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: June 28, 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 1-2725
HEIN-WERNER CORPORATION
------------------------------------------------------
(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
----------------------------------------------------
(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
August 12, 1997:
Issued 2,760,489
Treasury 3,259
----------
Outstanding 2,757,230
==========
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - Unaudited
($000)
June 28, December 31,
1997 1996
-------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,861 $ 0
Accounts receivable 14,497 20,445
Less allowance for losses 1,569 1,651
--------- ---------
12,928 18,794
Inventories 9,727 17,415
Assets of discontinued business
awaiting disposition 5,052 0
Prepaid expenses and other 2,361 881
-------- ---------
TOTAL CURRENT ASSETS 38,929 37,090
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 0 90
Buildings 1,191 3,125
Machinery and equipment 6,312 14,361
--------- ---------
7,503 17,576
Less accumulated depreciation 4,726 12,125
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 2,777 5,451
OTHER ASSETS:
Patents and trademarks 1,164 1,359
Goodwill 141 2,282
--------- ---------
1,305 3,641
Less accumulated amortization 682 1,467
--------- ---------
Net intangibles 623 2,174
Noncurrent notes receivable 1,057 1,159
Less allowance for uncollectible notes 500 500
--------- ---------
Net receivables 557 659
Other 419 224
--------- ---------
TOTAL OTHER ASSETS 1,599 3,057
--------- ---------
$ 43,305 $ 45,598
========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Balance Sheets - Unaudited
($000)
June 28, December 31,
1997 1996
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,404 $ 3,281
Current installments of long-term debt 170 1,856
Accounts payable 3,619 4,873
Accrued payroll and related expenses 1,453 2,199
Accrued commissions 796 1,055
Income tax payable 3,172 0
Other accrued expenses 6,539 2,933
--------- ---------
TOTAL CURRENT LIABILITIES 18,153 16,197
Long-term debt, excluding
current installments 328 10,161
Other long-term liabilities 1,573 1,304
--------- ---------
TOTAL LIABILITIES 20,054 27,662
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share
Authorized: 20,000,000 shares;
Issued: 2,760,489 shares at June 28,
1997 and 2,629,320 at December 31,
1996 2,760 2,629
Capital in excess of par value 12,732 11,995
Retained earnings 8,367 2,921
Cumulative translation adjustments (556) 443
--------- ---------
23,303 17,988
Less cost of common shares in treasury -
3,259 shares at June 28, 1997 and
3,104 shares at December 31, 1996 52 52
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 23,251 17,936
--------- ---------
$ 43,305 $ 45,598
========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
($000) (except per share data) - Unaudited
Three months ended Six months ended
---------------------------------------
June 28, June 29, June 28, June 29,
(Amounts in thousands, 1997 1996 1997 1996
except per share data) -------- -------- ------- --------
Net sales $10,040 $10,005 $19,639 $20,585
Cost of sales 5,405 5,299 10,570 10,858
-------- --------- -------- ---------
Gross profit 4,635 4,706 9,069 9,727
Selling, general and
administrative
4,114 4,021 8,044 8,208
expenses
-------- --------- -------- ---------
Operating profit 521 685 1,025 1,519
Interest expense-net 31 141 114 291
Other (income)
expense-net 78 (21) 88 (58)
-------- --------- -------- ---------
Income from
continuing
operations,
before income tax 412 565 823 1,286
Income tax expense 73 103 133 120
-------- --------- -------- ---------
Net income from
continuing
operations 339 462 690 1,166
Discontinued
businesses:
Income (loss) from
operations of
discontinued
businesses, net of
related income tax (154) 20 (235) 96
Gain on the disposal of
discontinued
businesses, net of
related income tax 5,844 0 5,844 0
-------- --------- -------- ---------
Net income $ 6,029 $ 482 $ 6,299 $ 1,262
======== ========= ======== =========
Earnings per share
from continuing
operations-primary $ 0.12 $ 0.16 $ 0.24 $ 0.42
Earnings per share from
discontinued
operations-primary 1.99 0.01 1.98 0.03
