KISSINGER, HENRY A.

Adolf Kissinger
WEINBAU IN DER FAMILIE SEIT 1665

WEINGROSSKELLEREIEN
WEINEINKAUFSGESCHÄFT

Herrn
Senator
Henry KISSINGER
pers. Berater von
Herrn Präsident NYXON
im Weißeh Haus
W ASHIGTON-Amerika.

Früher in
Mainz-Gonsenheim-Rhein
FINTHER-LANDSTR. 5-7 · BAHNSTATION

Garmisch-Partenkirchen
Mittenwalderstr. 17

jetzt -8-MÜNCHEN 25-Badstr.21 p-

den 6.Juli 1971

Sehr geehrter Herr Kissinger!

Sie werden sich wundern, von mir einen Brief aus der Olympiastadt München zu erhalten.-Schon längst bat mich meine Frau, die heimatvertrieben aus Breslau stammt,ich möchte Ihnen doch mal schreiben:Bitte sind Sie mir deshalb nicht böse.-Auch ich war mal ein wohlhabender Weinkaufmann (siehe obig Briefkopf), wurde aber durch böse Schiksalsschläge leider wieder ein armer Mann.Seit 1927 betreibe ich Weingeschäfte,die durch die Supermärkte den kleinen Mann ruinieren:Dazu kommt noch,daß mein einziger Sohn,der gelähmt zur Welt kam,24 Jahre in einer Anstalt auf fremde Hilfe angewiesen gelebt hat.Vor 3 Jahren hat ihn der liebe Gott zu sich genommen,es sei ihm gedankt. Mein Sohn hatte mich ein kleines Vermögen gekostet und viel Kummer gemacht. Nun werde ich schon bald 72 Jahre und muß mich schlecht und gerecht durchs Leben schlagen.-Mit der Gesundheit steht es auch nicht zum Besten.- Wir wären Ihnen sehr dankbar,wenn Sie mir in irgend einer Form helfen könnten.In der Nazizeit hatte man mich verhaftet,da ich den Schwiegersohn meines Kunden Robert Schüßler in Karlsruhe Herrn Henry ARNDt bei mir versteckt hatte,weil er Jude war und verhaftet werden sollte.- Es sollte mich sehr freuen, von Ihnen zu hören.-Bitte entschuldigen Sie, wenn ich Sie stören sollte,aber ich habe schon so viel Gutes von Ihnen gehört und gelesen..Wir wohnen in einer kleinen SozialWohnung. Gerne von Ihnen hörend und im Voraus für Ihre Antwort dankend verbleib

ich mit freundlicher Empfehlung!

Sollten Sie mal mach München kommen,
evtl.zur Olympiade 1972 dann bitten
wir Sie,und doch mal zu besuchen.-

D.O.

RECEIVED

AUG 1 0 1971

CENTRAL FILES

HOLY BAPTIST CHURCH

KISSINGER, HENRY A.

August 9, 1971

Mr. Kissinger:

Do you want to answer this letter asking for help in
tracing his family tree?

Yes ____ No ✓

If no, do you think your father would at least be interested in seeing this letter?

Yes ____ No ✓
(If yes, I will send it along to him.)

Julie

573 Montecito Blvd
Napa, Calif. -94593

3-23-70

Henry Kissinger Ph.D.
Washington D.C.

Dear Dr. Kissinger,

Sometimes one reminisces and is reminded
of ones younger years or a heritage, that after all had a
profound influence on who we are today. So after a lenghty
proomstination (it is 4 yrs. since my mother, who still lives
in Fuerth, told me of your academic achievements & your gene-
ral whereabouts) I am taking the initiative to say 'Hi'.

I grew up in Fuerth as Elisabeth or Liesl
Rosenthal and once upon a time I was a student at Fuerth's
Lyceum. That was where I met your father, though it was only
later that it was my good fortune to have him for a teacher.
Maybe you appreciate hearing this, maybe it is unimportant,
but in his quiet way his integrity had a tremendous influence
and certainly left me with kind memories and a great respect
for him. If he is still with you, please give him my regards.
I remember you and your brother ---. We must be about the
same age 1920 ?

Now :- I am married to a CPA with a similar
background as my own. We have two boys, a senior in Highschool
and a 9th grader.

I will not bore you with details, nor do I
want to bother you, but should your busy schedule permit it
would be nice to hear from you.

Arthur Steiner
6601 Kingsbury Blvd.
University City, Mo. 63130

April 17.1970.

Mr. Henry A. Kissinger
c/o THE WHITE HOUSE
1600 Pennsylvania Ave.
Washington, D.C.

