quarterly balance sheet, by any Related Person, or proposed by or on behalf of any Related Person, to corporation and/or any of its subsidiaries; (d) any issuance or transfer of any securities of the corporation and/or any of its subsidiaries by the Corporation and/or any of its subsidiaries to any Related Person, other than pro rata to all stockholders of the corporation; (e) any reclassification of shares or recapitalization of the corporation or any of its subsidiaries that would have the effect of increasing the voting power of any Related Person in the corporation, other than solely by fractional share settlements in a pro rata stock dividend or split; (f) any issuance or transfer of any securities of any Related Person to the corporation and/or any of its subsidiaries, other than pro rata to all stockholders of the Related Person; (g) any liquidation or dissolution of the corporation proposed by or on behalf of any Related Person; or (h) any plan, 51 6 agreement, contract, proposal or other arrangement providing for any of the above transactions. (ii) The term 'Related Person' shall mean and include collectively (a) any Person which, alone or together with its Affiliates and Associates, Beneficially Owns shares of capital stock of the corporation having more than 15% of the voting power of the outstanding Voting Stock of Corporation, (b) any Affiliate or Associate of any such Persons, and (C) any other person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Voting Stock of the corporation. (iii) The term 'Person' shall mean and include any individual, corporation, partnership, firm, association, trust or other person or entity or group (whether or not it has a legal identity). (iv) The term 'Affiliate' shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. (v) The term 'Associate' shall mean (i) any person of which a specified Person is a director, officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of its equity securities, (ii) any trust or other estate in which a specified Person has a substantial beneficial interest or as to which such specified Person serves as trustee or in a similar capacity, and (iii) any relative or spouse of a specified Person, or any relative of such spouse. (vi) The terms 'Beneficially Owns' and 'Beneficial Owner' shall refer to either or both of the following powers possessed by any person, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, either alone or shared with others: (a) voting power, including the power to vote, or to direct the voting of, a security; or (b) investment power, including either a right to acquire or the power to dispose of, or to direct the acquisition or disposition of, a security. (vii) The term 'Voting Stock' shall mean all outstanding shares of capital stock to the corporation entitled to vote generally in the election of Directors, other than any stock having such right only by reason of the occurrence of a contingency. (viii) The term 'Continuing Director' shall mean a Director who is not a Related Person and who was not proposed for election as a Director by or on behalf of a Related Person. 52 7 (ix) The term 'Highest Recent Price' of any class or series of Voting Stock shall mean the highest sale price reported during the 30 day period immediately preceding the date in question of a share of such stock on the Composite Tape for American Stock Exchange-Listed Stocks, or if such stock is not quoted on such Composite Tape, on the American Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest asked quotation for a share of such stock reported during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations Systems or any system then in use, or if no such quotations are available, the fair value on the date in question of a share of such stock as determined by a majority of Continuing Directors. (x) The term 'Other Consideration' shall apply in a Business Combination in which the corporation is the surviving or acquiring corporation, and shall mean the stock of the corporation retained by its existing public stockholders. Continuing Directors, in making determinations pursuant to this article twelfth, may engage for the account of the corporation such persons, including investment banking firms and the independent accountants who have reported on the most recent audited financial statements of the corporation, and utilize employees and agents of the corporation, who will in the judgment of the Continuing Directors, be of assistance of them. Any such determination when made in good faith of the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the corporation and its stockholders. THIRTEENTH: No action that requires the vote or consent of stockholders of the corporation may be taken without a meeting and vote of stockholders. FOURTEENTH: Notwithstanding any other provisions of this certificate of incorporation or the bylaws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this certificate of incorporation or the by-laws of the corporation), the amendment or repeal of article twelfth, thirteenth or fourteenth of this certificate of incorporation shall require the affirmative vote of the holders of shares representing at least 80% of the shares of Voting Stock as defined in article twelfth entitled to be voted thereon. FIFTEENTH: No director of the corporation shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omission not in good faith or which involve intentional misconduct or knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law relating to unlawful payment of a dividend or unlawful stock purchase 53 8 or redemption; or (iv) for any transaction from which the director derived an improper personal benefit. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, makes this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 11th day of October, 1968. /s/ Charles D.Leist - ------------------ Incorporator STATE OF ILLINOIS) ) SS COUNTY OF COOK ) BE IT REMEMBERED that on this 11th day of October, A.D., 1968, personally came before me, a Notary Public for the State of Illinois, Charles D. Leist, the party to the foregoing certificate of incorporation, known to me personally to be such, and acknowledge the said certificate to be his act and deed and that the facts stated therein are true. GIVEN under my hand and seal of office the day and year aforesaid. /s/ Louise G. Walker -------------------- Notary Public 54 EX-3.2 3 EXHIBIT 3.2 1 Exhibit 3.2 HMI INDUSTRIES INC. BY-LAWS ARTICLE I Offices ------- Section 1. REGISTERED OFFICE. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Stockholders and Stockholder Meetings ------------------------------------- Section 1. ANNUAL MEETING. An Annual Meeting of the Stockholders shall be held each year, beginning with the year 1989, for the purpose of electing directors by written ballot and a plurality vote, and for the transaction of such other business as may properly come before the meeting. Such Annual Meeting shall be held each year at such time and on such business day as the Board of Directors may determine each year. If the Annual Meeting for the election of directors is not held on the day designated herein or pursuant hereto, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient. Section 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or the President or the Board of Directors, and shall be called by the Secretary at the written request of stockholders owning not less than ten (10) percent of the outstanding shares of the capital stock of the corporation entitled to vote. Such written request of stockholders must be made at least seventy-five (75) days prior to the first day upon which an annual meeting of stockholders may be held pursuant to these by-laws, and state the purpose or purposes of the proposed meeting. Section 3. PLACE OF MEETING. The Board of Directors may from time to time designate any place, either within or without the State of Delaware, as the place of meeting for any annual or special meeting of stockholders. If no such designation is made by the Board of Directors with respect to a special meeting called other than by the Board itself, the officer calling such meeting shall designate a place in the City of Chicago, State of Illinois, where such meeting shall be held. 55 2 Section 4. NOTICE OF MEETING. Written notice stating the place, day and hour of a meeting and the purpose or purposes for which the meeting is to be held, shall be given, unless a statute specifies a different time period, not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Business transacted at any meeting of stockholders shall be limited to the purposes stated in the notice of such meeting. Section 5. VOTING LISTS. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. Section 6. QUORUM. A majority of the outstanding shares of the capital stock of the corporation entitled to vote, and represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of such outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, of if after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. VOTING OF SHARES. Unless otherwise provided by or pursuant to Article Fourth of the Certificate of Incorporation, and subject to the provisions of Section 1, Article VIII of these by-laws and Section 213 of the General Corporation Law of the State of Delaware, such stockholder shall be entitled at every meeting of stockholders to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder. Any such proxy shall be in writing and shall be filed with the Secretary of the corporation before or at the time of the meeting. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 8. DECISION BY MAJORITY. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by 56 3 proxy shall decide any questions brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 9. INFORMAL ACTION BY STOCKHOLDERS. Subject to Section 271 of the General Corporation Law of Delaware, whenever the vote of stockholders at a meeting is required or permitted to be taken for or in connection with any corporate action by any provision of statute, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken. ARTICLE III Board of Directors ------------------ Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its Board of Directors except as may be otherwise provided by statute, the Certificate of Incorporation or these by-laws. Section 2. NUMBER, TENURE AND QUALIFICATIONS. (a) The number of directors of the corporation shall be fixed by resolution of the Board of Directors from time to time but shall not be less than three nor more than eleven; provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office. Except as provided in Section 3 of Article III, directors shall be elected at a meeting of stockholders held in accordance with Section 1, Article II. Directors need not be stockholders of the corporation. (b) The Board of Directors shall be divided into three classes, as nearly equal in numbers as the then total number of directors constituting the entire Board permits with the term of office of one class expiring each year. At the annual meeting of stockholders in January, 1995 directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. At each subsequent annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. Section 3. VACANCIES. Subject to Section 223 of the General Corporation Law of the State of Delaware, newly created directorships resulting from any increase in the authorized number of directors and vacancies on the Board of directors occurring for any other reason may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director and any directors so chosen shall hold office until the next election of the class for which such directors have been chosen and until their successors shall be elected and qualified. 57 4 Section 4. REGULAR MEETINGS. A regular meeting of a newly elected Board of Directors shall be held without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meeetings without other notice than such resolution. Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board of the President, and shall be called by the Secretary at the written request of any two directors. The officer calling special meetings as aforesaid may fix the time and designate any place, either within or without the State of Delaware, for holding any special meeting of the Board of Directors called by him. Section 6. NOTICE. Notice of any special meeting shall be given at least two days prior thereto by written notice personally or mailed to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise provided by statute, neither the business to be transacted at, nor the purpose of, a special meeeting of the Board of Directors need be specified in the notice of such meeting. Section 7. QUORUM -- MANNER OF ACTION. A majority of the number of directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority if present at a meeting, the directors present may adjourn the meeting from time to time without notice other than an announcement at the meeting, until a quorum is present. The vote of the majority of the directors present at a meeting at which there is a quorum shall be the act of the Board of Directors. Section 8. EXONERATION FROM LIABILITY IN CERTAIN CASES. If there is any violation of the provisions of Sections 160, 173 or 243 of the General Corporation Law of the State of Delaware (involving payment of an unlawful dividend or an unlawful purchase or redemption of the capital stock of the corporation) for which members of the Board of Directors under whose administration the same shall have been done may be jointly and severally liable to the corporation under Section 174 of said General Corporation Law, any director who may have been absent when the same was done, or who may have dissented from the act or resolution by which the same was done, may exonerate himself from such liability by causing his dissent to be entered on the books containing the minutes of the proceedings of the directors at the time the same was done, or immediately after he has notice of the same. 58 5 Section 9. RELIANCE ON BOOKS OF ACCOUNT, ET CETERA. Each member of the Board of Directors and of any committee designated by the Board of Directors, shall in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation or upon reports made to, or statements prepared for, the corporation by any of its officers, or by independent certified public accountants, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee. Section 10. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing, and the writing or writings are filed with minutes of its proceedings. Section 11. COMPENSATION. The directors may be paid their expenses, if any, of attending any meeting of the Board of Directors, and may also be paid either a fixed sum for attendance at each meeting of the Board of Directors or a stated amount as monthly, quarterly or annual compensation. Members of special or standing committees of the Board of Directors may be allowed like compensation for performing their duties on such committees. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV Committees of Board of Directors -------------------------------- Section 1. FORMATION OF COMMITTEES. The Board of Directors may by resolution adopted by a majority of the whole board designate one or more committees, each committee to consist of two or more directors of the corporation. Any such committee, to the extent provided in such a resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers that require it. Each such committee shall have such name as may be determined from time to time by the Board of Directors. Section 2. APPOINTMENT OF MEMBERSHIP. The Board of Directors by resolution adopted by a majority of the whole board shall appoint the directors who shall be members of any such committee, each such member to hold office until the next regular annual meeting of the Board of Directors following his appointment and until his successor is appointed and qualified. Any member of such a committee may be removed at any time with or without cause, and any vacancy (whether created by removal, resignation or otherwise) may be filled, by a resolution adopted in like manner by the Board of Directors. The Board of Directors may also designate in any such resolution one or more directors as alternative members of any such committee, who may replace any absent or disqualified member at any meeting of the committee; but if there be no such designation, the member or members of any such committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. 59 6 Section 3. MEETINGS. Regular meetings of any such committee may be held without notice at such times and places as the committee may fix from time to time by resolution. Special meetings of a committee may be called by the presiding officer thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral or by telegram. If such notice is mailed, it shall be deemed to be delivered when deposited in the mail addressed to a member at his business address, and if sent by telegram, when delivered to the telegraph company. Any member of a committee may waive notice of a meeting; and no such notice need be given to a member of a committee who attends a meeting in person. The notice of a meeting of a committee need not state the business proposed to be transacted at the meeting. Section 4. QUORUM. A majority of the members of a committee appointed or designated as provided in Section 2 of this Article IV, shall constitute a quorum for the transaction of business at any meeting thereof. Any action by a committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum exists. Section 5. ACTION WITHOUT A MEETINGS. Any action required or permitted to be taken at any meeting of a committee may be taken without a meeting if all regular members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of its