UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
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 0-18083
Williams Controls, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
--------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
-------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area
code:
(503) 684-8600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's common stock as of July 31,
2000: 19,921,114
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 2000 (unaudited)
and September 30, 1999 1
Unaudited Consolidated Statements of Operations,
three and nine months ended June 30, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows,
nine months ended June 30, 2000 and 1999 3
Notes to Unaudited Consolidated Financial Statements
4-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10-15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
Part I
Item 1.
Williams Controls Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
June 30, September 30,
2000 1999
(unaudited)
------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 187 $ 2,323
Trade and other accounts receivable, less allowance of $806 and
$484 at June 30, 2000 and September 30, 1999, respectively 11,708 11,187
Inventories 9,581 9,828
Deferred income taxes and other 4,398 4,325
Net assets held for disposition - 360
------------------- ---------------------
Total current assets 25,874 28,023
Property plant and equipment, net 21,625 20,775
Investment in and note receivable from affiliate 5,752 6,152
Net assets held for disposition - 500
Goodwill and intangible assets, net 5,317 5,764
Deferred income taxes 3,813 3,025
Other assets 432 265
------------------- ---------------------
Total assets $ 62,813 $ 64,504
=================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,291 $ 9,223
Accrued expenses 4,295 3,449
Note Payable 500 -
Current portion of long-term debt and capital leases 5,337 5,193
Estimated loss on disposal - 1,000
------------------- --------------------
Total current liabilities 19,423 18,865
Long-term debt and capital lease obligations, net 21,148 24,743
Other liabilities 3,266 2,690
Convertible subordinated debt, net 2,030 -
Commitments and contingencies
Shareholders' equity:
Preferred stock ($.01 par value, 50,000,000 authorized;
78,400 and 78,500 issued and outstanding at June 30,
2000 and September 30, 1999, respectively) 1 1
Common stock ($.01 par value, 50,000,000 authorized;
19,921,114 and 19,898,728 issued at June 30,
2000 and September 30, 1999, respectively) 199 199
Additional paid-in capital 20,729 20,697
Warrants issued in private placements 1,043 877
Accumulated deficit (4,149) (2,691)
Treasury stock (130,200 shares at June 30, 2000
and September 30, 1999) (377) (377)
Note receivable from affiliate (500) (500)
------------------- --------------------
Total shareholders' equity 16,946 18,206
------------------- --------------------
Total liabilities and shareholders' equity $ 62,813 $ 64,504
=================== ====================
The accompanying notes are an integral part of these balance sheets.
1
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(unaudited)
Three Three Nine Nine
months months months months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------- -------------- --------------- --------------
Sales $ 18,022 $ 15,749 $ 51,495 $ 46,405
Cost of sales 14,214 11,366 40,260 32,462
-------------- -------------- --------------- --------------
Gross margin 3,808 4,383 11,235 13,943
Operating expenses:
Research and development 2,068 1,017 5,239 2,683
Selling 516 493 1,381 1,501
Administration 1,462 1,010 4,147 2,884
Loss from impairment of assets - 5,278 - 5,278
-------------- -------------- --------------- --------------
Total operating expenses 4,046 7,798 10,767 12,346
-------------- -------------- --------------- --------------
Earnings (loss)from continuing operations (238) (3,415) 468 1,597
Other (income) expenses:
Interest income (180) (55) (290) (277)
Interest expense 862 389 2,053 1,187
Other (income) expense (10) (44) (46) 69
Equity interest in loss of affiliate 30 155 400 407
-------------- -------------- --------------- --------------
Total other expenses 702 445 2,117 1,386
-------------- -------------- --------------- --------------
Earnings (loss) from continuing operations before
income tax expense (benefit) (940) (3,860) (1,649) 211
Income tax expense (benefit) (361) (1,482) (633) 81
-------------- -------------- --------------- --------------
Net earnings (loss) $ (579) $ (2,378) $ (1,016) $ 130
Dividends on preferred stock 148 149 442 449
-------------- -------------- --------------- --------------
Net loss allocable to common shareholders $ (727) $ (2,527) $ (1,458) $ (319)
============== ============== =============== ==============
Basic and diluted net loss per share $ (0.04) $ (0.14) $ (0.07) $ (0.02)
============== ============== =============== ==============
The accompanying notes are an integral part of these statements.
2
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine months Nine months
Ended Ended
June 30, 2000 June 30, 1999
------------------ ------------------
Cash flows from operating activities:
Net earnings (loss) $ (1,016) $ 130
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities of continuing operations:
Depreciation and amortization 2,185 1,378
Equity interest in loss of affiliate 400 407
Loss from impairment of assets - 5,278
Deferred income taxes (788) (157)
Changes in working capital of continuing operations:
Receivables (303) (405)
Inventories 254 263
Accounts payable and accrued expenses 344 (560)
Other 903 167
------------------ ------------------
Net cash provided by operating activities of continuing operations 1,979 6,501
Cash flows from investing activities:
Payments for property, plant and equipment (2,156) (1,994)
Advances to affiliate - (100)
Investment in note receivable - (575)
------------------ ------------------
Net cash used in investing activities of continuing operations (2,156) (2,669)
Cash flows from financing activities:
Borrowing under term notes 1,800 2,500
Proceeds from note payable 500 -
Repayments of long-term debt and capital lease obligations (5,524) (3,964)
Net proceeds from convertible subordinated debt 1,965 -
Payment of other liability (79) -
Preferred dividends (442) (449)
Proceeds from issuance of common stock 32 153
------------------ ------------------
Net cash used in financing activities of continuing operations (1,748) (1,760)
Cash flows from discontinued operations:
Net cash used in discontinued operations (211) (1,943)
------------------ -------------------
Net increase (decrease)in cash and cash equivalents (2,136) 129
Cash and cash equivalents at beginning of period 2,323 1,281
------------------ -------------------
Cash and cash equivalents at end of period $ 187 $ 1,410
================== ===================
Supplemental disclosure of cash flow information:
Interest paid $ 1,851 $ 1,354
Income taxes paid $ - $ 602
Income tax refunds $ 331 $ 414
================== ===================
Supplemental disclosure of non-cash investing and financing activities:
Convertible subordinated debt issuance costs $ 231 $ -
Convertible subordinated debt discount $ 110 $ -
Note receivable for capital lease obligation $ - $ 3,200
Tax benefits related to stock options $ 1 $ 115
Capital lease obligations incurred $ 200 $ 354
================== ===================
The accompanying notes are an integral part of these statements.
