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: March 31, 2002
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 April
30, 2002: 19,928,522
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 2002
(unaudited) and September 30, 2001 1
Unaudited Consolidated Statements of Operations,
three and six months ended March 31, 2002 and 2001 2
Unaudited Consolidated Statements of Cash Flows,
six months ended March 31, 2002 and 2001 3
Notes to Unaudited Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 13
Part I
Item 1.
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
(Unaudited)
March 31,
2002 September 30,
(unaudited) 2001
------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 38 $ -
Trade and other accounts receivable, less allowance of $448 and
$379 at March 31, 2002 and September 30, 2001, respectively 8,714 8,231
Inventories, net 4,174 4,725
Prepaid and other current assets 1,389 1,222
------------------- ---------------------
Total current assets 14,315 14,178
Property plant and equipment, net 11,280 11,729
Investment in and note receivable from affiliate - 3,065
Goodwill, net 36 36
Other assets 340 331
------------------- ---------------------
Total assets $ 25,971 $ 29,339
=================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 8,556 $ 9,434
Accrued expenses 9,244 9,048
Current portion of long-term debt and capital leases 14,091 13,146
Convertible subordinated debt, net 2,102 2,082
------------------- --------------------
Total current liabilities 33,993 33,710
Long-term debt and capital lease obligations 152 205
Other liabilities, Primarily employee benefit obligations 6,616 6,132
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock ($.01 par value, 50,000,000 authorized;
78,200 issued and outstanding at March 31, 2002
and 78,400 at September 30, 2001) 1 1
Common stock ($.01 par value, 50,000,000 authorized;
19,928,522 issued at March 31, 2002 and 19,921,114 at
September 30, 2001) 199 199
Additional paid-in capital 23,069 23,069
Accumulated deficit (35,303) (30,721)
Other comprehensive loss - Pension liability adjustment (2,379) (2,379)
Treasury stock (130,200 shares at March 31, 2002
and September 30, 2001) (377) (377)
Note receivable - (500)
------------------- --------------------
Total shareholders' equity (deficit) (14,790) (10,708)
------------------- --------------------
Total liabilities and shareholders' equity (deficit) $ 25,971 $ 29,339
=================== ====================
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 months Three months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Sales $12,848 $15,030 $24,267 $30,009
Cost of sales 9,358 12,207 18,086 24,831
-------------- -------------- -------------- --------------
Gross margin 3,490 2,823 6,181 5,178
Operating expenses:
Research and development 695 1,022 1,659 1,967
Selling 360 339 602 767
Administration 1,636 2,362 3,292 4,777
Loss on impairment of investment - Ajay 3,565 - 3,565 -
Loss on impairment of assets - PPT - - - 1,996
Loss on impairment of assets - ProActive - 4,366 - 4,366
-------------- -------------- -------------- --------------
Total operating expenses 6,256 8,089 9,118 13,873
-------------- -------------- -------------- --------------
Loss from operations (2.766) (5,266) (2,937) (8,695)
Other (income) expenses:
Interest expense 632 1,067 1,572 2,140
Other (income) expense, net ( 15) (16) ( 44) (24)
-------------- -------------- -------------- --------------
Total other expenses 617 1,051 1,528 2,116
-------------- -------------- -------------- --------------
Loss from operations before
income tax (3,383) (6,317) (4,465) (10,811)
Income tax - - - -
-------------- -------------- -------------- --------------
Net loss from continuing
operations (3,383) (6,317) (4,465) (10,811)
Discontinued operations:
Gain from exchange of building for debt of
the previously discontinued agricultural
equipment segment - - 417 -
-------------- -------------- ============== ==============
Net loss (3,383) (6,317) (4,048) (10,811)
Dividends on preferred stock (293) (602) (534) (749)
Net loss allocable to common
shareholders $(3,676) $(6,919) $ (4,582) $(11,560)
============== ============== ============== ==============
Net loss per common share from
continuing operations - basic $ (0.18) $ (0.35) $ (0.25) $ (0.58)
Net income per common share from discontinued
operations - basic - - 0.02 -
-------------- -------------- -------------- ------------
Net loss per common share - basic $ (0.18) $ (0.35) $ (0.23) $ (0.58)
============== ============== ============== ==============
Weighted average shares used in per share
calculation - basic 19,928,522 19,790,914 19,926,935 19,790,914
============== ============== ============== ==============
Net loss per common share from
continuing operations - diluted $ (0.18) $ (0.35) $ (0.25) $ (0.58)
Net income per common share from discontinued
operations - diluted - - 0.02 -
-------------- -------------- -------------- -------------
Net loss per common share - diluted $ (0.18) $ (0.35) $ (0.23) $ (0.58)
============== ============== ============== =============
Weighted average shares used in per share
calculation - diluted 19,928,522 19,790,914 19,926,935 19,790,914
============== ============== =============== =============
The accompanying notes are an integral part of these statements.
