-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OdhYF8Eh+J3ZKks40GrZBn4kT4OpH8JLl8uDjc5vhvUSwFA8T1CaAaSxbF346c1Z XrPLD4Zg2/PzZvSjrAVFyw== 0000897069-97-000141.txt : 19970326 0000897069-97-000141.hdr.sgml : 19970326 ACCESSION NUMBER: 0000897069-97-000141 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEIN WERNER CORP CENTRAL INDEX KEY: 0000046613 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 390340430 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-02725 FILM NUMBER: 97562515 BUSINESS ADDRESS: STREET 1: 2120 N PEWAUKEE RD STREET 2: PO BOX 1606 CITY: WAUKESHA STATE: WI ZIP: 53188-2404 BUSINESS PHONE: 4145426611 MAIL ADDRESS: STREET 1: 2120 N PEWWAUKEE ROAD STREET 2: PO BOX 1606 CITY: WAUKESHA STATE: WI ZIP: 53188-2404 10-K405 1 HEIN-WERNER CORPORATION FORM 10-K 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). 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)
1996 1995 1994 1993 1992 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.
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 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 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 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. 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. 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. 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.
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 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 ======= ======= ======= ====== ======= =======
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:
(Amounts in thousands) Earnings Net sales before Capital 1996: unaffiliated income taxes Assets Depreciation expenditures 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 ======= ======= ======= ======= ======= 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 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.
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:
(Amounts in thousands, except per share amounts) 1996: Quarter: 1st 2nd 3rd 4th 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 ======= ======= ======= ======= 1995: Quarter: 1st 2nd 3rd 4th 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.
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. 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 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. 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 Schedule II VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1996, 1995, and 1994 (Dollars in thousands)
Allowances for Losses(1) Balance at Charged to Balance beginning cost and Other(2) at end of period expenses Additions Deduction(3) of period 1996 $2,469 $ 420 $ -- $ 738 $2,151 1995 $2,625 $ 970 $ -- $1,126 $2,469 1994 $2,933 $ 850 $ 245 $1,403 $2,625 __________________ Inventory Valuation Reserve Balance at Charged to Balance beginning cost and Other at end of period expenses Additions Deduction(4) of period 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.
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 EX-4.4 2 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 EX-11 3 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. EX-21 4 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. EX-23 5 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 EX-27 6
5 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. 1,000 YEAR DEC-31-1996 DEC-31-1996 0 0 20,445 1,651 17,415 37,090 17,576 12,125 45,598 16,197 0 2,629 0 0 15,307 45,598 68,492 68,492 42,672 64,143 164 420 1,465 2,300 124 2,176 0 0 0 2,176 0.78 0.72
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