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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002
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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.
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(Exact name of Registrant as Specified in Its Charter)
DELAWARE 36-1202810
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(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
Genesis Building, 6000 Lombardo Center, Suite 500, Seven Hills, Ohio 44131
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (216) 986-8008
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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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-3 of the Exchange Act). Yes No X
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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 1, 2003
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Common stock, $1 par value per share 6,745,609
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INDEX
PART I. FINANCIAL INFORMATION....................................................................................3
ITEM 1. FINANCIAL STATEMENTS...................................................................................3
Consolidated Condensed Balance Sheets.......................................................................3
Consolidated Condensed Statements of Income.................................................................4
Consolidated Condensed Statements of Cash Flow..............................................................5
Notes to Consolidated Condensed Financial Statements (unaudited)............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................8
Critical Accounting Policies................................................................................8
Results of Operations......................................................................................10
Liquidity and Capital Resources............................................................................11
Future Accounting Requirements.............................................................................12
Cautionary Statement for "Safe Harbor" Purposes Under the Private Securities Litigation Reform Act of 1995.13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................................13
ITEM 4. CONTROLS AND PROCEDURES..............................................................................13
(A) Evaluation of Disclosure Controls and Procedures.......................................................13
(B) Changes in Internal Controls...........................................................................13
PART II. OTHER INFORMATION......................................................................................14
ITEM 1. LEGAL PROCEEDINGS....................................................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES......................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................14
ITEM 5. OTHER INFORMATION....................................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................................................14
(a) Index to Exhibits......................................................................................14
(b) Reports on Form 8-K....................................................................................14
SIGNATURES....................................................................................................15
Certifications.............................................................................................16
Certifications.............................................................................................17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, September 30,
2002 2002
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 556,621 $ 481,395
Trade accounts receivable (net of allowance of $350,570
and $482,118) 2,572,668 2,006,667
Inventories:
Finished goods 1,932,197 2,076,052
Work-in-progress, raw material and supplies 2,191,073 2,112,656
Deferred income taxes 1,447,771 1,476,182
Prepaid expenses 186,421 291,690
Other current assets 23,305 53,657
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Total current assets 8,910,056 8,498,299
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PROPERTY, PLANT AND EQUIPMENT, NET 4,135,286 4,310,070
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OTHER ASSETS:
Cost in excess of net assets of acquired businesses
(net of amortization of $3,738,649 and $3,738,649) 5,454,450 5,450,860
Deferred income taxes 2,559,303 2,550,427
Trademarks (net of amortization of $171,885 and $161,556) 383,259 375,272
Other 225,833 270,833
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Total other assets 8,622,845 8,647,392
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Total assets $ 21,668,187 $ 21,455,761
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 391,000 $ 1,392,000
Trade accounts payable 2,648,915 1,956,677
Income taxes payable 506,591 505,532
Accrued expenses and other liabilities 2,945,649 2,394,881
Long-term debt due within one year 182,794 301,894
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Total current liabilities 6,674,949 6,550,984
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LONG-TERM LIABILITIES:
Long-term debt (less amounts due within one year) 27,402 32,726
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Total long-term liabilities 27,402 32,726
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STOCKHOLDERS' EQUITY:
Preferred stock, $5 par value; authorized, 300,000
shares; issued, none - -
Common stock, $1 par value; authorized, 10,000,000 shares;
issued and outstanding, 6,745,609 and 6,745,609 shares 6,745,609 6,745,609
Capital in excess of par value 8,279,311 8,279,311
Unearned compensation, net (1,373) (2,728)
Retained earnings 890,379 801,459
Accumulated other comprehensive loss (900,090) (903,600)
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Total stockholders' equity 14,965,836 14,872,051
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Total liabilities and stockholders' equity $ 21,668,187 $ 21,455,761
====================================================================================================
See notes to consolidated condensed financial statements.
