UNITED STATES
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, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO
_________
Commission File Number 1-2725
HEIN-WERNER CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-0340430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2120 Pewaukee Road 53188
Waukesha, Wisconsin (Zip Code)
(Address of principal executive
offices)
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 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 [ X ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 6, 1997: $18,288,240
The number of shares outstanding of each registrant's classes of common
stock as of March 6, 1997: Common Stock, $1 par value -- 2,760,489 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement dated March 13, 1997 relating to the
annual meeting of shareholders to be held on April 24, 1997
(Part III of Form 10-K).
<PAGE>
PART I
ITEM 1. BUSINESS
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 Statements,
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 represents approximately 60.8%, 56.7% and 54.6% of the
Company's net sales for 1996, 1995 and 1994, 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 measurement 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,/R/ Blackhawk,/R/ Hein-Werner Heavy Duty,/R/ and Hein-Werner
SHARK/R/ 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. European operating units accounted
for approximately 56% of the Company's 1996 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 9.9%, 15.0% and 17.0% of the Company's net sales in 1996,
1995 and 1994, 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 trade names. 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.
FLUID POWER COMPONENTS
The Company serves the fluid power component market through its
Great Bend Industries Division. The fluid power market represents
approximately 29.3%, 28.3% and 28.4% of the Company's net sales for 1996,
1995 and 1994, 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 approximately 14% 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, 1996
was approximately $8.4 million; the comparable figure for December 31,
1995 was approximately $18.3 million. 28.9%, 2.5% and 68.7% of the 1996
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, 1996 will be filled
during 1997. Most collision repair segment 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 26 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 $1.6 million, $1.7 million and $1.5 million in the years
ended December 31, 1996, 1995 and 1994, respectively, 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
1996, nor does it expect to during 1997, 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 Statements,
segment information which can be found in FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA, Item 8 of this report.
EMPLOYEES. The Company had about 507 and 592 employees at the
end of 1996 and 1995, respectively. Approximately 72% and 75% of the
production employees in 1996 and 1995, respectively, were represented by
labor unions. The Company's labor agreements with labor unions were
renewed in 1995 and extend to April, 1998 at its Winona, Minnesota
location and June, 1998 at its Great Bend, Kansas plant. 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. The remaining $4,500,000 is payable in four equal
installments of $1,125,000 due on September 1 for the years 1996 through
1999. The first installment of $1,125,000 was paid when due in 1996.
On January 24, 1997, the Company paid a 5% stock dividend to
shareholders of record on January 3, 1997.
ITEM 2. PROPERTIES
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 Expiration Square
Location or 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
_______________
(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 the footnote "Commitments and Contingencies"
in Notes to Consolidated Audited 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 1996.
EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain information concerning the executive
officers of the Registrant as of March 6, 1997:
Name, Age and Position Business Experience During Past 5 Years
Joseph L. Dindorf, 56 President and Chief Executive Officer,
President and Chief Hein-Werner Corporation (elected in
Executive Officer 1976).
Reinald D. Liegel, 54 Senior Vice President-Technology, Hein-
Senior Vice President- Werner Corporation (elected June, 1988).
Technology
Jean-Paul Barthelme, 59 Vice President, and President of European
Vice President, and Operations, Hein-Werner Corporation
President-European (elected September, 1988).
Operations
Michael J. Koons, 57 Vice President-Industrial Relations and
Vice President-Industrial Personnel, Hein-Werner Corporation
Relations and Personnel (elected in 1979).
James R. Queenan, 54 Elected June, 1990; prior thereto, self-
Vice President, and employed as a marketing consultant and
President-Collision prior to January, 1988, President of the
Equipment Group Kansas Jack Division.
Maurice J. McSweeney, 58 Elected March, 1983; partner, Foley &
Secretary 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 24, 1997.
PART II
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 26, 1996 to
shareholders of record on January 5, 1996 and (ii) January 24, 1997 to
shareholders of record on January 3, 1997.
Closing sale price Cash
dividends
High Low declared
1995
4th quarter . . . . . . $5.250 $4.375 --
3rd quarter . . . . . . 5.875 4.250 --
2nd quarter . . . . . . 5.875 4.750 --
1st quarter . . . . . . 5.375 4.500 --
1996
4th quarter . . . . . . $7.250 $6.250 --
3rd quarter . . . . . . 8.000 5.750 --
2nd quarter . . . . . . 8.750 5.813 --
1st quarter . . . . . . 6.375 4.250 --
As of March 6, 1997, the closing sales price of the Company's Common
Stock, as reported on the American Stock Exchange was $6.625 per share.
As of that date there were 621 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
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . $68,492 $73,693 $67,100 $60,328 $60,258
Income (loss) from
continuing operations . . . . 2,176 1,013 827 (1,580) (1,880)
Income (loss) from
continuing operations
per common share - primary . $ 0.78 $ 0.37 $ 0.30 $ (0.58) $ (0.69)
Income (loss) from
continuing operations
per common share -
fully diluted . . . . . . . . $ 0.72 $ --(1) $ --(1) $ --(1) $ --(1)
Total assets . . . . . . . . . 45,598 49,657 46,101 45,345 47,321
Long-term obligations . . . . . 10,161 10,902 13,256 14,071 12,873
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 24, 1997.
(1) Fully diluted income from continuing operations per common share was
anti-dilutive for this period.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion includes forward-looking statements that
reflect management's current assumptions and estimates concerning the
Company's performance and financial results. Each forward-looking
statement contained herein is either preceded by the phrase "management
expects" or is contained in a paragraph beginning with the phrase
"management expects." A variety of factors could cause the Company's
actual results to differ materially from the anticipated results. These
factors include, but are not limited to, increased competition;
unfavorable fluctuation of currency exchange rates; rising interest rates;
instability of foreign governments; and the escalation of raw material
prices, primarily steel.
Results of Operations
NET SALES
Consolidated net sales for 1996 decreased 7.1% from 1995 following an
increase of 9.8% between 1995 and 1994.
