<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO _____
Commission File Number 1-2725
HEIN-WERNER CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0340430
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2120 Pewaukee Road, Waukesha, Wisconsin 53188
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414-542-6611
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
----------------------------- ------------------------
Common Stock, $1 par value American Stock Exchange
Common Share Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:None
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K, or any amendment to this form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 8, 1995: $11,100,375
The number of shares outstanding of each registrant's classes of common
stock as of March 8, 1995: Common Stock, $1 par value -- 2,482,714 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement dated March 17, 1995 relating to the annual
meeting of shareholders to be held April 27, 1995 (Part III of Form 10-K).<PAGE>
PART I
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ITEM 1. BUSINESS
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GENERAL. Hein-Werner Corporation was incorporated under the
laws of the State of Wisconsin on April 16, 1921 and is
headquartered in Waukesha, Wisconsin. Throughout the remainder
of this Form 10-K, Hein-Werner Corporation and its subsidiaries
will be referred to as the "Company" or the "Registrant" except
where the context otherwise requires.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Industry
segment information is part of the Notes to Consolidated
Financial Statments, Segment Information which can be found in
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Item 8 of this
report.
DESCRIPTION OF THE BUSINESS. The Company has three
functional industry segments: collision repair equipment, engine
rebuilding equipment and fluid power components.
COLLISION REPAIR EQUIPMENT
The Company serves the collision repair equipment market
worldwide, with operations centered in North America and in
Europe. This business segment represented approximately 54.6%,
55.6% and 60.2% of the Company's net sales for 1994, 1993 and
1992, respectively.
Collision repair equipment is comprised of vehicle
correction equipment for straightening collision damaged cars,
vehicle alignment equipment for measuring cars as they are
straightened and heavy duty collision repair equipment for the
truck market. The collision repair market is made up of autobody
shops and other collision repair facilities owned by automotive
dealers, franchisees and independents. The Company's collision
repair equipment is designed to straighten collision damaged cars
and trucks to original manufacturers' specifications. Using
computer aided design and patented measuring systems, the Company
measures each new model of automobile soon after its introduction
and provides to its customers books or magnetic media that detail
measurement data covering every model of car over the preceding
three model years. When a damaged automobile is to undergo
collision repair, an autobody repair technician applies
controlled pressure to designated points on the body using chains
and hydraulic pumps to restore the body to its designated size
and shape utilizing the measuring equipment and specification
data published by the Company.
The majority of cars are now made with a unibody shell
compared to older vehicles built with frames. Unibody vehicles
are designed to better absorb the impact of a collision which
necessitates more vehicle straightening and a higher degree of
accuracy in measuring vehicles as they are straightened. The
closer tolerances needed in repairing unibody vehicles requires
the use of sophisticated straightening and measurement systems
such as those designed, manufactured and marketed by the Company.
The insurance industry and automobile manufacturers encourage the
use of such systems.
In North America, the Company services the market with its
Kansas Jack, Blackhawk, Hein-Werner Heavy Duty, and Hein-Werner
SHARK (registered trademark) brands. The Company's strategy is
to offer the most complete line of collision repair equipment
available in the marketplace at a range of price levels. The
product offering is a full range of frame straightening and
vehicle alignment equipment for both trucks and automobiles
including floor-pull correction systems, rack and bench repair
systems and universal and dedicated vehicle alignment systems
employing the state of the art technology for laser, mechanical
and ultrasonic measurement of collision damaged vehicles. From
North America, the Company services the markets in North and
South America, the Caribbean and certain Pacific Rim countries.
The Company serves the rest of the international market
through wholly-owned subsidiaries in Europe. International
operating units accounted for approximately two-thirds of the
Company's 1994 collision repair sales. International operations
are headquartered in Geneva, Switzerland. The Company maintains
manufacturing and sales facilities in the United Kingdom and
Italy; distribution and training facilities in France; and sales
offices in France, Germany and Switzerland.
In the international market served from Europe, the Company
principally sells collision repair equipment under the Blackhawk
and Hein-Werner trade names. All collision repair manufacturing
facilities provide product to markets worldwide. U.S.
manufactured products are modified for international markets at
the Company's plant in Italy. European manufactured products are
modified for the North American market at the Company's
facilities in the United States.
The Company markets its collision repair products through
sales representatives, equipment distributors, automotive
jobbers, and a direct sales force, depending upon the country and
local market. The Company also participates in the equipment
programs of all major U.S. and foreign automotive manufacturers
including Ford, General Motors, Chrysler, Nissan, Toyota,
Hyundai, Peugeot and Volvo, and national tool marketing programs
of the companies. The Company's products have been approved by
all major European automobile manufacturers. The Company has
also been selected as the sole source of collision repair
equipment by several manufacturers. Such approvals provide the
Company with a significant competitive advantage.
ENGINE REBUILDING EQUIPMENT
Engine rebuilding equipment is used by jobber machine shops
where professional and home mechanics bring engine parts to be
rebuilt, and by production engine rebuilders. This industry
segment represented approximately 17.0%, 16.9% and 15.3% of the
Company's net sales for 1994, 1993 and 1992, respectively.
Growth in this market is influenced by the size and age of the
vehicle population and overall economic growth. Sales generally
lag new car sales by approximately three to five years.
A full line of engine rebuilding equipment is manufactured
and sold under the Winona Van Norman and Van Norman tradenames.
The products manufactured and sold include cleaning, grinding,
boring, honing, inspection and brake equipment. The Company is
the exclusive distributor in North America, Mexico and the Far
East for Az di Alvise Zanrosso, Rovimpex Novaledo Zona
Industriale, and the Carin Equipment Group of Italy, all leading
manufacturers of complementary equipment. The Company's engine
rebuilding equipment is sold through manufacturers'
representatives.
The recent devaluation of the Mexican peso will have the
short-term effect of delaying purchases by Mexican customers
until the peso stabilizes and regains at least a portion of its
value compared to the U.S. dollar. There are no domestic
competitors in Mexico for the Company's engine rebuilding
equipment. As a result, the Company does not expect the demand
for this type of equipment to be met by other sources immune to
the devaluation during the period of currency stabilization.
FLUID POWER COMPONENTS
The Company serves the fluid power component market through
its Great Bend Industries Division. The fluid power market
represented approximately 28.5%, 27.5% and 24.5 of the
Company's net sales for 1994, 1993 and 1992, respectively. The
Company specializes in the production of single acting, double
acting and telescopic hydraulic cylinders and related hydraulic
components for the Original Equipment Manufacturer (OEM) market.
These products are incorporated into equipment used in road
repair, construction, transportation, solid waste disposal,
utility vehicles and oil rigs. The demand for the Company's
fluid power components is determined by the demand for the
capital goods produced by the OEM manufacturers it serves. The
Company's fluid power components are sold through manufacturers'
representatives, with some in-house accounts.
RAW MATERIALS. The Company's principal raw materials are
steel products, castings and forgings. The Company customarily
procures its castings and forgings from unaffiliated foundries.
Steel products are purchased by the Company from a number of
steel mills and steel service centers. The principal materials
and supplies used by the Company can ordinarily be procured in
the general market. Raw materials, parts and components are
purchased from many different sources, generally on a purchase
order basis.
MANUFACTURING/PRODUCT SOURCING. The Company has supply
arrangements with manufacturers in Brazil, Italy, Taiwan and the
People's Republic of China for engine rebuilding and collision
repair equipment manufactured exclusively to the Company's
standards and specifications. Such equipment is shipped to the
Company's facilities in Wisconsin, Minnesota and France for
packaging and shipment to the Company's customers.
The Company has the ability to switch sources of
manufacturing to take advantage of wage rates, foreign exchange
rates, foreign trade developments and other factors. The Company
can manufacture products domestically as well.
PATENTS AND TRADEMARKS. The Company owns certain patents
and trademarks which are considered to be important to the
success of the Company's collision repair equipment business.
The Company also owns other patents, none of which are considered
to be critical to the success of its other business operations.
The remaining term on the Company's patents is one to seventeen
years.
SEASONALITY. The Collision Repair equipment market
experiences a significant decline in order demand during July and
August. To a lesser extent, the same is true for the engine
rebuilding equipment market.
CUSTOMERS. The Fluid Power segment has two customers whose
aggregate business represents 30% of the segment's revenues. The
other segments and the overall business of the Company are not
dependent upon a single customer or on a few customers, the loss
of which would have a material adverse effect on any such segment
or on the Company taken as a whole.
BACKLOG. The estimated amount of backlog at December 31,
1994 was approximately $10.3 million; the comparable figure for
December 31, 1993 was approximately $8.9 million. 15.1%, 9.0%
and 75.9% of the 1994 year end backlog is attributable to the
collision repair, engine rebuilding and fluid power segments,
respectively. The Company anticipates that all orders on hand as
of December 31, 1994 will be filled during 1995. Most orders are
filled within three months.
COMPETITION. The Company experiences intense competition
with numerous domestic and foreign producers. Some of the
Company's competitors in each industry segment are significantly
larger than the Company and have substantially greater resources.
The Company expects that it will continue to encounter highly
competitive conditions. The Company believes that its collision
repair equipment and engine rebuilding equipment compete
favorably primarily on the basis of the Company's recognized
brand names, reputation for product innovation and engineering of
high quality products and the Company's distribution channels.
The Company believes that its fluid power components compete
favorably based primarily on the ability of the Company to meet
customers' quality, reliability and service needs.
RESEARCH AND DEVELOPMENT. The Company has 21 engineering
employees who devote all or a portion of their time to the
development and improvement of its products, and many of the
features of the Company's products are the result of its own
development work. The Company spent approximately $1.5 million
in each of the last three fiscal years on engineering and
research activities for continuing operations relating to product
development and improvement, all of which were Company sponsored.
IMPACT OF ENVIRONMENTAL LEGISLATION. The Company did not
during 1994, nor does it expect to during 1995, experience any
material capital expenditures as a result of federal, state or
local environmental legislation.
FOREIGN AND EXPORT SALES. Information concerning foreign
and export sales is part of the Notes to Consolidated Financial
Statments, Segment Information which can be found in FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA, Item 8 of this report.
EMPLOYEES. The Company had about 584 and 566 employees at
the end of 1994 and 1993, respectively. Approximately 72% of the
production employees in both 1994 and 1993 were represented by
labor unions in 1994 and 1993. The Company's labor agreements
with labor unions extend to April, 1995 at its Winona, Minnesota
location and June, 1995 at its Great Bend, Kansas plant. As of
the date of this report, the labor agreement for the Winona
location is in negotiation. Talks with the union at the Great
Bend location begin later. The Company considers its employee
relations to be satisfactory.