3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the three months ended December 31,
2002 2001
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Revenues:
Net product sales $ 8,826,452 $ 9,370,645
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Operating costs and expenses:
Cost of products sold 5,242,114 5,027,156
Selling, general and administrative expenses 3,483,917 3,907,730
Interest expense 14,312 19,639
Other (income) expenses, net (27,471) 90,160
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Total operating costs and expenses 8,712,872 9,044,685
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Income before income taxes 113,580 325,960
Provision for income taxes 24,660 141,890
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Net income $ 88,920 $ 184,070
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Weighted average number of shares outstanding:
Basic and diluted 6,742,314 6,701,204
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Per share of common stock:
Basic and diluted $ 0.01 $ 0.03
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See notes to consolidated condensed financial statements.
4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
For the three months
ended December 31,
2002 2001
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Cash flows from operating activities:
Net income $ 88,920 $ 184,070
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 214,806 265,440
Unearned compensation 1,354 1,355
Provision for losses on receivables - 35,504
Deferred income taxes 19,535 127,603
Changes in operating assets and liabilities:
Increase in receivables (566,002) (510,916)
Decrease (increase) in inventories 65,438 (67,355)
Decrease (increase) in prepaid expenses 105,268 (35,586)
Decrease in other current assets 30,353 123,504
Increase in accounts payable 692,238 782,791
Increase in accrued expenses and other 550,768 24,997
liabilities
Increase in income taxes payable 1,059 7,490
Other, net 30,196 16,366
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Net cash provided by operating 1,233,933 955,263
activities
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Cash flows from investing activities:
Capital expenditures (33,283) (168,459)
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Net cash used in investing (33,283) (168,459)
activities
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Cash flows from financing activities:
Net repayment under credit facility (1,001,000) (354,000)
Payment of long term debt (124,424) (176,417)
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Net cash used in financing (1,125,424) (530,417)
activities
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Net increase in cash and cash equivalents 75,226 256,387
Cash and cash equivalents, beginning of period 481,395 6,865
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Cash and cash equivalents, end of period $ 556,621 $ 263,252
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See notes to consolidated condensed financial statements.
5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary of Significant Accounting Policies
The interim consolidated condensed financial statements included in this
report have been prepared, without audit, by HMI Industries Inc. from our
consolidated statements and those of our subsidiaries, pursuant to the rules
and regulations of the Securities and Exchange Commission. Although we believe
that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures, including
significant accounting policies, normally included in the annual financial
statements have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of our management, the unaudited financial information for the
interim periods presented reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation. These consolidated
condensed financial statements and related notes should be read in conjunction
with the consolidated condensed financial statements and related notes
included in our Annual Report on Form 10-K for the fiscal year ended September
30, 2002. Operating results for interim periods are not necessarily indicative
of operating results for an entire fiscal year.
2. Prepaid Advertising
We expense the production costs of advertising the first time the advertising
takes place, except for direct-response advertising, which is capitalized and
amortized over its expected period of future benefits, in no event longer than
one year.
Direct-response advertising consisted primarily of design and development
costs incurred in connection with a Filter Queen(R) television spot, which
directed viewers to call a 1-800-number to purchase our products. The
capitalized costs of the advertisement were being amortized over a
twelve-month period, which began in July 2001, following the first
introduction of the advertisement into our Americas sales division.
At December 31, 2002 and 2001, $-0- and $183,600, respectively, of advertising
were reported as other current assets.
3. Goodwill and Other Intangible Assets
Pursuant to FAS 142 "Goodwill and Other Intangible Assets" we ceased
amortizing goodwill in the period beginning October 1, 2002. Prior to the
adoption of SFAS No. 142, we amortized goodwill on a straight-line basis over
40 years. Other intangible assets are amortized on a straight-line basis over
their useful lives, ranging from ten to seventeen years. Goodwill amortization
for the period ended December 31, 2001 was $61,400.
FAS 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. The provisions of FAS 142 prohibit
the amortization of goodwill and indefinite-lived intangible assets, require
that goodwill and indefinite-lived intangible assets be tested annually for
impairment (and in interim periods if certain events occur indicating that the
6
carrying value of goodwill and/or indefinite-lived intangible assets may be
impaired), require that reporting units be identified for the purpose of
assessing potential impairments of goodwill, and remove the forty-year
limitation on the amortization period of intangible assets that have finite
lives.