(Amounts in thousands) 1996 1995 1994
North America $45,306 $47,651 $44,657
Europe 23,186 26,042 22,443
------ ------ ------
Total net sales $68,492 $73,693 $67,100
====== ====== ======
The Company's North American operations posted a 4.9% decrease in net
sales in 1996 over 1995, following an increase between 1994 and 1995 of
6.7%. This decrease reflects weak business conditions in the U.S. engine
rebuilding market.
International operations based in Europe experienced an 11.0% decline
in sales following a 16.0% increase between 1995 and 1994. This decrease
is a result of a softening of economic conditions in both the French and
German markets.
Management expects sales levels to improve in 1997. One reason is the
acquisition of distribution and trademark rights to Blackhawk collision
repair equipment for Central and South America and select Asian markets.
This will spread our risk of a disruption in any one country's market and
allow us to sell to areas that were not directly represented. Another
factor is the development of private labeling of product and contract
machining at our Engine Rebuilding business. This is expected to smooth
the revenue stream in this segment.
Net Sales by Segment*
1996 1995 1994
Collision Repair 60.8% 56.7% 54.6%
Engine Rebuilding 9.9 15.0 17.0
Fluid Power 29.3 28.3 28.4
------ ------ ------
Total net sales 100.0% 100.0% 100.0%
====== ====== =======
* Refer to the Segment Information in the Notes to Consolidated
Financial Statements for more information.
Net sales for the Collision Repair segment remained steady between
1996 and 1995 maintaining the 14.2% increase over 1994. Increased sales
of Shark/R/ and the introduction of the Workstation 2001/TM/ in the
Americas offset declines in the French and German markets.
The Engine Rebuilding segment experienced a decline in sales of 38.6%
between 1996 and 1995. This follows a decline in 1995 sales of 3.9% from
1994. Contract machining sales were down from the prior year; however,
sales picked up in the last quarter of 1996. Management expects sales in
this area to increase in 1997 due to several new customers and new
products being added to the mix. Export sales were also down from the
prior year reflecting the continued softness in the Mexican market.
Management expects exports to revive as business with the Pacific Rim
increases. Private labeling, as mentioned above, should also contribute
to increased sales in 1997.
The 1996 Fluid Power segment net sales were 4.0% below the record
pace set in 1995 but were over 1994 levels by 5.3%. Sales moderated in
the fourth quarter as customers extended delivery dates. Early
indications for 1997 reflect a good order rate and management expects
another solid performance.
COSTS AND PROFIT MARGINS
Gross profit as a percent of sales increased 3.6% between 1996 and
1995. Gross profits in dollars declined by 3.7% from $26.8 million in
1995 to $25.8 million in 1996 mainly due to the reduced sales volume. The
1995 gross profit as a percent of sales remained steady from 1994 although
stated in dollars it rose 10.4% from $24.3 million in 1994. The increase
in gross margin dollars between 1994 and 1995 was volume related.
Gross Profit as a % of Net Sales
1996 1995 1994
Collision Repair 47.6% 48.1% 47.3%
Engine Rebuilding 23.6 24.2 26.3
Fluid Power 21.9 19.5 21.2
------ ------ ------
Consolidated 37.7% 36.4% 36.2%
====== ====== ======
The leveling off of gross margins in the Collision Repair segment is
the result of the mix of business between the Americas and the
International divisions. Gross margins in the Americas were up 14.0% over
1995 levels due to several factors. First, the division was able to
maintain its fixed costs while increasing production levels to meet
increased demand, thereby utilizing productive capacity more efficiently.
Second, sales of more technologically-advanced equipment continued to
command higher margins. In addition, the sale of this advanced equipment
is directly to the end user, resulting in higher margins for the Company.
This benefit is partially offset by commissions paid to distributors.
Third, the division was able to continue to benefit from our value
engineering program. This program involves re-engineering products to
reduce their material cost content and to better utilize raw material in
the production process.
The gains made in the Americas were offset, however, by lower
margins in the International division. Margins in certain countries were
lower due to overall economic conditions fostering pricing pressures and
unfavorable exchange rates.
The Engine Rebuilding segment's decline in gross margin is due to
continued competitiveness in the domestic market with the Company not
being able to pass on increases in material and labor costs for the past
several years.
The gross profit margin for the Fluid Power segment is up 12.3% over
1995 levels. This is mainly the result of increased control over shop
expenses and favorable purchase prices due to obtaining alternative
sources of supply and quantity discounts.
OPERATING EXPENSES AND PROFIT
(Amounts in thousands) 1996 1995 1994
Operating expenses $21,891 $23,918 $22,414
------ ------ ------
Operating profit $ 3,929 $ 2,908 $ 1,889
====== ====== ======
Operating expenses decreased 8.5% from 1995 and even came in below
1994 levels. This reduction reflects continued emphasis on cost controls.
In addition to general cost controls, insurance premiums were reduced due
to favorable workers' compensation experience in recent years, a favorable
settlement of a patent infringement lawsuit that allowed us to recover
fees incurred in prior years, and the restructuring of our German sales
office which reduced both marketing and administrative expenses. The
Engine Rebuilding segment also reduced operating expenses to reflect the
overall reduction in business levels.
Operating profit rose 35.1% to $3.9 million in 1996 from $2.9 million
in 1995. The cost containment programs implemented when the weakening in
certain markets was anticipated helped to offset lower volume levels and
flat margin performance in those areas.
Operating Expenses as a % of Net Sales
1996 1995 1994
Collision Repair 42.9% 46.0% 39.0%
Engine Rebuilding 33.2 26.2 22.6
Fluid Power 8.8 8.6 9.6
----- ----- -----
Consolidated 32.0% 32.5% 33.4%
===== ===== =====
Operating expenses as a percent of net sales for the Collision Repair
segment decreased 6.7% in 1996 due to the restructuring of the German
sales office and continued emphasis on cost control. The Engine
Rebuilding segment reduced operating expenses to a minimum level during
the year in reaction to the reduced sales volume.
The dollar value of operating expenses was down slightly at the Fluid
Power segment, but was up 2.3% as a percent of sales due to the reduction
in volume.
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. The overall borrowing level was
reduced during 1996. This reduction, combined with a negotiated reduction
in interest rates during the last half of the year, provided for a 20.3%
reduction in our interest expense between 1996 and 1995. The overall
borrowing level in 1995 and 1994 remained constant, but higher interest
rates caused the expense to increase during that time.
