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: December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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
January 31, 1997: 17,782,040.
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 1996 (unaudited)
and September 30, 1996 1
Unaudited Consolidated Statement of Stockholders' Equity,
three months ended December 31, 1996 2
Unaudited Consolidated Statements of Operations,
three months ended December 31, 1996 and 1995 3
Unaudited Consolidated Statements of Cash Flows,
three months ended December 31, 1996 and 1995 4
Notes to Unaudited Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-11
Part II. Other Information
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
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
December 31, September 30,
1996 1996
------------ -------------
(unaudited)
Assets
Current Assets:
Cash $ 1,676 $ 1,379
Accounts receivable, net 12,696 13,103
Inventories 14,941 15,288
Other 1,767 1,885
------ ------
Total current assets 31,080 31,655
Investment in affiliate 813 943
Property, plant and equipment 25,178 24,955
Less accumulated depreciation and amortization 5,465 5,154
------- -------
19,713 19,801
------ ------
Other assets 1,384 1,379
------ ------
$52,990 $53,778
====== ======
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of revolving line of credit $ 21,000 $ 21,000
Current portion of long-term debt 380 212
Accounts payable and accrued expenses 7,390 8,388
------- -------
Total current liabilities 28,770 29,600
Long-term debt 2,703 2,782
Other liabilities 2,764 2,673
Commitments and contingencies - -
Minority interest in consolidated subsidiaries 731 713
Stockholders' equity:
Preferred stock of $.01 par value, 50,000,000 - -
shares authorized
Common stock of $.01 par value, 50,000,000
shares authorized, 17,869,987 shares issued 179 179
Additional paid-in capital 9,671 9,671
Unearned ESOP shares (511) (511)
Pension liability adjustment (228) (228)
Retained earnings 9,451 9,439
Treasury shares (195,200 shares at cost) (540) (540)
------- --------
18,022 18,010
------ ------
$52,990 $53,778
====== ======
The accompanying notes are an integral part of these statements.
1
Williams Controls, Inc.
Unaudited Consolidated Statement of Stockholders' Equity Three months ended
December 31, 1996 (Dollars in thousands, except per share amounts)
Number of Additional Unearned Pension
Shares Common Paid-in ESOP Liability Retained Treasury Stockholders'
Issued Stock Capital Shares Adjustment Earnings Shares Equity
Balance, September 30, 1996 17,869,987 $ 179 $9,671 $(511) $(228) $9,439 $ (540) $18,010
Net earnings - - - - - 12 - 12
----------- --- ----- --- --- ------ ---- -------
Balance, December 31, 1996 17,869,987 $ 179 $9,671 $(511) $(228) $9,451 $ (540) $18,022
========== ==== ===== ===== ===== ====== ==== =======
The accompanying notes are an integral part of these statements.
2
Williams Controls, Inc.
Unaudited Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Three months Three months
ended ended
Dec 31, 1996 Dec 31, 1995
------------ ------------
Net sales $16,684 $16,428
Cost of sales 12,957 12,024
------ ------
Gross margin 3,727 4,404
------ -------
Operating expenses:
Research and development 500 507
Selling 1,363 740
Administrative 1,136 1,014
------- ------
2,999 2,261
------- ------
Earnings from operations 728 2,143
Other expense:
Interest expense 551 464
Equity interest in loss of affiliate 130 70
--------- --------
681 534
--------- -------
Earnings before income taxes 47 1,609
Income taxes 17 608
--------- --------
Earnings before minority interest 30 1,001
Minority interest in net earnings
of consolidated subsidiaries 18 11
--------- --------
Net earnings $ 12 $ 990
========= =======
Earnings per common share $ - $ .06
========= =======
The accompanying notes are an integral part of these statements.