As of the date of this filing, we have completed the first step of the
two-step implementation process by obtaining a valuation of the company for
comparison to the carrying value and are presently starting the process of
measuring the amount of the impairment (step two). Although management does
not believe that the market value of common stock fairly reflects the value of
HMI, because of liquidity, control premium and small float issues, etc., the
valuation experts employed by us utilized the market value of the common stock
as of October 1, 2002 but also weighted the valuation for comparable values of
peer companies, recent sales of similar types of companies and a discounted
cash flow methodology. Based on the assumptions used in any of the last three
valuations and depending on the weighting used for each valuation, results of
the valuation could be significantly changed. However, we believe that the
weighting methodology used is reasonable and results in an accurate and fair
value of HMI. Based upon the results of the valuation it is our belief that
our entire goodwill balance may be determined to be impaired pending the
results of the measurement phase.
4. Valuation of Long-Lived Assets
As of the beginning of fiscal 2003, we adopted Statement of Financial
Accounting Standards ("FAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". The adoption of this accounting standard did
not have a material impact on our operating results and financial position. We
assess potential impairments to our long-lived and intangible assets when
there is evidence that events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. An impairment loss is
recognized when the carrying amount of the long-lived and intangible asset is
not recoverable and exceeds its fair value. The carrying amount of a
long-lived and intangible asset is not recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. Any required impairment loss is measured as the
amount by which the carrying amount of a long-lived and intangible asset
exceeds its fair value and is recorded as a reduction in the carrying value of
the related asset and a charge to operating results.
5. Comprehensive Income/Loss
Comprehensive income/loss combines net income/loss and "other comprehensive
items," which represents foreign currency translation adjustments, reported as
a component of stockholders' equity in the accompanying Consolidated Condensed
Balance Sheets. We present such information in our Statement of Stockholders'
Equity on an annual basis and in a footnote in our quarterly reports. We had
comprehensive income of $92,400 and $180,900 for the three months ended
December 31, 2002 and 2001, respectively.
We are currently evaluating the complete liquidation of our Canadian
subsidiary. If such liquidation occurs it will cause us to realize a charge to
operations for the write-off of cumulative translation adjustments
approximating $900,000 related to the Canadian subsidiary.
7
6. Warranty
Changes in our warranty liability were as follows:
Balance, as of October 1, 2002 $ 190,500
Charges to Expense 56,000
Usage (69,100)
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Balance, as of December 31, 2002 $ 177,400
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7. Earnings Per Share
All 1,146,700 and 1,648,300 stock options outstanding for the quarters ended
December 31, 2002 and 2001, respectively, were not included in the computation
of diluted EPS because the options' exercise prices were greater than the
average market prices of the common stock during the period and, therefore,
the effect would be anti-dilutive.
8. Debt
In January 2003 we entered into an amendment to our credit facility agreement
with our current lender. This amendment, which expires January 31, 2004,
permanently increased our revolving line of credit from $2 million to $3
million, and carries the same interest rate and similar covenants as the
original loan agreement.
There were no covenant violations under the credit facility agreement as of or
for the period ended December 31, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon the consolidated condensed financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
consolidated condensed financial statements required us to make estimates and
judgments that affect the reported amount of assets and liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities at
the date of the consolidated condensed financial statements. Actual results
may differ from these estimated under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of
significant judgment and uncertainties, and potentially may result in
materially different outcomes under different assumptions and conditions. For
a more complete description of our critical accounting policies please refer
to our Annual Report on Form 10-K for the fiscal year ended September 30,
2002. The following policies reflect changes and/or updates to the detailed
descriptions included in the aforementioned Form 10-K.
8
Goodwill and Other Intangible Assets
Pursuant to FAS 142 "Goodwill and Other Intangible Assets" we ceased
amortizing goodwill in the period beginning October 1, 2002. Prior to the
adoption of SFAS No. 142, we amortized goodwill on a straight-line basis over
40 years. Other intangible assets are amortized on a straight-line basis over
their useful lives, ranging from ten to seventeen years.
