-----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, C+tzSUH2zbi6RKIN1PyN98aUbl6r0OdrQ1iuy72A0yzAjPFSrTpUyhQuGI7jaCJU DZvVMAAO5pa0/k8ylVl8lw== 0000950152-98-001258.txt : 19980218 0000950152-98-001258.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950152-98-001258 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMI INDUSTRIES INC CENTRAL INDEX KEY: 0000046445 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 361202810 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-30905 FILM NUMBER: 98543858 BUSINESS ADDRESS: STREET 1: 3631 PERKINS AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 216-432-1990 MAIL ADDRESS: STREET 1: 3631 PERKINS AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH MOR INC DATE OF NAME CHANGE: 19920703 10-Q 1 HMI INDUSTRIES FORM 10-Q 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 2-30905 HMI INDUSTRIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-1202810 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 3631 Perkins Ave, Cleveland, Ohio 44114 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 432-1990 -------------- - ------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 16, 1998 - ----------------------------------- ---------------------------------- Common stock, $1 par value per share 5,033,996 =============================================================================== 2 HMI INDUSTRIES INC. CONSOLIDATED CONDENSED BALANCE SHEET DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(Unaudited) December 31, September 30, 1997 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 819,321 $ 239,797 Trade accounts receivable (net of allowance of $5,281,495 and $5,512,063) 7,989,924 10,357,999 Finance contracts receivable 458,867 496,044 Notes receivable 250,525 228,414 Inventories 4,261,655 4,152,858 Income tax receivable 3,372,644 3,373,898 Deferred income taxes 8,349,167 8,239,080 Prepaid expenses 64,986 123,099 Other current assets 130,268 83,307 Net assets held for sale at realizable value 15,317,503 12,900,184 ------------ ------------ Total current assets 41,014,860 40,194,680 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, NET 5,734,508 6,194,868 ------------ ------------ OTHER ASSETS: Cost in excess of net assets of acquired businesses (net of amortization of $2,572,516 and $2,576,373) 6,659,047 6,735,578 Unamortized trademarks 359,456 339,823 Finance contracts receivable (less amounts due within one year) 917,733 992,090 Other 262,439 133,094 ------------ ------------ Total other assets 8,198,675 8,200,585 ------------ ------------ Total assets $ 54,948,043 $ 54,590,133 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ 465,870 $ 480,822 Trade accounts payable 7,585,880 6,939,040 Income taxes payable 674,870 1,349,163 Accrued expenses and other liabilities 7,186,265 8,125,620 Long-term debt due within one year 23,369,038 20,464,632 ------------ ------------ Total current liabilities 39,281,923 37,359,277 ------------ ------------ LONG-TERM LIABILITIES: Long-term debt (less amounts due within one year) 552,860 762,777 Deferred income taxes 668,445 573,613 Other 1,248,378 1,342,961 ------------ ------------ Total long-term liabilities 2,469,683 2,679,351 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock, $5 par value; authorized, 300,000 shares; issued, none -- -- Common stock, $1 par value; authorized, 10,000,000 shares; issued, 5,295,556 shares 5,295,556 5,295,556 Capital in excess of par value 8,094,719 8,050,212 Unearned compensation, net -- (191,500) Retained earnings 2,917,367 4,077,771 Cumulative translation adjustment (1,885,676) (1,418,762) ------------ ------------ 14,421,966 15,813,277 Less treasury stock 261,560 shares, at cost 1,225,529 1,261,772 ------------ ------------ Total stockholders' equity 13,196,437 14,551,505 ------------ ------------ Total liabilities and stockholders' equity $ 54,948,043 $ 54,590,133 ============ ============
See accompanying notes to consolidated condensed financial statements. 1 3 HMI INDUSTRIES INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996 (Unaudited)