2
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six months Six months
Ended Ended
March 31, March 31,
2002 2001
-------------- ---------------
Cash flows from operating activities:
Net loss $ (4,048) $(10,811)
Adjustments to reconcile net loss
to net cash (used) provided by operations:
Depreciation and amortization 1,631 2,193
Gain from discontinued operations (417) -
Gain from sale of assets ( 45) -
Loss from impairment of investment - Ajay 3,565 -
Loss from impairment of assets - PPT - 1,996
Loss from impairment of assets - Proactive - 4,366
Changes in working capital:
Receivables, net (483) 2,005
Inventories 551 3,325
Accounts payable and accrued expenses (1,044) 662
Other 88 787
-------------- ---------------
Net cash provided (used)by operating activities ( 202) 4,523
Cash flows from investing activities:
Payments for property, plant and equipment (445) (671)
Proceeds from sale of assets 45 -
-------------- ---------------
Net cash used in investing activities (400) (671)
Cash flows from financing activities:
Net borrowings (payments) of debt and lease
obligations 640 (7,376)
Net proceeds from secured subordinated debt - 4,576
Preferred dividends - (147)
-------------- ---------------
Net cash provided by (used in) financing
activities 640 (2,947)
Net increase in cash and cash
equivalents 38 905
Cash and cash equivalents at beginning of
period - 30
-------------- ---------------
Cash and cash equivalents at end of period $ 38 $ 935
============== ===============
Supplemental disclosure of cash flow
information:
Interest paid $ 324 $ 1,066
-------------- ---------------
Income taxes paid (refund) $ - $ (158)
-------------- ---------------
Supplemental disclosure of non-cash
investing and financing activities:
Dividends accrued not paid $ 534 $ 147
Debt modification fee accrued, not paid $ 225 $ -
Accrued fees/interest converted to debt $ 397 $ -
Dividends for implied returns on $ - $ 455
preferred stock
Secured subordinated debt issuance costs $ - $ 57
Secured subordinated debt discount $ - $ 813
The accompanying notes are an integral part of these statements.
3
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 2002 and 2001
(Dollars in thousands, except share and per share amounts)
Cautionary Statement: This report, including these Notes to Unaudited
Consolidated Financial Statements, 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 including, its ability
to renegotiate its outstanding debt commitments and its ability to conclude
a proposed equity offering, the ability of the Company to generate or
obtain sufficient working capital to continue its operations. 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"); Waaco-Geo, 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 disclosures 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, 2001 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. Going Concern Matters
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. At March 31,
2002, essentially all of the Company's $8,556 of trade accounts payable was
significantly past due, the working capital deficit was ($19,678), and the
Company stockholders' equity was a deficit of ($14,790). Additionally, in
February 2001 the Company raised $4,576, net of expenses, from a private
placement of debt in the form of $4,950 of secured subordinated debentures,
which were due March 1, 2002, bearing interest at 12%. The interest was
deferred until the maturity of the underlying notes. The Company did not
make the principal and interest payments when due on March 1, 2002, and
discussions are ongoing with the debenture holders regarding the ultimate
satisfaction of this debt. The Company also ceased making payments of
preferred stock dividends in the second quarter of fiscal 2001. Also, as
described in Note 7 of Notes to the Unaudited Consolidated Financial
Statements, the Company was not in compliance with the covenants of its
credit agreement with its primary bank at March 31, 2002. The credit
agreement matured on July 11, 2001, and the Company has obtained extensions
on this debt through June 30, 2002. As a result, the Company has classified
the $7,946 owed to its primary bank as a current liability at March 31,
2002. To improve liquidity, the Company has entered into a letter of intent
with American Industrial Partners (AIP) whereby AIP would invest
approximately $10,000, less fees and expenses, into the Company pursuant to
a new Series B Convertible Preferred Stock offering. See Note 8 of Notes to
Unaudited Consolidated Financial Statements. Completion of the proposed
financing transaction is subject to a number of conditions, including,
without limitation, customary due diligence and consent to the transaction
by the holders of the Company's outstanding convertible subordinated debt,
secured subordinated debt and Series A preferred stock. Following
completion of a definitive agreement and upon closing of the transaction,
AIP will be entitled to hold a majority of seats on the Company's Board of
Directors.
This investment by AIP is expected to improve significantly the Company's
liquidity, however no assurances can be given that this transaction, or any
other transaction, will ultimately be completed. Until the transaction is
completed, the Company will continue to have a significant lack of
liquidity.
The above matters continue to raise doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
4
4. 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 (loss) for the three months ended March 31, 2002 and 2001
was ($3,383) and ($6,317), respectively, and for the six months ended March 31,
2002 and 2001 was ($4,048) and ($10,811) respectively, and consisted solely of
net loss. As of March 31, 2002, accumulated other comprehensive loss was
($2,379) and consisted of accumulated benefit obligations in excess of the plan
assets for both the Hourly Employees Pension plan and the Salaried Employees
Pension Plan.
5. Earnings (loss) per Share
Basic earnings per share ("EPS") and diluted EPS are computed using the methods
prescribed by Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". Basic EPS is calculated using the weighted-average number of common
shares outstanding for the period and diluted EPS is computed using the
weighted-average number of common shares and dilutive common equivalent shares
outstanding.
Following is a reconciliation of basic EPS and diluted EPS from continuing
operations:
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net Loss from
continuing operations $(3,383) $(6,317)
Less-Preferred stock dividends (293) (602)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders (3,676) 19,928,522 $ (0.18) (6,919) 19,790,914 $(0.35)
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(3,676) 19,928,522 $ (0.18) $(6,919) 19,790,914 $(0.35)
========= ============ ========= ========= =========== =========
Six Months Ended Six Months Ended
March 31, 2002 March 31, 2001
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net loss from continuing
operations $ (4,465) $(10,811)
Less-Preferred stock dividends (534) (749)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders (4,999) 19,926,935 $ (0.25) (11,560) 19,790,914 $(0.58)
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(4,999) 19,926,935 $ (0.25) $(11,560) 19,790,914 $(0.58)
========= ============ ========= ========= =========== =========
At March 31, 2002 and 2001, the Company had options and warrants
covering 6,188,736 and 6,236,879 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 both
periods, conversion of the preferred shares and convertible subordinated
debt would have been antidilutive and therefore was not considered in the
computation of diluted earnings per share.