MISCELLANEOUS
On September 29, 1989, the Company consummated a private
placement of its $8,500,000 8% Convertible Subordinated Notes due
September 1, 1999 (the "Notes"). The Note Agreement, dated as of
September 1, 1989 ("Note Agreement"), was amended by the parties
thereto effective November 12, 1990, April 26, 1991, February 3,
1992, December 18, 1992 and February 21, 1994. The amendments,
among other things, revised certain financial covenants, reduced
the conversion price per share, provided for the repurchase of
the Notes held by one noteholder and provided noteholders with
options to purchase shares of the Company's Common Stock in the
event of prepayments of the Notes. On January 16, 1991, the
Company repurchased $4,000,000 principal amount of Notes from one
noteholder.
On January 27, 1995 the Company paid a 5% stock dividend to
shareholders of record on January 6, 1995.
ITEM 2. PROPERTIES
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The following table sets forth certain information with
respect to the principal manufacturing facilities (20,000 square
feet or more) which the Company uses in its operations:
Owned or Expiration Square
Location Leased Date of Lease Footage
------------------------ -------- ------------- -------
Baraboo, WI Leased 12/05 73,000
Winona, MN Leased 01/98 63,000
Great Bend, KS Leased (1) 112,000
Ashford, Kent, England Leased 09/02 20,000
Verona, Italy Leased 04/98 43,000
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(1) This property is leased under a long-term lease.
The Company has an option to purchase the property
at a nominal amount upon the expiration of the
lease. This lease has been capitalized for
financial statement purposes.
Sales, marketing, administrative and distribution and
training facilities are leased in Wisconsin, France, Germany and
Switzerland. Fluid power products are produced at the Great
Bend, Kansas plant; engine rebuilding equipment is produced at
the plant in Winona, Minnesota; and collision repair equipment is
produced at the facilities in Ashford, England, Verona, Italy and
Baraboo, Wisconsin. The properties above are considered to be
adequate for present and planned future business.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in various legal proceedings, claims
and administrative actions arising in the normal course of
business. For additional information see "Commitments and
Contingencies" in the Notes to Consolidated Financial Statements
(Item 8 of this report).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company did not submit any matters to a vote of its
security holders during the fourth quarter of 1994.
[the balance of this page is intentionaly blank]
<PAGE>
EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain information concerning the
executive officers of the Registrant as of March 9, 1995:
Name, Age and Position Business Experience During Past 5 Years
-------------------------- ---------------------------------------
Joseph L. Dindorf, 54 President and Chief Executive Officer,
President and Chief Hein-Werner Corporation (elected in
Executive Officer 1976).
Reinald D. Liegel, 52 Senior Vice President-Technology,
Senior Vice President - Hein-Werner Corporation
Technology (elected June, 1988).
Jean-Paul Barthelme, 57 Vice President, and President of
Vice President, and European Operations, Hein-Werner
President-European Corporation (elected September, 1988).
Operations
Edward F. Duffy, 45 Elected December, 1990; prior
Vice President-Finance, thereto Assistant Vice President,
Treasurer and Assistant Corporate Controller, Assistant
Secretary Secretary and Assistant Treasurer of
the Company.
Michael J. Koons, 55 Vice President-Industrial Relations and
Vice President-Industrial Personnel, Hein-Werner Corporation
Relations and Personnel (elected in 1979).
James R. Queenan, 52 Elected June, 1990; prior thereto, self
Vice President, and employed as a marketing consultant and
President-Collision Repair prior to January, 1988, President of
Equipment Group the Kansas Jack Division.
Maurice J. McSweeney, 56 Elected March, 1983; partner,
Secretary Foley & Lardner, attorneys, Milwaukee,
Wisconsin.
The officers of Registrant are elected annually by the Board of
Directors following the Annual Meeting of Shareholders and each officer
holds office until his successor has been duly elected and qualified or
until his prior death, resignation or removal. The next Annual Meeting
of Shareholders is currently scheduled for April 27, 1995.<PAGE>
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
--------------------------------------------
The Company's Common Stock is listed on the American Stock
Exchange under the symbol "HNW." The following table sets forth
the range of high and low closing sales prices per share as
reported on the American Stock Exchange for the Company's Common
Stock and the cash dividends declared per share of Common Stock
thereon during the periods indicated. The Company paid a 5%
stock dividend on (i) January 22, 1993 to shareholders of record
on January 8, 1993; and (ii) January 21, 1994 to shareholders of
record on January 7, 1994.
Closing sale price Cash
---------------------- dividends
High Low declared
------- ------- ----------
1993
4th quarter . . . $ 4.75 $ 3.9375 --
3rd quarter . . . 5.25 3.875 --
2nd quarter . . . 6.00 4.875 --
1st quarter . . . 6.50 5.25 --
1994
4th quarter . . . $ 5.50 $ 4.625 --
3rd quarter . . . 6.125 5.00 --
2nd quarter . . . 7.375 5.125 --
1st quarter . . . 8.00 3.875 --
On March 8, 1995, the closing sales price of the Company's Common
Stock, as reported on the American Stock Exchange was $4.75 per
share. As of that date there were 710 holders of record of the
Company's Common Stock. Holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available
therefor.
The Company's ability to pay dividends is restricted by the
terms of the Note Agreement and the Company's 8% Convertible
Subordinated Notes due September 1, 1999 issued thereunder and by
the Company's credit facility with Firstar Bank Milwaukee, N.A.
and Continental Bank N.A. (succeeded by BankAmerica N.A.'s
Security Pacific Business Credit Inc.) ("Credit Facility").
Under the terms of the Credit Facility, the Company is prohibited
from paying dividends. In addition to the restrictions set forth
in the Credit Facility, the Note Agreement prohibits the payment
of any dividends if after giving effect thereto (together with
certain other payments or distributions in respect of Company
capital stock), the aggregate amount of all Restricted Payments
(as defined in the Note Agreement) during the period from and
after December 31, 1988 to and including the date of making the
Restricted Payment (exclusive of the dividend paid on January 13,
1989) would exceed 25% of Consolidated Net Income (as defined in
the Note Agreement) for such period.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
(Amounts in thousands, except per share data)
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net sales............ $67,100 $60,328 $60,258 $54,708 $67,873
Income (loss) from
continuing operations 827 (1,580) (1,880) (3,217) 1,169
Income (loss) from
continuing operations
per common share..... $0.34 ($0.64) ($0.76) ($1.30) $0.47
Total assets......... 46,101 45,345 47,321 66,604 71,390
Long-term
obligations.......... 13,256 14,071 12,873 25,188 24,314
Cash dividends
declared
per common share..... $0.00 $0.00 $0.00 $0.00 $0.00
Per share data has been restated to give effect to stock dividends
paid through January 27, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
RESULTS OF OPERATIONS
---------------------
NET SALES:
Consolidated net sales for 1994 increased by 11.2% over 1993
levels. In 1993, net sales were essentially unchanged from the
levels achieved in 1992.
(Amounts in thousands)
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1994 1993 1992
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North America $ 44,657 $ 38,012 $ 33,550
Europe 22,443 22,316 26,708
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Total net sales $ 67,100 $ 60,328 $ 60,258
================================================================
The Company's North American operations posted the tenth
consecutive quarterly increase in net sales compared to prior
year periods. The 1994 increase was 17.5% over 1993, due
primarily to increased volume from improving economic conditions.
Net sales in 1993 were 13.3% over 1992 levels. The increase was
from higher volumes of existing products and the successful
introduction of several new products.
International operations based in Europe posted a 0.6%
increase in 1994 over 1993 net sales levels. Recessionary
pressures continuing in some European countries were offset by
recoveries in others and by new distribution channels in the Far
East. In 1993, net sales levels had declined by 16.4% from 1992
levels due to general recessionary economic conditions in most of
our European markets.
Net Sales by Segment *
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1994 1993 1992
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Collision Repair 54.6% 55.6% 60.2%
Engine Rebuilding 17.0 16.9 15.3
Fluid Power 28.4 27.5 24.5
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Total net sales 100.0% 100.0% 100.0%
================================================================
* Refer to the Segment Information in the Notes to
Consolidated Financial Statements for more information.
The Collision Repair business benefitted from new channels
of distribution for the international business, improving
economic conditions in the collision repair industry in the
United States and enthusiastic acceptance of recent product
introductions.
The Company's participation in the Ford Focus Partner
program and other national account programs improved market
penetration in the United States. The agreement with Nissan
Altia of Japan expanded channels of distribution for the Company
in the Far East. These programs, along with the outstanding
success of the SHARK (registered trademark) computerized sonar
measuring system and the BlackoSpace (registered trademark)
workbay concept system, helped offset weak economic conditions in
Germany and Italy. Net sales increased by 9.2% over 1993.
In 1993, net sales had declined by 7.6% from 1992 levels,
due primarily to the weakness in European markets which were off
by 16.4% over the prior year. North American markets had
improved by 17.1% over 1992. Both situations are attributable to
changing economic conditions and the resulting effect on sales
volume.
The Engine Rebuilding segment also benefitted from the
improving economy in the United States. Net sales were up in
both 1994 and 1993 by 11.9% and 11.0%, respectively. This
segment is continuing to improve its export sales business. In
the short run, future export sales to Mexico may be delayed
because of the recent instability in that country's currency.
Since there are no domestic Mexican manufacturers of engine
rebuilding equipment, the Company expects to realize delayed
sales once the currency stabilizes.
The Fluid Power industry segment improved net sales by 14.8%
over 1993. This increase in net sales follows a 1993 increase of
12.3% over 1992 levels. The Company believes this increased
volume is a direct result of its ability to deliver a unique
quality product to meet the customers' production schedule
requirements. While pricing pressures are still significant
factors in the marketplace, it is quality and delivery which set
the Company's Fluid Power business ahead of its competitors.
COSTS AND PROFIT MARGINS:
Gross profits improved by 13.0% from $21.5 million in 1993
to $24.3 million in 1994. The increase in 1993 gross profit was
2.5% from $21.0 million in 1992.
Gross Profit as a % of Net Sales
----------------------------------------------------------------
1994 1993 1992
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Collision Repair 47.3% 45.2% 42.9%
Engine Rebuilding 26.3 28.5 25.7
Fluid Power 21.2 20.4 21.5
----------------------------------------------------------------
Consolidated 36.2% 35.7% 34.8%
================================================================
The increase in gross profit margins in the Collision Repair
industry segment is a result of both increased efficiencies in
the utilization of productive capacity and higher margins on
newly introduced products. As economic conditions improved in
the United States, the Company was able to spread fixed
manufacturing costs over a larger sales volume, thus utilizing
productive capacity more efficiently. Products introduced during
the period 1992 through 1994 were able to command higher margins
because of their technological superiority and because of the
research and development costs invested in their development. In
North America these products are sold directly to the end user
resulting in higher margins for the Company. Part of this
benefit is offset by commissions paid to distributors. The
changes to the distribution methods will provide the Company with
better control of the distribution channel and improved market
research information regarding the equipment users.