THREE MONTHS ENDED DECEMBER 31, 1997 1996 - --------------------------------------------------------------------------------------------------------------- REVENUES: Net product sales $ 8,911,190 $ 14,450,743 Financing revenue and other 100,325 170,145 ------------ ------------ 9,011,515 14,620,888 OPERATING COSTS AND EXPENSES: Cost of products sold 6,130,494 9,377,345 Selling, general and administrative expenses 5,352,758 5,552,346 Interest expense 532,675 545,085 Other expenses 15,857 114,659 ------------ ------------ Total expenses 12,031,784 15,589,435 ------------ ------------ Loss before income taxes (3,020,269) (968,547) Benefit for income taxes (915,442) (311,068) ------------ ------------ LOSS BEFORE DISCONTINUED OPERATIONS (2,104,827) (657,479) ------------ ------------ Income (loss) from discontinued operations - Household Rental Systems (net of taxes of $-0-, and $-0-) 262,218 119,844 Bliss Manufacturing (net of taxes of $289,393, and $335,301) 472,167 547,071 Bliss Tubular (net of taxes of $-0-, and $2,371) -- (3,869) Tube Fab Ltd (net of taxes of $128,733, and $-0-) 210,038 47,102 Health-Mor Personal Care Corp. (net of taxes of $-0-, and $107,663) -- (175,661) ------------ ------------ 944,423 534,487 NET LOSS $ (1,160,404) $ (122,992) ============ ============ Weighted average number of shares outstanding 5,032,105 4,919,408 ============ ============ BASIC AND DILUTED PER SHARE OF COMMON STOCK: Loss before discontinued operations $ (0.42) $ (0.13) Income from discontinued operations $ 0.19 $ 0.11 ------------ ------------ Net loss $ (0.23) $ (0.02) ============ ============ Cash dividends per common share $ -- $ -- ============ ============
See accompanying notes to consolidated condensed financial statements. 2 4 HMI INDUSTRIES INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996 (Unaudited)
1997 1996 - ----------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,160,404) $ (122,992) Adjustments to reconcile net income (loss) to net cash provided by (used) by operating activities: Depreciation and amortization 695,536 614,330 Amortization of stock awards, net 272,250 -- Provision for losses on receivables -- 213,534 Deferred income taxes (124,563) 104,092 Changes in operating assets and liabilities: Decrease in receivables 2,380,455 533,460 Decrease (increase) in inventories (1,151,381) 695,057 Decrease in prepaid expenses 101,592 297,134 Decrease in other current assets 28,844 -- Decrease in accounts payable (1,001,531) (1,492,422) Increase (decrease) in accrued expenses and other liabilities (1,117,985) 666,899 Decrease in income taxes payable (393,708) (190,062) Other, net (411,835) (72,312) ----------- ----------- Net cash provided by (used in) operating activities (1,882,730) 1,246,718 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of fixed assets -- 1,120,916 Capital expenditures (90,881) (324,703) ----------- ----------- Net cash provided by (used in) investing activities (90,881) 796,213 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facility 12,454,000 206,084 Payment of credit facility (9,246,455) -- Payment of long term debt (654,410) (2,245,213) ----------- ----------- Net cash (used in) provided by financing activities 2,553,135 (2,039,129) ----------- ----------- Effect on exchange rate changes on cash -- -- ----------- ----------- Net increase in cash and cash equivalents 579,524 3,802 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 239,797 472,408 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 819,321 $ 476,210 =========== ===========
See accompanying notes to consolidated condensed financial statements. 3 5 PART I - ITEM 1 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS In the opinion of HMI Industries Inc. ("the Company"), these consolidated condensed financial statements contain all of the adjustments necessary to present fairly the financial position as of December 31, 1997, and the results of operations for the three months ended December 31, 1997 and 1996, and cash flows for the three months then ended. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis for Preparation of the Consolidated Condensed Financial Statements ------------------------------------------------------------------------ The consolidated condensed financial statements included in this report have been prepared, without audit, by the Company from the consolidated statements of the Company and its subsidiaries, pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including significant accounting policies, normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated condensed financial statements, which are subject to year-end audit adjustments, be read in conjunction with the Company's latest Annual Report on Form 10-K, as amended. Reclassification ---------------- Certain prior year amounts have been reclassified to conform to the fiscal 1998 presentation. 