Dear Mr. Kissinger,

After finding confirmation of my idea in the Dec. 22, 69 issue of Newsweek's article about you, I take the liberty of writing to you.

I also came from Fuerth to this country. I left in 1937 and I have lived here in St. Louis, Mo. since then, except for the period of 1944/45 with the U.S. Army (Mil.Gvmt) in France and Germany.

Since I am 55 years old, I don't believe that we knew each other in Fuerth but I do remember your father as having been my teacher. Am I correct that your father was a teacher at Heckmann's Privat-Knabenschule around 1924/25. If so, it would be the time I was a student at this school. From there I went on to the Oberrealschule in Fuerth. We lived at Kaiserstrasse and later on at Nuernbergerstrasse. My parents left in 1939 and came here in 1940 from Palestine together with my brother.

If the above should be correct, I like to ask you to give my very best regards to your father from one of his former pupils.

Please accept my sincere respects for your accomplishments in obtaining such a high honor and responsibility in our Government.

allen electric
and equipment
company

534 BROAD HOLLOW ROAD, MELVILLE, LONG ISLAND, NEW YORK 11746

TELEPHONE (516) 293-5500

WALTER B. KISSINGER
President

February 20, 1971

Dear Stockholder:

Although our 1970 audit has not yet been completed, we are
now sufficiently far advanced to estimate our 1970 results. While
the figures are not final, I am confident that they are substantially
those that will ultimately appear in our Annual Report and provide
stockholders with a good basis to judge the progress that your
Company has made during the past year.

Income from operations (before minority interest and extra-
ordinary items) will show a significant gain on the order of more
than 50% from $2,395,000 in 1969 to $3,614,000 in 1970. The in-
crease in income before extraordinary charges will be from
$2,340,000 in 1969 to $3,335,000 in 1970, or from $.85 to $1.17
per share--a 38% increase.

Two non-operating items are the principal causes of the dif-
ference in growth rate between operating income and income per
share--the increase in minority interest as a result of the sale of
a portion of Orion Industries late in 1969 ($.07 per share) and the
increase in the number of shares issuable for 1970 and potentially
issuable in future years under "earn-out" arrangements due to the
substantially lower market price of Allen common stock for 1970
as compared to 1969 ($.02 per share). Also, certain year-end
audit adjustments reflected in the above numbers will appear to
reduce the operating results of the fourth quarter.

Extraordinary charges of $256,000 or $.09 per share, re-
duced estimated 1970 net income to $3,079,000 or $1.08 per share,
as compared with a $.17 per share net loss after extraordinary
charges in 1969. The extraordinary charges for 1970 were primar-
ily caused by a net loss taken in the sale of three companies. The
divestment program has resulted in a decline in reported sales from
$118 million in 1969 to $114 million in 1970. The 1969 figures are
restated for the acquisition of the Rohe company which has been
treated as part purchase and part pooling of interests. A copy of the
Company's press release on earnings is attached.

-2-

Your Company finishes 1970 in a very strong financial position. Our working capital is in excess of $30,000,000 of which, at the year end, more than $7,000,000 was represented by cash and short term investments. Of the $6,000,000 Euro-Dollar financing line of credit arranged in connection with the Rohe acquisition and of an additional $6,000,000 line of credit, $10,500,000 of the combined lines of credit remain available to the Company. Clearly, we have provided the financial means to support the strong thrust of growth which we anticipate for the 1971-73 period.

Gratifying as these improvements are, especially in what proved to be a very difficult year for the economy, they do not communicate Allen's most significant progress in the establishment of a firm foundation for future growth. This subject will be the theme of the Annual Report which will be mailed to stockholders during the latter part of March.

In order to highlight the two most important developments that have taken place and to which adequate space cannot be devoted in our Annual Report, we are sending to stockholders at this time two Company profiles. One deals with the strategic transformation of the Company and explains, for example, how the apparent decrease in sales for 1969 to 1970 masks an enormous shift in your Company's business out of unproductive areas and into exciting growth areas. The second profile describes our participation in the car wash equipment market which we believe to be a most dynamic growth opportunity for Allen.

As the new year gets underway, we have observed a continuation of the general slowness of business that prevailed during the fourth quarter and in the month of January. However, we see the pace of operations accelerating as we move deeper into the first quarter. I am confident that the Company will continue to reflect substantial progress during 1971.

TELEPHONE (516) 293-5500

news
release

Contact: Bud Pomeranz
Director of Communications
(516) 293-5500 Ext 20

MELVILLE, NEW YORK, FEBRUARY 22, 1971. . . Walter B. Kissinger, President of Allen Electric and Equipment Company (AMEX) today announced preliminary sales and earnings results for the year ended December 31, 1970. Operating earnings in 1970 rose more than 50 per cent from $2,395,000 in 1969 to $3,614,000 in 1970. Income before extraordinary charges increased from $2,340,000 in 1969 to $3,335,000 in 1970--a 38 per cent increase in earnings per share from $.85 to $1.17.

