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 27, 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
November 12, 1997:
Issued 2,760,489
Treasury 0
----------
Outstanding 2,760,489
==========
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - Unaudited
($000)
September 27, December 31,
1997 1996
-------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,846 $ 0
Accounts receivable 12,437 20,445
Less allowance for losses 1,827 1,651
--------- ---------
10,610 18,794
Inventories 10,422 17,415
Prepaid expenses and other 2,130 881
-------- ---------
TOTAL CURRENT ASSETS 31,008 37,090
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 0 90
Buildings 1,191 3,125
Machinery and equipment 6,345 14,361
--------- ---------
7,536 17,576
Less accumulated depreciation 4,863 12,125
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 2,673 5,451
OTHER ASSETS:
Patents and trademarks 1,164 1,359
Goodwill 141 2,282
--------- ---------
1,305 3,641
Less accumulated amortization 703 1,467
--------- ---------
Net intangibles 602 2,174
Noncurrent notes receivable 939 1,159
Less allowance for uncollectible notes 470 500
--------- ---------
Net notes receivable 469 659
Other 421 224
--------- ---------
TOTAL OTHER ASSETS 1,492 3,057
--------- ---------
$ 35,173 $ 45,598
========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Balance Sheets - Unaudited
($000)
September 27, December 31,
1997 1996
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,337 $ 3,281
Current installments of long-term debt 134 1,856
Accounts payable 1,964 4,873
Accrued payroll and related expenses 1,657 2,199
Accrued commissions 535 1,055
Income tax payable 497 0
Other accrued expenses 3,651 2,933
--------- ---------
TOTAL CURRENT LIABILITIES 10,775 16,197
Long-term debt, excluding
current installments 326 10,161
Other long-term liabilities 1,423 1,304
--------- ---------
TOTAL LIABILITIES 12,524 27,662
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share
Authorized: 20,000,000 shares;
Issued: 2,760,489 shares at
September 27, 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 7,830 2,921
Cumulative translation adjustments (673) 443
--------- ---------
22,649 17,988
Less cost of common shares in treasury -
no shares at September 27, 1997 and
3,104 shares at December 31, 1996 0 52
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 22,649 17,936
--------- ---------
$ 35,173 $ 45,598
========= =========
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
($000) (except per share data) - Unaudited
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
(Amounts in thousands, except 1997 1996 1997 1996
per share data)
<S> <C> <C> <C> <C>
Net sales $ 7,482 $8,827 $27,121 29,412
Cost of sales 3,953 4,676 14,523 15,534
------- ------- ------- -------
Gross profit 3,529 4,151 12,598 13,878
Selling, general and
administrative expenses 3,456 3,885 11,500 12,094
------- ------- ------- -------
Operating profit 73 266 1,098 1,784
Interest (income) expense-net (72) 121 42 412
Other (income) expense-net 19 (34) 107 (92)
------- ------- ------- -------
Income from continuing
operations, before income
tax 126 179 949 1,464
Income tax expense (benefit) 251 (27) 384 92
------- ------- ------- -------
Net income (loss) from
continuing operations (125) 206 565 1,372
Discontinued businesses:
Income (loss) from operations
of discontinued businesses,
net of related income tax 0 (4) (235) 92
Gain (loss) on the disposal of
discontinued businesses, net
of related income tax (374) 0 5,470 0
------- ------- ------- -------
Net income (loss) $ (499) $ 202 $ 5,800 $ 1,464
======= ======= ======= =======
Earnings (loss) per share from
continuing operations-primary $ (0.04) $ 0.07 $ 0.20 $ 0.49
Earnings (loss) per share from
discontinued operations-
primary (0.13) 0 1.81 0.03
------- ------- ------- -------
Earnings (loss) per share-
primary $ (0.17) $ 0.07 $ 2.01 $ 0.52
======= ======= ====== =======
Earnings (loss) per share from
continuing operations-fully
diluted $ (0.04) $ 0.07 $ 0.19 $ 0.48
Earnings (loss) per share from
discontinued operations-fully
diluted (0.13) 0.00 1.80 0.03
------- ------- ------- --------
Earnings (loss) per share-fully
diluted $ (0.17) $ 0.07 $ 1.99 $ 0.51
======= ======= ======= ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows - Unaudited
($000)
Nine months ended
Sept. 27, Sept. 28,
1997 1996
CASH FROM OPERATING ACTIVITIES:
Net income $ 5,800 $ 1,464
Adjustments to net income for expenses
(gains) not affecting cash:
Depreciation and amortization 832 912
Bad debt expense 50 292
Gain on disposal of property,
plant and equipment 0 (22)
Gain on sale of discontinued
businesses (7,391) 0
Increase (decrease) in cash, net of the
effects of discontinued businesses, due
to changes in:
Accounts receivable 5,277 6,578