FAS 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. The provisions of FAS 142 prohibit
the amortization of goodwill and indefinite-lived intangible assets, require
that goodwill and indefinite-lived intangible assets be tested annually for
impairment (and in interim periods if certain events occur indicating that the
carrying value of goodwill and/or indefinite-lived intangible assets may be
impaired), require that reporting units be identified for the purpose of
assessing potential impairments of goodwill, and remove the forty-year
limitation on the amortization period of intangible assets that have finite
lives.
As of the date of this filing, we have completed the first step of the
two-step implementation process by obtaining a valuation of the company for
comparison to the carrying value and are presently starting the process of
measuring the amount of the impairment (step two). Although management does
not believe that the market value of common stock fairly reflects the value of
HMI, because of liquidity, control premium and small float issues, etc., the
valuation experts employed by us utilized the market value of the common stock
as of October 1, 2002 but also weighted the valuation for comparable values of
peer companies, recent sales of similar types of companies and a discounted
cash flow methodology. Based on the assumptions used in any of the last three
valuations and depending on the weighting used for each valuation, results of
the valuation could be significantly changes. However, we believe that the
weighting methodology used is reasonable and results in an accurate and fair
value of HMI. Based upon the results of the valuation it is our belief that
our entire goodwill balance may be determined to be impaired pending the
results of the measurement phase.
Valuation of Long-Lived Assets
As of the beginning of fiscal 2003, we adopted Statement of Financial
Accounting Standards ("FAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". The adoption of this accounting standard did
not have a material impact on our operating results and financial position. We
assess potential impairments to our long-lived and intangible assets when
there is evidence that events or changes in circumstances indicate that the
carrying amount of an asset may not be recovered. An impairment loss is
recognized when the carrying amount of the long-lived and intangible asset is
not recoverable and exceeds its fair value. The carrying amount of a
long-lived and intangible asset is not recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. Any required impairment loss is measured as the
amount by which the carrying amount of a long-lived and intangible asset
exceeds its fair value and is recorded as a reduction in the carrying value of
the related asset and a charge to operating results.
9
RESULTS OF OPERATIONS
Net Product Sales
FIRST QUARTER OF FISCAL 2003 COMPARED TO FIRST QUARTER OF FISCAL 2002
Net product sales of $8,826,400 for the quarter ended December 31, 2002, were
$544,200 or 5.8% lower when compared to the prior year sales of $9,370,600.
The decrease in sales was largely attributable to reduced sales in Asia and
from the Americas National Advertising Campaign ("NAC") offset by increased
revenues in the Americas distributor network of $841,200.
The NAC, a thirty-minute television infomercial which began airing in July
2001, was designed to increase brand awareness, generate sales leads and open
new territories. In August 2002, we stopped broadcasting the infomercial as
anticipated profits for this program were not being achieved and the
infomercial had exceeded the industry standard expected life cycle of twelve
months. Exclusive of the first quarter 2001 NAC sales of $604,300, revenues
would have increased $60,100.
The increased sales in the Americas exclusive of NAC sales was due to the
growth of the direct sales network primarily resulting from several of our key
master distributors who have grown their business through effective
recruiting, retention and the opening of new offices under the Edge Success
Program ("the Edge"). The Edge is a multi-step program that provides business
training from the earliest level of a new recruit to the most senior level of
premier master distributor and provides incentives at each level to promote
the development and retention of quality distributors and sales associates.
The sales decline in Asia was primarily due to lower sales to Japan and Korea
of which Japan was the largest contributor to the decline. The reduced sales
to Japan reflect realignments this importer has made to his inventory levels
in anticipation of the upcoming launch of our 75th Anniversary Majestic(R) in
that country, which is currently planned for late in the second fiscal
quarter. The reduced sales to Japan also reflect Defender(R) sales that were
made in the prior year with the intent of selling them with the Majestic(R) as
a system similar to how our products are marketed in the U.S.; however, this
program was not as successful as anticipated and as a result Defender(R) sales
will be less than the prior year while the importer sells through his
inventory. We are optimistic that Japan will re-introduce the system approach
in connection with the new product launch and that sales will increase from
their current levels at that time.