(Amounts in thousands) 1996 1995 1994
Interest expense $(1,465) $(1,838) $(1,690)
Loss on foreign exchange (207) (135) (28)
Miscellaneous, net 43 42 339
------ ------ ------
Total nonoperating expense,
net $(1,629) $(1,931) $(1,379)
====== ====== ======
The foreign exchange gains and losses are primarily attributable to
European operations where a considerable amount of buying and selling is
done in nonlocal currencies. Receivables and payables denominated in
nonlocal currencies give rise to foreign exchange gains and losses on a
regular basis. Normally, foreign exchange risk in this category is
managed by a review of the balance of receivables and payables and, where
warranted, the purchase of foreign exchange contracts to hedge risk.
INCOME TAX EXPENSE
Income tax expense in 1996 is primarily from European operations, as
North American operations made substantial use of net operating loss
carryforwards. The income tax benefit recorded in 1995 and 1994 was the
result of recoverable income taxes from net operating loss carrybacks and
the favorable resolution of audits of prior year tax returns.
Financial Condition
LIQUIDITY
Net income adjusted for noncash items for 1996 and 1995 increased
15.1% and 13.7%, respectively, over previous years' levels.
(Amounts in thousands) 1996 1995 1994
Net income (loss) $ 2,176 $ 1,013 $ 827
Adjustments for noncash
items 1,523 2,202 2,001
------ ------ ------
3,699 3,215 2,828
Changes in cash from
certain assets and
liabilities (724) (2,676) (1,689)
------ ------ ------
Cash provided by
operating activities $ 2,975 $ 539 $ 1,139
====== ====== ======
Management expects that cash provided by operating activities will
continue to supply the Company with sufficient cash to satisfy debt
service requirements and investments in capital assets.
In 1996, the Company was able to hold inventory levels while
increasing accounts receivable collections. This additional cash flow
allowed a significant reduction in accounts payable and notes payable.
The Company repaid $1.25 million of subordinated debt on schedule during
the last half of the year while reducing overall debt levels by 2.8%.
Working capital remains strong, being up slightly over 1995 and comparable
to the 1994 level.
(Amounts in thousands) 1996 1995 1994
Current assets $37,090 $41,525 $37,353
Current liabilities 16,197 20,749 16,491
------ ------ ------
Working capital $20,893 $20,776 $20,862
====== ====== ======
Current ratio 2.3 to 1 2.0 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 management expects they will be
sufficient to support the needs of the Company's European operations.
FINANCING ACTIVITIES
The Company 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, 1996, $8.4 million of the line of credit was available and
$6.4 million was utilized. Management expects that this line of credit,
along with cash provided by operating activities, will be 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>
REPORT OF MANAGEMENT
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 flows 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 nonemployee 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.
/s/ Mary L. Kielich /s/ Joseph L. Dindorf
Mary L. Kielich Joseph L. Dindorf
Corporate Controller President and Chief
Executive Officer
Waukesha, Wisconsin
February 14, 1997
<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, 1996 and 1995, and
the related consolidated statements of operations and cash flows for each
of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
February 14, 1997
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31:
(Amounts in thousands, except per
share amounts) 1996 1995 1994
Net sales $68,492 $73,693 $67,100
Cost of sales 42,672 46,867 42,797
------ ------ -------
Gross profit 25,820 26,826 24,303
Selling, engineering and
administrative expenses 21,471 22,948 21,711
Bad debt expense 420 970 703
------ ------ ------
21,891 23,918 22,414
------ ------ ------
Operating profit 3,929 2,908 1,889
Nonoperating income (expense):
Interest expense (1,465) (1,838) (1,690)
Other (164) (93) 311
------ ------ ------
(1,629) (1,931) (1,379)
------ ------ ------
Income before income tax 2,300 977 510
Income tax expense (benefit) 124 (36) (317)
------ ------ ------
Net income $ 2,176 $ 1,013 $ 827
====== ====== ======
Earnings per share-primary $ 0.78 $ 0.37 $ 0.30
====== ====== ======
Earnings per share-fully diluted $ 0.72 $ --- $ ---
====== ====== ======
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of December 31:
(Amounts in thousands, except share amounts)
Assets 1996 1995
Current Assets:
Cash $ --- $ 396
Accounts receivable, net 18,794 23,277
Inventories 17,415 17,271
Prepaid expenses and other 881 581
------- -------
Total current assets 37,090 41,525
------- -------
Property, plant and equipment, net 5,451 5,354
Other assets 3,057 2,778
------- -------
$45,598 $49,657
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 3,281 $ 4,209
Current installments of long-term debt 1,856 1,470
Accounts payable 4,873 9,231
Other current liabilities 6,187 5,839
------- -------
Total current liabilities 16,197 20,749
------- -------
Long-term debt, excluding current
installments 10,161 10,902
Other long-term liabilities 1,304 1,861
------- -------
Commitments and contingencies
Total liabilities 27,662 33,512
------- -------
Stockholders' Equity:
Common stock of $1 par value per share
Authorized: 20,000,000 shares; Issued:
2,629,320 and 2,504,421 shares at December
31, 1996 and 1995, respectively 2,629 2,504
Capital in excess of par value 11,995 11,558
Retained earnings 2,921 1,308
Cumulative translation adjustments 443 827
------- -------
17,988 16,197
Less cost of common shares in treasury -
3,104 and 2,957 shares at December 31, 1996
and 1995, respectively 52 52
------- -------
Total stockholders' equity 17,936 16,145
------- -------
$45,598 $49,657
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31:
(Amounts in thousands)
Cash From Operating Activities: 1996 1995 1994
Net income $ 2,176 $ 1,013 $ 827
Adjustments to reconcile net income
to cash provided by operating
activities:
Adjustments to net income for items
not using or providing cash:
Depreciation and amortization 1,103 1,234 1,301
Bad debt expense 420 970 703
Gain on sale of property, plant
and equipment --- (2) (3)
Increase (decrease) in cash due to
changes in:
Accounts receivable 4,063 (4,372) (1,621)
Inventories (144) (1,117) (1,530)
Prepaid expenses and other assets (75) 806 1,259
Accounts payable (4,358) 1,929 (320)
Other liabilities (210) 78 523
------- ------- ------
Cash provided by operating
activities 2,975 539 1,139
------- ------- ------
Cash From Investing Activities:
Capital expenditures (1,139) (1,174) (737)
Proceeds from sale of property, plant
and equipment 14 28 13
------- ------- -------
Cash used in investing activities (1,125) (1,146) (724)
------- ------- -------
Cash From Financing Activities:
Increase (decrease) in notes payable (928) 1,020 235
Proceeds from long-term debt 551 163 1,461
Deferred debt issuance costs --- --- (15)
Repayment of long-term debt (1,485) (1,363) (2,749)
------- ------- -------
Cash used in financing activities (1,862) (180) (1,068)
------- ------- -------
Cumulative translation adjustments (384) 717 780
Total cash provided (used) (396) (70) 127
Cash - beginning of year 396 466 339
------- ------- -------
Cash - end of year $ --- $ 396 $ 466
======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
(A) NATURE OF OPERATIONS
The Company is a multinational manufacturer of collision repair,
engine rebuilding, and fluid power equipment. The collision repair and
engine rebuilding equipment are sold to end users and distributors in
North and South America, Europe and Asia. The fluid power equipment is
primarily sold to original equipment manufacturers in North America.