proceedings. Section 6. PROCEDURE. Unless its presiding officer shall have been designated by a majority of the whole Board of Directors, a committee shall elect a presiding officer from among its members. It shall keep regular minutes of its proceedings and report any action taken by it to the next meeting of the Board of Directors or when otherwise required. ARTICLE V Officers -------- Section 1. NUMBER OF OFFICERS. The officers of the corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a President, one or more Executive or other Vice Presidents (the number thereof to be determined by the Board of Directors from time to time), a Secretary and a Treasurer. Each of such officers shall be elected and his compensation fixed by the Board of Directors, but none of them, other than the Chairman of the Board, Vice Chairman of the Board, and the President, need be members of the Board of Directors. Any two or more of such offices may be held by the same person, except that the Office of Secretary shall not be held by either the Chairman of the Board or the President. The Board of Directors shall designate the Chairman of the Board or the President to be the Chief Executive Officer of the Corporation. Section 2. ELECTION AND TERM OF SUCH OFFICERS. The officers of the corporation to be elected by the Board of Directors shall be elected annually at the regular meeting of the Board of Directors held after each annual meeting of the stockholders. Each such officer shall hold office 60 7 until his successor shall have been duly elected and qualified or until he shall earlier resign or have been removed in the manner hereinafter provided. Section 3. DESIGNATION OF ASSISTANT OFFICERS AND AGENTS. The Board of Directors may designate such other assistant officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 4. REMOVAL. Any officer, assistant officer or agent may be removed by the Board of Directors whenever in its judgment the best interest of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election of an officer or designation of an assistant officer or agent shall not of itself create contract rights. Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal or otherwise, may be filled by the Board of Directors. Section 6. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall in general supervise and direct all of the business and affairs of the corporation. He shall have the power to sign, with the Secretary or any other proper officer of the corporation thereunto duly authorized by the Board of Directors, certificates for shares of the capital stock of the corporation and any deeds, mortgages, bonds, debentures, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the authority to sign and execute the same shall be expressly vested by the Board of Directors or these by-laws in some other officer, assistant officer, employee or agent of the corporation, or shall be required to be otherwise signed or executed. Section 7. THE CHAIRMAN OF THE BOARD. The Board of Directors may elect one of its members to serve as Chairman of the Board. He shall preside at all meetings of the Board of Directors and of the stockholders but shall have the power, in his discretion, at any time, to delegate these duties to the Vice Chairman of the Board, the President or to some other officer or director of the corporation. He shall have all such other duties as may be prescribed from time to time by the Board of Directors. He shall be ex-officio a member of all standing committees to which he is not appointed by the Board of Directors. Section 8. THE VICE CHAIRMAN OF THE BOARD. The Board of Directors may elect one of its members to serve as Vice Chairman of the Board. The Vice Chairman shall have such duties as may be delegated to him by the Chief Executive Officer or the Board of Directors. In the absence of the Chairman of the Board and in the absence of any delegation of authority by the Chairman of the Board to another officer or director of the corporation, he shall preside at any meetings of the Board of Directors and of the Stockholders. Section 9. THE PRESIDENT. In the absence of the designation by the Board of Directors of a Chief Executive Officer, the President shall act as the chief executive officer of the corporation. In the absence of the Chairman of the Board and the Vice Chairman of the Board and in the 61 8 absence of any delegation of authority by the Chairman of the Board to another officer or director of the corporation, he shall preside at any meetings of the Board of Directors and of the Stockholders. He shall be ex-officio a member of all standing committees to which he is not appointed by the Board of Directors. He shall have all such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time. Section 10. THE VICE PRESIDENT. In the absence of the Chairman of the Board, Vice Chairman of the Board and the President, or in the event of their death, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Executive Vice President, or if there be no Executive Vice President, then the Vice Presidents in the order designated at the time of their election, or in the absence of any such designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Apart therefrom, the Vice Presidents shall perform such other duties as may be prescribed from time to time by the Board of Directors or the Chief Executive Officer. Section 11. THE SECRETARY. The Secretary shall: (a) attend all meetings of the stockholders, Board of Directors and any committees of the Board of Directors and record the proceedings of those meetings in one or more minute books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each stockholder; (e) sign with the Chief Executive Officer or other duly authorized officer, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general corporate responsibility for the stock transfer books of the corporation and for the performance of the stock transfer agent and registrar; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer. Section 12. THE TREASURER. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive money due and payable to the corporation from any source whatever and deposit all such money in the name of the corporation in such banks, trust companies or other depositories as may be designated by the Board of Directors; (c) disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements; (d) render to the Chief Executive Officer, and when requested by it, to the Board of Directors, an account of all his transactions as Treasurer and of the financial condition of the corporation; and (e) in general perform all the duties incident to the office of Treasurer and such duties as from time to time may be assigned to him by the Board of Directors or Chief Executive Officer. If required by the Board of Directors, the Treasurer shall give a bond, in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors, for the faithful discharge of his duties and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money, securities, and other property belonging to the corporation in his possession or control. 62 9 Section 13. THE CONTROLLER. The Board of Directors may elect a Controller who shall have charge of and be responsible for the books of account of the corporation and keep or cause to be kept therein a full and accurate record of the receipts and disbursements of the corporation and who shall perform such other duties as may be assigned to him by the Board of Directors or the Chief Executive Officer. Section 14. GENERAL DUTIES OF OFFICERS. In the absence of the Chairman of the Board, Vice Chairman of the Board, President or a Vice President, the Treasurer or Secretary of the corporation is empowered to sign any document required to be signed by the Chairman of the Board, Vice Chairman of the Board, President or any Vice President. ARTICLE VI Stock Certificates ------------------ Section 1. CERTIFICATES FOR SHARES. The certificates representing shares of the capital stock of the corporation shall be in such form as shall be determined by the Board of Directors. Each holder of shares of stock in the corporation shall be entitled to have such a certificate signed by or in the name of the corporation by the Chairman of the Board, the President or a Vice President, and by the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him. If such certificate is countersigned by a transfer agent or registrar other than the corporation itself or one of its employees, the signatures of the officers upon the certificate may be facsimiles. In the event that any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar on the date of issue. Section 2. CERTIFICATES FOR DIFFERENT CLASSES OF STOCK. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the corporation shall set forth on the face or back of the certificates which it will issue to represent each class or series of stock, a statement that the corporation will fumish without charge to each stockholder who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 3. LOST CERTIFICATES. The corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed. When issuing such new certificate the corporation may require as a condition precedent to the issuance thereof, that the owner of any certificate or certificates alleged to have been lost, stolen or destroyed, or his legal representative, (a) file with the corporation an affidavit attesting to the fact that the certificate theretofore issued is lost, stolen or destroyed and (b) give the corporation a bond in such sum as it may direct to indemnify it against any claim that may be made against it on 63 10 account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. Section 4. TRANSFERS OF STOCK. Upon surrender to the corporation or its transfer agent of a certificate for shares of stock duly endorsed or accompanied by the proper evidence of succession, assignment or authority to transfer, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and properly record the transaction upon its books. Section 5. REGISTERED STOCKHOLDERS. The corporation may treat the registered owner of shares on the books of the corporation as the person exclusively entitled to vote the shares, and to receive notices and dividends with respect thereto, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares in any other person even though the corporation has notice thereof, except as otherwise provided by Delaware law. ARTICLE VII Indemnification --------------- Section 1. LIMITED INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the limitations of subsection (c) of this Section 1, the corporation shall indemnify each of its directors and officers to the extent set forth in subsections (a) and (b) hereof: (a) ACTION OR SUIT BY OR IN THE RIGHT OF THE CORPORATION. Each director and officer of the corporation who was or is a party, or is threatened to be made a party, -- to any threatened, pending or completed action or suit, by or in the fight of the corporation, to procure a judgment in its favor, -- by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be and is indemnified against expenses (including attorneys' fees) actually and reasonable incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in, and not opposed to, the best interests of the corporation; PROVIDED THAT no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless, and only to the extent that, the Court of Chancery of Delaware, or the court in which such action or suit was brought, shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 64 11 (b) ACTION OR SUIT OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. Each director or officer of the corporation who was or is a party, or is threatened to be made a party, -- to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action or suit by or in the right of the corporation), -- by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be and is indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Provided that the termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the director or officer -- did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the corporation, and -- with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (c) LIMITATIONS ON INDEMNIFICATION. No indemnification shall be made by the corporation under subsections (a) and (b) of this Section 1 unless ordered by a court or it is determined in the specific case that indemnification of such director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) or (b) hereof Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding refeffed to, or (2) if such a quorum is not obtainable, or even if obtainable, when a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. Section 2. GENERAL INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any other provision of this Article VII to the contrary notwithstanding, to the extent that a director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of said Section 1, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 3. ADVANCE PAYMENT IN INDEMNIFICATION CASES. Expenses incurred by any director or officer of the corporation in defending a civil or criminal action, suit or proceeding refeffed to in subsections (a) or (b) of said Section 1 may be paid by the corporation in advance of final 65 12 disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article VII. Section 4. CONTINUITY AND NONEXCLUSIVITY OF INDEMNIFICATION. The indemnification and advancement of expenses provided by or granted pursuant to this Article VII shall, unless otherwise provided when so authorized, continue with respect to any director or officer of the corporation after he has ceased to hold his office and shall inure to the benefit of his heirs, executors and administrators. Any such indemnification (whether as expressly provided herein or as extended pursuant to Section 5 of this Article VII) shall not be deemed exclusive of any other rights to which the person seeking indemnification may be entitled under any other By-Law, agreement, vote of stockholders or disinterested directors or otherwise. Section 5. EXTENSION OF BENEFITS OF INDEMNIFICATION. The rights of indemnification to which directors and officers of the corporation are entitled pursuant to this Article VII may, in similar circumstances, be extended by resolution of the Board of Directors to any other person who is or was an employee or agent of the corporation, or while not a director or officer of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Any such action by the Board of Directors shall be consistent with the requirements of Section 145 of the General Corporation Law of the State of Delaware, and may be either general or confined to specific cases. Section 6. INDEMNIFICATION INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprises, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation indemnifies him against such liability under, or pursuant to, the provisions of this Article VII. ARTICLE VIII General Provision ----------------- Section 1. FIXING RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a 66 13 meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2. DIVIDENDS. Subject to the statutes and any provision with respect to dividends made by or pursuant to the Certificate of Incorporation, dividends may be declared on the capital stock of the corporation at any meeting of the Board of Directors held in accordance with these by-laws and may be paid in cash, in property, or in shares of the corporation. Before declaration or payment of any dividend the Board of Directors may set aside out of any funds of the corporation available for dividends, such reserve or reserves as the Directors in their absolute discretion feel to be proper or conducive to the interest of the corporation, and may modify or abolish any such reserve or reserves. Section 3. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in any written waiver of notice. Section 4. ANNUAL REPORT. The Board of Directors shall present at each annual meeting of stockholders and, when called for by a vote of the stockholders, at any special meeting, a full and complete report of the business and condition of the corporation. Section 5. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority as the Board of Directors may grant with respect thereto may be either general or confined to specific instances. Section 6. CHECKS, DRAFTS, ET CETERA. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 7. STOCK OF OTHER CORPORATIONS. In the absence of specific action by the Board of Directors, the Chairman of the Board shall have authority to vote and to empower others to vote, on behalf of the corporation, the securities of other corporations, both domestic and foreign, held by the corporation. Section 8. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 9. CORPORATE SEAL. The Board of Directors shall provide a corporate seal, which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation and the words "Corporate Seal". The seal may be used by causing it or a facsimile thereof to be impressed or affixed, or in any other manner reproduced. 67 14 Section 10. SEVERABILITY -- AMENDMENTS. If any provision of these by-laws, or its application to any person or circumstances, is held invalid, the remainder of these by-laws, and the application of such provision to other persons or circumstances, shall not be affected. These by-laws and any provision thereof may be altered, amended or repealed at any meeting of the Board of Directors. 68 EX-27 4 EXHIBIT 27
5 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 570,759 0 28,625,173 1,549,897 17,481,891 51,650,706 30,711,502 15,699,102 84,273,931 26,043,422 0 5,295,556 0 0 37,043,757 84,273,931 136,573,798 137,594,631 92,895,554 128,115,705 346,204 0 1,452,247 7,680,475 2,065,800 0 0 0 0 5,614,675 $1.15 $1.15
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