Inventories 612 (251)
Prepaid expenses and other assets (1,169) 263
Accounts payable (2,909) (6,112)
Income tax payable 497 0
Accrued expenses and other liabilities (3,263) (395)
------- -------
Cash provided by (used in) operating
activities . . . . . . . . . . . . . (1,664) 2,729
CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (734) (634)
Patents and trademarks 0 (720)
------- -------
Cash used in investing activities . . (734) (1,354)
CASH FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (944) (647)
Proceeds from long-term debt 0 720
Repayments of long-term debt (11,557) (1,410)
Proceeds from sale of discontinued
businesses 23,861 0
-------- --------
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . 11,360 (1,337)
Cumulative translation adjustments . . . (1,116) (434)
-------- --------
TOTAL CASH PROVIDED (USED) 7,846 (396)
CASH - BEGINNING OF THE PERIOD 0 396
------- --------
CASH - END OF THE PERIOD $7,846 $ 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) 9/27/97 12/31/96
-----------------------------------------------------------------
Raw Material $ 1,945 $ 5,574
Work-in-Process 217 1,172
Finished Goods 8,260 10,669
-----------------------------------------------------------------
$ 10,422 $ 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 2001. 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 27, 1997 was
approximately $1,900,000.
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.
Pursuant to an agreement entered into on August 18, 1997, on August 28,
1997, the Company sold for cash substantially all of the business,
including certain assets and liabilities, of its Winona Van Norman
Division to Van Norman Equipment Co., Inc.
Selected unaudited financial information of these divisions is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/27/97 9/28/96 9/27/97 9/28/96
<S> <C> <C> <C> <C>
Net sales $ 1,397 $ 6,171 $ 13,004 $ 21,079
Income tax (benefit) applicable to income
(loss) from operations 0 0 4 0
Income (loss) from measurement date
to 9/27/97 (344) (244)
Income tax applicable to gain
on the disposal (80) 1,972
Proceeds from disposal $ 1,244 $ 23,861
</TABLE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales from continuing operations for the third quarter of 1997 were
$7.5 million, versus $8.8 million for the third quarter of 1996. Net
sales originating in North America were $3.7 million for the third quarter
of 1997, compared with $3.6 million for the prior year quarter. Net sales
of the European operation for the third quarter of 1997 were $3.8 million,
compared with $5.2 million for the 1996 quarter due primarily to the
strong U.S. dollar and generally weak business conditions in Western
Europe.
Net sales from continuing operations for the nine months ended September
27, 1997 were $27.1 million, compared with $29.4 million for the 1996
period. North American net sales for the nine months of 1997 were $12.6
million, compared with $13.1 million for the nine months of 1996, while
European net sales were $14.5 million for the nine months of 1997,
compared with $16.3 million for the nine months of 1996. Once again, the
decline in European net sales was due primarily to the strong U.S. dollar
and generally weak business conditions in Western Europe.
Gross profit margins from continuing operations in North America were
45.0% for the third quarter of 1997 compared with 49.9% for the third
quarter of 1996. European margins were 49.3% for the third quarter of
1997 versus 45.0% for the 1996 quarter. Consolidated margins were 47.2%
for the 1997 quarter compared with 47.0% for the 1996 quarter. For the
nine months ended September 27, 1997, North American margins were 46.8%,
compared with 47.5% in the prior year period while European margins were
46.2%, compared with 46.9% in the prior year period.
For continuing operations, the increase in consolidated operating expenses
as a percent of net sales to 46.2% for the third quarter of 1997 from
44.0% for the 1996 quarter was due to the decline in net sales, as actual
operating expenses declined 11%. Similarly, operating expenses as a
percent of net sales increased to 42.4% for the nine months ended
September 27, 1997 from 41.1% for the 1996 period while actual operating
expenses declined 5%.
Interest expense allocable to continuing operations declined 90% for the
nine months ended September 27, 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 nine months ended September 27, 1997, the Company experienced a
net increase in cash of $7.8 million, compared with a net decrease in cash
for the 1996 nine 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 $11.4 million of cash. Financing activities for the 1996
period reflected a $1.3 million use of cash due to repayment of debt.