(B) FINANCIAL STATEMENT PRESENTATION
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.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of these
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(C) 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.
(D) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
Inventory which is repossessed is recorded at the lesser of its
original fifo cost, the amount receivable from the customer, or its fair
market value.
(E) PROPERTY, PLANT AND EQUIPMENT
The cost of plant and equipment is depreciated 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.
(F) INTANGIBLES
Patents and trademarks 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.
(G) LONG-LIVED ASSETS
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that long-lived
assets and certain identifiable intangibles including goodwill be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
(H) NONCURRENT RECEIVABLES
Certain accounts receivable from distributors in the Collision Repair
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
noncurrent assets. The allowance for uncollectible notes is management's
estimate of uncollectible amounts based upon a review of the outstanding
balances.
(I) 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 allowance for losses.
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 an
allowance account established for that purpose.
(J) 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.
(K) 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.
(L) RESEARCH AND DEVELOPMENT EXPENSES
The Company incurred research and development costs of approximately
$1,643,000 in 1996, $1,719,000 in 1995, and $1,475,000 in 1994. Research
and development costs are expensed as incurred.
(M) EARNINGS PER SHARE
Earnings per share data and weighted average shares outstanding have
been restated for all years presented to give effect to the 5% stock
dividend paid January 24, 1997 and all previous stock dividends.
Primary earnings per share is based on the weighted average number of
shares outstanding during each year and the assumed exercise of dilutive
stock options (less the number of treasury shares assumed to be purchased
from the proceeds). Fully diluted earnings per share is additionally
based on the assumed conversion of the 8% convertible subordinated notes
issued September 29, 1989.
As adjusted for stock dividends, the number of shares used in
calculating primary earnings per share was 2,804,000 in 1996, 2,751,000 in
1995, and 2,737,000 in 1994. The number of shares used in calculating
fully diluted earnings per share was 3,495,000 in 1996. Fully diluted
earnings per share in all prior years was anti-dilutive.
(N) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded
on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted
SFAS No. 123, Accounting for Stock-Based Compensation, which permits
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure when required by SFAS No. 123.
(O) RECLASSIFICATIONS
Certain amounts in 1995 and 1994 have been reclassified to conform to
the 1996 presentation.
(P) PENDING ACCOUNTING CHANGES
In June 1996, the Financial Accounting Standards Board issued SFAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively.
This Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based
on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. Management of the Company
does not expect that adoption of SFAS No. 125 will have a material impact
on the Company's financial position, results of operations, or liquidity.
Accounts Receivable
(Amounts in thousands) 1996 1995
Accounts receivable $20,445 $25,019
Allowance for losses 1,651 1,742
------- -------
$18,794 $23,277
======= =======
Inventories
(Amounts in thousands) 1996 1995
Raw material $ 5,574 $ 5,837
Work-in-process 1,172 1,125
Finished goods 10,669 10,309
------- -------
$17,415 $17,271
======= =======
Property, Plant and Equipment, Net
(Amounts in thousands) 1996 1995
Land $ 90 $ 90
Buildings 3,125 3,023
Machinery and equipment 14,361 13,404
------- -------
17,576 16,517
Less accumulated depreciation 12,125 11,163
------- -------
$ 5,451 $ 5,354
======= =======
Other Assets
(Amounts in thousands) 1996 1995
Patents and trademarks $1,359 $ 563
Goodwill 2,282 2,282
------- -------
3,641 2,845
Accumulated amortization 1,467 1,338
------- -------
Net intangibles 2,174 1,507
Noncurrent notes receivable 1,159 1,654
Less allowance for
uncollectible notes 500 727
------- -------
Net receivables 659 927
Other 224 344
------- -------
$3,057 $2,778
======= =======
The fair value of noncurrent notes receivable is estimated using
discounted cash flows on expected payments to be received based on the
terms of the notes and current interest rates. The fair value of the
noncurrent notes receivable is estimated to be approximately $532,000 and
$595,000 at December 31, 1996 and 1995, respectively.
Short-term Borrowings and Lines of Credit
The Company has various unsecured lines of credit with foreign banks
aggregating $7,942,000. The amount of unused available borrowings under
these various lines of credit was $4,682,000 at December 31, 1996. The
weighted average interest rate on outstanding amounts was 7.5% and 7.4% at
December 31, 1996 and 1995, respectively.
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, 1996.