6. Inventories
Inventories consisted of the following:
March 31, September 30,
2002 2001
------------------- ---------------------
Raw material $2,718 $3,056
Work in process 975 932
Finished goods 481 737
=================== =====================
$4,174 $4,725
=================== =====================
Finished goods include component parts and finished product ready for
shipment.
7. Debt
On June 30, 1998, the Company restructured its credit facility with a bank (the
"Bank") to consist of a revolving credit facility of up to $16,500, a $3,100
term loan (Term Loan I) and a $2,700 real estate loan. In December 1998, the
Company borrowed $2,500 under Term Loan II. In July 1999, the Company borrowed
$2,500 under Term Loan III. In February 2000, the Company borrowed $1,000 as an
overadvance of its credit agreement (Term Loan IV). Under the revolver, the
Company can borrow up to $8,500 (pursuant to the credit agreement, as amended)
based upon a borrowing base availability calculated using specified percentages
of eligible accounts receivable and inventory. The advance under Term Loan II
was repaid during 2000. Term Loans III and IV and a portion of Term Loan I and
the Real Estate Loan were repaid in the Third Quarter of 2001 from sales of the
land and building at the Aptek subisdary and sale of the GeoFocus subsidary. The
revolver bears interest at the Bank's prime rate plus 2.00%, (6.75% at March 31,
2002). Term Loan I bears interest at the Bank's prime rate plus 2.25%, (7.00% at
March 31, 2002). The loans and the revolving credit facility matured on July 11,
2001 and were extended through December 31, 2001. Subsequent to December 31,
2001, the Company obtained an extension of the credit facility under an amended
forbearance agreement until June 30, 2002. In addition to interest payments,
which have been paid monthly, principle payments of $50 will commence on April
1, 2002. As part of the extention through June 30, 2002, the Company converted
certain unpaid fees to the Bank to a $397 Bridge Loan, bearing interest at the
Bank's prime rate plus 3.25%. This Bridge Loan is to be repaid with 18 monthly
payments of $22, plus interest, beginning April 2002. All loans are secured by
substantially all of the assets of the Company.
5
The loan agreement prohibits payment of dividends by the Company except for the
Series A Preferred dividend, and requires the Company to maintain minimum
working capital of $12,000 and minimum tangible net worth, as defined, of
$11,500. The loan also prohibits additional indebtedness and common stock
repurchases except through the use of proceeds from stock options exercised, and
restricts capital expenditures to an amount not to exceed $10,500 for the two
years ended September 30, 1999 and not to exceed $2,500 annually thereafter. In
addition, the loan limits incremental operating lease obligations to $600
annually. Fees under the loan agreement include an unused revolver fee of .25%
currently and $500 in loan accommodation fees in connection with the loan
extensions granted in 2001. At March 31, 2002, the Company was not in compliance
with its debt covenants with the Bank. No waivers have been obtained and the
default has not been cured, however the company has obtained an extension of the
forbearance agreement until June 30, 2002. In connection with this extension,
the Company will pay a $225 fee. Accordingly, all of the debt with the Bank of
$7,946 has been classified as current liabilities in the accompanying
Consolidated Balance Sheet at March 31, 2002.
8. AIP Letter of Intent
The Company announced it has entered into a letter of intent with American
Industrial Partners (AIP) whereby AIP would invest approximately $10,000, less
fees and expenses, into the Company pursuant to a new Series B Convertible
Preferred Stock offering. Completion of the proposed financing transaction is
subject to a number of conditions, including, without limitation, customary due
diligence and consent to the transaction by the holders of the Company's
outstanding convertible subordinated debt, secured subordinated debt and Series
A preferred stock. Following completion of a definitive agreement and upon
closing of the transaction, AIP will be entitled to hold a majority of seats on
the Company's Board of Directors.
9. Loss on Impairment of Assets - ProActive and PPT
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121), long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the recoverability test is
performed using undiscounted net cash flows of the assets.
In July 1999, the Company purchased the ProActive Pedals (ProActive) division of
Active Tools Manufacturing Co., Inc. ProActive is a designer and developer of
patented adjustable food pedal systems and modular pedal systems. The
acquisition was accounted for using the purchase method of accounting and
resulted in $1,820 being allocated to developed technology, $1,439 to a patent
and patent license agreement acquired and $2,162 to goodwill, representing the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed. At March 31, 2001, the carrying value of the goodwill and
intangible assets of ProActive was $4,366.
ProActive's sales volumes of adjustable and modular foot pedal systems
are limited to one contract that ProActive has with a third party. Additionally,
as a result of the Company's overall capital constraints, the Company did not
possess the financial resources to further develop additional sales volumes or
to achieve the sales volumes originally projected for ProActive.
As a result of the above factors, management performed an analysis to measure
the impairment of the long-lived assets of ProActive in accordance with SFAS 121
as of March 31, 2001. Based on management's analysis it was concluded that the
undiscounted value of the projected cash flows of ProActive's current business
was less than the carrying value of the assets of ProActive as of March 31,
2001. As a result of this conclusion, the Company recorded an impairment charge
related to ProActive's remaining carrying value of the goodwill and intangible
assets, totaling $4,366. This amount has been reflected as a separate line item
within the operating expenses of the consolidated statements of operations for
the three and six month periods ended March 31, 2001.