3
Williams Controls, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share information)
(Unaudited)
Cautionary Statement: This report contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include, without limitation, those
statements relating to development of new products, the financial
condition of the Company, the ability to increase distribution of the
Company's products, integration of businesses the Company acquires,
disposition of any current business of the Company. These forward-looking
statements are subject to the business and economic risks faced by the
Company. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of the
factors described above and other factors described elsewhere in this
report.
1. Organization
Williams Controls, Inc., including its wholly-owned subsidiaries,
Williams Controls Industries, Inc. ("Williams"); Aptek Williams, Inc.
("Aptek"); Premier Plastic Technologies, Inc. ("PPT"); ProActive
Acquisition Corporation ("ProActive"); Williams Automotive, Inc.;
GeoFocus, Inc. ("GeoFocus"); NESC Williams, Inc. ("NESC"); Williams
Technologies, Inc. ("Technologies"); Williams World Trade, Inc. ("WWT");
Kenco/Williams, Inc. ("Kenco"); Techwood Williams, Inc. ("TWI"); Agrotec
Williams, Inc. ("Agrotec") and its 80% owned subsidiaries Hardee
Williams, Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw")
is hereinafter referred to as the "Company" or "Registrant."
2. Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements have been
prepared by the Company and, in the opinion of management, reflect all
material adjustments which are necessary to a fair statement of results
for the interim periods presented. The interim results are not
necessarily indicative of the results expected for the entire fiscal
year. Certain information and footnote disclosure made in the last annual
report on Form 10-K have been condensed or omitted for the interim
consolidated statements. Certain costs are estimated for the full year
and allocated to interim periods based on activity associated with the
interim period. Accordingly, such costs are subject to year-end
adjustment. It is the Company's opinion that, when the interim
consolidated statements are read in conjunction with the September 30,
1999 annual report on Form 10-K, the disclosures are adequate to make the
information presented not misleading. The interim consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
3. Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 130, "Reporting
Comprehensive Income", which requires companies to report a measure of
all changes in equity except those resulting from investments by owners
and distributions to owners. Total comprehensive income (loss) for the
three and nine months ended June 30, 2000 and 1999 was $(579) and
$(2,378), $(1,016) and $130, respectively, and consisted solely of net
earnings (loss). As of June 30, 2000, accumulated comprehensive loss was
$(4,149) and consisted of accumulated deficit.
4. Earnings (loss) per Share
Effective in its fiscal year ended September 30, 1998, the Company
adopted SFAS 128, "Earnings Per Share". SFAS 128 prescribes Basic and
Diluted Earnings Per Share ("EPS") calculations. Basic EPS is calculated
using the weighted average number of common shares outstanding for the
period and diluted EPS is calculated using the weighted average number of
common shares and dilutive common equivalent shares outstanding.
4
Williams Controls, Inc.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except share and per share information)
(Unaudited)
Following is a reconciliation of basic EPS and diluted EPS:
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Earnings (loss) $ (579) $(2,378)
Less-Preferred stock dividends (148) (149)
--------- ---------
Basic EPS-
Earnings (loss)
allocable to common
shareholders (727) 19,789,396 $(0.04) (2,527) 18,363,343 $ (0.14)
--------- ---------- -------- --------- ---------- --------
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
--------- ---------- --------- ----------
Diluted EPS -
Earnings (loss) allocable to
common shareholders $ (727) 19,789,396 $(0.04) $(2,527) 18,363,343 $ (0.14)
========= ========== ======== ========= ========== ========
Nine Months Ended Nine Months Ended
June 30, 2000 June 30, 1999
-------------------------------- -------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
Earnings (loss) $(1,016) $ 130
Less-Preferred stock dividends (442) (449)
--------- ---------
Basic EPS-
Earnings (loss)
allocable to common
shareholders (1,458) 19,787,131 $(0.07) (319) 18,313,559 $ (0.02)
--------- ---------- -------- --------- ---------- --------
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
--------- ---------- --------- ----------
Diluted EPS -
Earnings (loss)
allocable to common
shareholders $(1,458) 19,787,131 $(0.07) $ (319) 18,313,559 $ (0.02)
========= ========== ======== ========= ========== ========
At June 30, 2000 and 1999, the Company had options and warrants covering
3,901,673 and 3,417,886 shares, respectively of the Company's common
stock outstanding that were not considered in the respective dilutive EPS
calculations since they would have been antidilutive. In 2000 and 1999
conversion of the preferred shares would have been antidilutive and,
therefore, was not considered in the computation of diluted earnings per
share.
5. Inventories
Inventories consisted of the following:
June 30, September 30,
2000 1999
------------------ -----------------
Raw material $ 7,025 $ 6,867
Work in process 998 697
Finished goods 1,558 2,264
------------------ -----------------
$ 9,581 $ 9,828
================== =================
Finished goods include component parts and finished product ready for shipment.