The Company incurred increases in the cost of materials
during 1994. By seeking alternative sources of supply and by
re-engineering products to reduce their material cost content
(value engineering), the Company was able to absorb these
increases without materially affecting gross profit.
The Engine Rebuilding segment also benefitted from improved
manufacturing capacity utilization as a result of volume
increases from better economic conditions in the 1992 through
1994 period. Because of the competitiveness of the domestic
market, not all of the material and labor cost increases incurred
in 1994 were passed on to equipment purchasers. This resulted in
a slightly lower gross profit margin in 1994.
The gross profit margins for the Fluid Power segment are
essentially unchanged. Gains in gross profit have resulted from
continuing improvements in sales volume which, the Company
believes, are a result of performance factors in the area of
quality, engineering assistance and delivery.
OPERATING EXPENSES AND PROFIT:
The rise in 1994 operating expenses is primarily due to
higher commission expenses from increased sales volume. The
increase in 1993 expenses over 1992 was due to higher bad debt
expense, health and product liability self-insurance reserves and
legal expenses. As a percent of total revenues, however,
consolidated operating expenses were down in 1994 from 1993,
despite the rising commission expenses.
(Amounts in thousands)
----------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------
Operating expense $22,414 $21,599 $19,923
================================================================
Operating profit (loss) $ 1,889 $ (91) $ 1,054
================================================================
For the most part, operating expenses have been well
controlled in all business segments with an overall positive
trend. The higher percentage figure in 1993 for the Collision
Repair segment was due to increased bad debt reserves in that
year. The Company expects the positive trend in expenses, as a
percent of revenue, to continue.
Operating expense as a % of net sales for the segment
----------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------
Collision Repair 39.0% 41.8% 37.7%
Engine Rebuilding 22.6 26.2 27.6
Fluid Power 9.6 10.8 10.3
----------------------------------------------------------------
Consolidated 33.4% 35.8% 33.1%
================================================================
NONOPERATING INCOME AND EXPENSE:
Interest expense is the largest component of nonoperating
expense. It is interest paid to banks, leasing companies and
other lenders for borrowed money or for capitalized leases.
While the overall borrowing level declined by 5.9% during 1994,
rising interest rates increased overall interest expense from
1993 by $93,000. In 1993 declining levels of borrowing and
stable interest rates resulted in a 23.8% reduction in interest
expense from 1992 levels.
(Amounts in thousands)
----------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------
Interest expense $ (1,690) $ (1,597) $ (2,096)
Gain(loss) on foreign currency (28) 146 (533)
Miscellaneous, net 339 125 225
----------------------------------------------------------------
Total nonoperating expense, net $ (1,379) $ (1,326) $(2,404)
================================================================
The foreign currency gains and losses are primarily
attributed to European operations where a considerable amount of
buying and selling is done in non-local currencies. Receivables
and payables denominated in non-local currencies give rise to
exchange gains and losses on a regular basis. Normally, currency
risk in this category is managed by a review of the balance of
receivables and payables and, where warranted, the purchase of
exchange contracts to minimize risk. In 1993, the Company
recorded a $267,000 exchange gain as a result of closing the
Spanish operation and consolidating the remaining accounts in the
Company's Swiss subsidiary.
INCOME TAX EXPENSE:
The income tax benefit recorded for 1994 was the result of
recoverable income taxes from net operating loss carrybacks and
the favorable resolution of tax audits of prior year returns.
The 1993 income tax expense is exclusively from European
operations.
DISCONTINUED OPERATIONS:
------------------------
The Automotive Service Equipment business in North America
had become a highly competitive, low margin business,
increasingly assailed by competition from off-shore, low cost
producers with inconsistent quality. Near the end of June 1992,
the Company sold its North American Automotive Service Equipment
business. The Company's intent in selling this business was to
focus its assets and efforts on its higher margin products where
quality rather than price and volume is the important factor to
profitability.
The Automotive Service Equipment business recorded net
losses of $0.8 million in 1992 (6% of net sales) and $2.0 million
in 1991 (7% of net sales).
Proceeds from the sale of the business were $10.1 million
and the Company recorded a net gain of $155,000 in 1992. Through
the first six months of 1992, the Automotive Service Equipment
business generated $13.2 million in net sales, a 15% decline from
$15.5 million for the same period the year earlier. Sales for
1991 were $30.3 million. Gross margins for the six months of 1992
were 18% of net sales, compared to 19% for the year ended
December 31, 1991.
The Company retains its rights to sell automotive service
equipment through its other businesses in the markets of Europe,
the Middle East and the Orient. These markets do not display the
same negative characteristics.
The additional loss on the discontinued business of $756,000
was recorded in 1993 as the result of revaluation of pension
liability for current interest rates, an adjustment to the
product liability self-insurance reserves and the recording of a
loss on the disposition of assets held for sale.
EXTRAORDINARY GAIN:
-------------------
In July 1993, the Company's Baraboo, Wisconsin manufacturing
facility sustained considerable damage due to flooding. The
insurance protecting the property replaced any equipment damaged
beyond repair with new equipment. As a result, a gain was
recorded for the market value of the new equipment and an
offsetting loss was recorded for the book value of the equipment
destroyed. In addition, certain unreimbursed expenses related to
the flooding were also charged against the gain.
FINANCIAL CONDITION:
--------------------
LIQUIDITY:
Net income adjusted for non-cash items has increased
consistently during the past three years. 1994 produced $2.8
million; an increase of 47.4% over 1993's $1.9 million. 1992
used $131,000.
(Amounts in thousands)
----------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------
Net income (loss) $ 827 $ (1,576) $ (2,487)
Adjustments for non-cash items 2,001 3,458 2,356
----------------------------------------------------------------
2,828 1,882 (131)
Cash from changes in certain
assets & liabilities (1,689) 963 2,474
----------------------------------------------------------------
Cash from operating activities $ 1,139 $ 2,845 $ 2,343
================================================================
Cash from operating activities continues to provide the
Company with sufficient cash to satisfy debt service requirements
and the investment in capital assets.
During 1994, the build-up in working capital was necessary
to support the growing sales volume. The increase, primarily
inventory and receivables, reduced overall cash flows from
operations by $1.7 million as compared to 1993. The Company
expects to reverse this build-up in 1995, providing additional
cash from operating activities to reduce debt.
(Amounts in thousands)
----------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------
Current assets $ 37,353 $ 35,584 $ 37,500
Current liabilities 17,030 16,341 16,539
----------------------------------------------------------------
Working capital $ 20,323 $ 19,243 $ 20,961
================================================================
Current ratio 2.2 to 1 2.2 to 1 2.3 to 1
================================================================
Credit arrangements in Europe are short-term in nature and
designed to satisfy seasonal fluctuations in liquidity
requirements. Those arrangements are renewed annually and are
sufficient to support the needs of the Company's operations
there.
FINANCING ACTIVITIES:
During 1994, the Company entered into financing agreements
with several institutions for aggregate proceeds of $1.5 million.
These financings are collateralized by machinery, equipment,
buildings and fixtures. The Company also extended its current
credit agreement with domestic banks during the year.
Actual amounts available under the $12 million credit line
are dependent upon the balances of the underlying collateral. At
December 31, 1994, $10 million of the line of credit was
available. The Company was utilizing $7.6 million. This line of
credit, along with cash provided by operating activities, is
considered adequate to satisfy the cash needs of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Index
-----
Report of Management
Independent Auditors' Report
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
MANAGEMENT'S REPORT
The management of Hein-Werner Corporation is responsible for
the preparation and presentation of financial statements.
Management believes the established policies, internal accounting
controls and review procedures provide reasonable assurance that
the consolidated financial statements included herein are
prepared in accordance with generally accepted accounting
principles. This preparation has been based upon the best
estimates and judgments and giving due consideration to
materiality.
The Company maintains internal accounting control systems and
related policies and procedures. These systems are designed to
provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's
authorization and properly recorded, and accounting records may
be relied upon for the preparation of financial statements and
other financial information. The design, monitoring and revision
of internal accounting control systems involve, among other
things, management's judgment with respect to the relative cost
and expected benefits of specific control measures.
The independent auditors are responsible for expressing their
opinion as to whether the financial statements present fairly the
financial position, operating results and cash flow of the
Company. In this process, they obtain a sufficient understanding
of the internal accounting systems to establish the audit scope,
review selected transactions and carry out other audit
procedures.
The Audit Committee of the Board of Directors is composed of
two non-employee directors who meet periodically with the
independent auditors and the Company's management. This
Committee considers the audit scope, discusses financial and
reporting subjects and reviews management actions on these
matters. The independent auditors have full and free access to
the Audit Committee.