Extraordinary charges of $256,000 or $.09 per share reduced estimated 1970 net income to $3,079,000 or $1.08 per share, as compared with a $.17 per share net loss after extraordinary charges in 1969. The extraordinary charges for 1970 were primarily caused by a net loss taken in the sale of three companies.

Sales in 1970 were $114,000,000 compared with $118,000,000 in 1969. The decline in sales resulted from the Company's divestment program. The 1969 figures are restated for the acquisition of A. Rohe GmbH of Frankfurt, West Germany, which has been treated as part purchase and part pooling of interests.

Commenting on the Company's year-end results Mr. Kissinger said,

-2-

"Gratifying as these improvements are, especially in what proved to be a very difficult year for the economy, they do not communicate Allen's most significant progress in the establishment of a firm foundation for future growth." He added, "As the new year gets underway, we have observed a continuation of the general slowness of business that prevailed in the fourth quarter of last year and in the month of January. However, we see the pace of operations accelerating as we move deeper into the first quarter. I am confident that the Company will continue to reflect substantial progress during 1971."

Allen is an international manufacturer of automotive-related products including: car wash, diagnostic and service equipment, radiators for the original equipment and replacement markets, special variety components and automotive accessories.

-30-

ALLEN ELECTRIC AND EQUIPMENT COMPANY
COMPARATIVE RESULTS OF OPERATIONS
(Unaudited)

| | <u>Year Ended December 31</u> | |
|:---|:---:|:---:|
| | <u>1969</u> | <u>1969(A)</u> |
| | <u>(Thousands)</u> | <u>(Thousands)</u> |
| **Net Sales** | 114,339 | 117,955 |
| **Income Before Minority Interest and<br>Extraordinary Items** | 3,614 | 2,395 |
| **Minority Interest** | (279) | (55) |
| **Income Before Extraordinary Items** | 3,335 | 2,340 |
| **Extraordinary Items** | (256) | (2,810)(B) |
| **Net Income** | 3,079 | (470) |
| **Per Share(C)** | | |
| **Income Before Minority Interest and<br>Extraordinary Items** | $1.26 | $.87 |
| **Income Before Extraordinary Items** | 1.17 | .85 |
| **Net Income** | 1.08 | (.17) |

See notes.

# NOTES

## NOTE (A)

Restated for acquisition accounted for as part purchase, part pooling of interest.

## NOTE (B)

Includes $2,595,000 (net of tax) representing write-off of previously deferred research and development costs, to reflect change in policy to expense such costs as incurred.

## NOTE (C)

Based upon the weighted average number of common shares outstanding during each year (adjusted for stock dividends) after giving retroactive effect to shares issued in connection with poolings of interests and after inclusion of shares issuable under acquisition agreements and the common stock equivalents of options and warrants. There was no dilution of 1970 and 1969 earnings per share under the full dilution calculation.

a profile of the
strategic
transformation of
allen electric
and equipment
company 1969-1971

PROFILE V

Allen Electric and Equipment Co.
534 Broad Hollow Road
Melville, New York 11746
February 20, 1971

I. Introduction

In mid-1969, when Allen's newly appointed President, Walter B. Kissinger, assumed direction of the Company, a new course of action was adopted to shape Allen's development. This plan evolved from Mr. Kissinger's business philosophy that a company must be a significant factor in the market to compete successfully and that, if it cannot convert a marginal industry position into a leading one, it should withdraw. This was exactly what occurred in the next 18 months, as Allen transformed marginal operations in the radiator and international car wash markets to leading positions by 1971, and withdrew from eight businesses to concentrate its financial and management resources in more profitable areas.

Allen's management team first reviewed the various busi-
nesses in which the Company was engaged, outlined the
direction of Allen's long-term growth and blueprinted a
series of short-term actions. These included changes in
operating management and the identification for divest-
ment of marginal businesses which lay outside the major
growth areas. Most importantly, Allen decided to concen-
trate on internal growth in the areas chosen as the central
"building blocks" for the future.

This profile demonstrates through narrative and graphic
presentations the dramatic changes which have taken
place at Allen as a consequence of these management
decisions. The changes include:

* Expansion of the car wash equipment and replacement radiator businesses from marginal to leading positions

in their respective markets. Allen has set a goal of $43
to $48 million in sales for these operations, which
would be more than one-third of Allen's sales target
for 1971. In 1969 these two businesses accounted for
only $7.7 million, or 8 per cent of Allen's total sales.