In July 2000, the Company entered into an agreement to sell PPT, its plastic
injection molding subsidiary, subject to certain conditions. This transaction
was not consummated. As a result of the inability to sell PPT and after
reviewing PPT's history of operating problems, workforce levels and
profitability, PPT operations were terminated,effective March,2001. Prior to the
termination of operations, management of PPT evaluated the realizability of the
assets of PPT and the Company recorded an impairment charge on PPT's property,
plant, and equipment of $1,996 in the first quarter of fiscal year 2001. This
amount has been reflected as a separate line item within the operating expenses
of the consolidated statements of operations for the six month period ended
March 31, 2001. Management also established additional reserves of $100 and $598
for obsolete and excess inventory and estimated un-collectible accounts
receivable, respectively. Net sales and loss from operations of PPT were $1,827,
$(1,227) for the three months ended March 31, 2001 and were $4,026 and
$(4,833)for the six months ended March 31, 2001.
10. Disposition of Geofocus
The company sold its GeoFocus subsidiary in the third fiscal quarter of 2001.
GeoFocus was consolidated in the accompanying consolidated financial statements
at March 31, 2001. Total assets of GeoFocus at March 31, 2001 were not material
to the consolidated financial statements. Net sales and (loss) of GeoFocus were
$204 and $(194) for the three months ended March 31, 2001 and were $332 and
$(380) for the six months ended March 31, 2001.
11. Gain from Discontinued Operations
In December 2001, the Company exchanged a building of its previously
discontinued Agricultural Equipment segment with a carrying value of $0 in
satisfaction of mortgage debt of $417. For the six months ended March 31, 2002
the resulting gain has been recorded in discontinued operations on the
accompanying statement of operations and reflected as a gain on sale of
buildings, since the fair value of the building was estimated to equal or exceed
the carrying value of the debt.
6
12. Potential Gain on Settlement of Debt Obligation
Included in Current portion of long-term debt and capital leases at March 31,
2002 is $799 related to an obligation of the parent, Williams Controls, Inc.
arising from the discontinued Agricultural Equipment segment. This obligation is
payable to a former owner of the assets of a portion of the discontinued
Agricultural Equipment segment. In January 2002, the Company entered into a
letter of intent to transfer to the prior owner all remaining machinery and
inventory for a complete release of the $799 obligation. The Company's carrying
value of the inventory and machinery and equipment was $0 at March 31, 2002. The
Company will recognize an extraordinary gain (it is estimated that the fair
value of the assets exchanged is insignificant) of $799, or $.04 per share,when
the transaction is completed. Although it is anticipated that this transaction
will be completed, the Company can provide no assurance that such a transaction
will ultimately be completed.
13. Employee Benefit Plans
In the six months ended March 31, 2002, the Company recorded $170 as an estimate
of additional liability to participants of the Company's Employee Stock
Ownership Plan. As previously disclosed, the Company's benefit plans are
currently under audit by the Department of Labor (DOL). The Company continues to
cooperate fully with the DOL in regards to the audits but Management is unable
to determine if any additional liability will result from the audits.
14. Segment Information
Three months Three Months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2002 2001 2002 2001
--------------- -------------- --------------- --------------
Sales by classes of similar products
Vehicle components $12,696 $14,457 $23,992 $29,109
Electrical components and GPS 152 573 275 900
--------------- -------------- --------------- --------------
$12,848 $15,030 $24,267 $30,009
=============== =============== =============== ==============
Earnings (loss) from operations
Vehicle components
Before loss on impairment of assets $ 1,153 $ (473) $ 1,471 $ (714)
Loss on impairment of assets - (4,366) - (6,362)
--------------- -------------- --------------- --------------
Total vehicle components 1,153 (4,839) 1,471 (7,076)
Electrical components and GPS (354) (427) (843) (1,619)
Loss on impairment of investment - Ajay Sports (3,565) - (3,565) -
--------------- -------------- --------------- --------------
$(2,766) $(5,266) $(2,937) $(8,695)
=============== ============== =============== ==============
Identifiable assets
Vehicle components $23,370 $31,329
Electrical components and GPS 2,470 3,566
Corporate 131 2,165
--------------- --------------
Total assets $25,971 $37,060
=============== ==============
Capital expenditures
Vehicle components $ 327 $ 476 $ 445 $ 658
Electrical components and GPS - 8 - 13
--------------- -------------- --------------- --------------
Total capital expenditures $ 327 $ 484 $ 445 $ 671
=============== ============== =============== ==============
Depreciation and amortization
Vehicle components $ 524 $ 1,131 $ 1,526 $ 2,034
Electrical components and GPS 40 95 105 159
--------------- -------------- --------------- --------------
Total depreciation and amortization $ 564 $ 1,226 $ 1,631 $ 2,193
=============== ============== =============== ==============
15. Investment in and notes Receivable from Affiliate
At December 31, 2001, the Company had notes and accounts receivable from Ajay
Sports, Inc. (Ajay) with a carrying value of $3,565, including a $500 note
receivable reflected as a reduction in the Company's shareholders' equity. The
$500 note receivable related to the issuance of 206,719 shares of the Company's
common stock to Ajay.
The Company's former chief executive officer and current Chairman of the Board,
Thomas W. Itin, who is an officer and shareholder of Ajay, has guaranteed
certain loans and investments made by the Company to and in Ajay. Mr. Itin has
taken the position that, as a result of his retirement as President and Chief
Executive Officer of the Company, his guarantees of certain loans and
investments in and to Ajay are no longer in effect. The Company disagrees with
the position taken by Mr. Itin. Mr Itin has filed suit in the Circuit Court for
Oakland County, Michigan seeking a determination as to the enforceability of
these guarantees. The Company has filed suit against Ajay and Mr. Itin in the
Multnomah Circuit Court for the State of Oregon seeking payment of all amounts
due from Ajay and Mr. Itin. The Company believes the guarantees of Mr. Itin are
enforceable and if the Company is unable to collect amounts owed it by Ajay it
will seek collections on the guarantees.