Other Current Liabilities
(Amounts in thousands) 1996 1995
Accrued payroll and
related expenses $ 2,199 $ 1,769
Accrued commissions 1,055 1,088
Other accrued expenses 2,933 2,982
------- -------
$ 6,187 $ 5,839
======= =======
Long Term Debt
(Amounts in thousands) 1996 1995
Revolving credit agreement $ 6,070 $ 5,885
8% Convertible subordinated
notes due 1996 to 1999 3,375 4,500
11.5% Financing due to 2000 791 945
8.75% Financing due to 2004 272 295
5.0% Financing due to 2002 188 163
Capitalized leases due to 2005 670 512
Other 651 72
------- -------
12,017 12,372
Less current installments of
long-term debt 1,856 1,470
------- -------
Total long-term debt,
excluding current
installments $10,161 $10,902
======= =======
Aggregate required annual principal payments, including capital
leases, for the next five years are:
(Amounts in thousands)
1997 $ 1,856
1998 1,687
1999 7,686
2000 384
2001 175
=======
The revolving credit agreement provides for borrowings not to exceed
$12 million based on the availability of collateral assets, primarily
inventory and accounts receivable, and matures June 30, 1999. At year
end, the borrowing base approximated $8.4 million. At December 31, 1996,
the net book value of such eligible collateral was approximately $15.5
million. Unused letters of credit issued on behalf of the Company
totalled $345,000 at December 31, 1996. 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 .65%. The prime rate in effect at December 31, 1996 was
8.25%.
The 8% convertible subordinated notes are convertible into common
stock at a price of approximately $5.98 per share after giving effect to
the 5% stock dividend paid January 24, 1997. The note agreement, as
modified in 1994, also calls for the issuance of nondetachable options,
fixed in price and quantity, to purchase common stock when scheduled
principal repayments are made. Under the agreement, 179,000 of
exercisable options were issued in 1996 at an option price of $5.98. A
similar number of options are to be issued when scheduled principal
repayments are made in 1997 and 1998. All of the options issued under the
agreement expire when the final scheduled principal repayment is made in
1999.
The 11.5% financing is collateralized by machinery and equipment with
a net book value of $1.1 million. The 8.75% financing is collateralized
by buildings and fixtures with a net book value of $565,000.
In 1995, the Company entered into a 5% financing arrangement with a
county in the state of Kansas allowing borrowings up to $195,000. The
borrowings are collateralized by a second mortgage on buildings and
fixtures with a net book value of $933,000.
Included in Other Long-term Debt is a liability for the present
value, discounted at the Company's current borrowing rate, of future
payments expected to be made in connection with the acquisition of
distribution and trademark rights to Blackhawk collision repair equipment
for Central and South America and select Asian markets.
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, 1996, the Company is in compliance with all covenants.
The fair value of the Company's long-term debt is estimated using
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The carrying
amount of long-term debt approximates fair value at December 31, 1996 and
1995.
Interest paid during 1996, 1995, and 1994 was $1,524,000, $1,842,000,
and $1,649,000, 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 five years and
expire in decreasing amounts through 2001. The amount guaranteed to each
institution is contractually limited to a portion of the amount financed
in a given year. The notes are collateralized by the equipment financed.
Proceeds from the resale of recovered equipment have generally
approximated 90% of repurchased notes.
The maximum credit risk to the Company at December 31, 1996 and 1995
was approximately $2,199,000 and $3,022,000, respectively. Proceeds from
guaranteed notes totalled approximately $728,000 and $1,307,000 in 1996
and 1995, respectively.
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, 1996, future minimum lease payments under capital
leases and under noncancelable operating leases with initial terms greater
than one year are as follows:
Capitalized Operating
(Amounts in thousands) leases leases
1997 $ 366 $ 1,491
1998 154 1,176
1999 135 1,004
2000 62 1,005
2001-2005 70 1,297
----- ------
Total minimum lease payments 787 $ 5,973
Less amount representing interest 117
-----
Present value of minimum
lease payments $ 670
=====
Current portion of capitalized
lease obligations $ 293
=====
Property, plant and equipment includes the following amount relating
to leases which have been capitalized:
(Amounts in thousands) 1996 1995
Machinery and equipment $ 1,041 $ 1,041
Less accumulated depreciation 513 416
------ -------
$ 528 $ 625
====== =======
Operating leases are for buildings, warehouses and equipment. Rental
expense for operating leases was $1,857,000 in 1996, $1,955,000 in 1995,
and $1,765,000 in 1994.
<TABLE>
<CAPTION>
Changes in Stockholders' Equity:
Capital in Cumulative Total
Common excess of Retained translation Treasury stockholders'
(Amounts in thousands) stock par value earnings adjustments stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 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 issued --- (646) (1,305) --- 1,951 ---
5% Stock dividend, fractional shares --- --- (1) --- --- (1)
------- ------- ------- ------- ------- -------
Balance at December 31, 1994 2,386 11,377 827 110 (378) 14,322
Net income --- --- 1,013 --- --- 1,013
Translation adjustments --- --- --- 717 --- 717
5% Stock dividend paid January 27,
1995, 117,944 shares issued 118 413 (531) --- --- ---
5% Stock dividend, fractional shares --- --- (1) --- --- (1)
Shares contributed to employee benefit
plan --- (232) --- --- 326 94
------- ------- ------- ------- ------- -------
Balance at December 31, 1995 2,504 11,558 1,308 827 (52) 16,145
Net income --- --- 2,176 --- --- 2,176
Translation adjustments --- --- --- (384) --- (384)
5% Stock dividend paid January 26,
1996, 124,899 shares issued 125 437 (562) --- --- ---
5% Stock dividend, fractional shares --- --- (1) --- --- (1)
------- ------- ------- ------ ------- -------
Balance at December 31, 1996 $2,629 $11,995 $2,921 $ 443 $ (52) $17,936
======= ======= ======= ====== ======= =======
</TABLE>
Stock Plans
Under the 1987 Stock Option and Incentive Plan, the Company is
authorized to grant 147,410 stock options. The options are subject to the
following conditions and limitations: no option may be exercised until
three years after the date of grant when 50% of the options granted become
exercisable; five years after the date of grant 100% of the options
granted are exercisable. Options expire ten 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.