-------- -------- -------- ---------
Earnings per share -
primary $ 2.11 $ 0.17 $ 2.22 $ 0.45
======== ======== ======== =========
Earnings per share
from continuing
operations-fully
diluted $ 0.12 $ 0.15 $ 0.24 $ 0.38
Earnings per share from
discontinued
operations-fully
diluted 1.99 0.01 1.98 0.03
-------- -------- -------- ---------
Earnings per share-
fully diluted $ 2.11 $ 0.16 $ 2.22 $ 0.41
======== ======== ======== =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows - Unaudited
($000)
Six months ended
-------------------------
June 28, June 29,
1997 1996
--------- ----------
CASH FROM OPERATING ACTIVITIES:
Net income $ 6,299 $ 1,262
Adjustments to net income for expenses
(gains) not affecting cash:
Depreciation and amortization 564 799
Bad debt expense 35 180
Gain on disposal of property,
plant and equipment 0 (22)
Gain on sale of discontinued businesses (8,005) 0
Increase (decrease) in cash, net of the
effects of discontinued businesses, due
to changes in:
Accounts receivable 2,974 4,263
Inventories 994 110
Prepaid expenses and other assets (1,321) 18
Accounts payable (1,254) (5,744)
Income tax payable 3,172 0
Accrued expenses and other liabilities (3,460) (264)
-------- --------
Cash provided by (used in) operating
activities . . . . . . . . . . . . . . (2) 602
CASH USED IN INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . (629) (739)
CASH FROM FINANCING ACTIVITIES:
Decrease in notes payable (877) (110)
Proceeds from long-term debt 0 321
Repayments of long-term debt (11,249) 0
Proceeds from sale of discontinued
businesses 22,617 0
-------- --------
Cash provided by financing
activities . . . . . . . . . . . . . . . 10,491 211
Cumulative translation adjustments . . . . (999) (470)
-------- --------
TOTAL CASH PROVIDED (USED) 8,861 (396)
CASH - BEGINNING OF THE PERIOD 0 396
-------- --------
CASH - END OF THE PERIOD $8,861 $ 0
======== ========
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 are normal and recurring. All
items stated herein are subject to year-end audit.
INVENTORY:
=================================================================
(Amounts in thousands)
6/28/97 12/31/96
-----------------------------------------------------------------
Raw Material $ 2,401 $ 5,574
Work-in-Process 241 1,172
Finished Goods 7,085 10,669
-----------------------------------------------------------------
$ 9,727 $ 17,415
=================================================================
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 June 28, 1997 was approximately
$1,915,000.
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.
DISCONTINUED OPERATIONS:
Pursuant to an agreement entered into on April 9, 1997, on May 29, 1997,
the Company sold for cash substantially all of the business and assets,
and transferred certain of the liabilities, of its Great Bend Industries
Division to Kaydon Acquisition VIII, Inc., a wholly-owned subsidiary of
Kaydon Corporation.
On June 25, 1997, the Company signed a letter of intent to sell for cash
its Winona Van Norman Division. The sale is currently expected to be
completed by August 28, 1997. An estimated loss, including expenses
related to the disposition, has been accrued as of June 28, 1997.
Selected unaudited financial information of these divisions is as follows:
Three Months Ended Six Months Ended
-------------------- ------------------
6/28/97 6/29/96 6/28/97 6/29/96
------- ------- ------- -------
Net sales $ 5,082 $ 7,865 $ 11,607 $ 14,908
Income tax (benefit)
applicable to income
(loss) from operations (21) 0 4 0
Income from measurement
date to 6/28/97 100 100
Income tax applicable
to gain on the
disposal 2,052 2,052
Proceeds from disposal $ 22,617 $ 22,617
Assets awaiting
disposal at 6/28/97:
Inventory $ 3,384
Prepaid expenses 29
Fixed assets, net 532
Intangibles, net 1,192
Liabilities to be
assumed (85)
------
$ 5,052
======
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales from continuing operations for the second quarter of 1997 were
$10.0 million, approximately the same as the second quarter of 1996. Net
sales originating in North America were $4.3 million for the second
quarter of 1997 compared with $4.2 million for the prior year quarter.