The Company had previously accounted for its investment in Ajay using the equity
method of accounting. As a result of various changes within both the Company and
Ajay, the Company feels it no longer has influence over the operations of Ajay
and accordingly has changed to the cost method of accounting for its investments
in and note receivable from Ajay. Accordingly, in accordance with the Company's
accounting policy for the impairment of long lived assets, the Company has
evaluated the realization of its investment in and note receivable from Ajay.
Based on the Company's current assessment and collection efforts against Ajay
and Mr. Itin's guarantee, the Company believes the investment in and note
receivable from Ajay have been impaired and accordingly an impairment loss for
the entire carrying value of $3,565 has been provided in the second quarter of
fiscal 2002, reflected on the Consolidated Statements of Operations as "Loss on
impairment of Investment-Ajay".
The Company has, however, been pursuing, and will continue to pursue collection
efforts against both Ajay and the guarantees of Mr. Itin. Any recoveries from
Ajay or Mr. Itin will be reflected in the financial statements at the time of
collection. During the second quarter of fiscal 2002 the Company obtained a
judgement against Ajay in the amount of $ 500 for a portion of the amounts owed
by Ajay to the Company.
16. Reclassifications
Certain amounts previously reported in the financial statements for the six
months ended March 31, 2001 have been reclassified to conform to current fiscal
year presentation.
7
Item 2.
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Critical Accounting Policies
- ----------------------------
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, the Company identified the most
critical accounting principles upon which our financial status depends. The
Company determined the critical principles by considering accounting policies
that involve the most complex or subjective decisions or assessments. The
Company identified the most critical accounting policies to be those related to
impairment of long-lived assets, warranty and product recall, and pensions and
post-retirement benefit obligations.
Impairment of Long-Lived Assets
- -------------------------------
We account for the impairment of long-lived assets in accordance with Financial
Accounting Standards Board (FASB) Statement No. 121 and, beginning in fiscal
year 2003, will account for it in accordance with FASB Statement No. 144. The
Company tests for impairment using undiscounted cash flows and calculates the
amount of impairment using discounted cash flows. Estimates of future cash flows
require judgment and may change based on, among other things, the market for our
products, technology advances, and customer relationships.
Warranty and Product Recall
- ---------------------------
The Company provides a warranty covering defects arising from products sold. The
Company has established a warranty reserve based on historical return rates of
products. In addition, the Company issued a product recall in late fiscal year
2001. The Company recorded a reserve for this product recall based on estimates
of number of units to be returned and the estimated costs to repair. While
management believes the estimates used are reasonable, they are subject to
change and such change could be material.
Pensions and Post-retirement Benefit Obligations
- ------------------------------------------------
The Company accounts for pensions and post-retirement benefits in accordance
with FASB Statement No. 87 and FASB Statement No. 106. FASB Statement No. 87
requires us to calculate our pension expense and liabilities using actuarial
assumptions, including a discount rate assumption and a long-term asset rate
return assumption. Changes in interest rates and market performance can have a
significant impact on our pension expense and future payments. FASB Statement
No. 106 requires the Company to accrue the cost of post-retirement benefit
obligations. The accruals are based on interest rates and the costs of health
care. Changes in interest rates and health care costs could impact
post-retirement expenses and future payments.
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
At March 31, 2002, essentially all of the Company's $8,556 of trade accounts
payable was significantly past due, the working capital deficit was ($19,678),
and the Company stockholders' equity was a deficit of ($14,790). Additionally,
in February 2001 the Company raised $4,576, net of expenses, from a private
placement of debt in the form of $4,950 of secured subordinated debentures,
which were due March 1, 2002, bearing interest at 12%. The interest was deferred
until the maturity of the underlying notes. The Company did not make the
principal and interest payments when due on March 1, 2002, and is in current
discussions with the debenture holders regarding the ultimate satisfaction of
this debt. The Company also ceased paying of preferred stock dividends in the
second quarter of fiscal 2001. Also, as described in Note 7 of Notes to the
Unaudited Consolidated Financial Statements, the Company was not in compliance
with the covenants of its credit agreement with its primary bank at March 31,
2002. The credit agreement matured on July 11, 2001, and the Company has
obtained extensions on this debt through June 30, 2002. As a result, the Company
has classified the $7,946 owed to its primary bank as a current liability at
March 31, 2002.
The Company has outstanding past due payables with essentially all of its
suppliers of raw materials, components and services and is currently on C.O.D.
or prepayment status with essentially all of its vendors. Although the Company
has not experienced any significant supply disruptions in the past several
months, and is not anticipating any, these vendors could decide, as a result of
the past due payables, to discontinue or delay the Company's supply of raw
materials, components and services which could cause a disruption in the
Company's production and operations. Such disruption or delay could materially
adversely affect the Company's business, prospects, financial condition and
results of operation.
At March 31, 2002, the Company's contractual obligations consisted of bank debt
of $7,946, capital leases of $549, debt of discontinued operations of $799,
Secured Subordinated debt and Convertible Subordinated debt, excluding debt
discount, of $4,950 and $2,102, respectively. All of this debt except for $152
of capital leases is shown as a current liability because the debt is due within
the next twelve months or is in default. The Company also has operating lease
commitments which at March 31, 2002 are due $354 in 2002, $287 in 2003, and $93
in 2004. The Company does not have any material letters of credit, purchase
commitments, or debt guarantee outstanding as of March 31, 2002.