Edward F. Duffy
Vice-President Finance and
Treasurer
Joseph L. Dindorf
President and Chief Executive
Officer
Waukesha Wisconsin
February 17, 1995<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Hein-Werner
Corporation:
We have audited the accompanying consolidated balance sheets
of Hein-Werner Corporation and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of
operations and cash flows for each of the years in the three-year
period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Hein-Werner Corporation and subsidiaries as
of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
February 17, 1995
<PAGE>
Consolidated Balance Sheets
As of December 31, 1994 and 1993
(Amounts in thousands)
1994 1993
--------- ---------
ASSETS
------
CURRENT ASSETS:
Cash $ 466 $ 339
Accounts receivable, net 19,875 18,957
Inventories 16,154 14,624
Prepaid expenses and other 858 1,664
--------- ---------
TOTAL CURRENT ASSETS 37,353 35,584
PROPERTY, PLANT AND EQUIPMENT, NET 5,265 5,658
OTHER ASSETS 3,483 4,103
--------- ---------
$ 46,101 $ 45,345
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 3,189 $ 2,954
Current installments of long-term debt 316 789
Accounts payable 7,302 7,622
Other current liabilities 6,223 4,976
--------- ---------
TOTAL CURRENT LIABILITIES 17,030 16,341
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS 13,256 14,071
OTHER LONG-TERM LIABILITIES 1,493 2,217
--------- ---------
Commitments and Contingencies
TOTAL LIABILITIES 31,779 32,629
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share
Authorized: 20,000,000 shares;
Issued: 2,386,477 shares 2,386 2,386
Capital in excess of par value 11,377 12,023
Retained earnings 827 1,306
Cumulative translation adjustments 110 (670)
--------- ---------
14,700 15,045
Less cost of common shares in treasury -
21,707 and 133,978 shares at December 31,
1994 and 1993, respectively 378 2,329
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 14,322 12,716
--------- ---------
$ 46,101 $ 45,345
========= =========
See accompanying notes to consolidated financial statements.<PAGE>
Consolidated Statements of Operations
Years Ended December 31, 1994, 1993 and 1992
(Amounts in thousands, except per share amounts)
1994 1993 1992
--------- --------- ---------
NET SALES $ 67,100 $ 60,328 $ 60,258
COST OF SALES 42,797 38,820 39,281
--------- --------- ---------
GROSS PROFIT 24,303 21,508 20,977
SELLING, ENGINEERING AND
ADMINISTRATIVE EXPENSES 21,711 19,848 19,003
BAD DEBT EXPENSE 703 1,751 920
--------- --------- ---------
22,414 21,599 19,923
--------- --------- ---------
OPERATING PROFIT (LOSS) 1,889 (91) 1,054
NON-OPERATING INCOME (EXPENSE)
Interest expense (1,690) (1,597) (2,096)
Other income (expense) 311 271 (308)
--------- --------- ---------
(1,379) (1,326) (2,404)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS, BEFORE INCOME TAX 510 (1,417) (1,350)
INCOME TAX EXPENSE (BENEFIT) (317) 163 530
--------- --------- ---------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS 827 (1,580) (1,880)
DISCONTINUED BUSINESS
Loss from the operations of a
disposed business, net of related
income tax -- -- (762)
Gain (loss) from the sale of a
business, net of related income tax -- (756) 155
EXTRAORDINARY ITEM
Gain from the involuntary
conversion of assets, net of
related income tax -- 760 --
--------- --------- ---------
NET INCOME (LOSS) $ 827 $ (1,576) $ (2,487)
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE
FROM CONTINUING OPERATIONS $ 0.33 $ (0.64) $ (0.76)
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE $ 0.33 $ (0.63) $ (1.00)
========= ========= =========
See accompanying notes to consolidated financial statements.<PAGE>
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993 and 1992
(Amounts in thousands)
1994 1993 1992
--------- --------- ---------
CASH FROM OPERATING ACTIVITIES:
Net income (loss) $ 827 $(1,576) $(2,487)
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Adjustments to net income
(loss) for items not using
or providing cash:
Depreciation and amortization 1,301 1,175 1,527
Bad debt expense 703 1,751 920
Deferred tax expense -- 523 175
(Gain) loss on sale property,
plant & equipment (3) 13 (111)
(Gain) from the involuntary
conversion of assets -- (760) --
(Gain) loss from the sale of
a business -- 756 (155)
--------- --------- ---------
2,001 3,458 2,356
--------- --------- ---------
Increase (decrease) in cash,
net of the effects of the
disposed business, due to
changes in:
Accounts receivable (1,621) (1,882) 5,135
Inventories (1,530) 1,033 3,173
Prepaid expenses and
other assets 1,259 1,701 (1,185)
Accounts payable (320) 1,246 (3,036)
Accrued expenses and
other liabilities 523 (1,135) (1,613)
--------- --------- ---------
(1,689) 963 2,474
--------- --------- ---------
Cash provided by operating
activities 1,139 2,845 2,343
--------- --------- ---------
[continued]<PAGE>
Consolidated Statements of Cash Flows, continued...
Years Ended December 31, 1994, 1993 and 1992
(Amounts in thousands)
1994 1993 1992
--------- --------- ---------
CASH FROM INVESTING ACTIVITIES:
Capital expenditures (737) (1,148) (1,541)
Proceeds from sale of property,
plant & equipment 13 44 1,128
Proceeds from the sale
of a business -- -- 10,144
--------- --------- ---------
Cash provided by (used in)
investing activities (724) (1,104) 9,731
--------- --------- ---------
CASH FROM FINANCING ACTIVITIES:
Increase (decrease) in
notes payable 235 (1,316) 620
Proceeds from long-term debt 1,461 2,006 6,200
Deferred debt issuance costs (15) (70) --
Repayment of long-term debt (2,749) (1,408) (19,328)
--------- --------- ---------
Cash used in financing
activities (1,068) (788) (12,508)
--------- --------- ---------
CUMULATIVE TRANSLATION ADJUSTMENTS 780 (728) (1,114)
--------- --------- ---------
TOTAL CASH PROVIDED (USED) 127 225 (1,548)
CASH - BEGINNING OF YEAR 339 114 1,662
--------- --------- ---------
CASH - END OF YEAR $ 466 $ 339 $ 114
========= ========= =========
See accompanying notes to consolidated financial statements.<PAGE>
Notes to Consolidated Financial Statements
December 31, 1994, 1993, and 1992
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
Equipment which is repossessed and returned to inventory is
recorded at the lesser of its original cost, the amount owed to
the Company, or market.
(d) Property, Plant and Equipment
Depreciation of plant and equipment is provided over the
estimated useful lives of the respective assets using the
straight-line method. Major replacements and betterments are
capitalized while maintenance and repairs are expensed as
incurred.
(e) Intangibles
Patents are amortized over their estimated useful lives but not
exceeding seventeen years. The excess cost over net assets of
acquired companies is amortized on the straight-line basis over
a forty-year period. Deferred debt issuance costs are amortized
over the term of the underlying debt agreements. The Company
periodically evaluates the carrying value and remaining
amortization periods of intangible assets for impairment.
(f) Non-current Receivables
Certain accounts receivable from distributors in the Collision
Repair industry segment were renegotiated during 1993 to notes
with payment schedules which extend beyond one year. These
notes, which bear an interest rate of 8%, have been
collateralized with personal guarantees of the owners, partners
and principals of the distributors and are presented as non-
current assets. Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan", was
adopted January 1, 1995 and is not expected to have a
significant effect on the Company's financial position or
results of operations.
(g) Revenue Recognition and Concentration of Credit Risk
Sales are recognized upon shipment of products to equipment
distributors, automotive jobbers, warehouse distributors and
retail dealers for resale; and on shipments directly to original
equipment manufacturers and end-users. Estimated losses on
accounts receivable and guaranteed notes are provided for in
valuation reserves.
The Company extends customary industry credit terms to customers
in North America and in Europe. Sales outside these regions are
generally supported by letters of credit. Accounts receivable
from resellers of equipment are generally collateralized by the
products sold and the Company also obtains guarantees from some
owners, partners, or principals.
When product is repossessed for which the Company has obtained a
guarantee, the guarantor takes possession of the product and the
Company records a receivable from the guarantor. If there is no
third party guarantor, the Company takes possession of the
equipment and reverses any previously recognized revenue or
charges any recognizable loss to a reserve established for that
purpose.
(h) Income Taxes
The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(i) Translation of Foreign Financial Statements
Assets and liabilities of foreign subsidiaries are translated at
year-end exchange rates and the statements of operations are
translated at the average exchange rates for the year. Gains or
losses resulting from translating foreign currency financial
statements are accumulated as a separate component of
stockholders' equity until the entity is sold or substantially
liquidated, at which time any gain or loss is included in net
earnings.
Gains or losses from foreign currency transactions (transactions
denominated in a currency other than the entity's functional
currency) are included in net earnings.
(j) Research and Development Expenses
The Company incurred research and development costs in
continuing operations of approximately $1,475,000 in 1994,
$1,450,000 in 1993, and $1,531,000 in 1992. Research and
development costs are expensed as incurred.
(k) Earnings per Common Share
Earnings per share data and weighted average shares outstanding
have been restated for all years presented to give effect to the
5% stock dividends paid January 27, 1995, January 21, 1994 and
January 22, 1993.
Earnings per share are based on the weighted average number of
shares outstanding during each year and the assumed exercise of
dilutive employees' stock options (less the number of treasury
shares assumed to be purchased from the proceeds). Primary
earnings per share are based on 2,483,000 shares in 1994, 1993,
and 1992 respectively, as adjusted for stock dividends. Fully
diluted earnings per share based on the assumed conversion of
the 8% convertible subordinated notes issued September 29, 1989
were not dilutive in any of the years presented.
(l) Reclassification
Certain amounts in 1993 and 1992 have been reclassified to
conform to the 1994 presentation.
ACCOUNTS RECEIVABLE
(Amounts in thousands) 1994 1993
----------------------------------------------------------------
Accounts Receivable $ 21,545 $ 20,895
Allowance for losses 1,670 1,938
---------------------------------------------------------------
Total $ 19,875 $ 18,957
===============================================================
INVENTORIES
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Raw material $ 5,902 $ 4,078
Work-in-process 1,481 3,225
Finished goods 8,771 7,321
---------------------------------------------------------------
Total $16,154 $14,624
================================================================
PREPAID EXPENSES AND OTHER ASSETS
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Prepaid expenses and other $ 350 $ 1,001
Income tax benefit receivable 508 663
---------------------------------------------------------------
Total $ 858 $ 1,664
================================================================
PROPERTY, PLANT AND EQUIPMENT, NET
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Land $ 90 $ 90
Buildings 2,839 2,745
Machinery & equipment 13,101 12,423
---------------------------------------------------------------
16,030 15,258
Accumulated depreciation 10,765 9,600
---------------------------------------------------------------
Total $ 5,265 $ 5,658
================================================================
OTHER ASSETS
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Patents $ 563 $ 563
Goodwill 2,282 2,282
---------------------------------------------------------------
2,845 2,845
Accumulated amortization 1,259 1,180
---------------------------------------------------------------
Net Intangibles 1,586 1,665
Deferred debt issuance costs, net 97 181
Non-current notes receivables 2,407 3,041
Less allowance 955 995
---------------------------------------------------------------
Net receivables 1,452 2,046
Other assets 348 211
---------------------------------------------------------------
Total $ 3,483 $ 4,103
================================================================
SHORT-TERM BORROWINGS AND LINES OF CREDIT
The Company has various unsecured lines of credit with foreign
banks aggregating $6,514,000. The amount of unused available
borrowings under these various lines of credit was $3,325,000 at
December 31, 1994.
In addition, the Company has the ability to borrow funds outside
of these lines of credit at foreign banks by using local
currency receivables as collateral. The Company was not
utilizing this facility as of December 31, 1994.