Net sales of the European operation for the second quarter of 1997 were
$5.7 million, compared with $5.8 million for the 1996 quarter.
Net sales from continuing operations for the six months ended June 28,
1997 were $19.6 million compared with $20.6 million for the 1996 period.
North American net sales for the six months of 1997 were $8.9 million
compared with $9.4 million for the six months of 1996, while European net
sales were $10.7 million for the six months of 1997 compared with $11.2
million for the six months of 1996.
Gross profit margins from continuing operations in North America were
46.7% for the second quarter of 1997 compared with 48.2% for the second
quarter of 1996. European margins were 45.7% for the second quarter of
1997 versus 46.2% for the 1996 quarter. Consolidated margins were 46.2%
for the 1997 quarter compared with 47.0% for the 1996 quarter. For the
six months ended June 28, 1997, North American margins improved to 47.5%
from 46.6% in the prior year period while European margins declined to
45.1% from 47.8% in the prior year period, due primarily to unfavorable
currency translation.
For continuing operations, consolidated operating expenses as a percent of
net sales increased slightly to 41.0% for the second quarter of 1997 from
40.2% for the 1996 quarter, and to 41.0% for the six months ended June 28,
1997 from 39.9% for the 1996 period. The six month percentage increase
was primarily due to the reduced level of net sales, as the dollar amount
of operating expenses decreased for the six months of 1997 compared to the
six months of 1996.
Interest expense allocable to continuing operations declined 78% for the
three months ended June 28, 1997 versus the comparable period in 1996, due
primarily to the application of proceeds from the sale of the Great Bend
Industries Division to reduce debt.
Financial Condition
The Company plans to use the cash generated from the divestitures of its
Great Bend Industries and Winona Van Norman Divisions to expand into
markets which are counter-cyclical to the automotive industry, thus
providing the Company with the ability to maintain long-term stability and
growth over the course of future business cycles and fluctuating economic
conditions.
The Company expects that its liquidity requirements will be met by cash
generated from operations, although it does have credit facilities in
place should the need arise. 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.
For the six months ended June 28, 1997, the Company experienced a net
increase in cash of $8.9 million, compared with a net decrease in cash for
the 1996 six month period of $400,000. The 1997 increase was primarily
due to cash provided by financing activities which, as a result of the
sale of the discontinued businesses and the subsequent repayment of debt,
generated $10.5 million of cash. Financing activities for the 1996 period
reflected a $200,000 source of cash due to an increase in debt. Investing
activities showed uses of cash due to capital expenditures of $600,000 for
the 1997 six month period and of $700,000 for the 1996 six month period.
Operating activities were basically breakeven from a cash standpoint for
the six months of 1997 while they generated $600,000 for the 1996 period.
PART II - OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on April 24, 1997. At
such meeting, the shareholders were asked to vote on the selection of two
directors, to ratify the selection of auditors and to consider a
shareholder proposal. Messrs. Dindorf and Schuetz were elected as
directors to serve until the annual meeting in 2000 and until their
successors are duly elected and qualified pursuant to the following votes:
Mr. Dindorf-2,604,628 votes cast for, 60,531 votes withholding authority,
0 abstentions and 0 broker non-votes; Mr. Schuetz-2,604,556 votes cast
for, 60,603 votes withholding authority, 0 abstentions and 0 broker non-
votes. With respect to the selection of auditors, KPMG Peat Marwick LLP
was ratified as the Company's auditors for the 1997 fiscal year pursuant
to the following vote: 2,596,035 votes for, 56,681 votes against, 12,443
abstentions and 0 broker non-votes. Finally, the shareholder proposal was
defeated pursuant to the following vote: 301,898 votes for, 1,471,486
votes against, 55,436 abstentions and 836,339 broker non-votes.