To improve liquidity, the Company has entered into a letter of intent with
American Industrial Partners (AIP) whereby AIP would invest approximately
$10,000, less fees and expenses, into the Company pursuant to a new Series B
Convertible Preferred Stock offering. See Note 8 of Notes to Unaudited
Consolidated Financial Statements. Completion of the proposed financing
transaction is subject to a number of conditions, including, without limitation,
customary due diligence and consent to the transaction by the holders of the
Company's outstanding convertible subordinated debt, secured subordinated debt
and Series A preferred stock. Following completion of a definitive agreement and
upon closing of the transaction, AIP will be entitled to hold a majority of
seats on the Company's Board of Directors.
An investment such as that currently under consideration by AIP would
significantly improve the liquidity of the corporation, however no assurances
can be given that this transaction, or any other investment transaction, will
ultimately be completed. Until the transaction is completed, or another
alternative becomes available, the Company will continue to have a significant
lack of liquidity.
The above matters continue to raise a substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Cash flow from operations was negative for the six months ended March 31, 2002
at $202, compared to a source of $4,523 for the six months ended March 31, 2001.
Cash from operations improved through a reduction in the loss for the six months
ended March 31, 2002 over the corresponding prior year's six month period. The
large improvement in the net loss from 2001 to 2002 was more than offset by
changes in working capital. On a cash basis, the 2001 loss of $10,811 included a
$6,362 non-cash loss from the impairment of assets. Additionally in fiscal 2001
reductions of receivables and inventory and increases in Accounts Payable
improved cash flow. The negative cash flow from changes in working capital in
2002 of $888 differs from the net working capital gain in 2001 of $6,779 mainly
in the areas of inventory and receivable reduction.
Cash flow from investing was negative for the six months ended March 31, 2002 at
$400, wholly from purchase and sale of property, plant and equipment. This
compares with $671 negative cash flow for the six months ended March 31, 2001,
also from the result of purchases of property, plant and equipment.
Cash flow from financing activities was $640 for the six months ended March 31,
2002 compared to a use of $2,947 for the six months ended March 31, 2001. The
net source of funds for the six months ended March 31, 2002 was primarily due to
the borrowing of $1,000 at December 31, 2001 under the revolving loan agreement
discussed above offset by payments against borrowings. The net use of funds from
financing activities for the six months ended March 31, 2001 was primarily due
to repayment of debt and lease obligations of $7,376 offset by new borrowings of
$4,576.
8
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
Market Risk
- -----------
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 end of period
interest rates would have a material effect on the Company's cash flow.
Recent FASB Pronouncements
- --------------------------
In June 2000 the FASB issued Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133" ("SFAS 138"). 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
133, as amended by SFAS 137 and 138 establishes accounting and reporting
standards for all derivative instruments. SFAS 133 and 138 are effective for
fiscal years beginning after June 15, 2000. The Company adopted SFAS 138 in 2001
and it did not have any material impact on the Company's financial position or
results of operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited on a prospective basis only. SFAS
142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Thus, amortization of goodwill, including goodwill
recorded in past business combinations, will cease upon adoption of that
Statement, which for the Company was October 1, 2001. As of October 1, 2001, the
Company did not have any significant remaining goodwill. The adoption of SFAS
141 and SFAS 142 did not have a significant impact on the financial condition or
results of operations of the Company. Goodwill amortization, was $0, and $30 as
of March 31, 2002 and 2001, respectively.
In June and August 2001, the FASB issued SFAS No.'s 143 and 144, "Accounting for
Asset Retirement Obligations" and "Accounting for the Impairment or Disposal of
long-lived Assets." Under SFAS 143, the fair value of a liability for an asset
retirement obligation must be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 144 retains SFAS 121's ("Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of") fundamental
provisions for the: 1) recognition and measurement of impairment of long-lived
assets to be held and used; and 2) measurement of long-lived assets to be
disposed of by sale. These statements are effective for the Company's fiscal
year ended 2003. The Company has not performed an analysis of the effect of SFAS
143 or 144.
9
Williams Controls, Inc.
Management's Discussion and Analysis of Results of Operations
(Dollars in thousands, except per share amounts)
Results of Operations
Three months ended March 31, 2002 compared to the three months ended March
31, 2001.
Sales
- -----
Total net sales decreased $2,182 to $12,848 in the second quarter of fiscal 2002
from $15,030 in the second quarter of fiscal 2001. Excluding the sales in the
second fiscal quarter of 2001 of the PPT subsidiary, which was shut down in the
second quarter of fiscal 2001, and the sales of the GeoFocus subsidiary, which
was sold in the third quarter of fiscal 2001, (See Note 9 and Note 10 of Notes
to Consolidated Unaudited Financial Statements) net sales decreased $152 or
1.2%.
Net sales in the Vehicle Components segment decreased $1,761, to $12,696 in the
second quarter of fiscal 2002 over the second quarter of fiscal 2001 while the
Electrical Components and GPS business segment experienced a decrease in sales
of $421 to $152 in the second quarter of fiscal 2002.
Excluding the sales volumes of PPT in the second quarter of fiscal 2002, Vehicle
Component segment sales increased $65 or 0.5%.Increased sales in the Portland
division more than offset sales reductions in the Company's natural gas
conversion kit subsidiary, NESC. Excluding the sales volumes of GeoFocus in the
second quarter of fiscal 2001, Electrical Components and GPS segment sales
decreased $217, or 58.8%. In the Electrical Components and GPS segment,
decreased sales resulted from phasing out a number of its traditional electrical
component products in the second half of fiscal 2001. The Company is committed
to the development and production of sensors and sensor related products,
however, sales from this segment may be significantly lower during fiscal 2002
as a result of the phase out of the traditional electrical component products in
fiscal 2001.