OTHER CURRENT LIABILITIES
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Accrued payroll and related expenses $ 1,599 $ 692
Accrued commissions 1,106 1,364
Accrued expenses related to a disposed business 354 516
Other accrued expenses 3,164 2,404
---------------------------------------------------------------
Total $ 6,223 $ 4,976
================================================================
OTHER LONG-TERM LIABILITIES
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Accrued expenses related to a disposed business 689 1,048
Other 804 1,169
---------------------------------------------------------------
Total $ 1,493 $ 2,217
================================================================
LONG-TERM DEBT
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Revolving credit agreement $ 7,024 $ 8,935
8% Convertible subordinated notes
due 1996 to 1999 4,500 4,500
10.5% Term loan due to 1994 -- 625
11.5% Financing due to 2000 1,082 --
8.75% Financing due to 2004 318 --
Capitalized Leases due to 1998 576 728
Other 72 72
---------------------------------------------------------------
13,572 14,860
Less current installments of long-term debt 316 789
---------------------------------------------------------------
Total long-term debt,
excluding current installments $ 13,256 $ 14,071
================================================================
Aggregate required annual principal payments, including capital
leases, for the next five years are:
(Amounts in thousands)
---------------------------------------------------------------
1995 $ 316
1996 8,574
1997 1,548
1998 1,363
1999 1,298
---------------------------------------------------------------
The revolving credit agreement provides for borrowing not to
exceed $12 million, based on the availability of collateral
assets, primarily inventory and accounts receivable and matures
May 31, 1996. At year end the borrowing base approximated $10
million. At December 31, 1994 the net book value of such
collateral was approximately $16.6 million. Unused letters of
credit issued on behalf of the Company totalled $545,000 at
December 31, 1994. A commitment fee of 1/2 of 1% per annum is
payable monthly on the average daily amount of the unused
borrowing availability.The Company can borrow at the prime rate
of interest, plus 1.75% The prime rate in effect at December
31, 1994 was 8.5%.
The Company entered into two financing arrangements in 1994.
One agreement, at 11.5%, provided funds of $1.1 million and is
secured by machinery and equipment with a net book value of $1.5
million and a letter of credit in the amount of $200,000. The
second arrangement, at 8.75%, provided funds of $325,000 and is
secured by buildings and fixtures with a net book value of
$693,000.
The 8% convertible subordinated notes are convertible into
common stock at a price of approximately $6.59 per share after
giving effect to the 5% stock dividend paid January 27, 1995.
The convertible subordinate note agreement contains a covenant
which will become applicable in the quarter ending June 30,
1995. The Company would not have complied with the covenant at
December 31, 1994, but believes it will be in compliance when
the covenant becomes applicable. Should the Company not be in
compliance, it would have to obtain a waiver of compliance from
the noteholders or a modification to the agreement. Failure to
obtain either could cause the notes to be currently payable.
The various underlying agreements contain certain restrictive
covenants principally relating to additional debt, long-term
leases, working capital levels, net worth, the ratio of debt to
net worth and interest charge coverage. In addition, the
Company is restricted from paying cash dividends and from
purchasing or redeeming its own stock. The convertible
subordinated note agreement restricts the Company's cash
dividend payments, on a cumulative basis, to not more than 25%
of the cumulative net income from December 31, 1988 to the date
of the payment. At December 31, 1994 the Company is in
compliance with all covenants.
Interest paid during 1994, 1993, and 1992 was $1,649,000,
$1,681,000, and $2,104,000, respectively.
COMMITMENTS AND 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 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 December 31, 1994 and
1993 was approximately $3,400,000 and $3,500,000, respectively.
Proceeds from guaranteed notes totaled approximately $2,100,000
in 1994, $1,600,000 in 1993, and $2,200,000 in 1992.
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 which were previously disposed of by the
Company in accordance with applicable regulations in effect at
the time of disposal. Materials generated by the Company in
these sites have been small and claims against the Company have
been handled on a diminimus 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 or claim, would not materially affect its financial
condition or operations.
d) Leases
At December 31, 1994, future minimum lease payments under
capital leases and under non-cancelable operating leases with
initial terms greater than one year are as follows:
(Amounts in thousands)
---------------------------------------------------------------
Capitalized Operating
Leases Leases
---------------------------------------------------------------
1995 $207 $ 1,696
1996 207 1,501
1997 233 1,278
1998 17 993
1999 -- 901
2000-2002 -- 1,582
---------------------------------------------------------------
Total minimum lease payments 664 $ 7,951
=========
Less amount representing interest 88
--------------------------------------------------------
Present value of minimum lease payments $576
========================================================
Current portion of capitalized lease obligations $160
========================================================
Property, plant and equipment includes the following amount
relating to leases which have been capitalized:
(Amounts in thousands)
---------------------------------------------------------------
1994 1993
---------------------------------------------------------------
Buildings $ -- $ 1,132
Machinery and equipment 951 951
---------------------------------------------------------------
951 2,083
Accumulated depreciation 319 609
---------------------------------------------------------------
$ 632 $ 1,474
================================================================
Operating leases are for buildings, warehouses and equipment.
Rental expense for operating leases was $1,765,000, in 1994,
$1,841,000 in 1993, and $1,565,000 in 1992.
CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
---------------------------------------------------------------------------
Capital in Cummulative
Common excess of Retained translation Treasury
December 31: stock par value earnings adjustments stock Total
---------------------------------------------------------------------------
1991 $2,386 $12,023 $ 9,000 $ 1,172 $(5,957) $18,624
Net loss -- -- (2,487) -- -- (2,487)
Translation
adjustments -- -- -- (1,114) -- (1,114)
5% Stock
dividend paid
January 24, 1992,
101,821 shares -- -- (1,769) -- 1,769 --
Fractional shares -- -- (2) -- -- (2)
---------------------------------------------------------------------------
1992 2,386 12,023 4,742 58 (4,188) 15,021
Net Loss -- -- (1,576) -- -- (1,576)
Translation
adjustments -- -- -- (728) -- (728)
5% Stock
dividend paid
January 22, 1993,
106,952 shares -- -- (1,859) -- 1,859 --
Fractional shares -- -- (1) -- -- (1)
---------------------------------------------------------------------------
1993 2,386 12,023 1,306 (670) (2,329) 12,716
Net Income -- -- 827 -- -- 827
Translation
adjustments -- -- -- 780 -- 780
5% Stock
dividend paid
January 21,1994,
112,271 shares -- (646) (1,305) -- 1,951 --
Fractional shares -- -- (1) -- -- (1)
---------------------------------------------------------------------------
1994 $2,386 $11,377 $ 827 $ 110 $( 378) $14,322
===========================================================================
STOCK PLANS
All options under the 1980 Stock Option and Performance Share
Plan expired in 1994. No further options can be granted
pursuant to this plan.
The 1987 Stock Option and Incentive Plan provided for the
issuance of up to 110,000 shares of the Company's common stock
to officers and key employees at 100% of the fair market value
of the stock on the date of the grant. During 1992 all
outstanding options under this plan were canceled. The Company
subsequently granted options for 102,000 shares at $5.875* per
share. The options are subject to the following conditions and
limitations: no option may be exercised until three (3) years
after the date of grant when 50% of the options granted become
exercisable; five (5) years after the date of grant 100% of the
options granted are exercisable. Options expire ten (10) years
after the date of grant. Under provisions defined in the Plan,
all options become exercisable in the event of a public tender
offer or if an exchange offer is made for the Company's stock.
Transactions with respect to the Company's stock options for
each of the three years in the period ended December 31, 1994
were as follows:
Option Price *
Shares Per Share
----------------------------------------------------------------
December 31, 1991 112,875 $ 5.55 - 13.16
Granted via stock dividend 5,648
Canceled (117,972) 8.11 - 13.16
Granted 102,000 5.33
---------------------------------------------------------------
December 31, 1992 102,551 5.33 - 5.55
Granted via stock dividend 5,128
---------------------------------------------------------------
December 31, 1993 107,679 5.33 - 5.55
Expired (579)
Granted via stock dividend 5,355
---------------------------------------------------------------
December 31, 1994 112,455 5.33
================================================================
At December 31, 1994:
Exercisable -- --
================================================================
Available for future grants 21,251
============================================
* Adjusted to give effect to the stock dividend
paid January 21, 1994.
In May 1989, the Company declared a dividend of one common share
purchase right for each outstanding share of common stock.
Under certain circumstances, each right entitles the holder to
purchase one share of common stock at $65, subject to
adjustment. The rights are not exercisable until ten days after
a public announcement that a person or group has acquired at
least 20% of the outstanding common stock or ten business days
(or later date determined by the Board of Directors) after a
person or group announces an intention to make or commences, a
tender or exchange offer that would result in ownership of 20%
or more of the Company's common stock. Subject to certain
limitations, the Company's Board of Directors may reduce the
thresholds applicable to the rights to not less than 10%.
If a person or group acquires 20% or more of the outstanding
common stock, or certain other events occur, each right not
owned by a 20% or greater stockholder will become exercisable
for that number of shares of common stock having a market value
of twice the exercise price of the right. If the Company is
acquired in a merger or other business combination or 50% or
more of its consolidated assets or earning power is sold at any
time after the rights become exercisable, the rights will
entitle the holder thereof to purchase common stock of the
acquiring company having a market value equal to two times the
exercise price of the rights.
The rights, which do not have voting privileges, may be redeemed
by the Company at a price of $.03 per right at any time prior to
public announcement that a person or group has acquired 20% or
more of the Company's common stock. In addition, under certain
circumstances the rights may be redeemed by stockholder action
in connection with an acquisition proposal. Further, at any
time after a person or group acquires 20% or more of the
Company's common stock and prior to that person or group
acquiring 50% or more of the common stock, the Company may
exchange the rights (other than rights owned by such 20% or
greater stockholder) in whole or in part for one share of common
stock per right. The rights expire on May 23, 1999.
EMPLOYEE BENEFIT PLANS
A profit sharing and retirement plan is in effect for all
domestic employees of the Company. The Company can contribute
between 5% and 16% of its earnings before income taxes in excess
of varying levels, ranging from $250,000 to $4,500,000. A cash
contribution of $21,250 will be made in 1995 based on 1994
earnings, in accordance with the terms of the plan. In
addition, the Board of Directors authorized a special
contribution of $93,750 in the form of 18,750 shares of the
Company's common stock to be made in 1995. The shares are
valued at the year end closing price of $5.00 per share. No
contributions were made in 1993 or 1992.
The Company does not provide post-retirement benefits under
current benefit programs. Obligations under previous programs
are not material.
