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: March 28, 1998
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
May 12, 1998 was 2,918,899.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - Unaudited
(Amounts in thousands, except share data)
March 28, December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash $ 8,514 $ 9,696
Accounts receivable 12,505 13,750
Less allowance for losses 1,569 1,570
-------- --------
10,936 12,180
Inventories 10,128 9,876
Prepaid expenses and other 1,685 1,634
-------- --------
TOTAL CURRENT ASSETS 31,263 33,386
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Buildings 1,191 1,191
Machinery and equipment 6,533 6,338
-------- --------
7,724 7,529
Less accumulated depreciation 4,814 4,729
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 2,910 2,800
OTHER ASSETS:
Patents and trademarks 1,033 1,033
Goodwill 141 141
-------- --------
1,174 1,174
Less accumulated amortization 732 720
-------- --------
Net intangibles 442 454
Noncurrent notes receivable 793 850
Less allowance for uncollectible notes 473 473
-------- --------
Net receivables 320 377
Other 332 331
-------- --------
TOTAL OTHER ASSETS 1,094 1,162
-------- --------
$ 35,267 $ 37,348
======== ========
See accompanying notes to interim consolidated financial statements.
Consolidated Balance Sheets - Unaudited
(Amounts in thousands, except share data)
March 28, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 2,478 $ 2,674
Current installments of long-term debt 89 91
Accounts payable 2,969 4,530
Accrued payroll and related expenses 1,554 1,684
Accrued commissions 433 876
Accrued income taxes 1,004 999
Other accrued expenses 2,177 2,031
-------- --------
TOTAL CURRENT LIABILITIES 10,704 12,885
Long-term debt, excluding
current installments 267 310
Other long-term liabilities 2,042 2,051
-------- --------
TOTAL LIABILITIES 13,013 15,246
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share
Authorized: 20,000,000 shares;
Issued: 2,908,899 shares at March 28,
1998 and 2,770,630 at December 31,
1997 2,909 2,771
Capital in excess of par value 12,651 11,769
Retained earnings 7,511 8,312
Accumulated other comprehensive income (817) (750)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 22,254 22,102
-------- --------
$ 35,267 $ 37,348
======== ========
See accompanying notes to interim consolidated financial statements.
Consolidated Statements of Operations
(Amounts in thousands, except per share data) - Unaudited
Three months ended
March 28, March 29,
1998 1997
Net sales $ 8,873 $ 9,599
Cost of sales 4,510 5,165
-------- --------
Gross profit 4,363 4,434
Selling, general and administrative
expenses 4,003 3,930
-------- --------
Operating profit 360 504
Interest (income) expense - net (29) 83
Other (income) expense - net 48 11
-------- --------
Income from continuing operations, 341 410
before income taxes
Income tax expense 120 59
-------- --------
Net income from continuing operations $ 221 $ 351
Income (loss) from operations of 0 (81)
discontinued businesses, net of related
income tax
NET INCOME $ 221 $ 270
======== ========
Earnings per share from continuing $ 0.08 $ 0.12
operations - basic
Earnings (loss) per share from
discontinued operations - basic 0.00 (0.03)
-------- --------
Earnings per share - basic $ 0.08 $ 0.09
======== ========
Earnings per share from continuing $ 0.08 $ 0.11
operations - diluted
Earnings (loss) per share from
discontinued operations - diluted 0.00 (0.02)
-------- --------
Earnings per share - diluted $ 0.08 $ 0.09
======== ========
See accompanying notes to interim consolidated financial statements.
Consolidated Statements of Cash Flows - Unaudited
(Amounts in thousands)
Three months ended
March 28, March 29,
1998 1997
CASH FROM OPERATING ACTIVITIES:
Net income $ 221 $ 270
Adjustments to net income for expenses
(gains) not affecting cash:
Depreciation and amortization 205 310
Bad debt expenses 0 14
Increase (decrease) in cash due to changes
in:
Accounts receivable 1,244 1,411
Inventories (252) 1,018
Prepaid expenses and other assets 5 452
Accounts payable (561) (1,110)
Accrued expenses and other liabilities (431) (776)
-------- --------
Cash provided by (used in)
operating activities................... 431 1,589
CASH USED IN INVESTING ACTIVITIES:
Capital expenditures..................... (305) (501)
CASH FROM FINANCING ACTIVITIES:
Decrease in notes payable (196) (663)
Repayment of long-term debt (45) 312
Warrant repurchase (1,000) 0
-------- --------
Cash provided by (used in)
financing activities..................... (1,241) (351)
Cumulative translation adjustments......... (67) (737)
-------- --------
TOTAL CASH PROVIDED (USED) (1,182) 0
CASH - BEGINNING OF THE PERIOD 9,696 0
-------- --------
CASH - END OF THE PERIOD $ 8,514 $ 0
======== ========
See accompanying notes to interim consolidated financial statements.