2. EARNINGS PER SHARE Earnings per share have been computed according to Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS 128 replaced the previously reported "primary earnings per share" with "basic earnings per share" and replaced "fully diluted earnings per share" with "diluted earnings per share". This statement had no effect on the resulting earnings per share for the Company. In addition, because all the common stock equivalents are anti-dilutive as of December 31, 1997 and 1996, the denominators for calculating the Company's basic and diluted earnings per share are identical. 4 6 3. DISCONTINUED OPERATIONS Sales applicable to the discontinued operations were $17,509,500 and $17,492,300 for the three months ended December 31, 1997 and 1996, respectively. 4. INVENTORIES Inventories at December 31, 1997 and September 30, 1997 consist of the following:
December 31, September 30, ---------- ---------- Finished goods $3,170,372 $2,438,282 Work-in-progress, raw materials and supplies 1,091,283 1,714,576 ========== ========== $4,261,655 $4,152,858 ========== ==========
5. DEBT The Company received additional financing, from its lender, of $1,200,000 upon the filing of its fiscal 1997 federal tax return, which was filed in January 1998. The proceeds of the anticipated tax refund will be first used to repay the $1,200,000 to the bank and any excess will be used for working capital. In January 1998, the Company negotiated, with its lender, an extension on the credit facility, utilized by the Netherlands operations, until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of Bliss Manufacturing. 6. RELATED PARTY TRANSACTIONS In May 1997, the Company advised Kirk W. Foley, then its CEO, that it was terminating his employment which triggered certain obligations as per Mr. Foley's employment contract, including an $800,000 severance payment, an assumption of a $518,000 personal bank loan made to Mr. Foley, other compensation obligations of approximately $79,000 and an obligation to purchase Mr. Foley's Company stock at current market value (approximately $325,000). Because of the Company's tight cash position, noncash ways to satisfy its obligations to Mr. Foley were sought. The resolution was a decision to transfer to Mr. Foley the Company's 100% stock interest in Tube-Fab Ltd, a Canadian subsidiary headquartered on Prince Edward Island, Canada, which an independent appraiser valued at $1,512,000. The Tube-Fab Ltd. stock had been carried on the Company's books at a value of $2,157,500 and was accordingly written down to its appraised value. The settlement transaction with Mr. Foley closed in January 1998. It entailed a transfer of the Tube-Fab Ltd. shares to Mr. Foley; Mr. Foley's payment of $303,000 to the Company; cancellation of the Company's $800,000 severance obligation; an assumption of the $486,750 5 7 ($518,000 less a $31,250 principal payment made in June 1997) bank loan; cancellation of Mr. Foley's put right with respect to his Company stock; and assumption by Mr. Foley of an operating lease of Canadian facilities currently leased by the Company, which has a remaining lease obligation of approximately $1,050,000 over 8 1/2 years. Mr. Foley's employment contract also required the Company to pay to him a $300,000 cash award relating to phantom shares he had previously earned but had deferred in 1996. This award was reduced to a $150,000 payment in the settlement transaction. The settlement also required the Company to continue Mr. Foley's salary and benefits from the time of termination advice through December 15, 1997 (approximately $320,000). PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis contained in this section relates only to the continuing operations of the Company. RESULTS OF OPERATIONS NET PRODUCT SALES- Net product sales for the quarter ended December 31, 1997 decreased by $5,539,600 or 38.3% in the comparable quarter. The decrease in sales is due primarily to declines in North America and Asia. Weak sales in North America were attributable to a correction of high inventory levels in the distribution network, lower sales to end consumers and a reduction in the distributor base. Additionally, excess credit granted in prior years to the Company's distributors resulted in an overall deterioration of liquidity in the distribution network. Sales in Asia were adversely affected by economic conditions in that region and the devaluation of certain currencies, especially in Korea. FINANCING REVENUE AND OTHER INCOME- Financing revenues represent the interest and fees generated on the contracts financed by the Company's Australian, Canadian, and United States