5
Williams Controls, Inc.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except share and per share information)
(Unaudited)
6. Debt
In February 2000 and April 2000, the Company amended its credit facility
with a bank (the "Bank"). Terms of the amendments extended the due date
of Term Loan III from February 1, 2000 to April 30, 2000, advanced the
Company $1,000 under a new term loan ("Term Loan IV") which was due April
30, 2000 and bears interest at the Bank's prime rate plus 1.25%, advanced
$800 under Term Loan I (subject to adjustment for a subsequent appraisal
of certain equipment), and advanced certain lesser amounts as a result of
the change in eligibility of certain receivables. Had a private placement
of debt or equity been successful before April 30, 2000, $1,000 of the
first $3,000 of net proceeds received by the Company were to be paid to
the Bank in payment of Term Loan IV and 75% of the net proceeds received
by the Company in excess of $3,000 were to be paid to the Bank in
payment of Term Loan III, until retired. The Company completed a private
placement in April 2000 (see note 8). The Bank agreed that none of the
proceeds received by the Company would be paid to the Bank. In May 2000,
the Bank amended the credit agreement to extend the due dates of Term
Loans III and IV to July 15, 2000. The Company did not repay Term Loans
III and IV on July 15.
In August 2000, the Bank amended the credit agreement to again extend the
due dates of Term Loans III and IV to November 15, 2000, increase the
stated interest rate on the revolving line of credit and all term loans
by 2% and reduce the sublimit on the revolving line of credit from
$16,500 to $14,000 for accounts receivable and from $8,000 to $6,000 for
inventory. In connection with the amendment, the Company agreed to
pledge 600,000 of the 1.4 million shares of 3DM International expected to
be received upon the completion of the sale of the Premier Plastics
Technologies subsidiary and to reduce the revolving credit facility $50
per month either as a result of payments received from the sale of
certain inventory or through a further reduction of the sublimit on the
revolving line of credit for inventory. In addition, if the Company is
successful in obtaining additional capital, it has made commitments to
the Bank to direct a portion of the proceeds from such additional capital
in payment of outstanding term loans. The 2% increase in the stated
rate of interest on the revolving line of credit and the term loans is
payable January 1, 2000.
The Bank also amended certain financial covenants, as of and for the nine
months ended June 30, 2000. The amendment requires the Company to
maintain certain tangible net worth, which requirement was $11,000 at
June 30, 2000 and achieve certain consolidated net earnings (loss) from
continuing perations, which requirement was ($1,100) for the nine months
ended June 30, 2000. The requirement to maintain a certain debt service
coverage ratio (as defined in the credit agreement) was waived at
June 30, 2000. The Company was in compliance with the amended tangible
net worth and consolidated net earnings requirements as of and for the
nine months ended June 30, 2000. In consideration for the most recent
amendment, the Company has agreed to pay $50 or $75 dependent upon
whether the debt outstanding is paid to the Bank before October 1, 2000
or November 15, 2000. If the debt owed to the Bank is not paid by
November 16, 2000, the cost of the amendment will increase to $100 and
would be payable January 1, 2001.
The Company has a real estate loan due to a bank, originally due June 15,
2000, which due date has been extended to September 15, 2000.
7. Impairment of Assets
During the three and nine months ended June 30, 1999 the Company
recognized a $5,278 loss from the impairment of assets related to Kenco,
the Company's former Automotive Accessories business unit, consisting of
the following items:
At June 30, 1999, the Company had non-voting preferred stock and notes
and accounts receivable related to Kenco Products, Inc. ("KPI").
In consideration of continuing operating losses of KPI, its inability
to make payments to the Company when due, and KPI's bank notifying KPI
it was in default, and after evaluation of the business prospects of KPI
and its need for additional capital, the Company determined it was not
probable that it would recover the value of the preferred stock and
notes and accounts receivable, and an impairment loss totaling $4,655
was recorded for the three and nine months ended June 30, 1999.
In addition, the Company recorded an impairment loss related to certain
property retained from the Kenco sale. The majority of the impairment
loss for property related to the sale in July 1999 of a building and land
which were being leased by KPI from the Company. The property was sold
for cash resulting in estimated net proceeds of $1,818. In connection
with the sale the Company retired $891 of debt secured by the property.
Net proceeds to the Company of $927 were to be paid to a previous lender,
on behalf of an affiliated company, under the terms of an intercreditor
agreement. The estimated loss on the sale of land and building, which was
recorded in loss from impairment of assets, was $528.
6
Williams Controls, Inc.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except share and per share information)
(Unaudited)
8. Convertible Debt
In April 2000, the Company issued 7.5% convertible subordinated
debentures in an aggregate principal amount of $2,140, due March 31,
2003 including $140 issued in lieu of the underwriting fee. Net
proceeds to the Company after expenses, excluding the value of
warrants issued, were $1,965 and were used for general working capital
purposes. The debentures are unsecured obligations, subordinate to all
senior indebtedness (as defined). The debentures are convertible into
shares of the Company's common stock, par value $.01 per share, at a
conversion price of $2.00 per share. In addition, the Company issued
to each purchaser of debentures a three year warrant to purchase
common stock of the Company equal to 20% of the shares of common stock
into which such purchaser's debenture is convertible. The exercise
price of the warrants is $2.375, per share. The Company issued the
placement agent a five year warrant to purchase shares of the
Company's common stock equal to 7.0% of the total shares of common
stock issuable upon the conversion of the debentures. The exercise
price of the placement agent warrants is $2.40 per share. The fair value
of warrants issued, totaling $166, is included as "Warrants issued in
private placements" within Shareholders' Equity with an offset of $110
against the "Convertible Subordinated Debt" for the warrants issued to
debenture holders and an increase of $56 in other assets for the
placement agent warrants in the accompanying Consolidated Balance
Sheet. The discount of the debentures and the debt issuance costs are
being amortized using the effective interest method over the lives of the
debentures.