* Expansion of Allen's international business, which in 1969 accounted for only $12.1 million in sales, to a major factor in Allen's market position. Its 1971 goal for international sales, including car wash, is $35 to $40 million or slightly less than one-third of Allen's 1971 sales target.

* Divestment of eight peripheral and unprofitable businesses, which in 1969 accounted for about $18 million of Allen's sales (almost 20 per cent).

* Altogether, these changes represent a combined swing (out of losers into winners) of about half of Allen's targeted sales for 1971.

II. Background

In 1969, after six years of dramatic growth through ac-
quisitions, Allen comprised 26 different operating units,
with businesses which fell into several product or market
groupings. These are shown in Chart 1 which gives the
percentage of sales contributed by each business. As can
be seen, in 1969 sales of car wash (at $3.6 million) and
radiator (at $4.1 million) accounted for about 8 per cent
of Allen's business revenue. Together these operations
were unprofitable in 1969.

Mr. Kissinger instituted a series of reviews in which each business was analyzed and compared to basic criteria to determine its future growth and profit opportunities.

In general, Allen's criteria for choosing building blocks for future expansion included the requirements that Allen was or could become a leader in a specific market as measured by share and technology; that the market be of sufficient size (at least $75 to $100 million), to constitute a substantial segment of Allen's operations; that the outlook for growth in sales that could be achieved in that market (10-20 per cent) be considerably greater

## ALLEN
Chart 1
Strategic Transformation

1969 Sales shown at $83 million are:

AFTER: Deduction of sales of divested companies

BEFORE: Pooling of G&O, Strangi and Rohe.

than that of the general economy; that earnings after taxes could grow at least 15 per cent annually; and that financial returns could be realistically targeted to provide shareholders with a 15 per cent return on equity; and that such results could be accomplished without a totally disproportionate financial or managerial investment.

Based on the business reviews of 1969, Allen pinpointed certain areas in which it desired to build. Among these were car wash systems, the radiator after-market and the international arena for all of Allen's products. At the same time, management identified certain businesses which were considered to be outside the main thrust of Allen's future and moved aggressively to eliminate these marginal positions.

### III. Divestments

The divestment program resulted in eliminating eight businesses by sale or liquidation. They generated nearly 20 per cent of Allen's sales in 1969. As a result of these divestitures, Allen received payments in the form of Allen common stock, notes, cash and other property which totalled over $4 million, and sustained losses (net of taxes) of a nonrecurring nature amounting to about $950,000, or less than twice the annual operating loss rate being incurred in these areas. In some instances, "earn-out" arrangements were cancelled, thus terminating any contingent liability of Allen for the issuance of shares of Allen common stock. Allen retained an interest in two divested businesses where it introduced outstanding partners of proven management ability, thereby providing Allen the opportunity to recover its losses through possible future appreciation. Allen has re-directed the assets received from the sale of these unproductive operations to businesses of long-term growth and profitability.

A summary of Allen's divestments, in terms of their sales and earnings, is provided in Table I. Following is a brief description of each divestment and the reasoning behind it.

1) Flo-Tork: This company had a special product—a hydraulic actuator; however, a poor performance record required an excessive degree of technical management skills and financial resources to place the operation in a leadership position. Additionally, this company had a history of losses, indicating a need for new management leadership, and served military and industrial customers which have historically proven cyclical and difficult to forecast. As of November 30, 1969, 51 per cent of Flo-Tork was sold to Julius Fejes for cash and notes. Mr. Fejes was the original founder of the Crown Steel Products Group, of which Flo-Tork

was a part, and has demonstrated great entrepreneurial
skill.

2) **Southern U.S.F.:** This division of Crown Steel in Mississippi, made steel components for the electrical industry. As such, it had no special skills or proprietary products and a four-year history of losses; its share of its market was not significant; and attainment of a position as an important factor appeared unrealistic. This division was liquidated October 9, 1969, and most of its machinery was used in the 1970 expansion of Crownfab, Crown's Canadian producer of truck cabs and vans.

3) **Zeus:** Zeus made portable generators and, with no product differentiation, it was attempting to compete on a marginal basis with industry leaders such as General Electric and Westinghouse. This company was sold for cash on July 11, 1969.

4) **USF (Building Division):** This division of Crown Steel, as in the case of the Southern USF division, had no proprietary products, a three-year history of losses, and little technical expertise, which put it in an extremely poor competitive posture with respect to the industry leaders, such as Butler and H. H. Robertson. In addition, sales of steel buildings were tied to the extremely cyclical construction industry. This division was also liquidated.