INCOME TAXES
Income (loss) from continuing operations, before income taxes,
consists of the following:
(Amounts in thousands) 1994 1993 1992
----------------------------------------------------------------
Domestic $ (798) $ (2,712) $ (2,739)
Foreign 1,308 1,295 1,389
----------------------------------------------------------------
$ 510 $ (1,417) $ (1,350)
================================================================
Total income tax expense (benefit) was allocated as follows:
(Amounts in thousands) 1994 1993 1992
---------------------------------------------------------------
Continuing operations $(317) $ 163 $ 530
Discontinued operations -- -- (116)
---------------------------------------------------------------
$(317) $ 163 $ 414
================================================================
Income tax expense (benefit) attributable to income (loss) from
continuing operations consists of the following:
(Amounts in thousands) 1994 1993 1992
---------------------------------------------------------------
CURRENT:
U.S. Federal $ (668) $ (557) $ (526)
State -- -- --
Foreign 351 197 881
---------------------------------------------------------------
(317) (360) 355
DEFERRED:
U.S. Federal -- 557 232
State -- -- --
Foreign -- (34) (57)
---------------------------------------------------------------
-- 523 175
---------------------------------------------------------------
$ (317) $ 163 $ 530
================================================================
The significant components of deferred income tax expense
(benefit) attributable to income (loss) from continuing
operations are as follows:
(Amounts in thousands) 1994 1993 1992
---------------------------------------------------------------
Deferred income tax expense
(benefit) (exclusive of the
effects of other components
listed below) $ (159) $ (34) $ (880)
Increase in valuation allowance
for deferred tax assets 159 557 1,055
---------------------------------------------------------------
$ -- $ 523 $ 175
================================================================
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
(Amounts in thousands) 1994 1993
---------------------------------------------------------------
Inventory valuation $ 145 $ 223
Accounts receivable valuation 30 94
Vacation accrual 158 142
Self-insurance accrual 288 179
Sale of business 383 649
Net operating loss carryforwards 2,799 2,582
Other 208 190
---------------------------------------------------------------
Gross deferred tax assets 4,011 4,059
Less valuation allowance (3,007) (2,848)
---------------------------------------------------------------
Deferred tax assets 1,004 1,211
================================================================
Depreciation (964) (989)
Other, including undistributed earnings of
foreign subsidiaries (40) (222)
---------------------------------------------------------------
Deferred tax liabilities (1,004) (1,211)
================================================================
Net deferred tax asset $ -- $ --
================================================================
A reconciliation of actual income tax expense (benefit)
attributable to income (loss) from continuing operations to the
"expected" income tax expense (benefit) computed by applying the
U.S. Federal corporate tax rate to income (loss) from continuing
operations, before income taxes, follows:
(Percent of pretax earnings) 1994 1993 1992
---------------------------------------------------------------
Statutory rate 34.0 % (34.0)% (34.0)%
Amortization of excess cost over
net assets of acquired companies 4.0 1.4 1.5
Foreign tax rates higher (lower)
than statutory rates (23.4) (16.3) 10.5
Net operating losses carried
forward (utilized) (9.4) 24.9 0.9
Resolution of income tax
examinations (88.6) -- 35.0
Purchase accounting adjustments
from tax basis differences at
acquisition (1.6) (0.6) (7.3)
Change in the valuation allowance
for deferred tax assets allocated
to income tax expense 25.5 39.3 37.4
Other items - net (2.7) (3.2) (4.7)
---------------------------------------------------------------
(62.2)% 11.5 % 39.3 %
================================================================
Deferred income taxes have been provided on that portion of the
undistributed earnings of foreign subsidiaries which the Company
expects to recover in a taxable manner, such as through the
receipt of dividends. Provision has not been made for U.S. or
additional foreign taxes on foreign earnings which have been and
will continue to be reinvested. It is not practicable to
estimate the amount of additional tax that might be payable on
these foreign earnings. At December 31, 1994, the undistributed
earnings of these foreign subsidiaries on which taxes have not
been provided were approximately $6,057,000.
Approximate net operating loss carryforwards available at
December 31, 1994 to offset future taxable earnings of the
Company are as follows:
(Amounts in thousands) Amount Year of Expiration
---------------------------------------------------------------
U. S. Federal $ 2,900 2008 through 2009
State 10,500 1998 through 2009
Foreign 1,400 1996 through 1999
Foreign 600 Indefinite
---------------------------------------------------------------
No benefit for the above net operating loss carryforwards has
been recognized in the financial statements.
The Company received net income tax refunds of $191,000,
$528,000 and $253,000 during 1994, 1993 and 1992, respectively.
DISCONTINUED OPERATIONS
Effective June 20, 1992, the Company sold certain assets,
including machinery and equipment, inventory, and contracts,
relating to Hein-Werner's manufacture and North American
distribution of jacks and other automotive lifting equipment,
automotive battery service equipment, and automotive welding
equipment (the "ASE business"). The North American ASE
business sold products to the general automotive service
equipment market in the United States, Canada, Mexico, Central
and South America and the Caribbean. Proceeds from the sale
were $10.1 million.
As a result of the disposal, certain plant and property had
become excess and was sold by the Company during 1993. At
December 31, 1992, these assets had been written down to their
estimated net realizable value and reclassified as other current
assets. Included in liabilities at December 31, 1992 were
accruals for expenses and costs to be incurred and satisfied at
future dates. During 1993, an additional expense of $756,000
was accrued for future pension costs (primarily as a result of
using a 7% discount rate), for the reserve for product liability
insurance retroactive premium adjustments, and for losses on the
sale of excess plant and property. Net sales of the ASE
business were $13.2 million through June 20, 1992.
The Company has traditionally allocated interest to all of its
North American operations based on the amount of net working
capital employed. Such an allocation is included in the results
of operations for the discontinued business for the periods
presented.
Income tax benefit related to the operation of the ASE business
was $116,000 in 1992. The 1992 gain on the sale and the
additional 1993 adjustment to the gain had no income tax
effects.
Earnings (loss) per common share for discontinued operations
were $(0.30) for 1992. Earnings per common share from the gain
(loss) on the sale was $(0.30) in 1993 and $0.06 in 1992.
Earnings (loss) per share data for 1993 and 1992 have been
adjusted for the 5% stock dividend paid January 27, 1995.
EXTRAORDINARY ITEM
In 1993, a Company manufacturing facility sustained damage from
flooding. Insurance coverage replaced damaged equipment with
new. As a result, the Company recorded a gain for the value of
the replacement equipment of $1,194,000 and a loss for the net
book value of the equipment destroyed of $141,000. In addition,
costs of $293,000 related to the flooding which were not
reimbursed by insurance coverage were also charged against the
gain. Accordingly, an extraordinary gain of $760,000 or $0.30
per share (there was no related income tax expense) was included
in 1993. Earnings per share data for 1993 have been adjusted
for the 5% stock dividend paid January 27, 1995.
SEGMENT INFORMATION
The Company's operations are principally in the Collision Repair
Engine Rebuilding and Fluid Power industry segments. The
Collision Repair segment includes frame straightening and
vehicle measurement equipment, as well as various tools and
accessories. Engine Rebuilding products include hones, lathes,
grinders, and the like, along with various accessories.
Products for the Fluid Power segment include single-acting,
double-acting and telescoping hydraulic cylinders.
Affiliated inter-segment sales and geographic sales are nominal
in amount.
[segment information is continued on the next page]<PAGE>
Data by industry segment with a reconciliation to the consolidated
financial statements are presented below:
(Amounts in thousands)
------------------------------------------------------------------------
Earnings
before
Net Sales income Capital
unaffiliated taxes Assets Depreciation expenditures
------------------------------------------------------------------------
1994:
========================================================================
Collision Repair $ 36,615 $ 1,444 $ 33,194 $ 501 $ 438
Engine Rebuilding 11,436 (458) 7,407 197 75
Fluid Power 19,049 1,530 7,815 166 122
------------------------------------------------------------------------
Business segments 67,100 2,516 48,416 864 635
Corporate and
eliminations -- (2,006) ( 2,315) 256 102
------------------------------------------------------------------------
Consolidated $ 67,100 $ 510 $ 46,101 $ 1,120 $ 737
========================================================================
1993:
========================================================================
Collision Repair $ 33,515 $ (334) $ 36,351 $ 439 $ 406
Engine Rebuilding 10,219 (682) 7,704 186 321
Fluid Power 16,594 946 14,302 189 98
------------------------------------------------------------------------
Business segments 60,328 (70) 58,357 814 825
Discontinued
operation &
extraordinary gain -- 4 -- -- --
Corporate and
eliminations -- (1,347) (13,012) 218 323
------------------------------------------------------------------------
Consolidated $ 60,328 $ (1,413) $ 45,345 $ 1,032 $ 1,148
========================================================================
1992:
========================================================================
Collision Repair $ 36,275 $ (385) $ 37,457 $ 606 $ 687
Engine Rebuilding 9,208 (830) 7,536 210 162
Fluid Power 14,775 1,149 13,047 171 81
------------------------------------------------------------------------
Business segments 60,258 (66) 58,040 987 930
Discontinued
operation 13,227 (723) -- 104 68
Corporate and
eliminations -- (1,284) (10,719) 217 543
------------------------------------------------------------------------
Consolidated $ 73,485 $ (2,073) $ 47,321 $ 1,308 $ 1,541
========================================================================<PAGE>
Data for geographical regions for 1994, 1993, and 1992 is presented
below:
(Amounts in thousands)
------------------------------------------------------------------------
Earnings
before
Net Sales income Capital
unaffiliated taxes Assets Depreciation expenditures
------------------------------------------------------------------------
1994:
========================================================================
North America $ 44,657 $ 1,208 $ 27,420 $ 575 $ 320
Europe 22,443 1,308 20,996 289 315
------------------------------------------------------------------------
$ 67,100 $ 2,516 $ 48,416 $ 864 $ 635
========================================================================
1993:
========================================================================
North America $ 38,012 $ (1,365) $ 39,503 $ 555 $ 478
Europe 22,316 1,295 18,854 259 347
------------------------------------------------------------------------
$ 60,328 $ (70) $ 58,357 $ 814 $ 825
========================================================================
1992:
========================================================================
North America $ 33,550 $ (1,455) $ 37,929 $ 679 $ 540
Europe 26,708 1,389 20,111 308 390
------------------------------------------------------------------------
$ 60,258 $ (66) $ 58,040 $ 987 $ 930
========================================================================
Export sales of Unites States operations, made to unaffiliated customers
located in foreign countries aggregated $3,622,000, $4,216,000, and
$4,240,000 in 1994, 1993, and 1992, respectively.