9. Acquisition
In July, 1999, the Company purchased the ProActive Pedals division of
Active Tools Manufacturing Co., Inc. ProActive Pedal is a designer and
developer of patented adjustable foot pedal systems and modular pedal
systems. The purchase price included $5,750 in cash, plus the assumption
of approximately $286 in liabilities. In addition, the Company entered
into a patent license with the patent holder that required an initial
payment of $600 and minimum annual royalty payments of $95 per year for
ten years. Assets acquired include tooling designs, technology and patent
rights on adjustable foot pedal systems, as well as designs of modular
foot pedal systems. The acquisition was accounted for using the purchase
method of accounting and the results of operations of ProActive have been
included in the consolidated results of operations of the Company from
the acquisition date. The purchase price allocation resulted in a $1,750
charge to operations for acquired in-process research and development,
determined by independent appraisal, for the year and quarter ended
September 30, 1999.
The following unaudited proforma results of operations for the three and
nine months ended June 30, 1999 include the results of ProActive Pedals
assuming such acquisition occurred as of October 1, 1998 and excludes the
acquired in-process research and development charge.
Three Months Nine Months
Ended Ended
June 30, 1999 June 30, 1999
------------- -------------
Sales $ 15,833 $ 46,619
Operating loss (4,020) (301)
Net Loss (2,756) (1,053)
Net loss per share - basic (0.15) (0.08)
Net loss per share - diluted (0.15) (0.08)
The purchase was financed through the private placement of 1,331,149
shares of the Company's common stock with net proceeds of approximately
$3,379. In addition, the Company borrowed $2,500 from its bank under a
new term loan facility ("Term Loan III").
7
Williams Controls, Inc.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except share and per share information)
(Unaudited)
10. Sale of the Agricultural Business Segment
On May 3, 2000, the Company completed the sale of the previously
discontinued Agriculture Equipment Segment operation. Proceeds at closing
were $1,760 in cash and a note plus the assumption by the buyer of $200
of liabilities. In conjunction with the sale the Company received a note
for $300 at 8% interest, payable April 30, 2003. The agreement provides
for the sale of existing inventory to the buyer from the sale date
through September 30, 2000. The maximum amount of such future sales
approximates $1,200. In conjunction with the future sale of inventory,
the Company will receive a note at 8% interest, for any inventory not
purchased by September 30, 2000, payable in three years, with interest
accruing from September 30, 2000 to April 30, 2001. No loss in excess of
that previously provided was realized as a result of the sale of the
discontinued Agriculture Equipment Segment.
11. Sale of Premier Plastic Technologies, Inc.
On July 11, 2000, the Company announced it had signed a definitive
agreement for the merger of the plastic injection molding subsidiary,
Premier Plastic Technologies, Inc., into 3DM International, Inc. (3DMI).
Proceeds are expected to be 1.4 million shares of 3DMI stock,
representing approximately 7% of the outstanding 3DMI shares. The
transaction is intended to qualify as a tax-free reorganization under IRC
Section 368(a)(1)(A). No loss is expected to be realized under the terms
of the definitive agreement. Closing of the transaction is subject to
customary closing conditions, and 3DMI's payment of all advances relating
to Premier Plastic Technologies under the secured lending facility with
the Bank, subject to 3DMI obtaining sufficient financing.
3DM International has also advanced $500,000 to be held on account for
the benefit of Premier Plastic Technologies, Inc., to be used for working
capital purposes. The note is due upon closing of the transaction and
includes no stated interest rate. The advance is classified as Note
Payable on the accompanying consolidated balance sheet.
12. Contingency
In June 2000, the Company's Chief Financial Officer resigned from the
Company. No settlement agreement has been reached, therefore, no
corresponding amounts have been accrued for in the accompanying
consolidated financial statements.
13. Reclassifications
Certain amounts previously reported in the consolidated statements of
operations for the three and nine months ended June 30, 1999 and the
consolidated balance sheet as of September 30, 1999 have been
reclassified to conform to current fiscal year presentation.
8
Williams Controls, Inc.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except share and per share information)
(Unaudited)
14. Segment Information
Three months Three months Nine months Nine months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------------- -------------- --------------- ------------
Sales by classes of similar products from continuing
operations
Vehicle components $ 17,563 $ 14,867 $ 49,495 $ 44,181
Electrical components and GPS 459 882 2,000 2,224
--------------- -------------- --------------- -----------
$ 18,022 $ 15,749 $ 51,495 $ 46,405
=============== ============== =============== ===========
Earnings (loss) from continuing operations
Vehicle components $ 946 $ (3,123) $ 3,066 $ 3,320
Electrical components and GPS (1,184) (292) (2,598) (1,723)
--------------- -------------- --------------- -----------
$ (238) $ (3,415) $ 468 $ 1,597
=============== ============== =============== ===========
Capital expenditures
Vehicle components $ 928 $ 417 $ 1,889 $ 1,517
Electrical components and GPS 80 269 267 477
--------------- -------------- --------------- -----------
Total capital expenditures $ 1,008 $ 686 $ 2,156 $ 1,994
=============== ============== =============== ===========
Depreciation and amortization
Vehicle components $ 646 $ 371 $ 1,910 $ 1,071
Electrical components and GPS 100 109 275 307
--------------- -------------- --------------- -----------
Total depreciation and amortization $ 746 $ 480 $ 2,185 $ 1,378
=============== ============== =============== ===========
Identifiable assets
Vehicle components $ 44,410 $ 36,999
Electrical components and GPS 11,911 8,575
Corporate and other 6,492 7,551
--------------- -----------
Total assets - continuing operations 62,813 53,125
Agricultural equipment - discontinued operations - 6,946
--------------- -----------
Total assets $ 62,813 $ 60,071
=============== ===========
The Company has classified the investment in and note receivable from affiliate
as well as other assets not included in the vehicle components or electrical
components and GPS segments as corporate assets.