ITEM 6: (a) Exhibits
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Form 8-K
On April 18, 1997, the Company filed a Current Report on
Form 8-K dated April 9, 1997 to reflect (under Item 5 of
Form 8-K) that the Company had entered into an Asset
Purchase Agreement, dated as of April 9, 1997 (the
"Agreement"), providing for the sale of substantially all
the business and assets, and the transfer of certain of the
liabilities, of its Great Bend Industries Division (the
"Division") to Kaydon Acquisition VIII, Inc. ("Buyer"), a
wholly-owned subsidiary of Kaydon Corporation. On June 13,
1997, the Company filed another Current Report on Form 8-K
dated May 29, 1997 to reflect (under Item 2 of Form 8-K)
the Company's sale of all the business and assets, and the
transfer of certain of the liabilities, of the Division to
Buyer pursuant to the Agreement. This second Current
Report included (under Item 7 of Form 8-K) the following
financial statements: Pro Forma Condensed Consolidated
Balance Sheet at March 29, 1997 and Pro Forma Condensed
Consolidated Statements of Operations for the year ended
December 31, 1996 and for the three months ended March 29,
1997.
<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)
August 12, 1997
-----------------
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)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------ ------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average common shares
outstanding 2,760 2,757 2,760 2,757
Common equivalent shares 100 43 78 31
------- ------- ------- -------
Weighted average common shares and
common equivalent shares
outstanding 2,860 2,800 2,838 2,788
======= ======= ======= =======
Net income from continuing
operations $ 339 $ 462 $ 690 $1,166
Earnings from discontinued
operations 5,690 20 5,609 96
------- ------ ------- -------
Net income applicable to common
shares $6,029 $ 482 $6,299 $1,262
======= ====== ======= =======
Earnings per share from continuing
operations - primary $ 0.12 $0.16 $ 0.24 $ 0.42
Earnings per share from
discontinued operations - primary 1.99 0.01 1.98 0.03
------- ------ ------- ------
Earnings per share - primary $ 2.11 $0.17 $ 2.22 $ 0.45
======= ====== ======= ======
FULLY DILUTED:
Weighted average common shares
outstanding 2,760 2,757 2,760 2,757
Common equivalent shares 144 47 121 47
Additional shares assuming
conversion of subordinated
debentures 0 753 0 753
Fully diluted weighted average
common shares and common
equivalent shares outstanding 2,904 3,557 2,881 3,557
====== ====== ======= ========
Net income from continuing
operations $ 339 $ 552 $ 690 $1,346
Earnings from discontinued
operations 5,690 20 5,609 96
------- ------ ------ -------
Net income applicable to common
shares $6,029 $ 572 $6,299 $1,442
======= ====== ====== =======
Earnings per share from continuing
operations - fully diluted $ 0.12 $0.15 $ 0.24 $ 0.38
Earnings per share from
discontinued operations - fully
diluted 1.99 0.01 1.98 0.03
Earnings per share - fully diluted $ 2.11 $0.16 $ 2.22 $ 0.41
====== ====== ====== ======
</TABLE>
---------------------------------
Common shares have been adjusted to give effect to the 5% stock dividend
paid January 24, 1997.
The $4,500,000 8% Convertible Subordinated Notes at June 29, 1996 are
convertible to common shares at a price of $5.98 per share after giving
effect to the stock dividend paid January 24, 1997. The Notes were repaid
on May 29, 1997 and options were issued concurrently to the holder of the
Notes.
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 AND
THE COMPUTATION OF EARNINGS PER SHARE (EXHIBIT 11) AS OF AND FOR THE
SIX MONTHS ENDED JUNE 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND COMPUTATION.
</LEGEND>
<MULTIPLIER> 1000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-28-1997
<CASH> 8,861
<SECURITIES> 0
<RECEIVABLES> 14,497
<ALLOWANCES> 1,569
<INVENTORY> 9,727
<CURRENT-ASSETS> 38,929
<PP&E> 7,503
<DEPRECIATION> 4,726
<TOTAL-ASSETS> 43,305
<CURRENT-LIABILITIES> 18,153
<BONDS> 0
0
0
<COMMON> 2,760
<OTHER-SE> 20,491
<TOTAL-LIABILITY-AND-EQUITY> 43,305
<SALES> 19,639
<TOTAL-REVENUES> 19,639
<CGS> 10,570
<TOTAL-COSTS> 18,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> 823
<INCOME-TAX> 133
<INCOME-CONTINUING> 690
<DISCONTINUED> 5,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,299
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
</TABLE>