Gross Profit
FIRST QUARTER OF FISCAL 2003 COMPARED TO FIRST QUARTER OF FISCAL 2002
The gross margin for the quarter ended December 31, 2002, was $3,584,300 or
40.6% of sales as compared to $4,343,500 or 46.4% of sales in 2001. The
decline in the gross margin of $759,200 is the result of the cessation of the
sales associated with the aforementioned NAC program. Exclusive of sales and
material costs associated with our NAC program, the gross margin would have
decreased approximately $273,700.
This decrease of $273,700 was largely the result of lower overhead absorption
and increased warranty costs when compared to the prior year of which overhead
absorption represents the largest portion of the variance. In the first quarter
of fiscal 2002 we experienced an especially large overhead absorption as
compared to the first quarter of fiscal 2003. The prior year
10
overhead absorption was favorably impacted by the increase in sales
volume from the fourth quarter of fiscal 2001 to the first quarter of 2002.
Selling, General, and Administrative ("SG&A")
FIRST QUARTER OF FISCAL 2003 COMPARED TO FIRST QUARTER OF FISCAL 2002
SG&A expenses of $3,483,900 or 39.5% of sales for the quarter ended December
31, 2002 were $423,800 lower when compared to the same period in fiscal 2002
of $3,907,700 or 41.7% of sales. The reduced level of expense was driven by
the absence of advertising and administrative costs associated with our
aforementioned National Advertising Campaign offset by variable selling
expenses associated with the increased unit volume in the Americas Division.
Interest Expense
FIRST QUARTER OF FISCAL 2003 COMPARED TO FIRST QUARTER OF FISCAL 2002
Interest expense for the quarter ended December 31, 2002 was $14,300 or $5,300
lower than for the same period in 2001 of $19,600. The decrease was primarily
due to interest paid in the prior year to vendors associated with the short
term financing of certain tools and molds.
Other (income) expense, net
FIRST QUARTER OF FISCAL 2003 COMPARED TO FIRST QUARTER OF FISCAL 2002
The decrease in other expense (income), net, from $90,200 in the prior year to
($27,500) for the quarter ended December 31, 2002 primarily resulted from the
absence of goodwill amortization of $61,400 associated with the adoption of
SFAS No. 142 (see Note 3 to the Consolidated Condensed Financial Statements).
Income Taxes
The effective income tax rate for the quarter ended December 31, 2002 was
21.7% compared to an effective rate of 43.5% for the same period in 2001. The
change in the effective rate was primarily due to the effect of the accounting
change for goodwill amortization (see Note 3 to the Consolidated Condensed
Financial Statements). In addition, the effective tax rate was lower than the
statutory rate primarily due to benefits associated with foreign export sales
allowed under the extra territorial income provisions of the Internal Revenue
Code.
Inflation and Pricing
Net product sales and income from continuing operations were not materially
impacted by inflation or changing prices.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash flows from operating activities provided net cash of $1,233,900 for the
three months ended December 31, 2002, principally due to cash inflows
resulting from an increase in accounts payable and accrued expenses and other
liabilities of $692,200 and $550,800, respectively, net income of $88,900, as
well as net non-cash expenses of $235,700 primarily relating to depreciation
and amortization of $214,800, offset by an increase in accounts receivables of
$566,000.
During the last two months of our fiscal year 2002 we re-adjusted our raw
material stock levels which led to a significant reduction, as of our
year-end, in both inventory purchases and accounts
11
payable. As the sales volume rose in the first quarter of fiscal 2003, we
returned to more characteristic purchasing levels thus increasing our overall
payable balance for the quarter ended December 31, 2002.
The increase in accrued expenses and other liabilities primarily related to the
Americas Division Distributor programs and variable selling compensation
expenses which increased as a result of the Americas revenue growth in the first
quarter of fiscal 2003 as compared to September 30, 2002.
The increase in the receivables balance is largely attributable to sales
volume increases related to several international customers who all receive
credit terms to assist with the time delay in shipping products overseas.
Investing Activities
Capital expenditures of $33,300 represent the entire net cash used in
investing activities for the three months ended December 31, 2002, of which
the largest portion relates to tooling associated with new products and new
office computer hardware.
Financing Activities
Net cash used in financing activities was $1,125,400, which included
$1,001,000 for net repayments under the credit facility and $124,400 for
payment of long-term debt.