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)
3/28/98 12/31/97
-------------------------------------------------------------------
Raw Material $ 2,052 $ 2,065
Work-in-Process 322 958
Finished Goods 7,754 6,853
-------------------------------------------------------------------
$ 10,128 $ 9,876
===================================================================
DISCONTINUED OPERATIONS:
Effective 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 fluid power division. The fluid power division
designed, manufactured, and supplied high performance single-acting,
double-acting, and telescopic hydraulic cylinders and related hydraulic
components to original equipment manufacturers in the construction,
transportation, solid waste, utility, and energy industries.
Effective August 28, 1997, the Company sold for cash substantially all of
the business, including certain assets and liabilities, of its Winona Van
Norman engine rebuilding division. The engine rebuilding division
designed, manufactured, and supplied advanced machinery for the automotive
aftermarket, primarily for automotive, truck, diesel, and high-performance
engine rebuilding. The division also manufactured brake lathes and
related equipment, as well as provided contract machining services.
Net sales of the fluid power divisions and the engine rebuilding division
for the first quarter of 1997 were $4.3 million and $2.2 million
respectively. Interest has been allocated to the discontinued operations
based on the ratio of the net assets to be sold to the sum of total assets
of the net consolidated entity plus consolidated debt other than (a) debt
of the discontinued operations that was assumed by the buyer and (b) debt
that can be directly attributable to other operations of the enterprise.
Income tax expense related to the operation of the discontinued businesses
for the first quarter of 1997 was $70,000.
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 March 28, 1998 was approximately
$1,051,000.
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.
COMPREHENSIVE INCOME:
Three months ended
March 28, March 29,
1998 1997
Net income 221 270
Other comprehensive income (loss)-
Cumulative translation adjustments (67) (863)
----- -----
Comprehensive income (loss) 154 (593)
===== =====
Income taxes have not been provided on cumulative translation adjustments
since foreign earnings have been and will continue to be reinvested.
SUBSEQUENT EVENT:
On April 28, 1998, the Company announced that it had entered into a
definitive merger agreement with Snap-on Incorporated pursuant to which
Snap-on will acquire all of the outstanding common stock of the Company at
a price of $12.60 per share in cash, representing a transaction value of
approximately $36 million. The transaction has been approved unanimously
by the Boards of Directors of both companies.
Under the terms of the merger agreement, a subsidiary of Snap-on will
promptly commence a tender offer for all outstanding shares of the
Company's stock. This subsidiary also entered into an option to purchase
from the Company newly issued shares at the offer price in an amount that,
together with the shares owned by Snap-on and its affiliates immediately
after the tender offer, represents at least 90 percent of the outstanding
shares of the Company on a fully diluted basis. The option becomes
exercisable upon the closing of the tender offer. Any shares not
purchased pursuant to the tender offer or such option will be acquired in
a subsequent merger at a price of $12.60 per share in cash as soon as
practicable after completion of the tender offer.
Completion of the tender offer is subject to customary conditions,
including the acquisition by Snap-on of 66-2/3rds percent of the Company
common shares on a fully-diluted basis (without giving effect to the
option agreement described above), receipt of necessary governmental
approvals and the expiration of applicable waiting periods under the Hart-
Scott-Rodino Act. The merger agreement is not subject to financing.
In the second quarter, the Company will recognize expenses related to the
above transaction. These include expenses of approximately $154,000
related to due diligence for an acquisition that will no longer be
pursued. The Company will also incur certain expenses that are contingent
upon closing of the transaction including transaction and consulting fees
of approximately $3,600,000. In addition, the Company will recognize a
change of control price adjustment for options repurchased pursuant to an
agreement dated December 30, 1997 in the amount of $3,981,000.