Investing activities showed uses of cash due to capital expenditures of
$0.7 million for the 1997 nine month period and of $0.6 million for the
1996 nine month period. The 1996 nine month period also showed a $0.7
million use of cash due to a major trademark purchase. Operating
activities for the nine months of 1997 showed a $1.7 million use of cash
while they generated $2.7 million for the 1996 period.
PART II - OTHER INFORMATION
ITEM 6: (a) Exhibits
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Form 8-K
On September 12, 1997, the Company filed a Current Report
on Form 8-K dated August 28, 1997 to reflect (under Item 2
of Form 8-K) the Company's sale of substantially all of the
business, including certain assets and liabilities, of its
Winona Van Norman Division to Van Norman Equipment Co.,
Inc. ("VNEC") pursuant to an Asset Purchase Agreement,
dated as of August 18, 1997, by and among the Company, VNEC
and Cornelius E. Mieras. The Current Report on Form 8-K
included (under Item 7 of Form 8-K) the following financial
statements and related notes thereto: Pro Forma Condensed
Consolidated Balance Sheet at June 28, 1997 and Pro Forma
Condensed Consolidated Statements of Operations for the
year ended December 31, 1996 and for the six months ended
June 28, 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)
November 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 Nine months ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
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 227 55 119 40
------ ------ ------ ------
Weighted average common shares and
common equivalent shares
outstanding 2,987 2,812 2,879 2,797
======= ====== ====== ======
Net income (loss) from continuing
operations $ (125) $ 206 $ 565 $1,372
Earnings (loss) from discontinued
operations (374) (4) 5,235 92
------- ------- ------- -------
Net income (loss) applicable to
common shares $ (499) $ 202 $5,800 $1,464
======= ======= ======= =======
Earnings (loss) per share from
continuing operations - primary $(0.04) $0.07 $ 0.20 $ 0.49
Earnings (loss) per share from
discontinued operations - primary (0.13) 0.00 1.81 0.03
------- ------- ------- -------
Earnings (loss) per share - primary $(0.17) $0.07 $ 2.01 $ 0.52
======= ======= ======= =======
FULLY DILUTED:
Weighted average common shares
outstanding 2,760 2,757 2,760 2,757
Common equivalent shares 227 55 149 44
Additional shares assuming
conversion of subordinated
debentures 0 564 0 564
------- ------- ------- -------
Fully diluted weighted average
common shares and common
equivalent shares outstanding 2,987 3,376 2,909 3,365
======= ======= ======= =======
Net income (loss) from continuing
operations $(125) $ 289 $ 565 $1,634
Earnings (loss) from discontinued
operations (374) (4) 5,235 92
------- ------- ------- -------
Net income (loss) applicable to
common shares $(499) $ 285 $5,800 $1,726
======= ======= ======= =======
Earnings (loss) per share from
continuing operations - fully
diluted $(0.04) $0.07 $ 0.19 $ 0.48
Earnings (loss) per share from
discontinued operations - fully
diluted (0.13) 0.00 1.80 0.03
------- ------- ------- -------
Earnings (loss) per share - fully
diluted $(0.17) $0.07 $ 1.99 $ 0.51
======= ======= ======= =======
</TABLE>
---------------------------------
Common shares have been adjusted to give effect to the 5% stock dividend
paid January 24, 1997.
The $3,375,000 8% Convertible Subordinated Notes at September 28, 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 NINE MONTHS ENDED SEPTEMBER
27, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND COMPUTATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-27-1997
<CASH> 7,846
<SECURITIES> 0
<RECEIVABLES> 12,437
<ALLOWANCES> 1,827
<INVENTORY> 10,422
<CURRENT-ASSETS> 31,008
<PP&E> 7,536
<DEPRECIATION> 4,863
<TOTAL-ASSETS> 35,173
<CURRENT-LIABILITIES> 10,775
<BONDS> 0
0
0
<COMMON> 2,760
<OTHER-SE> 19,889
<TOTAL-LIABILITY-AND-EQUITY> 35,173
<SALES> 27,121
<TOTAL-REVENUES> 27,121
<CGS> 14,523
<TOTAL-COSTS> 26,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 949
<INCOME-TAX> 384
<INCOME-CONTINUING> 565
<DISCONTINUED> 5,235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,800
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 1.99
</TABLE>