Gross margin
- ------------
Gross margins were $3,490, or 27.2% of net sales, in the second quarter of 2002,
compared to $2,823, or 18.8% of net sales, in the comparable fiscal 2001 period.
Included in the gross margin for the second quarter of fiscal 2001 was a
negative gross margin of $620 related to PPT.
Excluding PPT, gross margins increased $47 in the second quarter of fiscal 2002
over the second quarter of fiscal 2001. As a percent of net sales, the gross
margin of 27.2% of sales in the second fiscal quarter of 2002 was higher than
the 26.1% of sales, excluding PPT, in fiscal 2001.
Operating expenses
- ------------------
Operating expenses were $2,691 for the three months ended March 31, 2002
compared to $3,723, excluding the Loss on Impairment of investment in Ajay for
the fiscal 2002 period and the Loss on Impairment of assets at Proactive for the
comparable fiscal 2001 period. Excluding the operating expenses related to PPT
and Geofocus and the Proactive impairment loss, operating expenses for the three
months ended March 31, 2001 were $2,847. The lower operating expenses in fiscal
2002 were the result of cost containment efforts.
Impairment Losses
- -----------------
The Company had previously accounted for its investment in Ajay using the equity
method of accounting. As a result of various changes within both the Company and
Ajay, the Company feels it no longer has influence over the operations of Ajay
and accordingly has changed to the cost method of accounting for investment in
and note receivable from Ajay. Accordingly, in accordance with the Company's
accounting policy for the impairment of long lived assets, the Company has
evaluated the realization of its investment in and note receivable from Ajay.
Based on the Company's current assessment and collection efforts against Ajay
and Mr. Itin's guarantee, the Company believes the investment in and note
receivable from Ajay have been impaired and accordingly an impairment loss for
the entire carrying value of $3,565 has been provided in the second quarter of
fiscal 2002. This amount has been reflected as a separate line "Loss on
impairment of investment - Ajay" within the operating expenses of the
consolidated statements of operations for the three and six month periods ended
March 31, 2002.
In July 1999, the Company purchased the ProActive Pedals (ProActive) division of
Active Tools Manufacturing Co., Inc. ProActive is a designer and developer of
patented adjustable food pedal systems and modular pedal systems. The
acquisition was accounted for using the purchase method of accounting and
resulted in $1,820 being allocated to developed technology, $1,439 to a patent
and patent license agreement acquired and $2,162 to goodwill, representing the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed. At March 31, 2001, the carrying value of the goodwill and
intangible assets of ProActive was $4,366.
ProActive's sales volumes of adjustable and modular foot pedal systems
are limited to one contract that ProActive has with a third party. Additionally,
as a result of the Company's overall capital constraints, the Company did not
possess the financial resources to further develop additional sales volumes or
to achieve the sales volumes originally projected for ProActive.
As a result of the above factors, management performed an analysis to measure
the impairment of the long-lived assets of ProActive in accordance with SFAS 121
as of March 31, 2001. Based on management's analysis it was concluded that the
undiscounted value of the projected cash flows of ProActive's current business
was less than the carrying value of the assets of ProActive as of March 31,
2001. As a result of this conclusion, the Company recorded an impairment charge
related to ProActive's remaining carrying value of the goodwill and intangible
assets, totaling $4,366. This amount has been reflected as a separate line "Loss
on impairment of asset - Proactive" within the operating expenses of the
consolidated statements of operations for the three and six month periods ended
March 31, 2001.
Interest and Other Expenses
- ---------------------------
Interest expense decreased $435 to $632 in the second quarter of fiscal 2002
from $1,067 in the second quarter of fiscal 2001. Lower interest on reduced debt
levels and lower interest rates were partially offset by increased costs of
amortization of the Secured Subordinated Debenture warrant discounts.
Income Taxes
- ------------
The effective income tax rate was 0.00% for the quarters ended March 31, 2002
and 2001. The Company is in a net operating loss carryforward position and is
providing a 100% valuation allowance on all deferred tax assets due to going
concern issues.
Net earnings available to common shareholders
- ---------------------------------------------
Net loss allocable to common shareholders declined to $(3,676) in the quarter
ended March 31, 2002 compared to $(6,919) in the comparative prior year period
primarily due to losses included in the second quarter of fiscal 2001 that were
not incurred in the second quarter of fiscal 2002. These losses included losses
on impartment of assets at Proactive and other operating losses attributable to
PPT and GeoFocus in fiscal 2001.
10
Results of Operations
Six months ended March 31, 2002 compared to the six months ended March 31, 2001.
Sales
- -----
Total sales decreased $5,742, or 19.1%, to $24,267 for the first six months of
fiscal 2002 from $30,009 for the first six months of fiscal 2001, primarily due
to lower unit sales volumes in the Company's Vehicle Components segment and to a
lesser degree, the Company's Electrical Components and GPS business segment.
Sales in the Vehicle component business segment decreased $5,117, or 17.6% to
$23,992 from the sales levels achieved in the first six months of fiscal 2001.
The most significant factor in the decline was the closing of the operations of
PPT in 2001. PPT sales for the six months ended March 31, 2001 were $4,026. The
absense of PPT sales in fiscal 2002 accounts for 78.7% of the sales decline in
this segment.