9
Williams Controls, Inc.
Management's Discussion and Analysis
(Dollars in thousands, except share and per share information)
Item 2.
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
The Company's principal sources of liquidity are funds generated from
operations, borrowings under its credit facility, and capital raised from
private placements. At June 30, 2000, the Company's working capital was $6,451
compared to $9,158 at September 30, 1999 and the current ratio was 1.33 at
June 30, 2000 compared to 1.49 at September 30, 1999.
Cash flows from continuing operations were $1,979 for the nine months ended
June 30, 2000 compared to $6,501 for the first nine months of fiscal 1999. In
the nine months ended June 30, 2000, the primary reason for the decline in net
cash provided by operating activities of continuing operations was decreased
earnings, after considering the non-cash impact of the $5,278 loss from
impairment of assets recorded in the nine months ended June 30, 1999. Net cash
used in discontinued operations was $211 in the nine months ended June 30,
2000 compared to $1,943 in the same period of 1999. The decrease of $1,732 is
primarily the result of proceeds received from the sale of the discontinued
Agricultural Equipment Segment in May 2000.
In July 2000, the Company announced it had signed a definitive agreement for
the merger of the plastic injection molding subsidiary, Premier Plastics
Technologies, Inc. and 3DM International, Inc. 3DM International advanced
$500 to be used for general working capital purposes for the benefit of
Premier Plastic Technologies. The note is due upon closing of the transaction
and includes nostated interest rate.
In February 2000 and April 2000, the Company amended its credit facility with
a bank (the "Bank"). Terms of the amendments extended the due date of Term
Loan III from February 1, 2000 to April 30, 2000, advanced the Company $1,000
under a new term loan ("Term Loan IV") which was due April 30, 2000 and bears
interest at the Bank's prime rate plus 1.25%, advanced $800 under Term Loan I
(subject to adjustment for a subsequent appraisal of certain equipment),
and advanced certain lesser amounts as a result of the change in eligibility
of certain receivables. Had a private placement of debt or equity been
successful before April 30, 2000, $1,000 of the first $3,000 of net proceeds
received by the Company were to be paid to the Bank in payment of Term Loan
IV and 75% of the net proceeds received by the Company in excess of $3,000
were to be paid to the Bank in payment of Term Loan III, until retired. The
Company completed a private placement in April 2000 (see note 8). The Bank
agreed that none of the proceeds received by the Company would be paid to the
Bank. In May 2000, the Bank amended the credit agreement to extend the due
dates of Term Loans III and IV to July 15, 2000. The Company did not repay
Term Loans III and IV on July 15.
In August 2000, the Bank amended the credit agreement to again extend the due
dates of Term Loans III and IV to November 15, 2000, increase the stated
interest rate on the revolving line of credit and all term loans by 2% and
reduce the sublimit on the revolving line of credit from $16,500 to $14,000
for accounts receivable and from $8,000 to $6,000 for inventory. In connection
with the amendment, the Company agreed to pledge 600,000 of the 1.4 million
shares of 3DM International expected to be received upon the completion of the
sale of the Premier Plastics Technologies subsidiary and to reduce the
revolving credit facility $50 per month either as a result of payments
received from the sale of certain inventory or through a further reductio
of the sublimit on the revolving line of credit for inventory. In addition,
if the Company is successful in obtaining additional capital, it has made
commitments to the Bank to direct a portion of the proceeds from such
additional capital in payment of outstanding term loans. The 2% increase
in the stated rate of interest on the revolving line of credit and the term
loans is payable January 1, 2000.
The Bank also amended certain financial covenants, as of and for the nine
months ended June 30, 2000. The amendment requires the Company to maintain
certain tangible net worth, which requirement was $11,000 at June 30,
2000 and achieve certain consolidated net earnings (loss) from continuing
operations, which requirement was ($1,100) for the nine months ended June 30,
2000. The requirement to maintain a certain debt service coverage ratio
(as defined in the credit agreement) was waived at June 30, 2000. The Company
was in compliance with the amended tangible net worth and consolidated net
earnings requirements as of and for the nine months ended June 30, 2000. In
consideration for the most recent amendment, the Company has agreed to pay
$50 or $75 dependent upon whether the debt outstanding is paid to the Bank
before October 1, 2000 or November 15, 2000. If the debt owed to the Bank is
not paid by November 16, 2000, the cost of the amendment will increase to
$100 and would be payable January 1, 2001.
The Company has a real estate loan due to a bank, originally due June 15,
2000, which due date has been extended to September 15, 2000.
10
Williams Controls, Inc.
Management's Discussion and Analysis (continued)
(Dollars in thousands, except share and per share information)
In April 2000, the Company issued 7.5% convertible subordinated debentures in
an aggregate principal amount totaling $2,140, due March 31, 2003, including
$140 issued in lieu of the underwriting fee. Net proceeds to the Company after
expenses, excluding the value of warrants issued, were $1,965 and were used
for general working capital purposes. The debentures are unsecured
obligations, subordinate to all senior indebtedness (as defined). The
debentures are convertible into shares of the Company's common stock, par
value $.01 per share, at a conversion price of $2.00 per share. In addition,
the Company issued to each purchaser of debentures a three year warrant to
purchase common stock of the Company equal to 20% of the shares of common
stock into which such purchaser's debenture is convertible. The exercise price
of the warrants is $2.375 per share. The Company issued the placement agent a
five year warrant to purchase shares of the Company's common stock equal to
7.0% of the total shares of common stock issuable upon the conversion of the
debentures. The exercise price of the placement agent warrants is $2.40 per
share.