Subsidiaries. The decline in these revenues is consistent with the sales decrease experienced mainly in North America. GROSS PROFIT- Gross profit for the quarter ended December 31, 1997 was $2,780,700 or 31.2 % as compared to $5,073,400 or 35.1% in the quarter ended December 31, 1996. Gross profit was adversely affected by the decline in volume and continued operational inefficiencies from the prior year. However, initiatives begun in the fourth quarter of 1997 to strengthen business processes, reduce costs, and improve quality yielded positive results in first quarter 1998 as gross profit increased as a percent of sales from 26.6% in the fourth quarter of fiscal 1997. SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general and administrative costs decreased by $199,600 for the quarter ended December 31, 1997 versus the comparable quarter. Included in these costs is a severance charge of $200,000 related to the termination of the Company's branch 6 8 in Holland. SG&A was higher as a percent of sales due to depressed volume in the first quarter of 1998. The Company's cost reduction measures initiated in 1997 should continue to reduce selling, general and administrative costs in 1998. These include implementation of a cash basis policy for North American distributors effective January 1, 1998. While this policy may depress sales temporarily, over time it should improve the Company's liquidity and strengthen the fiscal health of its distribution network. The subsequent reduction in credit resulting from this policy should significantly reduce bad debt expense in 1998. INTEREST EXPENSE - Interest expense for the quarter ended December 31, 1997 did not change significantly versus the quarter ended December 31, 1996. DISCONTINUED OPERATIONS - As of June 30, 1997, the Company reported Bliss Tubular and Tube-Fab Ltd., its tubular and aerospace businesses, as well as Health-Mor Personal Care Corp., its personal care business, as discontinued operations. The Company recorded pre-tax combined income from Tube-Fab Ltd., and Health-Mor Personal Care Corp. of $338,000 for the quarter ended December 31, 1997. As of September 30, 1997, the Company reported Bliss Manufacturing, its metal fabrication and stamping business, as a discontinued operation. For the quarter ended December 31, 1997, the Company recorded pre-tax income from Bliss Manufacturing of $761,600. The Company's steam cleaning business, Household Rental Systems, reported as a discontinued operation in fiscal 1996, recorded pre-tax income of $262,200 in the first quarter ended December 31, 1997. In November, 1997, the Company received two signed letters of intent regarding the planned sale of this business. Management anticipates that the sale of this business will be completed in the first half of 1998. Sales applicable to the discontinued operations for the quarters ended December 31, 1997 and December 31, 1996 were $17,509,500 and $17,492,300, respectively. LIQUIDITY AND CAPITAL RESOURCES The working capital balance at December 31, 1997 was $1,732,900, a decrease of $1,102,500 from the September 30, 1997 balance of $2,835,400. The Company's cash increased $579,500 during the quarter ended December 31, 1997 from September 30, 1997. The decrease in receivables of $2,380,500 was due primarily to lower sales and tighter credit terms. Inventories increased by $1,151,400 due to higher inventory at Bliss Manufacturing as a result of higher conversion costs. Accounts payable decreased by $1,001,500 primarily at Bliss Manufacturing. Accrued liabilities decreased $1,118,000 due primarily to deferred compensation and profit sharing payments made at Bliss. The aforementioned variances relate to information in the Consolidated Statement of Cash Flow in which items relating to discontinued operations have not been disaggregated as they have in the Consolidated Balance Sheet. On December 18, 1997, the Company entered into a definitive agreement to sell 100% of the stock of Bliss Manufacturing, a wholly owned subsidiary for $31,250,000, subject to certain adjustments. The Company expects the entire proceeds from the sale of Bliss Manufacturing to be applied to the retirement of substantially all of its debt, certain vendor obligations, transaction costs and related expenses, certain employee benefit payments, and amounts necessary to fund future tax obligations arising from the gain on the sale of Bliss Manufacturing. It is anticipated 7 9 that this transaction will close by the end of the second fiscal quarter of 