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion includes forward-looking statements that reflect
management's current assumption and estimates concerning the Company's
performance and financial results. Each forward-looking statement
contained herein is either preceded by or contained in a paragraph
beginning with the phrase, "management expects" or words of similar
import. A variety of factors could cause the Company's actual results to
differ materially from the anticipated results. These factors include,
but are not limited to, increased competition; unfavorable fluctuation of
currency exchange rates; rising interest rates; instability of foreign
governments; and the escalation of raw material prices, primarily steel.
Results of Operations
Net sales for the first quarter of 1998 were $8.9 million, compared with
$9.6 million for the same period in 1997. Sales originating in North
America were $4.4 million for the first quarter of 1998 compared to $4.6
million in the same period a year earlier. European sales for the first
quarter of 1998 were $4.5 million versus the $5.0 million recorded in the
first quarter of 1997.
Gross profit margins in North America were 48.2% for the first quarter of
1998 and for the same period in 1997. Margins in Europe were 50.1% for
the first quarter of 1998 compared to 44.4% for the same period in 1997.
European margins are up due to increased productivity in our manufacturing
facilities and higher margins in select international markets.
Consolidated gross profit margins were 49.2% for the first quarter of 1998
compared with 46.2% for the same period in 1997.
Consolidated operating expenses as a percent of net sales increased to
45.1% for the first quarter of 1998 from 40.9% for the same quarter in
1997 mainly due to the decline in net sales, as operating expenses in
dollar terms increased less than 2%.
The Company earned interest income of $29,000 in the first quarter of 1998
versus paying $83,000 in interest expense for the same period in 1997.
This change was due to applying the proceeds from the prior year's sale of
two segments to reduce debt. The balance of the proceeds has been
conservatively invested.
For the three months ended March 28, 1998, the Company experienced a net
cash decrease of $1.2 million, compared with breaking even in the first
quarter of 1997. The Company repurchased approximately 750,000
outstanding warrants for $1.0 million, which was paid in January, 1998.
This repurchase was related to agreement the Company entered into late in
1997 with Massachusetts Mutual Life Insurance Company to repurchase
certain warrants to purchase Company common stock that arose from
convertible subordinated debt which was repaid during 1996 and 1997.
Income tax expense as a percent of pretax net income increased to 35.2%
from 14.4% for the first quarter of 1998 compared to the first quarter of
1997. This was mainly due to the use of loss carryforwards in prior years
with no federal carryforwards left in the United States for 1998.
Financial Condition
Improvements in cost control and balance sheet management receive
continued emphasis. Management 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 borrowings are primarily due to
seasonal cash usage patterns.
On April 28, 1998, the Company announced that it had entered into a
definitive merger agreement with Snap-on Incorporated pursuant to which
Snap-on will acquire all of the outstanding common stock of the Company at
a price of $12.60 per share in cash, representing a transaction value of
approximately $36 million. The transaction has been approved unanimously
by the Boards of Directors of both companies. See Notes to Interim
Consolidated Financial Statements.
ITEM 3: Quantitative and Qualitative Disclosures About
Market Risk
Not applicable.
PART II - OTHER INFORMATION
ITEM 6: (a) Exhibits
(2.1) Agreement and Plan of Merger, dated as of April 27, 1998,
by and among Snap-on Incorporated, Snap-on Pace Company
and Hein-Werner Corporation (incorporated by reference to
Exhibit 1 to Hein-Werner Corporation's Schedule 14D-9
filed with the Securities and Exchange Commission on May
4, 1998).
(2.2) Stock Option Agreement, dated as of April 27, 1998, by
and among Snap-on Incorporated, Snap-on Pace Company and
Hein-Werner Corporation (incorporated by reference to
Exhibit 2 to Hein-Werner Corporation's Schedule 14D-9
filed with the Securities and Exchange Commission on May
4, 1998).
(2.3) Employment and Consulting Agreement, dated April 27,
1998, by and between Snap-on Incorporated, Hein-Werner
Corporation and Joseph L. Dindorf (incorporated by
reference to Exhibit 3 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(3.1) Amendments to the By-Laws of Hein-Werner Corporation.
(3.2) By-Laws of Hein-Werner Corporation, as amended.
(10.1) Amendment No. 1, dated April 27, 1998, to the Change of
Control Agreement, dated January 27, 1984, between Hein-
Werner Corporation and Joseph L. Dindorf (incorporated by
reference to Exhibit 8 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.2) Trust Agreement, dated as of April 29, 1998, by and
between Hein-Werner Corporation and Firstar Trust Company
(incorporated by reference to Exhibit 9 to Hein-Werner
Corporation's Schedule 14D-9 filed with the Securities
and Exchange Commission on May 4, 1998).