The Company has significant amounts of debt due within a relatively short time
frame. In addition, the Company has not been able to meet certain payment due
dates for Term Loans III and IV and has received extensions of the due dates
from the Bank. Because of this situation, the Company is pursuing various
alternatives for obtaining additional capital to support the Company's general
working capital needs, debt repayment, and projected growth and capital
requirements. Such alternatives include refinancing the debt structure of the
Company, utilizing two buildings in a financing transaction not currently
fully securitized as collateral, and obtaining capital from the private
placement market. Should the Company not be able to raise additional funds to
pay the debt due in September and November 2000, it will seek further
extension of the payment dates with the banks.
Market Risk - The Company has not entered into derivative financial
instruments. The Company may be exposed to future interest rate changes on its
debt. The Company does not believe that a hypothetical 10 percent change in
interest rates would have a material effect on the Company's cash flow.
Recent FASB Pronouncement - In June 1999 the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 137"). SFAS 137 is an amendment to SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS 137
establishes accounting and reporting standards for all derivative instruments.
SFAS 137 is effective for fiscal years beginning after June 15, 2000. The
Company does not have any derivative instruments and accordingly, the adoption
of SFAS 137 will have no impact on the Company's financial position or results
of operations.
11
Williams Controls, Inc.
Management's Discussion and Analysis (continued)
(Dollars in thousands, except share and per share information)
Results of Operations
Three months ended June 30, 2000 compared to the three months ended June 30,
1999
Sales
Sales from continuing operations increased $2,273, or 14.4%, to $18,022 in the
third quarter of fiscal 2000 from $15,749 in the third quarter of fiscal 1999
primarily due to higher unit sales volumes in the Company's Vehicle Components
segment.
Sales in the Vehicle Components segment increased $2,696, or 18.1%, to $17,563
in the third quarter of fiscal 2000 over levels achieved in the third quarter
of fiscal 1999 primarily due to increased sales at PPT. Sales from continuing
operations in the Company's Electrical Components and GPS business units
decreased $423, or 48.0%, due to decreased unit sales of electrical components
and the lack of a substantive contract at the GPS unit.
Gross margin
Gross margin from continuing operations was $3,808 or 21.1% of sales in the
third quarter of 2000, compared to $4,383 or 27.8% of sales in the comparable
1999 period. Gross margin decreased $575 in the third quarter of fiscal 2000
as a result of reduced gross margins at the Vehicle Components business unit
of $102 and at the Electrical Components and GPS business unit of $473.
Reduced margins at the Vehicle Components business unit were primarily the
result of a decrease in higher margin truck ETC sales. The reduction in truck
ETC sales at the Vahicle Components business unit is the result of a general
slowdown in heavy and medium truck business casued by rising interest rates,
higher fuel costs and the high number of used trucks currently on the market.
This slowdown in heavy and medium truck sales is expected to continue into the
fourth fiscal quarter and into fiscal 2001. Reduced margins at the Electrical
Components and GPS unit were primarily the result of reduced sales of
electrical components and lack of a substantive GPS contract with no
corresponding reduction in fixed overhead.
The Company's plastic injection molding subsidiary, Premier Plastics
Technologies, Inc. ("PPT"), the operating results of which are included in the
Vehicle Components segment, reported a decreased loss from operations of $305
to ($186) for the three months ended June 30, 2000 compared to ($491) for the
same period of 1999. Sales, gross margin (loss) and operating loss for the
three months ended June 30, 2000 were $3,721, $226, and ($186), respectively,
compared to $1,309, ($267) and ($491) in the prior fiscal period. The increase
in sales is the result of new business that was awarded and began production
in the second quarter of fiscal 2000. The Company has signed a definitive
agreement for the merger of PPT into 3DM International, Inc. ("3DMI"). No loss
is expected to be realized under the terms of the definitive agreement.
Closing of the transaction is subject to customary closing conditions and
3DMi's payment of all advances relating to PPT under the secured lending
facility with the Bank, subject to 3DMi obtaining sufficient financing. In
addition, the Company has entered into an operating agreement with an
affiliate of the potential buyer is managing the operations of PPT during the
interim period until the sale is consummated.
Operating expenses
Operating expenses for continuing operations decreased $3,752, or 48.1%, to
$4,046 in the third quarter of fiscal 2000 compared to $7,798 in the third
quarter of fiscal 1999, primarily as a result of the $5,278 loss from
impairment in assets recognized in the fiscal 1999 period, partially offset by
an increase of $1,051 in research and development expenses. Operating expenses
as a percentage of net sales from continuing operations decreased to 22.5% in
the third quarter of fiscal 2000 compared to 49.5% in the second quarter of
fiscal 1999.
12
Williams Controls, Inc.
Management's Discussion and Analysis (continued)
(Dollars in thousands, except share and per share information)
Results of Operations
Three months ended June 30, 2000 compared to the three months ended June 30,
1999 (continued)
Research and development expenses for continuing operations increased $1,051,
or 103.3%, to $2,068 during the third quarter of fiscal 2000 compared to
$1,017 in the third quarter of fiscal 1999. As a percentage of sales from
continuing operations, research and development expenses increased from 6.5%
to 11.5%. Research and development expenses were increased for development of
the automotive ETC and adjustable foot pedal products related to the 1999
acquisition of ProActive pedals and support of new product development for
existing customers and for development of sensor-related products. Research
and development expenses as a percentage of sales are expected to decrease in
the fourth quarter of fiscal 2000 and in the fiscal year ending September 30,
2001 as the focus shifts to production of automotive pedals and
sensor-related products.