Stock option activity for each of the three years in the period
ended December 31, 1996 follows:
Option Price
shares per share*
December 31, 1993 107,679 $ 4.84 - 5.04
Cancelled (579)
Granted via stock dividend 5,355 $ 4.84
------- ------------
December 31, 1994 112,455 $ 4.84
Cancelled (5,788)
Granted via stock dividend 5,623
------- ------------
December 31, 1995 112,290 $ 4.84
Cancelled (3,473)
Granted via stock dividend 5,441
-------
December 31, 1996 114,258
=======
Exercisable at December 31,
1996: 57,129 4.84
======= ============
Available for future grants 33,152
=======
*Option shares and price are adjusted to give effect to the
stock dividend paid January 26, 1996.
Each outstanding share of common stock is entitled to one common
share purchase right. 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. The Company's expense under the terms of the
plan was $314,000, $96,600 and $21,250 in 1996, 1995 and 1994,
respectively. In 1995, an additional special contribution of $93,750 was
made in the form of 18,750 shares of the Company's common stock valued at
the 1994 year end closing price of $5.00 per share.
The Company does not provide post-retirement benefits under current
benefit programs. Obligations under previous programs are not material.
Income Taxes
Income before income tax consists of the following:
(Amounts in thousands) 1996 1995 1994
Domestic $ 1,844 $ (551) $ (798)
Foreign 456 1,528 1,308
------ ------ ------
$ 2,300 $ 977 $ 510
====== ====== ======
Income tax expense (benefit) consists of the following:
(Amounts in thousands) 1996 1995 1994
Current:
U.S. Federal $ 145 $ (306) $ (668)
Foreign 109 270 351
------ ------ ------
254 (36) (317)
Deferred:
U.S. Federal (130) --- ---
Foreign --- --- ---
------ ------ ------
(130) --- ---
------ ------ ------
$ 124 $ (36) $ (317)
====== ====== ======
The significant components of deferred income tax expense (benefit)
attributable to income before income tax are as follows:
(Amounts in thousands) 1996 1995 1994
Deferred income tax expense
(benefit) (exclusive of the
effects of other components
listed below) $ 1,040 $ 32 $ (159)
Increase (decrease) in the
valuation allowance for
deferred tax assets (1,170) (32) 159
------- ------ -------
$ (130) $ --- $ ---
======= ====== =======
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) 1996 1995
Inventory valuation $ 150 $ 170
Accounts receivable valuation 140 58
Vacation accrual 166 172
Self-insurance accrual 244 311
Net operating loss carryforwards 792 2,040
Other, including undistributed
earnings of foreign subsidiaries 899 721
------ ------
Gross deferred tax assets 2,391 3,472
Less valuation allowance (1,387) (2,557)
------ ------
Deferred tax assets 1,004 915
====== ======
Depreciation (874) (913)
Other --- (2)
Deferred tax liabilities (874) (915)
====== ======
Net deferred tax asset $ 130 $ ---
====== ======
The Company received net income tax refunds of $171,000, $306,000 and
$191,000 during 1996, 1995 and 1994, respectively.
A reconciliation of actual income tax expense (benefit) attributable
to income before income tax to the "expected" income tax expense (benefit)
computed by applying the U.S. Federal corporate tax rate to income before
income tax follows:
(Percent of pretax earnings) 1996 1995 1994
Statutory rate 34.0% 34.0% 34.0%
Amortization of excess cost over
net assets of acquired
companies 2.0 2.0 4.0
Effect of foreign operations (2.0) 20.6 (23.4)
Net operating losses utilized (30.3) --- (9.4)
Resolution of income tax
examinations --- (31.4) (88.6)
Purchase accounting adjustments
from tax basis differences at
acquisition --- --- (1.6)
Change in the valuation allowance
for deferred tax assets
allocatedto income tax expense 5.7 (30.3) 25.5
Other items, net (4.0) 1.4 (2.7)
------ ------ ------
5.4% (3.7)% (62.2)%
====== ====== ======
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, 1996, the
undistributed earnings of these foreign subsidiaries on which taxes have
not been provided were approximately $4,700,000.
Approximate net operating loss carryforwards available at December
31, 1996, to offset future taxable earnings of the Company are as follows:
(Amounts in thousands) Amount Year of expiration
State $10,000 1998 through 2010
Foreign 61 1999 through 2000
A valuation allowance has been provided for the future benefit of the
above net operating loss carryforwards.
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.
Data by industry segment, with a reconciliation to the consolidated
financial statements, is presented below:
<TABLE>
<CAPTION>
(Amounts in thousands)
Earnings
Net sales before Capital
1996: unaffiliated income taxes Assets Depreciation expenditures
<S> <C> <C> <C> <C> <C>
Collision Repair $41,696 $ 2,689 $35,559 $ 550 $ 489
Engine Rebuilding 6,747 (1,359) 5,828 127 8
Fluid Power 20,049 1,865 7,742 208 498
------- ------- ------- ------- -------
Business segments 68,492 3,195 49,129 885 995
Corporate and
eliminations --- (895) (3,531) 143 144
------- ------- ------- ------ -------
Consolidated $68,492 $ 2,300 $45,598 $1,028 $1,139
======= ======= ======= ====== =======
1995:
Collision Repair $41,819 $ 2,520 $37,324 $ 518 $ 663
Engine Rebuilding 10,986 (946) 7,748 167 55
Fluid Power 20,888 1,548 8,529 178 438
------- ------- ------- ------ -------
Business segments 73,693 3,122 53,601 863 1,156
Corporate and
eliminations --- (2,145) (3,944) 195 18
------- ------- ------- ------ -------
Consolidated $73,693 $ 977 $49,657 $1,058 $1,174
======= ======= ======= ====== =======
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
======= ======= ======= ======= =======
<CAPTION>
Data for geographic regions, excluding Corporate and eliminations, is
presented below:
(Amounts in thousands)
Earnings
Net sales before Capital
1996: unaffiliated income taxes Assets Depreciation expenditures
<S> <C> <C> <C> <C> <C>
North America $45,306 $ 2,739 $25,118 $ 510 $ 647
Europe 23,186 456 24,011 375 348
------- ------- ------- ------- -------
$68,492 $ 3,195 $49,129 $ 885 $ 995
======= ======= ======= ======= =======
1995:
North America $47,651 $ 1,594 $27,666 $ 521 $ 588
Europe 26,042 1,528 25,935 342 568
------- ------- ------- ------- ------
$73,693 $ 3,122 $53,601 $ 863 $1,156
======= ======= ======= ======= ======
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
======= ======= ======= ======= ======
Export sales of United States operations made to unaffiliated customers
located in foreign countries aggregated $2,224,000, $4,438,000, and
$3,622,000 in 1996, 1995, and 1994, respectively.