5) **CSC:** California Systems Components designed and built logic cards and other electronic components. Not only was it an insignificant factor in the industry, it was unprofitable and in competition with the "in-house" capability possessed by most large electronics companies. This company was liquidated and its technical capability integrated with our Testproducts Group in 1969.

6) **P-G Assco:** As a manufacturer and distributor of replacement parts for appliances, this company competes directly with the OEM's, who hold the major share of the market. Management difficulties resulted in operating losses. Low margins and slow growth were not adequate incentives for the major investment of management time or financial resources essential to make the company a significant factor. On September 28, 1970 P-G Assco was sold for cash and notes to Ronald Goerler, an outstanding, entrepreneurially inclined executive.

7) **Conveyor Engineering:** Conveyor's business is building and installing conveyor equipment, principally for the automobile manufacturers. The company had no proprietary product and only a small share of the market.

The conveyor equipment industry is characterized by slow growth, strong cyclical patterns and stiff competitive bidding. As a result of the economic downturn in 1970, Conveyor's operations suffered a precipitous decline. Conveyor (less certain retained assets) was sold back to its original owners for Allen common stock on December 21, 1970.

8) **Air Traffic Control Systems:** Although ATCS is one of the few manufacturers of portable air traffic control systems, as a "new venture" it had not provided a return on investment and it serves a market with an unproven potential. ATCS was sold to a former group vice president of Allen and its former owners for notes and Allen common stock effective at the close of business on December 31, 1970.

In summary, as can be seen from Table I, the divestitures of the eight companies means a removal from the "old" 1969 picture of Allen of about $18 million in sales that will not be part of Allen in 1971, and the disengagement from businesses which resulted in about $1 million in pre-tax operating losses in the years of the respective divestments.

## IV. Building Blocks

**Car Wash:** As stated in another Allen profile entitled, "Allen's Commitment to the Car Wash Equipment Industry," the car wash industry is an exciting and attractive market that meets the Company's criteria for commitment. The world market for car wash equipment is approximately $100 million and, in recent years, has grown at a rate in excess of 25 per cent a year, as derived from industry figures and performance of our car wash equipment companies. Historical profitability for established manufacturers in this industry exceeds Allen's minimum criteria, and the rate of growth in earnings is comparable to the sales growth. Further enhancing this market is the very real possibility that the major oil companies will become large quantity purchasers of car wash units in order to stimulate sales of gasoline. This has occurred already in Europe and the trend is starting in the United States where our U.S. company, California Car Wash, has already received several large national orders. Thus, Allen views the car wash equipment market as one with an excellent growth rate.

In 1969, Allen's commitment to car wash was extremely marginal, with substantial operating losses on sales of $3.6 million and representing a negligible factor in the world market. World-wide sales of car wash equipment by Allen companies amounted to over $14 million in 1970, with a goal of $25 to 28 million in 1971, as shown in Chart 2.

This increase was brought about by the acquisition of the Rohe group in September 1970. Rohe has major sales and manufacturing facilities in West Germany, as well as in Australia, South Africa (under construction) and the United Kingdom, and sales and service facilities in France, and is one of the leading factors in each of these markets.

In the United States, Allen owns California Car Wash Systems, Inc., located in Sun Valley, California, which has been restructured to focus on marketing to the major oil companies; and holds a majority interest in California Car Wash Systems (Canada) Ltd., of Toronto, Canada. Sales of car wash equipment under the California name (including Takeuchi, which sells under the California brand in Japan) represent about 25-30 per cent of the estimated world market.

**International:** With the acquisition of the Rohe group in 1970 Allen was able to move into another area which it has chosen for future growth: the international markets for its automotive test and service equipment and related products. One exciting factor in these markets is their

growth rates in the automobile-related industries versus United States growth rates. For example, new car registrations in the United States have grown in the past five years at about 2.5 per cent. In Europe, the rate exceeds 7 per cent and in Japan it has recently risen over 25 per cent a year. This indicates potentials for high growth for those companies that have exportable technologies, such as in car wash, radiator, diagnostic and test equipment, service equipment and accessories, and have the marketing know-how to penetrate and exploit these markets.

In 1969, Allen's sales in Canada and overseas amounted to approximately $12.1 million or about 12 per cent of Allen's business. In 1971, Allen's sales goal is $35 to $40 million. Chart 3 summarizes these significant actual and projected changes in the composition of Allen's sales. Historically, earnings from international operations have constituted an even higher percentage of Allen's total earnings, and this trend is expected to continue.

**Heat Transfer:** Allen has chosen the heat transfer market, specifically the radiator after-market, as one of its building blocks for the future. This decision resulted from an analysis which revealed that this is a highly fragmented market and that if a company could effectively bring to this market a national distribution concept, it could achieve leadership.