Current working capital, together with anticipated cash flows generated from
future operations and our existing credit facility are believed to be adequate
to cover our anticipated cash requirements, including but not limited to
capital expenditures and expenses associated with the launch of our new
products. As of December 31, 2002, there was $391,000 borrowed on our
$3,000,000 amended credit facility.
Cash Obligations
There have been no material changes outside the ordinary course of our
business with regards to cash obligations that have not been previously
disclosed in our fiscal 2002 Annual Report on Form 10-K.
FUTURE ACCOUNTING REQUIREMENTS
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities. This statement nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred as opposed to recognizing the liability at the date of an entity's
commitment to an exit plan. This Statement is effective for exit or disposal
activities that are initiated after December 31, 2002. We do not expect the
adoption of this statement to have a material impact on our operating results
or financial position.
12
CAUTIONARY STATEMENT FOR "SAFE HARBOR" PURPOSES UNDER THE PRIVATE SECURITIES
LITIGATION 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, including by way of example, but not limited to, the
statements made in "Net Product Sales" regarding optimism of the system
approach to sales in Japan, and "Liquidity" regarding anticipated cash
requirements and the adequacy of our current means to be able to meet those
requirements. Such forward-looking statements are subject to uncertainties
such as anticipated sales trends, improved lead generation and recruiting and
the ability to obtain financing for the end consumer through consumer
financing companies. Such uncertainties are difficult to predict and could
cause our actual results of operation to differ materially from those matters
expressed or implied by such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to interest rate risk is related to our borrowings. Fixed rate
borrowings may have their fair market value adversely impacted from changes in
interest rates. Variable rate borrowings will lead to additional interest
expense if interest rates increase. As of December 31, 2002, we had $391,000
outstanding under our credit facility bearing interest at the prime rate. If
interest rates were to increase 50 basis points (0.5%) from the December 31,
2002 rates and assuming no changes in outstanding debt levels from the
December 31, 2002 levels, we would realize an increase in our annual interest
expense of approximately $2,000.
ITEM 4. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We evaluated the design and operation of our disclosure controls and
procedures to determine whether they are effective in ensuring that the
disclosure of required information is timely and made in accordance with the
Exchange Act and the rules and forms of the Securities and Exchange
Commission. This evaluation was made under the supervision and with the
participation of management, including our chief executive officer and chief
financial officer within the 90-day period prior to the filing of this Form
10-Q. The chief executive officer and chief financial officer have concluded,
based on their review, that our disclosure controls and procedures, as defined
at Exchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure that
information required to be disclosed by us in reports that we file under the
Exchange Act is recorded, processed, summarized and reported accurately and
within the time periods specified in Securities and Exchange Commission rules
and forms.
(B) CHANGES IN INTERNAL CONTROLS
No significant changes were made to our internal controls or other factors
that could significantly affect these controls subsequent to the date of their
evaluation referenced in paragraph (A) above.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX TO EXHIBITS
3.1 Certificate of Incorporation Incorporated by reference from Annual Report on
form 10-K for the year ended September 30, 1995
3.2 Bylaws Incorporated by reference from Form 8-K filed on
February 19, 2002.
10.00 Material Contract Amendment to U.S. Bank N.A. Loan Agreement and
Note, attached.
99.1 Additional Exhibits Certification for James R. Malone Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350), attached
99.2 Additional Exhibits Certification for Julie A. McGraw Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350), attached
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the quarter ended December 31, 2002.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMI Industries Inc.
------------------
(Registrant)
Date: February 12, 2003 /s/ Julie A. McGraw
----------------- -------------------------------------
Julie A. McGraw
Vice President - Chief Financial
Officer
15
CERTIFICATIONS
I, James R. Malone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of HMI Industries
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ James R. Malone
-------------------
James R. Malone
Chief Executive Officer and Chairman
February 12, 2003
16
CERTIFICATIONS
I, Julie A. McGraw, certify that:
1. I have reviewed this quarterly report on Form 10-Q of HMI Industries
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Julie A. McGraw
-------------------
Julie A. McGraw
Chief Financial Officer and Treasurer
February 12, 2003
17