Administration expenses for continuing operations increased $452 or 44.8%, in
the third quarter of fiscal 2000 to $1,462 compared to $1,010 in the third
quarter of fiscal 1999. Administration expenses as a percent of sales from
continuing operations increased to 8.1% in the third quarter of fiscal 2000
compared to 6.4% in the third quarter of fiscal 1999. Administration costs
increased primarily as a result of increased administration costs of $176 at
PPT to support increased plastic molding contracts and the amortization of
intangible assets as a result of an acquisition completed in the third fiscal
quarter of 1999.
Interest and Other Expenses
Interest expense from continuing operations increased $473, or 121.6%, to
$862 in the third quarter of fiscal 2000 from $389 in the second quarter of
fiscal 1999. The increase was primarily the result of the following factors:
interest expense on the convertible subordinated debt issued in April 2000,
increased debt owing to a Bank during the period ended June 30, 2000 as
compared to the same period in 1999 and a decreased allocation of interest to
the discontinued Agricultural Equipment Segment. Allocated interest expense
included in discontinued operations for the quarters ended June 30, 2000 and
1999 was $68 and $235, respectively.
Discontinued operations
No loss on the discontinued operations of the Agricultural Equipment Segment
was reported in the three months ended June 30, 2000 or 1999. An expense for
estimated loss on disposal was originally recorded in September 1998. As
additional information was gained, an additional expense for estimated loss
on disposal was recorded in September 1999. On May 4, 2000 Hardee Williams,
Inc., the primary component of the Agriculatural Equipment Segment, was sold.
Net sales from the Agricultural Equipment Segment declined $1,391, or 75.2%,
to $459 in the third quarter of fiscal 2000 compared to $1,850 in the third
quarter of fiscal 1999. The loss from operations for the Agricultural
Equipment Segment decreased $487 to a loss of $143 due to a $138 decrease in
gross margin and $349 decrease in operating expenses.
Net earnings (loss) allocable to common shareholders
Net earnings (loss) allocable to common shareholders was $(727) in the
quarter ended June 30, 2000 compared to ($2,527) in the comparative prior
year period due to a decreased loss from operations.
The effective income tax rate was 38.4% for the quarters ended June 30, 2000
and 1999.
13
Williams Controls, Inc.
Management's Discussion and Analysis (continued)
(Dollars in thousands, except share and per share information)
Results of Operations
Nine months ended June 30, 2000 compared to the nine months ended June 30,
1999
Sales
Sales from continuing operations increased $5,090, or 11.0%, to $51,495 in
the nine months ended June 30, 2000 from $46,405 in the nine months ended
June 30, 1999. The Company's Vehicle Components business unit produced $5,314
or 12.0% more sales due to higher unit sales volumes. The increase in the
Vehicle Components business unit resulted primarily from $3,394 higher
plastic injection molding sales and automotive pedal sales. However, this was
partially offset by $224 or 10.1% less sales in the Electrical Components and
GPS business unit due to lower unit sales volumes.
Gross margin
Gross margin from decreased $2,708, or 19.4%, to $11,235 compared to $13,943
in the nine months ended June 30, 1999. Gross margin decreased $2,119 or
15.5%, in the nine months ended June 30, 2000 in the Vehicle Components
segment due to increased gross margin loss approximating ($630) at the
plastic injection molding subsidiary, increased information technology costs,
decreased absorption of overhead related to lower finished goods and work in
process inventory levels, as well as the impact from product mix shifting
slightly away from higher margin ETC sales. Increased information
technology costs include the continued implementation of a new enterprise
resource planning system which was installed in July 1999, additional
expenses incurred for continued support of an enterprise wide area network
and website development. The Electrical Component and GPS segment margin
decreased $589, from $248 in the nine months ended June 30, 1999 to ($341)
in the comparable current period, primarily the result of fixed overhead
combined with declining sales at the electronic components operations offset
by increased margins of $414 at the GPS operation, primarily the result of
the completion of a GPS contract in the current fiscal year. Gross margins
as a percent of sales decreased to 21.8% in the nine months ended June 30,
2000 compared to 30.0% in the nine months ended June 30, 1999.
The Company's plastic injection molding subsidiary, Premier Plastics
Technologies, Inc. ("PPT"), the operating results of which are included in
the Vehicle Components segment, reported an increased loss from operations of
$1,088 for the nine months ended June 30, 2000 compared to the same period of
1999. Sales, gross margin (loss) and operating loss for the nine months ended
June 30, 2000 were $7,517, ($909), and ($2,088) respectively compared to
$4,123, ($279) and ($1,000) in the prior fiscal period. The increase in sales
is the result of new business that was awarded and began production in the
second quarter of fiscal 2000. The Company has signed a definitive agreement
for the merger of PPT into 3DM International, Inc. ("3DMI"). No loss is
expected to be realized under the terms of the definitive agreement. Closing
of the transaction is subject to customer closing conditions and 3DMI's
payment of all advances relating to PPT under the secured lending facility
with the Bank, subject to 3DMI obtaining sufficient financing. In addition,
the Company has entered into an operating agreement whereby an affiliate of
the potential buyer is managing the operations of PPT during the interim
period until the sale is consummated.
Operating expenses
Operating expenses decreased $1,579, or 12.8%, to $10,767 in the nine months
ended June 30, 2000 compared to $12,346 in the nine months ended June 30,
1999 primarily as a result of $2,556 increased research and development costs
and $1,263 increased administration costs offset by $120 less selling expense
and $5,278 of loss on impaired assets recognized in the previous fiscal year.