Because fast delivery of cores in the after-market is necessary to minimize down-time, this industry has historically been extremely localized. Allen's strategy is to become a major factor in this estimated $80 million market that is growing at almost 10 per cent per year, by developing a national distribution of after-market radiator products. Operating on a national scale, Allen can effect savings in centralized purchasing and other service functions, as well as reductions in inventories of raw materials, such as copper, brass and lead. In addition, Allen's engineering and research capabilities (a computer-operated wind tunnel test facility is one example) will provide Allen with a marked edge in new product development, as well as cost reductions in existing lines. Allen now has good distribution and trade acceptance. This structure, combined with production capability and engineering know-how, will provide Allen with the means for deeper national penetration and continued growth rates that exceed the industry average.

Allen also participates in the original equipment market as a supplier of radiators for the independent heavy-duty truck manufacturers and for locomotives and stationary engines. This market is approximately $50 million in size. Involvement in this market provides Allen with first-hand

## ALLEN
Chart 2

### CAR WASH
Strategic Transformation

knowledge of product change and allows the company to
take advantage of (as well as participate in) technological
improvements.

A third area in which Allen is involved (a small but
growing area of the heat transfer group) is the $50 mil-
lion oil cooler market for specialty uses, such as aircraft,
trucks and turbines, both OEM and after-market.

In 1969, Allen's commitment to the radiator business amounted to just over $4 million in sales (or 4 per cent of Allen's total revenues) from a local operation in the Midwest. Through the acquisition in March 1970 of the G & O Manufacturing Company of New Haven, Connecticut and Strangi Manufacturing Company of Dallas, Texas, Allen launched its strategy to become a national leader. Historically, these two companies have experienced growth of about 11-15 per cent per year in sales and 25-30 per cent per year in earnings over the last three years. As a result of these acquisitions, Allen now has plants in Chicago and Peru, Illinois; New Haven and Wallingford, Connecticut; Jackson, Mississippi; Dallas and Houston, Texas; and Atlanta, Georgia, and plans are on the boards for plants elsewhere.

The 1971 sales goal for heat transfer products is $18 to $20 million or about 15 per cent of Allen's 1971 sales target as shown in Chart 4.

## ALLEN

Chart 3

### International
Strategic Transformation

#### SALES*

*Includes sales of Allen's international car wash companies.

## ALLEN

Chart 4

### Radiator
Strategic Transformation

## V. Conclusion

As has been demonstrated, Allen has achieved a dramatic transformation in the profile of its businesses. A divestiture program of marginal and non-relevant endeavors has eliminated about $18 million in sales. At the same time, an expansion program in the existing areas of car-wash and radiator, has prompted management to establish a sales goal for 1971 of $43 to $48 million in these growing, dynamic markets.

Our target is a combined swing in the composition of Allen's business of about $58 million in sales by the end of 1971.

Allen's profitability has benefited from this transformation, as demonstrated in Charts 5 and 6. Return on sales increased from 1.3 per cent in 1969 to 3.9 per cent in 1970. Likewise, return on assets employed improved from 1.7 per cent in 1969 to 5.1 per cent in 1970 and return on shareholders' equity from 3.6 per cent to 10.6 per cent. Profits from car wash and radiator swung from a negative amount in 1969 to over 30 per cent of Allen's total operating income in 1970. While these financial returns still fall short of Allen's goals, your management is confident that continued concentration of effort on the key Allen "building blocks" will result in achievement of management's financial objectives.

Income used: Operational income before deduction of minority interests and extraordinary items

All figures: After deduction of divested companies

1969 figures: Before pooling of G&O, Strangi, and Rohe.

1969 figures: Before pooling of G&O, Strangi and Rohe.

a profile of
allen's commitment
to the
car wash equipment
industry

PROFILE IV

## Synopsis

Allen management believes that the car wash industry offers an exciting growth opportunity for which your Company is uniquely positioned. This conclusion has been arrived at over the past year as a result of intensive market studies and discussions with equipment manufacturers, system operators and major oil companies, and has resulted in a corporate commitment to achieve a leading position in the world-wide car wash industry. Car wash equipment, in your management's opinion, represents the most rapidly growing area in Allen. Car wash equipment sales in 1970 by Allen companies amounted to $14 million, accounting for 12 per cent of Allen's revenues and representing an 11-14 per cent share of the world car wash equipment market. Allen's goal for 1971 is for sales of at least $27 million from its worldwide car wash companies, and a 25 per cent share of the world market. Allen has already taken a number of important steps toward this objective of international leadership including:

* Restructuring its United States operations to focus on developing a strong position with the major oil companies;

* Acquiring the Rohe group of companies, one of the leading car wash manufacturers and marketers in Western Europe;

* Reaching tentative agreements or conducting negotiations for broader equity positions in companies operating in the more rapidly growing international markets, including France, Australia, South Africa, Canada, and England;

* Setting up new manufacturing facilities in Australia and South Africa and completing a major expansion in Germany;

* Beginning an international exchange of "know-how" between Allen's world-wide companies with technical and market strategy conferences in Germany and in the U.S.

