SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Quarterly Period Ended: September 28, 1996
---------------------
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 1-2725
HEIN-WERNER CORPORATION
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0340430
------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2120 Pewaukee Road, Waukesha, Wisconsin 53188-2404
--------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(414) 542-6611
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(Registrant's telephone number, including area code)
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 90 days.
Yes [X] No [ ]
Number of shares of $1 par value common stock issued and outstanding at
November 12, 1996:
Issued 2,629,320
Treasury 2,957
----------
Outstanding 2,626,363
==========
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - Unaudited
($000)
September 28, December 31,
1996 1995
-------------- ------------
ASSETS
CURRENT ASSETS:
Cash $ 0 $ 396
Customers' accounts receivable 18,050 25,019
Less allowance for losses 1,643 1,742
--------- ---------
16,407 23,277
Inventories 17,522 17,271
Prepaid expenses and other 739 316
Income tax benefit receivable 108 265
-------- ---------
TOTAL CURRENT ASSETS 34,776 41,525
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 90 90
Buildings 3,035 3,023
Machinery and equipment 13,855 13,404
--------- ---------
16,980 16,517
Less accumulated depreciation 11,882 11,163
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 5,098 5,354
OTHER ASSETS:
Patents and trademarks, net of accumulated
amortization of $547 for 1996 and $517
for 1995 737 32
Excess cost over net assets of
acquired companies, net of accumulated
amortization of $840 for 1996 and
$807 for 1995 1,442 1,475
Receivables, net of allowances of
$580 for 1996 and $727 for 1995 588 927
Other 202 344
--------- ---------
TOTAL OTHER ASSETS 2,969 2,778
--------- ---------
$ 42,843 $ 49,657
========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Balance Sheets - Unaudited
($000)
September 28, December 31,
1996 1995
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 3,562 $ 4,209
Current installments of long-term debt 1,671 1,470
Accounts payable 3,119 9,231
Accrued payroll and related expenses 2,670 2,857
Accrued expenses related to a disposed
business 143 182
Accrued expenses, other 3,079 2,800
--------- ---------
TOTAL CURRENT LIABILITIES 14,244 20,749
Long-term debt, excluding
current installments 10,011 10,902
Liabilities related to a
disposed business 319 491
Other 1,122 1,370
--------- ---------
TOTAL LIABILITIES 25,696 33,512
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share
Authorized: 20,000,000 shares;
Issued: 2,629,320 shares at September
28, 1996 and 2,504,421 at December
31, 1995 2,629 2,504
Capital in excess of par value 11,995 11,558
Retained earnings 2,190 1,308
Cumulative translation adjustments 385 827
--------- ---------
17,199 16,197
Less cost of common shares in treasury -
2,957 shares at September 28, 1996 and
December 31, 1995 52 52
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 17,147 16,145
--------- ---------
$ 42,843 $ 49,657
========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
($000) (except per share data) - Unaudited
Three months ended Nine months ended
----------------------- -----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales $ 14,998 $ 16,377 $ 50,492 $ 52,444
Cost of sales 9,427 10,550 31,904 33,581
--------- --------- --------- ---------
Gross profit 5,571 5,827 18,588 18,863
Selling, engineering
and administrative
expenses 5,042 5,768 15,899 17,075
--------- --------- --------- ---------
Operating profit 529 59 2,689 1,788
Interest expense 388 443 1,223 1,383
Other (income)
expense, net (34) 77 (92) 115
--------- ---------- --------- ---------
Income before income
taxes 175 (461) 1,558 290
Income tax expense (27) (79) 94 (42)
--------- ---------- --------- ---------
NET INCOME $ 202 $ (382) $ 1,464 $ 332
========= ========= ========= =========
Primary earnings
per share $ 0.08 $ (0.14) $ 0.55 $ 0.13
========= ========= ========= =========
Fully diluted
earnings per share $ 0.08 $ (0.14) $ 0.54 $ 0.13
========= ========= ========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows - Unaudited
($000)
Nine months ended
-----------------------
Sept. 28, Sept. 30,
1996 1995
--------- ---------
CASH FROM OPERATING ACTIVITIES:
Net income $ 1,464 $ 332
Adjustments to net income for expenses
(gains) not affecting cash:
Depreciation and amortization 912 983
Bad debt expenses 292 340
Gain on disposal of property,
plant and equipment (22) (4)
Increase (decrease) in cash due to changes
in:
Accounts receivable 6,578 101
Inventories (251) (1,817)
Prepaid expenses and other assets 263 470
Accounts payable (6,112) (70)
Accrued expenses and other liabilities (395) (119)
--------- --------
Cash provided by operating activities 2,729 216
CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (634) (774)
Patents and Trademarks (720) --
--------- --------
Cash used in investing activities (1,354) (774)
CASH FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (647) 600
Proceeds from long-term debt 720 262
Repayments of long-term debt (1,410) (994)
Proceeds from the issuance of common shares -- 94
--------- --------
Cash provided by (used in)
financing activities (1,337) (38)
Cumulative translation adjustments (434) 541
--------- --------
TOTAL CASH PROVIDED (USED) (396) (55)
CASH - BEGINNING OF THE PERIOD 396 466
--------- --------
CASH - END OF THE PERIOD $ 0 $ 411
========= ========
See accompanying notes to interim consolidated financial statements.