Operating expenses as a percentage of sales was 20.9% in the nine months
ended June 30, 2000 and 26.6% in the same period of 1999. Operating expenses
decreased $1,456, or 14.6%, in the nine months ended June 30, 2000 in the
Vehicle Components segment including the impairment loss described above, and
decreased $123, or 5.2%, in the Electrical Components and GPS segment
compared to the prior year period.
14
Williams Controls, Inc.
Management's Discussion and Analysis (continued)
(Dollars in thousands, except share and per share information)
Results of Operations
Nine months ended June 30, 2000 compared to the nine months ended June 30,
1999 (continued)
Research and development expenses increased $2,556, or 95.3%, to $5,239
during the nine months ended June 30, 2000 compared to $2,683 in the nine
months ended June 30, 1999. As a percentage of sales, research and
development expenses increased from 5.8% to 10.2%. Research and development
expenses were increased to support new product development for the automotive
and truck ETC and adjustable foot pedal products, and for development of
sensor-related products and for existing customers. Research and development
expenses as a percentage of sales are expected to decrease in the fourth
quarter of fiscal 2000 and in the fiscal year ending September 30, 2001 as
the focus shifts to production of automotive pedals and sensor-related
products.
Administration expenses increased $1,263 in the nine months ended June 30,
2000 as compared to the same period in 1999. The primary reasons are
increased costs of $473 to support the increased volume of sales at the
plastic injection molding subsidiary, increased amortization of intangibles
totaling $387 as a result of an acquisition completed in fiscal 1999 as well
as start-up costs related to the implementation of operations at the
automotive pedal plant, which is expected to commence operations in August
2000.
Interest and Other Expenses
Interest expense increased $866 to $2,053 in the nine months ended June 30,
2000 from $1,187 in the nine months ended June 30, 1999. The reasons for the
increase were increased debt owing to a Bank, increased capital leases and a
decreased allocation of interest to the discontinued Agricultural Equipment
Segment. Allocation of interest to the discontinued Agricultural Equipment
Segment decreased by $229 in fiscal 2000 compared to fiscal 1999 as a result
of significantly decreased net assets at this segment. In addition, issuance
of subordinated debt in April 2000 increased interest expense approximately
$41.
Discontinued operations
No loss on the discontinued operations of the Agricultural Equipment Segment
was reported in the nine months ended June 30, 2000 or 1999. An expense for
estimated loss on disposal was originally recorded in September 1998. As
additional information was gained, an additional expense for estimated loss
on disposal was recorded in September 1999. On May 4, 2000, Hardee Williams,
Inc., the primary component of the Agricultural Equipment Segment, was sold.
Net sales from the Agricultural Equipment Segment declined $1,738 or 30.7% to
$3,915 in the nine months ended June 30, 2000 compared to $5,653 in the nine
months ended June 30, 1999. The decline in sales was primarily due to lower
unit sales attributable to a poor farm economy. The loss from operations for
the Agricultural Equipment Segment decreased $710 to $867 from $1,577 in the
prior fiscal period as a result of reduced administration costs.
Net earnings (loss) allocable to common shareholders
Net earnings (loss) allocable to common shareholders was $(1,458) in the nine
months ended June 30, 2000 compared to ($319) in the prior fiscal year due to
decreased earnings from operations driven by lower gross margins and higher
operating costs and interest expense, as described above.
The effective income tax rate for continuing operations was 38.4% for the
nine months ended June 30, 2000 and 1999.
15
Part II
Item 1. Legal Proceedings
Hardee Manufacturing v. Hardee Williams, Inc. and Williams
Controls, Inc., Horry County, South Carolina (2000-CP-26-194): In May
2000, litigation was commenced against the Company and its
wholly-owned subsidiary, Hardee Williams, Inc. alleging the late
payment of interest resulting in default under the terms of a $750,000
promissory note issued in connection with the acquisition of the
assets of Hardee Manufacturing in February 1995. The Company denies
the allegations and intends to vigorously defend this action.
currently this matter is in a preliminary stage and no discovery has
commenced.
Item 2. Changes in Securities and Use of Proceeds
On April 26, 2000, the Company completed the issuance of an
aggregate of 7.5% convertible subordinated debentures due March 31,
2003. Taglich Brothers, Inc. acted as placement agent for this
offering. Net proceeds to the Company were $1,965,000 after deducting
expenses of the offering and placment agent commissions of
approximately 175,000. The debentures are convertible into shares of
the Company's common stock at a conversion price of $2.00 per share.
In addition, the Company also issued to the purchasers of the
debentures, warrants to acquire an aggregate of 214,900 shares of
common stock at an exercise price of $2.375 per share, exercisable
until April 2003. The placement agent was issued placement agent
warrants to acquire an aggregate of 71,150 shares of the Company's
common stock at an exercise price of $2.40 per share, exercisable
until April 2003. The offer and sale of the debentures, warrants and
placement agent warrants was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
of Regulation D promulgated thereunder, for offers and sales made
solely to "accredited investors" as defined under Rule 501 of
Regulation D.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 - Form of Debenture with respect to the Company's 7.5%
Convertible Subordinated Debentures. Incorporated by
reference to the Company's Registration Statement o
Form S-3, Commission File No. 333-43006.
-----
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
16
Williams Controls, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
By: /s/ Thomas W. Itin
------------------------------------
Thomas W. Itin,
Chairman and Chief Executive Officer
By: /s/ Kim L. Childs
------------------------------------
Kim L. Childs,
Corporate Controller and
Principal Accounting Officer
Date: August 21, 2000
17
Williams Controls, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
By:
------------------------------------
Thomas W. Itin, Chairman and
Chief Executive Officer
By:
------------------------------------
Kim L. Childs, Corporate Controller
and Principal Accounting Officer
Date: August 21, 2000
17