## How Does Allen Size Up The Market?

The world market for automatic car wash equipment was estimated to be $100-$125 million in 1970 and, in recent years, has grown at a rate in excess of 25 per cent a year. By definition, it does not include the actual washing of the car, which was a $1.3 billion business in the United States alone in 1970. The United States is the largest equipment market with an estimated current volume of $60-$65 million. Western Europe is second with an estimated volume of between $25 and $30 million; the Far East (primarily Japan), accounts for an estimated $10 to $15 million, and all other areas about $10 million. The industry world-wide includes a number of marginal manufacturers, and a few companies who are emerging as sophisticated producers. Some manufacturers, including Allen's newly acquired subsidiary, A. Rohe GmbH, have growth rates exceeding 35 per cent annually from 1966-1970. Allen believes that by 1975, world-wide car wash systems sales may reach several times the present size, and that the major portion of these sales will be produced by the limited number of companies capable of responding to the world-wide needs of large oil companies, which are already the most important single factor

in shaping the development of the market.

Allen's car wash equipment is designed for washing pas-
senger cars, trucks and buses; the machinery is auto-
mated and involves relatively little labor input or ex-
pense.

Allen manufactures two types of equipment:

* Conveyorized brush systems—the vehicle is moved past a series of brushes and spray units by a conveyor;

* Roll-over brush units—the vehicle remains stationary and spinning brushes are moved back and forth over it.

Generally, car wash operators have found that brush systems of the type manufactured by Allen are the most effective for cleaning an automobile, prompting a faster growth rate for brush systems than for spray units.

Total car wash installations are estimated at approximately 18,000 in the United States; 14,000 in Western Europe; about 10,000 in Japan and the Far East; and 3,000 elsewhere. Although there are fewer car wash installations in Western Europe and the Far East, these markets are relatively new, and have developed rapidly. Two of the leading manufacturers in Europe and the Far East are the recently acquired Rohe Company, and the Takeuchi Company in Japan, a licensee for certain types of Allen's equipment. Both Rohe and Takeuchi market under Allen's brand name—"California." Both entered the car wash equipment business only in 1966, and have already made important contributions to the industry's technology.

The rapidly growing interest of major oil companies, domestic and international, in car wash equipment is helping to spur the industry on its way. To date, the great majority of United States sales has been produced by independent equipment distributors selling to individual operators. The emphasis has been automobile washing as an independent service unrelated to gasoline marketing. Although a number of existing car wash installations have recently added gasoline pumps, most United States car washes do not retail gasoline.

In Europe and the Far East, marketing efforts are basically directed at the international oil companies, explaining why car wash installations abroad are so closely tied in with modern gasoline marketing. The number of existing gasoline stations is significant, therefore, in assessing

the size of the potential market. In the United States there are over 220,000 gasoline stations, yet substantially less than 5 per cent have automatic car wash equipment at the present time. Also, many of the existing independent car wash installations in the United States are obsolete and will have to be replaced by new, automated systems. In addition, there is an expanding replacement parts market paralleling the sales of new equipment.

Western Europe, with approximately 145,000 gas stations, and Canada, with 13,000 gas stations, have shown a far greater acceptance of the relationship of car wash to gasoline retailing. In Japan, it is estimated that there were approximately 34,000 gas stations in 1970 with 9,500 car washes (of which about 80 per cent are Takeuchi's), representing a market penetration of gasoline stations of about 25 per cent. If market penetration in the U.S. equalled Japan's, it would represent the equivalent of over 50,000 automatic car wash installations in connection with gasoline stations alone. This contrasts with a total of 18,000 car washes now in the United States, only a fraction of which are installed in gasoline stations.