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES:
The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the results of the
interim periods presented. All adjustments, other than adjustments to the
accrual of expenses related to the discontinued business which is included
as a current liability on the balance sheet, are normal and recurring.
All items stated herein are subject to year-end audit.
INVENTORY:
=================================================================
(Amounts in thousands)
9/28/96 12/31/95
-----------------------------------------------------------------
Raw Material $ 5,440 $ 5,837
Work-in-Process 886 1,125
Finished Goods 11,196 10,309
-----------------------------------------------------------------
$ 17,522 $ 17,271
=================================================================
LONG-TERM DEBT:
In accordance with the terms of the Company's 8.0% convertible
subordinated notes, a $1,125,000 repayment was made as of September 1,
1996. Concurrent with this repayment, and also in accordance with the
terms of the notes, the Company issued the holders of the notes an option
to purchase 179,140 shares of the Company's common stock from the Company
at a purchase price of $6.28 per share. This option expires on
September 1, 1999.
MATERIAL CONTINGENCIES:
A) Financial Instruments with Off-Balance-Sheet Risk.
To meet the financing needs of consumers of its collision repair and
engine rebuilding products, the Company is, in the normal course of
business, a party to financial instruments with off-balance-sheet risk.
The instruments are guarantees of notes payable to financing institutions
arranged by the Company. The Company performs credit reviews on all such
guarantees. These guarantees extend for periods of up to six years and
expire in decreasing amounts through 2000. The amount guaranteed to each
institution is contractually limited to a portion of the amount financed
in a given year. The notes are collateralized by the equipment financed.
Proceeds from the resale of recovered equipment have generally been 80% to
90% of repurchased notes. The maximum credit risk to the Company at
September 28, 1996 was approximately $2,800,000.
B) Litigation
The Company is involved in legal proceedings, claims and administrative
actions arising in the normal course of business. In the opinion of
management, the Company's liability, if any, under any pending litigation
or administrative proceeding would not materially affect its financial
condition or operations.
C) Environmental Claims
From time to time the Company is identified as a potentially responsible
party in environmental matters, primarily related to waste disposal sites,
which contain residuals from the manufacturing process that were
previously disposed of by the Company in accordance with applicable
regulations in effect at the time of disposal. Materials generated by the
Company at these sites have been small and claims against the Company have
been handled on a de minimis basis. In addition, the Company has
indemnified purchasers of property previously sold by the Company against
any environmental damage which may have existed at the time of the sale.
In the opinion of management, the Company's liability, if any, under any
pending administrative proceeding, claim, or investigation, would not
materially affect its financial condition or operations.
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales for the third quarter of 1996 were $15.0 million, compared with
$16.4 million for the same period in 1995. Sales originating in North
America were $9.8 million for the third quarter of 1996 compared to $10.8
million in the same period a year earlier. European sales for the third
quarter of 1996 were $5.2 million versus the $5.6 million recorded in the
third quarter of 1995.
Net sales for the nine months ended September 28, 1996 were $50.5 million
compared to $52.4 million for the 1995 period. Net sales originating in
North America declined 0.7% while European net sales declined 9.6%.
Gross profit margins in North America were 33.0% for the third quarter of
1996 compared to 27.6% for the same period in 1995. Margins in Europe
were 45.0% for the third quarter of 1996 compared to 50.8% for the same
period in 1995. Consolidated gross profit margins improved to 37.1% for
the third quarter of 1996 compared with 35.6% for the same period in 1995.