<PAGE>
SUPPLEMENTAL QUARTERLY DATA:
The following table contains certain selected unaudited quarterly
consolidated financial data for the last three years which includes
all adjustments which the Company considers necessary to a fair
presentation thereof:
(Amounts in thousands except per share data)
1994
=====================================================================
Quarter 1st 2nd 3rd 4th
--------------------------------------------------------------------
Net sales $15,873 $17,321 $14,537 $19,369
Gross profit 5,612 6,198 5,069 7,424
Net income (loss) from
continuing operations 123 255 288 161
--------------------------------------------------------------------
Net income (loss) $ 123 $ 255 $ 288 $ 161
=====================================================================
Net income per share $0.05 $0.10 $0.12 $0.06
=====================================================================
1993: (note 1)
=====================================================================
Quarter 1st 2nd 3rd 4th
--------------------------------------------------------------------
Net sales $14,761 $13,806 $13,596 $18,165
Gross profit 5,512 4,980 4,461 6,555
Net income (loss) from
continuing operations (167) (729) (760) 76
Loss from discontinued
operations, net of tax -- -- -- (756)
Extraordinary gain from the
conversion of assets -- -- -- 760
--------------------------------------------------------------------
Net income (loss) $ (167) $ (729) $ (760) $ 80
====================================================================
Income (loss) per share:
Continuing operations (0.07) (0.29) ($0.31) $0.03
Discontinued operations -- -- -- (0.30)
Extraordinary gain -- -- -- 0.30
--------------------------------------------------------------------
Net income (loss) ($0.07) ($0.29) ($0.31) $0.03
=====================================================================
1992: (Note 2)
=====================================================================
Quarter 1st 2nd 3rd 4th
--------------------------------------------------------------------
Net sales $15,149 $15,034 $14,754 $15,321
Gross profit 5,584 5,663 5,143 4,587
Net income (loss) from
continuing operations (190) (140) (996) (554)
Loss from discontinued
operations, net of tax (309) (377) (19) (57)
Gain (loss) on the sale of a
discontinued business -- -- (452) 607
--------------------------------------------------------------------
Net income (loss) $ (499) $ (517) $(1,467) $ (4)
=====================================================================
Income (loss) per share:
Continuing operations $(0.08) $(0.06) $(0.40) $(0.22)
Discontinued operations (0.12) (0.15) (0.19) 0.22
--------------------------------------------------------------------
Net income (loss) $(0.20) $(0.21) $(0.59) $ 0.00
=====================================================================
Note 1: In the fourth quarter: (i) estimates of expenses related to
a discontinued business were revised and a charge of $756 was
recorded; (ii) a review of valuation accounts for trade and non-
current receivables resulted in a charge of $1,261 to bad debt
expense; (iii) an extraordinary gain of $760 was recorded, net of
related expenses for the replacement of assets destroyed in flooding;
and (iv) reserves and accruals for other estimated expenses were
revised downward by $585. There was no income tax effect on any of
the fourth quarter transactions.
Note 2: In the second quarter, the Company sold its North American
Automotive Service Equipment Group. An estimated gain of $166 on
disposal was initially recorded in the third quarter and the
estimated income tax expense was recorded at $618. In the fourth
quarter, the gain was revised to $155 and the tax estimate was
revised to zero.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
------------------------------------------------
The Company did not file a Form 8-K within the 24 months
prior to the date of its most recent financial statements that
reports a change of accountants and a disagreement on any matter
of accounting principles or practices or financial statement
disclosure.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item with respect to
directors is included under the headings "ELECTION OF DIRECTORS"
and "MISCELLANEOUS" in the definitive Proxy Statement, dated
March 17, 1995, relating to the annual meeting of shareholders
scheduled for April 27, 1995 and is incorporated herein by
reference. Information about executive officers appears at the
end of Part I of this Form 10-K under the caption "EXECUTIVE
OFFICERS OF REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information concerning executive compensation is included
under the heading "EXECUTIVE COMPENSATION" in the definitive
Proxy Statement, dated March 17, 1995, relating to the annual
meeting of shareholders scheduled for April 27, 1995 and is
incorporated herein by reference; provided, however, that the
subsection entitled "Report on Executive Compensation" shall not
be deemed to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
Information concerning security ownership is included under
the heading "STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the definitive Proxy Statement, dated March 17,
1995, relating to the annual meeting of shareholders scheduled
for April 27, 1995 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information concerning relationships and related
transactions is included under the heading "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS" in the definitive Proxy Statement,
dated March 17, 1995, relating to the annual meeting of
shareholders scheduled for April 27, 1995 and is incorporated
herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
------------------------------------------------------
(a) Reference is made to the separate index to
consolidated financial statements and schedules
contained hereinafter.
Exhibits
--------
(3) Articles of Incorporation and By-Laws:
(3.1) By-Laws of the Company, as amended to
date (incorporated by reference to
Exhibit 3.1 to the Company's Form 10-Q
for the quarter ended October 1, 1994).
(3.2) Restated Articles of Incorporation, as
amended through February 21, 1991
(incorporated by reference to Exhibit
3.2 to the Company's Form 10-K for the
year ended December 31, 1993).
(4) Instruments defining the rights of security
holders, including indentures:
(4.1) Revolving Loan and Security Agreement
dated October 13, 1993 by and between
the Company and Firstar Bank Milwaukee,
N.A. and Continental Bank N.A.
(incorporated by reference to Exhibit
4.1 to the Company's Form 10-Q for the
quarter ended October 2, 1993).
(4.2) Letter dated October 27, 1994 by Firstar
Bank Milwaukee, N.A., as administrator
of the Revolving Loan and Security
Agreement dated October 13, 1993 by and
between the Registrant and Firstar Bank
Milwaukee, N.A. and BankAmerica N.A.'s
Pacific Business Credit Inc. (formerly
Continental Bank, N.A.), extending the
Revolving Loan and Security Agreement to
May 31, 1996 (incorporated by reference
to Exhibit 4.1 to the Company's Form 10-
Q for the quarter ended October 1,
1994).
(4.3) Form of Note Agreement dated as of
September 1, 1989 regarding the
Company's $8,500,000 8% Convertible
Subordinated Notes due September 1, 1999
(incorporated by reference to Exhibit
4.2 to the Company's Form 10-K for the
year ended December 31, 1993).
(4.4) Amendment dated November 12, 1990 to
Note Agreement dated as of September 1,
1989 Re: $8,500,000 8% Convertible
Subordinated Notes due September 1, 1999
(incorporated by reference to Exhibit
4.3 to the Company's Form 10-K for the
year ended December 31, 1993).
(4.5) Amendment No. 2 dated April 26, 1991 to
Note Agreement dated as of September 1,
1989 Re: $8,500,000 8% Convertible
Subordinated Notes due September 1, 1999
(incorporated by reference to Exhibit
4.4 to the Company's Form 10-K for the
year ended December 31, 1993).
(4.6) Amendment No. 3 dated February 3, 1992
to Note Agreement dated as of September
1, 1989 Re: $8,500,000 8% Convertible
Subordinated Notes due September 1, 1999
(incorporated by reference to Exhibit
4.5 to the Company's Form 10-K for the
year ended December 31, 1993).
(4.7) Amendment No. 4 dated December 18, 1992
to Note Agreement dated as of September
1, 1989 Re: $8,500,000 8% Convertible
Subordinated Notes due September 1, 1999
(incorporated by reference to Exhibit
4.6 to the Company's Form 10-K for the
year ended December 31, 1993).
(4.8) Amendment No. 5 dated February 21, 1994
to Note Agreement dated as of September
1, 1989 Re: $8,500,000 8% Convertible
Subordinated Notes due September 1, 1999
(incorporated by reference to Exhibit
4.7 to the Company's Form 10-K for the
year ended December 31, 1993).
(4.9) Rights Agreement by and between the
Company and Firstar Trust Co. (formerly
First Wisconsin Trust Company)
(incorporated by reference to Exhbit 4.8
to the Company's Form 10-K for the year
ended December 31, 1993).
(10) Material contracts (management contracts or
compensatory plans or arrangements are identified
by an asterisk "*"):
(10.1)* Change of Control Agreement between the
Company and Joseph L. Dindorf dated
January 27, 1984 (incorporated by
reference to Exhibit 10.1 to the
Company's Form 10-K for the year ended
December 31, 1993).
(10.2)* 1980 Stock Option and Performance Share
Plan (incorporated by reference to
Exhibit 1 of the Company's Form S-8
Registration Statement (Registration No.
2-68020)).
(10.3) Lease dated January 25, 1983 between the
Company and Winvan, Inc. (incorporated
by reference to Exhibit 10.3 to the
Company's Form 10-K for the year ended
December 31, 1993).
(10.4)* 1987 Stock Option and Incentive Plan
(incorporated by reference to Exhibit
10.4 to the Company's Form 10-K for the
year ended December 31, 1993).
(10.5)* 1988 Corporate Officer Incentive Bonus
Schedule (incorporated by reference to
Exhibit 10.5 to the Company's Form 10-K
for the year ended December 31, 1993).
(11) Computation of Earnings Per Share
(21) Subsidiaries
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
(99) Definitive Proxy Statement dated March 17, 1995
relating to the Annual Meeting of Shareholders to
be held on April 27, 1995 (preveously filed on
March 17, 1995 pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934)
[Except to the extent specifically incorporated by
reference, the Company's Proxy Statement dated
March 17, 1995 relating to the Annual Meeting of
Shareholders to be held on April 27, 1995 is not
deemed to be filed with the Commission as part of
this Annual Report on Form 10-K]
(b) Form 8-K
--------
There were no reports on Form 8-K filed during the
fiscal quarter ended December 31, 1994.<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated March 9, 1995
HEIN-WERNER CORPORATION
By: J. L.Dindorf
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Dated March 9, 1995 By: J. L. Dindorf
President and Chief Executive
Officer; Director (Principal
Executive Officer)
Dated March 9, 1995 By: E. F. Duffy
Vice President-Finance; Treasurer
(Principal Accounting Officer and
Principal Financial Officer)
Dated March 9, 1995 By: O. A. Friend
Director
Dated March 9, 1995 By: J. S. Jones
Director
Dated March 9, 1995 By: M. J. McSweeney
Director
Dated March 9, 1995 By: D. J. Schuetz
Director<PAGE>
Index to Consolidated Financial Statements
-------------------------------------------
and Schedules for Form 10-K
---------------------------
The consolidated financial statements of Hein-Werner
Corporation and Subsidiaries, together with the opinion
thereon of KPMG Peat Marwick LLP dated February 17, 1995,
appear in Item 8 of this report. The following additional
financial data should be read in conjunction with the those
financial statements.
Additional Financial Data
-------------------------
Independent Auditors' Report on Financial Statement Schedule
Schedule Submitted:
VIII - Valuation accounts
All other schedules are omitted because they are either not
applicable or the required information is shown in the
financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hein-Werner Corporation
Under date of February 17, 1995, we reported on the consolidated
balance sheets of Hein-Werner Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated
statements of operations and cash flows for each of the years in
the three-year period ended December 31, 1994, as contained in
the 1994 Annual Report on Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements,
we also audited the related financial statement schedule as
listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
February 17, 1995<PAGE>
SCHEDULE VIII
VALUATION ACCOUNTS
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands)
Allowances for Losses (1)
-------------------------
Balance at Charged to Balance
beginning cost and Other (2) at end
of period expenses additions Deduction (3) of period
---------- ----------- --------- ------------- ----------
1994 $2,933 $ 850 $ 245 $1,403 $2,625
1993 $2,145 $1,751 $ 139 $1,102 $2,933
1992 $2,438 $ 920 $ 257 $1,470 $2,145
----------------------------
Inventory Valuation Reserve
---------------------------
Balance at Charged to Balance
beginning cost and Other at end
of period expenses additions Deduction (4) of period
---------- ---------- ---------- ------------- ----------
1994 $ 417 $ 407 $ -- $ 236 $ 588
1993 $ 437 $ 40 $ -- $ 60 $ 417
1992 $ 487 $ 263 $ -- $ 313 $ 437
-----------------------
(1) Includes allowances for customer accounts receivable
and non-current receivables.