TABLE 1

<table><thead><tr><th>Country</th><th>Number of Passenger Cars<sup>1</sup></th><th>Estimated Number of Car Wash Units Installed<sup>2</sup></th><th>Approximate Number of Gas Stations<sup>3</sup></th><th>Per Cent of Gas Stations With Car Wash Units<sup>4</sup></th></tr></thead><tbody><tr><td>U.S.A.</td><td>86,800,000</td><td>18,000</td><td>220,000</td><td>2.0%</td></tr><tr><td>Canada</td><td>6,500,000</td><td>1,500</td><td>13,000</td><td>8.1%</td></tr><tr><td>Germany</td><td>13,200,000</td><td>4,400</td><td>40,000</td><td>8.8%</td></tr><tr><td>France</td><td>11,700,000</td><td>2,050</td><td>25,000</td><td>6.2%</td></tr><tr><td>Japan</td><td>7,000,000</td><td>9,500</td><td>34,000</td><td>25.0%</td></tr><tr><td>Australia</td><td>8,000,000</td><td>50</td><td>20,000</td><td>0.25%</td></tr><tr><td>Other</td><td></td><td></td><td></td><td></td></tr><tr><td>European</td><td>22,500,000</td><td>7,010</td><td>50,000</td><td>9.8%</td></tr></tbody></table>

Sources

¹National Petroleum News and Management Estimates

²American Car Wash Association and Management Estimates

³National Petroleum News and Management Estimates

⁴Management Estimates

Factors Influencing Growth

Many car wash and petroleum marketing experts support the concept of the sales tie-in between the gasoline sta-

tion and the automatic car wash. Those gasoline station
operators who provide a quick, inexpensive quality car
wash to their gasoline customers, maintain that this ser-
vice adds to their operations in three ways by:

* Providing another source of revenue from fees charged for car washes and waxings;

* Allowing maintenance of gasoline price margins more effectively than premium programs;

* Stimulating gasoline sales and increasing market share. In many instances, gasoline sales have doubled or tripled with the installation of automatic car washing. This is borne out by large scale studies undertaken by several of the major domestic oil companies.

Not to be overlooked are improvements within the car
wash industry itself. Manufacturers have become larger
and more sophisticated. They are producing more reli-
able, longer-lasting equipment giving a higher quality
wash; they are also providing the necessary services
and support systems required by the car wash-gasoline
station operator. The rapidly increasing number of car
wash installations has stimulated the demand for car
washing through improved accessibility. Also, the con-
venience of "one-stop shopping" for car wash and gaso-
line is increasing the public's demand for this service.

The Role of Major Oil Companies

Allen's management believes the major oil companies
will shape the direction of the car wash industry in the
years ahead.

Why? Because automatic car wash offers an excellent way of improving the economic return on existing gasoline station facilities. With its relatively low initial investment, limited labor requirements, small variable costs, very high capacity, and rapid start-up, a modern car wash installation offers generous potential after-tax returns on invested capital.

The "break-even" point for the car wash installation rep-
resents only a small percentage of the equipment's car
washing capacity. Allen has pro-forma calculations of
estimated returns on various types of car wash installa-
tions in both Europe and the United States, which are
available on request.

Oil Company Demand For Quality

Oil companies are having a qualitative as well as a quant-
itative effect on the car wash equipment business. Oil

company customers are interested in high caliber, reli-
able manufacturers who can provide service and support
systems for their car wash programs in a fashion con-
sistent with the oil companies' concern for their reputa-
tion and image as petroleum producers and marketers.
Equipment that fails to operate properly because of
poor design and manufacturing, or only works intermit-
tently because of inadequate after-sale service, means not
only a loss of income to the oil companies, but threatens
its efforts to establish customer loyalty. The advent of the
oil company as the major buyer of car wash equipment
offers an opportunity for Allen, a quality manufacturer,
to increase its share of a growing market.

Allen's Position In Car Wash Equipment Market

By acquiring the Rohe company in Germany, Allen be-
came a leader in the international car wash equipment
field. Rohe has major manufacturing facilities in West
Germany, as well as plants in Australia, the United King-
dom, and South Africa (under construction), and sales
and service facilities in France. Allen also owns Califor-
nia Car Wash Systems, Inc., located in Sun Valley, Cali-
fornia, and a majority interest in California Car Wash
Systems (Canada) Ltd., located in Toronto, Canada. All
of these companies, as well as Takeuchi in Japan, market
under the brand name, "California."

The international distribution of car wash equipment
under the "California" name will make this brand the
best known world-wide.

In Europe

In Western Europe, Rohe is one of the leading car wash
equipment manufacturers, after beginning production
only five years ago. The company accounts for more than
30 per cent of European car wash equipment sales, and
is in a particularly strong position for roll-over type units.
The roll-over unit, called "COMBI", because it both
washes and dries the automobile, is a design of the Rohe
Group and represents a valuable addition to Allen's tech-
nological position. Allen believes that this design has
potential application in the United States.

Rohe began the manufacture of car wash equipment with
conveyor-type systems under license from California Car
Wash in 1966. Since that time, its sales have grown at a
rate of more than 35 per cent a year. Rohe's remarkable
success can be attributed to its strong relationship with
the European oil industry as a service and construction
contractor for gasoline stations in West Germany.