</TABLE>
SUPPLEMENTAL QUARTERLY DATA
The following table contains selected unaudited quarterly
consolidated financial data for the last two years including all
adjustments which the Company considers necessary to a fair presentation
thereof:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
1996: Quarter: 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Net sales $17,624 $17,870 $14,998 $18,000
Gross profit 6,653 6,364 5,571 7,232
Net income 780 482 202 712
======= ======= ======= =======
Earnings per share-primary $ 0.28 $ 0.17 $ 0.07 $ 0.26
Earnings per share-fully diluted $ 0.25 $ 0.16 $ ---(1) $ 0.23
======= ======= ======= =======
Stock price high $ 6.375 $ 8.750 $ 8.000 $ 7.250
Stock price low 4.250 5.813 5.750 6.250
======= ======= ======= =======
<CAPTION>
1995: Quarter: 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Net sales $18,512 $17,555 $16,377 $21,249
Gross profit 6,726 6,310 5,827 7,963
Net income (loss) 422 292 (382) 681
======= ======= ======= =======
Earnings (loss) per share-primary $ 0.15 $ 0.11 $ (0.14) $ 0.25
Earnings per share-fully diluted $ ---(1) $ ---(1) $ ---(1) $ 0.22
======= ======= ======= =======
Stock price high $ 5.375 $ 5.875 $ 5.875 $ 5.250
Stock price low 4.500 4.750 4.250 4.375
======= ======= ======= =======
Earnings per share data have been adjusted to give effect to the 5% stock dividend paid
January 24, 1997.
(1) Fully diluted earnings per share was anti-dilutive for this period.
</TABLE>
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 and
Section 16 compliance is included under the headings "ELECTION OF
DIRECTORS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE"
in the definitive Proxy Statement, dated March 13, 1997, relating to the
annual meeting of shareholders scheduled for April 24, 1997 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 13, 1997, relating to the annual meeting of shareholders scheduled
for April 24, 1997 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 13, 1997, relating to the
annual meeting of shareholders scheduled for April 24, 1997 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and related transactions is
included under the headings "EXECUTIVE COMPENSATION - Compensation
Committee Interlocks and Insider Participation" and "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS" in the definitive Proxy Statement, dated March
13, 1997, relating to the annual meeting of shareholders scheduled for
April 24, 1997 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. and 2. Financial Statements and Financial Statement
Schedules. Reference is made to the separate index to
consolidated financial statements and schedules
contained hereinafter.
3. Exhibits. Reference is made to the Exhibit Index
contained hereinafter.
(b) Form 8-K
There were no reports on Form 8-K filed during the fiscal
quarter ended December 31, 1996.
<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 6, 1997
HEIN-WERNER CORPORATION
By: /s/ J. L. Dindorf
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 6, 1997 By: /s/ J. L. Dindorf
J. L. Dindorf
President and Chief Executive
Officer; Director (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
Dated March 6, 1997 By: /s/ O. A. Friend
O. A. Friend
Director
Dated March 6, 1997 By: /s/ J. S. Jones
J. S. Jones
Director
Dated March 6, 1997 By: /s/ M. J. McSweeney
M. J. McSweeney
Director
Dated March 6, 1997 By: /s/ D. J. Schuetz
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 14, 1997, appear in Item 8 of this report. The following
additional financial data should be read in conjunction with the financial
statements in such 1996 Annual Report to Shareholders.
Additional Financial Data
Independent Auditors' Report on Financial Statement Schedules
Schedule Submitted:
II- Valuation and qualifying 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 14, 1997, we reported on the consolidated balance
sheets of Hein-Werner Corporation and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations and cash
flows for each of the years in the three-year period ended December 31,
1996, as contained in the Annual Report on Form 10-K for the year 1996.
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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
February 14, 1997
<PAGE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Allowances for Losses(1)
Balance at Charged to Balance
beginning cost and Other(2) at end
of period expenses Additions Deduction(3) of period
<S> <C> <C> <C> <C> <C>
1996 $2,469 $ 420 $ -- $ 738 $2,151
1995 $2,625 $ 970 $ -- $1,126 $2,469
1994 $2,933 $ 850 $ 245 $1,403 $2,625
<CAPTION>
__________________
Inventory Valuation Reserve
Balance at Charged to Balance
beginning cost and Other at end
of period expenses Additions Deduction(4) of period
<S> <C> <C> <C> <C> <C>
1996 $ 690 $ 91 $ -- $ 326 $ 455
1995 $ 588 $ 576 $ -- $ 474 $ 690
1994 $ 417 $ 407 $ -- $ 236 $ 588
_____________
(1) Includes allowances for losses on accounts receivable and non-
current notes receivable.
(2) Excess fundings from guaranteed consumer notes resulting from an
interest rate spread to cover losses.
(3) Bad debts written off, net of any recoveries.
(4) Inventory written off, net of any recoveries.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibits
(3) Articles of Incorporation and By-Laws:
(3.1) By-Laws of the Company, as amended
through March 8, 1990
(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) Letter dated June 25, 1996 by
Firstar Bank Milwaukee, N.A., as
administrator of the Revolving
Loan and Security Agreement dated
October 13, 1993 by and between
the Company and Firstar Bank
Milwaukee, N.A., amending and
extending the agreement through
June 30, 1999 (incorporated by
reference to Exhibit 4 to the
Company's Form 10-Q for the
quarter ended June 29, 1996)
(4.4) Letter dated November 27, 1996 by
Firstar Bank Milwaukee, N.A., as
administrator of the Revolving
Loan and Security Agreement dated
October 13, 1993 by and between
the Company and Firstar Bank
Milwaukee, N.A., amending the
agreement
(4.5) 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)
(4.6) 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)
(4.7) 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)
(4.8) 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)
(4.9) 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)
(4.10) 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)
(4.11) Rights Agreement by and between
the Company and Firstar Trust
Company (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 13, 1997
relating to the Annual Meeting of Shareholders to
be held on April 24, 1997 (filed on March 13, 1997
pursuant to Rule 14a-6 of the Securities Exchange
Act of 1934)
[Except to the extent specifically incorporated by
reference, the Company's Proxy Statement dated
March 13, 1997 relating to the Annual Meeting of
Shareholders to be held on April 24, 1997 is not
deemed to be filed with the Commission as part of
this Annual Report on Form 10-K]
________________
* A management contract or compensatory plan or arrangement
Firstar Financial Services EXHIBIT 4.4
[Firstar Logo]
November 27, 1996
Hein-Werner Corporation
2120 Pewaukee Road
Waukesha, Wisconsin 53187
Attn: Mr. Joseph Dindorf, President
Gentlemen:
Please refer to the Revolving Loan and Security Agreement by and between
Firstar Financial Services, a division of Firstar Bank Milwaukee, N.A.