The Electrical Components and GPS component business segment sales decreased
$625 to $275 for the six months ended March 31, 2002 compared to the same period
in fiscal 2001 primarily as a result of lower sales volumes of the Company's
electronic sensors. The company sold its GeoFocus subsidiary in the third
fiscal quarter of 2001. GeoFocus was consolidated in the accompanying
consolidated financial statements at March 31, 2001.
Gross margin
- ------------
Gross Margins from operations were $6,181, or 25.5% of sales in the first six
months of fiscal 2002 compared to $5,178, or 17.3% of sales in the corresponding
six month period of 2001. The increased gross profit margins were mainly due to
the the closing of the PPT operation, which had a negative margin of $(1,473)
for the six month period in 2001. The gross profit margins for the six month
period in 2001 excluding the effect of PPT sales and margin was 25.6%.
Operating Expenses
- ------------------
Operating expenses were $5,553 for the six months ended March 31, 2002 compared
to $7,511 for the comparable fiscal 2001 period, a decrease of $1,958, or 26.1%,
excluding the loss from impairment of assets and investments in fiscal 2002 and
fiscal 2001. The reduction was primarily as a result of elimination of expenses
for the Company's PPT subsidiary.
Research and development expenses decreased $308, to $1,659 during the first
six months of fiscal 2002 compared to $1,967 in the comparable fiscal 2001
period, a 15.7% decline. As a percent of sales, research and development
expenses increased slightly from 6.6% to 6.8%.
Administrative expenses decreased $1,485 to $3,292 during the first six months
of fiscal 2002 compared to $4,777 in the comparable fiscal 2001 period due
mainly to the elimination of expenses related to the closed PPT subsidiary.
Impairment Losses
- -----------------
As discussed above, the Company recorded an impairment loss of $ 3,565 related
to its investment in and note receivable from Ajay in the second quarter of
fiscal year 2002. Also as discussed above the Company recorded an impairment
loss of $ 4,366 related to the intangible assets of Proactive pedal (Proactive)
in the second quarter of fiscal year 2001.
In July 2000, the Company entered into an agreement to sell PPT, its plastic
injection molding subsidiary, subject to certain conditions. This transaction
was not consummated. As a result of the inability to sell PPT and after
reviewing PPT's history of operating problems, workforce levels and
profitability, PPT operations were terminated,effective March,2001. Prior to the
termination of operations, management of PPT evaluated the realizability of the
assets of PPT and the Company recorded an impairment charge on PPT's property,
plant, and equipment of $1,996 in the first quarter of fiscal year 2001. This
amount has been reflected as a separate line item within the operating expenses
of the consolidated statements of operations for the six month period ended
March 31, 2001. Management also established additional reserves of $100 and $598
for obsolete and excess inventory and estimated un-collectible accounts
receivable, respectively. Net sales and loss from operations of PPT were $1,827,
$(1,227) for the three months ended March 31, 2001 and were $4,026 and
$(4,833)for the six months ended March 31, 2001.
Interest and Other Expenses
- ---------------------------
Interest expense decreased $548 or 25.6%, to $1,592 in the first six months of
fiscal 2002 from $2,140 in the first six months of fiscal 2001. Lower interest
on reduced debt levels and reduced interest rates were partially offset by
increased costs of amortization of Secured Subordinated Debentures warrent
discounts.
Discontinued Operations-Agricultural Segment
- --------------------------------------------
Included in Current portion of long-term debt and capital leases at September
30, 2001 is $417 related to the discontinued Agricultural Equipment segment. The
$417 related to a mortgage payable on a building of the Agricultural Equipment
segment. The building's carrying value was $0 at September 30, 2001. During the
first quarter of fiscal 2002 the mortgage holder sold the building at auction
for approximately the mortgage value and completely and fully released the
Company from the mortgage. The Company recognized a gain from discontinued
operations in the six month period ended March 31, 2002 of $417 related to the
satisfaction of the mortgage. Since the estimated fair value of the building was
equal to or greater than the debt, the gain was recorded as a gain on sale of
building from discontinued operations.
Income Taxes
- ------------
The effective income tax rate was 0.00% for the six month periods ended March
31, 2002 and 2001. The Company is in a net operating loss carryforward position
and is providing a 100% valuation allowance on all deferred tax assets due to
going concern issues.
Net earnings available to common shareholders
- ---------------------------------------------
Net loss allocable to common shareholders improved to $(4,582) in the six month
period ended March 31, 2002 compared to $(11,560) in the comparative prior year
period primarily due to losses included in fiscal 2001 that were not incurred in
the corresponding period of fiscal 2002. These losses included losses on
impartment of assets at Proactive and PPT, and other operating losses
attributable to PPT and GeoFocus in fiscal 2001.
11
Part II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
On November 15, 2000, the Company defaulted under the terms of its
credit agreement with the Bank when it failed to repay Term Loans III
and IV in the remaining principal amounts of $694 and $1,000,
respectively, both due on November 15, 2000. As of March 31, 2002,
no waivers have been obtained and the default has not been cured.
Forebearance agreements have been reached with the Bank, most recently
on January 8, 2002 to extend the loans to June 30, 2002. All the debt
with the Bank of $7,946 has been classified as current liabilities in
the accompanying Consolidated Balance Sheet at March 31, 2002.
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
None
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 K. Ziegler
----------------------------
Thomas K. Ziegler
President and
Chief Executive Officer
By: /s/ Dennis E. Bunday
----------------------------
Dennis E. Bunday,
Chief Financial Officer
Date: May 20, 2002
13
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.
----------------------------
Thomas K. Ziegler
Presidend and
Chief Executive Officer
----------------------------
Dennis E. Bunday,
Chief Financial Officer
Date: May 20, 2002
14