1998. Accordingly, debt to be retired from the proceeds of the sale has been classified as current. At September 30, 1997, the Company was in violation of the financial covenants under its credit agreement and was experiencing increasing liquidity problems. The Company's deteriorating cash position was a significant factor that led to the decision to sell Bliss Manufacturing. In December 1997, the Company obtained waivers from its lenders with respect to the covenant violations and received $2,000,000 in a special term loan that accrues interest at a rate of prime plus 2.0%, to be paid monthly. The maturity date of this agreement is the earlier of the receipt of the Bliss Manufacturing sale proceeds or March 31, 1998. Additionally, a fee with respect to the special term loan of $80,000 will be paid on such date that the special term loan is paid in full. Additionally , the Company received additional financing of $1,200,000 upon the filing of its fiscal 1997 tax return, which was filed in January 1998. The proceeds of the anticipated tax refund will be first used to repay the $1,200,000 to the bank and any excess will be used for working capital. In November 1996, the Company made an annual principal payment of $1,666,666 on the unsecured, 9.86%, seven year private placement term notes, leaving a balance of $1,666,667 as of December 31, 1997, with the final payment due date extended until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of Bliss Manufacturing. The Australian Unsecured Demand Authorization, payable on demand or February 28, 1997, was extended until the earlier of March 31, 1998 or upon the receipt of proceeds from the sale of Bliss Manufacturing. An extension was also obtained in April 1997 for the bank credit facility utilized by the Netherlands operation. The facility, originally payable in March 1997, is now available until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of Bliss Manufacturing. The Company's principal sources of liquidity, until the sale of Bliss Manufacturing, are expected to be funded with cash generated from operations, additional borrowings under the Company's credit facility referred to above and the 1997 tax refund. After the sale of Bliss Manufacturing the Company's principal sources of liquidity are expected to be from the proceeds from the sale, a new credit facility to be put in place in the second fiscal quarter of 1998 and from cash generated from operations. The sale of Bliss Manufacturing is contingent upon shareholder approval, regulatory approval and a variety of other customary closing conditions. The Company expects all these conditions to be met and the sale of Bliss Manufacturing to be consummated by March 31, 1998. However, if the sale of Bliss Manufacturing is not achieved by such date, the Company would have liquidity needs that could only be satisfied by further amendment to the credit facility to allow for additional time to close the sale transaction or obtaining additional financing sources. 8 10 The agreements relating to the Company's outstanding debt include various covenants that limit its ability to incur additional indebtedness, restricts paying dividends, and limits the ability for capital expenditures. The credit agreements were amended so as to eliminate the restrictive covenants referred to above until March 31, 1998. CAUTIONARY STATEMENT FOR "SAFE HARBOR" PURPOSES UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995 This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to certain uncertainties including the successful completion of the sale of Bliss Manufacturing, and retention and rebuilding of the Consumer Products Division distribution network. Such uncertainties are difficult to predict and could cause actual results of the company to differ materially from those matters expressed or implied by such forward-looking statements. PART II - OTHER INFORMATION Item 5. Other Information - None. 9 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HMI Industries Inc. ---------------------- (Registrant) Date: February 16, 1998 \s\ Mark A. Kirk ----------------- ---------------------- President and Chief Financial Officer 10 EX-27 2 EXHIBIT 27
5 YEAR SEP-30-1998 OCT-01-1997 DEC-31-1997 819,321 0 14,898,544 5,281,495 4,261,655 41,014,860 11,042,031 5,307,523 54,948,043 39,281,923 0 0 0 5,295,556 7,900,881 54,948,043 8,911,190 9,011,515 6,130,494 11,499,109 0 0 532,675 (3,020,269) (915,442) (2,104,827) 944,423 0 0 (1,160,403) (0.23) (0.23)
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