The nine month results also showed an improvement in 1996 with 36.8% gross
profit margins compared to 36.0% for the same period in 1995.
Operating expenses as a percent of net sales decreased from 35.2% for the
first nine months of 1995 to 33.6% for the comparable period in 1996, and
from 32.6% for the third quarter of 1995 to 31.5% for the third quarter of
1996. Actual expenses were lower in 1996 than in 1995, with the majority
of the decrease in administrative and marketing expense due to cost
controls.
Interest expense declined 12.4% for the three months ended September 28,
1996 versus the comparable period in 1995 as a result of reduced interest
rates.
Financial Condition
Continued improvements in cost control and balance sheet management are
expected. The Company expects its liquidity requirements will be met by
cash generated from operations and from its credit facilities.
Short-term credit facilities in Europe are considered sufficient to
supplement cash from operating activities to satisfy liquidity
requirements there. Changes in short-term borrowing are primarily due to
seasonal cash usage patterns.
PART II - OTHER INFORMATION
ITEM 6: (a) Exhibits
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Form 8-K
There were no reports on Form 8-K filed for the three
months ended September 28, 1996.
<PAGE>
SIGNATURE
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.
HEIN-WERNER CORPORATION
("Registrant")
/s/Mary L. Kielich
Corporate Controller
Assistant Treasurer
(Principal Financial Officer)
November 12, 1996
Date
<PAGE>
Index of Exhibits
Exhibit No. Description
----------- -------------------------------------------
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
Exhibit 11
Computation of Earnings per Share
($000 except per share data)
Three months ended Nine months ended
--------------------- -------------------
Sept. 28, Sept. 30, Sept. 28 Sept. 30
1996 1995 1996 1995
---------------------- -------------------
PRIMARY:
Wtd avg common shares
outstanding 2,626 2,626 2,626 2,618
Common equivalent shares 52 9 37 3
----------------------- -------------------
Wtd avg common shares
and common equivalent
shares outstanding 2,678 2,635 2,663 2,621
======================= ===================
Net income applicable
to common shares $ 202 (382) $ 1,464 332
======================= ===================
Primary earnings
per share $ 0.08 (0.14) $ 0.55 0.13
======================= ===================
FULLY DILUTED:
Wtd avg common shares
outstanding 2,626 2,621 2,626 2,613
Common equivalent
shares 52 11 42 11
Additional shares
assuming conversion
of subordinated
debentures 537 717 537 717
---------------------- -------------------
Fully diluted wtd avg
common shares and
common equivalent
shares outstanding 3,215 3,349 3,205 3,341
======================= ===================
Net income for diluted
common shares $ 285 (292) $ 1,726 602
======================= ===================
Fully diluted earnings
per share $ 0.08 (0.14) $ 0.54 0.13
======================= ===================
----------------------------
Common shares have been adjusted to give effect to the 5% stock dividend
paid January 26, 1996.
The 8% Convertible Subordinated Notes of $3,375,000 at September 28, 1996
and $4,500,000 at September 30, 1995, are convertible to common shares at
a price of $6.28 per share after giving effect to the stock dividend paid
January 26, 1996.
Earnings per common share and common equivalent share were computed by
dividing the net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period.
Earnings per common share, assuming full dilution, is determined by
assuming that at the beginning of the period convertible notes were
converted at the price per share in effect at that time and common share
options were exercised. As to the options, incremental shares would be
calculated using the treasury stock method, assuming common share
purchases at the greater of the average market price of the common shares
for the period or the ending price of the common shares.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF HEIN-WERNER CORPORATION AS
OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-28-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,050
<ALLOWANCES> 1,643
<INVENTORY> 17,522
<CURRENT-ASSETS> 34,776
<PP&E> 16,980
<DEPRECIATION> 11,882
<TOTAL-ASSETS> 42,843
<CURRENT-LIABILITIES> 14,244
<BONDS> 0
0
0
<COMMON> 2,629
<OTHER-SE> 14,570
<TOTAL-LIABILITY-AND-EQUITY> 42,843
<SALES> 50,492
<TOTAL-REVENUES> 50,492
<CGS> 31,904
<TOTAL-COSTS> 47,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,223
<INCOME-PRETAX> 1,558
<INCOME-TAX> 94
<INCOME-CONTINUING> 1,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,464
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.54
</TABLE>