("FFS"), and Hein-Werner Corporation, dated October 13, 1993, with
amendments thereto ("Agreement"). This letter shall serve to further
amend the Agreement as follows:
Effective November 1, 1996, the fourth sentence of subsection (a) of
Section 1. LOANS AND SECURITY INTEREST shall be amended to read:
"The interest rate hereunder shall be computed at an
annual rate equal to .65 percent plus the rate
announced from time to time by Lender as its `prime
rate,' which may or may not be the best rate available
at said bank; provided such interest rate shall
increase by 1/4 percent if Debtor's financial
statements for its fiscal year ending December 31,
1996 or any fiscal year thereafter shows a
consolidated loss, but shall not be increased above .9
percent plus the rate announced from time to time by
Lender as its `prime rate,' which may or may not be
the best rate available at said bank."
In all other respects, the Agreement remains unchanged and in full force
and effect.
The foregoing amendments are contingent upon the approval of the
participant in this loan: Mercantile Business Credit, Inc.
If the above agrees with your understanding and approval, please indicate
same by signing the original of this letter and returning it to the
undersigned. (NOTE: If you return executed documents via facsimile, you
must also return the original executed documents. You agree FFS may rely
on facsimile signatures for all purposes and without any liability to
you.) If the preconditions (if any) to this amendment are not satisfied
or if this amendment letter is not executed and returned to FFS on or
before December 6, 1996, then the proposed amendments herein may be
withdrawn by FFS by written notice to you. The amendments set forth
herein and any accompanying documents will be deemed effective and
accepted in Milwaukee, Wisconsin, upon our receipt of the executed
documents.
Sincerely,
/s/ Michael A. Hintz
Michael A. Hintz
Division Vice President
Enclosure
cc: Gilbert L. Southwell, III
Agreed to this 1st day of November, 1996.
HEIN-WERNER CORPORATION
By: /s/ Joseph L. Dindorf
Name and Title: President and Chief Executive Officer
The undersigned guarantors of the indebtedness of Hein-Werner Corporation
hereby consent to the foregoing amendments and confirm that their
guaranties remain in full force and effect.
BLACKHAWK COLLISION REPAIR, INC.
By: /s/ Joseph L. Dindorf
Name and Title: President and Chief Executive Officer
HEIN-WERNER OF CANADA, LTD.
By: /s/ Joseph L. Dindorf
Name and Title: President and Chief Executive Officer
HEIN-WERNER EXPORT CORP.
By: /s/ Joseph L. Dindorf
Name and Title: President and Chief Executive Officer
Exhibit 11
Computation of Earnings Per Share
(Thousands, except per share data)
Three months ended Twelve months ended
December 31, December 31,
1996 1995 1996 1995
Primary:
Weighted average
common shares
outstanding . . . . 2,760 2,757 2,760 2,751
Common equivalent
shares . . . . . . 58 0 43 0
------- ------- ------- -------
Weighted average
common shares and
common equivalent
shares outstanding 2,818 2,757 2,803 2,751
======= ======= ======= =======
Net income applicable
to common shares . $ 712 $ 681 $2,176 $1,013
======= ======= ======= =======
Earnings per share -
primary . . . . . . $ 0.26 $ 0.25 $ 0.78 $ 0.37
======= ======= ======= ======
Fully Diluted:
Weighted average
common shares
outstanding . . . . 2,760 2,757 2,760 2,751
Common equivalent
shares . . . . . . 58 0 43 0
Additional shares
assuming conversion
of subordinated
debentures . . . . 565 753 692 753
------- ------- ------- -------
Fully diluted weighted
average common shares
and common equivalent
shares outstanding 3,383 3,510 3,495 3,504
======= ======= ======= =======
Net income applicable
to diluted common . $ 782 $ 772 $2,508 $1,373
======= ======= ======= =======
Earnings per share -
fully diluted . . . $ 0.23 $ 0.22 $ 0.72 $ 0.39
======= ======= ======= =======
Common shares have been adjusted to give effect to the 5% stock dividend
paid January 24, 1997.
The $3,375,000 8% Convertible Subordinated Notes are convertible into
common stock at a price of approximately $5.98 per share after giving
effect to the stock dividend paid January 24, 1997. Under the
accompanying note agreement, 179,140 exercisable nondetachable options
were issued in 1996.
Earnings per common share and common equivalent share were computed by
dividing the net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period.
Earnings per common share, assuming full dilution, is determined by
assuming that at the beginning of the period convertible notes were
converted at the price per share in effect at that time and common share
options were exercised. As to the options, incremental shares would be
calculated using the treasury stock method, assuming common share
purchases at the greater of the average market price of the common shares
for the period or the ending price of the common shares.
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) Hein-Werner Europe 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 14, 1997, relating to the consolidated balance sheets of Hein-
Werner Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations and cash flows for each
of the years in the three-year period ended December 31, 1996, and our
report dated February 14, 1997, relating to the financial statement
schedule for each of the years in the three-year period ended December 31,
1996 which reports appear in the December 31, 1996 Annual Report on Form
10-K of Hein-Werner Corporation.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996, THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, AND THE COMPUTATION OF
EARNINGS PER SHARE (EXHIBIT 11) FOR THE YEAR ENDED DECEMBER 31, 1996; AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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