(2) Excess fundings from guaranteed consumer notes
resulting from an interest rate spread to cover losses.
(3) Bad debts written off.
(4) Inventory written off.<PAGE>
EXHIBIT INDEX
-------------
Exhibits
--------
(3) Articles of Incorporation and By-Laws:
(3.1) By-Laws of the Company, as amended to date
(incorporated by reference to Exhibit 3.1 to
the Company's Form 10-Q for the quarter ended
October 1, 1994).
(3.2) Restated Articles of Incorporation, as amended
through February 21, 1991 (incorporated by
reference to Exhibit 3.2 to the Company's Form
10-K for the year ended December 31, 1993).
(4) Instruments defining the rights of security holders,
including indentures:
(4.1) Revolving Loan and Security Agreement dated
October 13, 1993 by and between the Company and
Firstar Bank Milwaukee, N.A. and Continental
Bank N.A. (incorporated by reference to Exhibit
4.1 to the Company's Form 10-Q for the quarter
ended October 2, 1993).
(4.2) Letter dated October 27, 1994 by Firstar Bank
Milwaukee, N.A., as administrator of the
Revolving Loan and Security Agreement dated
October 13, 1993 by and between the Registrant
and Firstar Bank Milwaukee, N.A. and
BankAmerica N.A.'s Pacific Business Credit Inc.
(formerly Continental Bank, N.A.), extending
the Revolving Loan and Security Agreement to
May 31, 1996 (incorporated by reference to
Exhibit 4.1 to the Company's Form 10-Q for the
quarter ended October 1, 1994).
(4.3) Form of Note Agreement dated as of September 1,
1989 regarding the Company's $8,500,000 8%
Convertible Subordinated Notes due September 1,
1999 (incorporated by reference to Exhibit 4.2
to the Company's Form 10-K for the year ended
December 31, 1993).
(4.4) Amendment dated November 12, 1990 to Note
Agreement dated as of September 1, 1989 Re:
$8,500,000 8% Convertible Subordinated Notes
due September 1, 1999 (incorporated by
reference to Exhibit 4.3 to the Company's Form
10-K for the year ended December 31, 1993).
(4.5) Amendment No. 2 dated April 26, 1991 to Note
Agreement dated as of September 1, 1989 Re:
$8,500,000 8% Convertible Subordinated Notes
due September 1, 1999 (incorporated by
reference to Exhibit 4.4 to the Company's Form
10-K for the year ended December 31, 1993).
(4.6) Amendment No. 3 dated February 3, 1992 to Note
Agreement dated as of September 1, 1989 Re:
$8,500,000 8% Convertible Subordinated Notes
due September 1, 1999 (incorporated by
reference to Exhibit 4.5 to the Company's Form
10-K for the year ended December 31, 1993).
(4.7) Amendment No. 4 dated December 18, 1992 to Note
Agreement dated as of September 1, 1989 Re:
$8,500,000 8% Convertible Subordinated Notes
due September 1, 1999 (incorporated by
reference to Exhibit 4.6 to the Company's Form
10-K for the year ended December 31, 1993).
(4.8) Amendment No. 5 dated February 21, 1994 to Note
Agreement dated as of September 1, 1989 Re:
$8,500,000 8% Convertible Subordinated Notes
due September 1, 1999 (incorporated by
reference to Exhibit 4.7 to the Company's Form
10-K for the year ended December 31, 1993).
(4.9) Rights Agreement by and between the Company and
Firstar Trust Co. (formerly First Wisconsin
Trust Company) (incorporated by reference to
Exhibit 4.8 to the Company's Form 10-K for the
year ended December 31, 1993).
(10) Material contracts:
(10.1) Change of Control Agreement between the Company
and Joseph L. Dindorf dated January 27, 1984
(incorporated by reference to Exhibit 10.1 to
the Company's Form 10-K for the year ended
December 31, 1993).
(10.2) 1980 Stock Option and Performance Share Plan
(incorporated by reference to Exhibit 1 of the
Company's Form S-8 Registration Statement
(Registration No. 2-68020)).
(10.3) Lease dated January 25, 1983 between the
Company and Winvan, Inc. (incorporated by
reference to Exhibit 10.3 to the Company's Form
10-K for the year ended December 31, 1993).
(10.4) 1987 Stock Option and Incentive Plan
(incorporated by reference to Exhibit 10.4 to
the Company's Form 10-K for the year ended
December 31, 1993).
(10.5) 1988 Corporate Officer Incentive Bonus
Schedule (incorporated by reference to Exhibit
10.5 to the Company's Form 10-K for the year
ended December 31, 1993).
(11) Computation of Earnings Per Share
(21) Subsidiaries
(23) Consent of KPMG Peat Marwick LLP
(27) Financial Data Schedule
(99) Definitive Proxy Statement dated March 17, 1995 relating
to the Annual Meeting of Shareholders to be held on April
27, 1995 (previously filed on March 17, 1995 pursuant to
Rule 14a-6(b) under the Securities Exchange Act of 1934)
[Except to the extent specifically
incorporated by reference, the Company's
Proxy Statement dated March 17, 1995
relating to the Annual Meeting of
Shareholders to be held on April 27, 1995
is not deemed to be filed with the
Commission as part of this Annual Report
on Form 10-K]
Computation of Earnings per Share Exhibit 11
(Amounts in thousands, except per share data)
Three months ended
December 31,
-------------------
1994 1993
------- -------
PRIMARY:
Weighted average common shares outstanding 2,483 2,483
Common equivalent shares 0 0
------- -------
Weighted average common shares and common
equivalent shares outstanding 2,483 2,483
======= =======
Net income applicable to common shares $161 $80
======= =======
Primary earnings per share $0.06 $0.03
======= =======
FULLY DILUTED:
Weighted average common shares outstanding 2,483 2,483
Common equivalent shares 0 0
Additional shares assuming conversion of
subordinated debentures 682 650
------- -------
Fully diluted weighted average common
shares and common equivalent shares
outstanding 3,165 3,133
======= =======
Net income applicable to diluted common
shares $1,187 $169
======= =======
Fully diluted earnings per share $0.06 $0.05
======= =======
[continued]<PAGE>
Computation of Earnings per Share Exhibit 11
(Amounts in thousands, except per share data)
Twelve months ended
December 31,
-------------------
1994 1993
------- -------
PRIMARY:
Weighted average common shares outstanding 2,483 2,483
Common equivalent shares 6 0
------- -------
Weighted average common shares and common
equivalent shares outstanding 2,489 2,483
======= =======
Net income (loss) applicable
to common shares $827 ($1,576)
======= =======
Primary earnings (loss) per share $0.33 ($0.63)
======= =======
FULLY DILUTED:
Weighted average common shares outstanding 2,483 2,483
Common equivalent shares 6 0
Additional shares assuming conversion of
subordinated debentures 682 650
------- -------
Fully diluted weighted average common
shares and common equivalent shares
outstanding 3,171 3,133
======= =======
Net income (loss) applicable
to diluted common shares $1,187 ($1,217)
======= =======
Fully diluted earnings (loss) per share $0.37 ($0.39)
======= =======
[continued]<PAGE>
Computation of Earnings per Share Exhibit 11
Common shares have been adjusted to give effect to the 5%
stock dividend paid January 27, 1995.
The $4,500,000 8% Convertible Subordinated Notes are
convertible at December 31, 1993, to common shares at a price
of $6.59 per share after giving effect to the stock dividend
paid January 27, 1995.
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 excercised. As to the convertible notes, net
earnings would be adjusted for the interest net of its tax effect.
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.
Exhibit 21
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
------------------------------------------
The Company has seven wholly-owned subsidiaries, each of
which is included in the consolidated financial statements of
the Company:
(a) Blackhawk Collision Repair Inc., a Wisconsin
corporation
(b) Blackhawk Automotive Ltd., a British corporation
(c) Blackhawk GmbH, a German corporation
(d) Blackhawk Italia Srl, an Italian corporation
(e) Blackhawk S.A., a French corporation
(f) Blackhawk S.A., a Swiss corporation
(g) HWC Export Sales Corporation, a Barbados corporation
incorporated January 3, 1989, for the purpose of
qualifying as a Foreign Sales Corporation (FSC) under
applicable Internal Revenue Code provisions.
Exhibit 23
Consent of KPMG Peat Marwick LLP
The Board of Directors
Hein-Werner Corporation:
We consent to incorporation by reference in the registration
statement (No. 2-68020) on Form S-8 of Hein-Werner Corporation of
our report dated February 17, 1995, relating to the consolidated
balance sheets of Hein-Werner Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated
statements of operations and cash flows for each of the years in
the three-year period ended December 31, 1994, and our report
dated February 17, 1995, relating to the financial statement
schedule for each of the years in the three-year period ended
December 31, 1994 which reports appear in the December 31, 1994
Annual Report on Form 10-K of Hein-Werner Corporation.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1994, THE CONSOLIDATED STATEMENTS OF
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994,
AND THE COMPUTATION OF EARNINGS PER SHARE (EXHIBIT 11)
FOR THE YEAR ENDED DECEMBER 31, 1994; AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 466
<SECURITIES> 0
<RECEIVABLES> 21,545
<ALLOWANCES> 1,670
<INVENTORY> 16,154
<CURRENT-ASSETS> 37,353
<PP&E> 16,030
<DEPRECIATION> 10,765
<TOTAL-ASSETS> 46,101
<CURRENT-LIABILITIES> 17,030
<BONDS> 0
<COMMON> 2,386
0
0
<OTHER-SE> 11,936
<TOTAL-LIABILITY-AND-EQUITY> 46,101
<SALES> 67,100
<TOTAL-REVENUES> 67,100
<CGS> 42,797
<TOTAL-COSTS> 42,797
<OTHER-EXPENSES> 21,711
<LOSS-PROVISION> 703
<INTEREST-EXPENSE> 1,690
<INCOME-PRETAX> 510
<INCOME-TAX> (317)
<INCOME-CONTINUING> 827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 827
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</TABLE>