(10.3) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and Thomas F. Andreoli (incorporated by
reference to Exhibit 10 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.4) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and Jean-Paul Barthelme (incorporated by
reference to Exhibit 11 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.5) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and Mary L. Kielich (incorporated by
reference to Exhibit 12 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.6) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and Michael J. Koons (incorporated by
reference to Exhibit 13 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.7) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and Reinald D. Liegel (incorporated by
reference to Exhibit 14 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.8) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and Jeffrey V. Russell (incorporated by
reference to Exhibit 15 to Hein-Werner Corporation's
Schedule 14D-9 filed with the Securities and Exchange
Commission on May 4, 1998).
(10.9) Key Executive Employment and Severance Agreement, dated
as of April 15, 1998, by and between Hein-Werner
Corporation and James A. Wilke (incorporated by reference
to Exhibit 16 to Hein-Werner Corporation's Schedule 14D-9
filed with the Securities and Exchange Commission on May
4, 1998).
(10.10) First Amendment to Rights Agreement, dated April 27,
1998, by and between Hein-Werner Corporation and Firstar
Trust Company (incorporated by reference to Exhibit 18 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(11) Computation of Earnings Per Share
(27.1) Financial Data Schedule
(27.2) Restated Financial Data Schedule for the First Quarter
1997
(b) Form 8-K
There were no reports on Form 8-K filed for the three months
ended March 28, 1998.
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)
May 12, 1997
Date
Index of Exhibits
Exhibit No. Description
(2.1) Agreement and Plan of Merger, dated as of April 27, 1998, by
and among Snap-on Incorporated, Snap-on Pace Company and Hein-
Werner Corporation (incorporated by reference to Exhibit 1 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(2.2) Stock Option Agreement, dated as of April 27, 1998, by and
among Snap-on Incorporated, Snap-on Pace Company and Hein-
Werner Corporation (incorporated by reference to Exhibit 2 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(2.3) Employment and Consulting Agreement, dated April 27, 1998, by
and between Snap-on Incorporated, Hein-Werner Corporation and
Joseph L. Dindorf (incorporated by reference to Exhibit 3 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(3.1) Amendments to the By-Laws of Hein-Werner Corporation.
(3.2) By-Laws of Hein-Werner Corporation, as amended.
(10.1) Amendment No. 1, dated April 27, 1998, to the Change of
Control Agreement, dated January 27, 1984, between Hein-Werner
Corporation and Joseph L. Dindorf (incorporated by reference
to Exhibit 8 to Hein-Werner Corporation's Schedule 14D-9 filed
with the Securities and Exchange Commission on May 4, 1998).
(10.2) Trust Agreement, dated as of April 29, 1998, by and between
Hein-Werner Corporation and Firstar Trust Company
(incorporated by reference to Exhibit 9 to Hein-Werner
Corporation's Schedule 14D-9 filed with the Securities and
Exchange Commission on May 4, 1998).
(10.3) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
Thomas F. Andreoli (incorporated by reference to Exhibit 10 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.4) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
Jean-Paul Barthelme (incorporated by reference to Exhibit 11
to Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.5) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
Mary L. Kielich (incorporated by reference to Exhibit 12 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.6) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
Michael J. Koons (incorporated by reference to Exhibit 13 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.7) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
Reinald D. Liegel (incorporated by reference to Exhibit 14 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.8) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
Jeffrey V. Russell (incorporated by reference to Exhibit 15 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.9) Key Executive Employment and Severance Agreement, dated as of
April 15, 1998, by and between Hein-Werner Corporation and
James A. Wilke (incorporated by reference to Exhibit 16 to
Hein-Werner Corporation's Schedule 14D-9 filed with the
Securities and Exchange Commission on May 4, 1998).
(10.10) First Amendment to Rights Agreement, dated April 27, 1998, by
and between Hein-Werner Corporation and Firstar Trust Company
(incorporated by reference to Exhibit 18 to Hein-Werner
Corporation's Schedule 14D-9 filed with the Securities and
Exchange Commission on May 4, 1998).
(11) Computation of Earnings Per Share
(27.1) Financial Data Schedule
(27.2) Restated Financial Data Schedule for the First Quarter 1997