3
Williams Controls, Inc.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
Three months Three months
ended ended
Dec 31, 1996 Dec 31, 1995
------------ ------------
Cash flows from operations:
Net earnings $ 30 $ 990
Non-cash adjustments to net earnings:
Depreciation and amortization 397 428
Minority interest in earnings
of consolidated subsidiaries 18 11
Equity interest in loss of affiliate 130 70
Changes in working capital items net
of the effects of acquisitions:
Receivables, net 407 (921)
Inventories 347 (1,297)
Other 118 (184)
Accounts payable and accrued expenses (830) (1,034)
----- ------
Net cash provided by (used for) operations 599 (1,937)
----- -------
Cash flows from investing:
Payment for equipment (223) (438)
----- -------
Net cash used for investing (223) (438)
----- -------
Cash flows from financing:
Payments of long-term debt (60) (57)
Proceeds from long-term debt - 1,500
Payments of capital leases (19) (30)
Proceeds from stock issuance - 99
--------- --------
Net cash provided by (used for) financing (79) 1,512
------ ------
Net increase (decrease) in cash 297 (863)
Cash at beginning of period 1,379 1,653
----- -------
Cash at end of period $1,676 $ 790
===== ========
The accompanying notes are an integral part of these statements.
4
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three Months ended December31, 1996 and 1995
(Dollars in thousands, except per share amounts)
1. Organization
The Company includes its wholly-owned subsidiaries, Williams Controls
Industries, Inc. ("Williams"); Kenco Williams, Inc. ("Kenco"); NESC
Williams, Inc. ("NESC"); Williams Technologies, Inc. ("WTI"); Williams
World Trade, Inc. ("WWT"); Williams Automotive, Inc.; Aptek Williams, Inc.
("AWI"); Agrotec Williams, Inc., ("AGWI"); Techwood Williams, Inc. ("TWI");
Premier Plastic Technologies, Inc. ("PPT"); GeoFocus, Inc. ("GI") and its
80% subsidiaries Hardee Williams, Inc. ("HWI") and Waccamaw Wheel Williams,
Inc. ("WWWI").
2. The Interim Consolidated Financial Statements
The 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. 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, 1996 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. Earnings (loss) per Share
Earnings per share are computed on the basis of the weighted average number
of shares outstanding plus the common stock equivalents which would arise
from the exercise of stock options and warrants. The average number of
shares outstanding were 18,000,000 for the three months ended December 31,
1996 and 17,900,000 for the three months ended December 31, 1995.
5
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three Months ended December31, 1996 and 1995
(Dollars in thousands, except per share amounts)
4. Inventories
December 31, September 30,
1996 1996
Raw material $ 8,958 $ 7,243
Work-in-process 1,529 1,349
Finished goods 4,454 6,696
------ ------
$14,941 $15,288
====== ======
Inventories are valued at the lower of cost (first-in, first out) or
market. Finished goods include component parts and finished product ready
for shipment.
5. Investment in Affiliate
The Company owns 4,117,647 shares of Ajay Sports, Inc. ("Ajay") common
stock, approximately 18% of Ajay's outstanding common stock and the Company
has vested options to acquire 11,110,873 shares of Ajay common stock at
prices ranging from $.34 to $.50 per share. The Company also has
manufacturing rights in certain Ajay facilities through 2002 under a joint
venture agreement. Ajay manufactures and distributes golf clubs, golf
accessories and leisure living furniture primarily to retailers throughout
the United States. The investment in Ajay is recorded as an investment in
affiliate in the Consolidated Balance Sheets net of the Company's equity
interest of $557 in Ajay's losses since acquiring the investment. The
Company is required to account for the investment in Ajay on the equity
method due to common ownership by the Chairman and President of the Company
who is also Chairman and President of Ajay. In addition, the Company has
guaranteed Ajay's $13,500 credit facility (approximately $11 million
outstanding at December 31 1996) and is charging Ajay a fee of 1/2 of 1%
per annum of the outstanding loan amount for providing this guaranty.
6
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
6. Debt
In December 1996, the Company's bank advised the Company that it was in
technical default under its $30,000 credit facility primarily due to
borrowings in excess of the loan availability. Decreased loan availability
resulted from decreased earnings from operations, the major factor in
determining loan availability under the credit facility. The bank has
agreed to forbear from exercising its rights under the loan agreement
through March 14, 1997 provided that the Company provides the bank with a
commitment letter satisfactory in form and content from a new lender by
February 17, 1997. The Company expects to receive a commitment letter from
a new lender by February 17, 1997. If the commitment letter is not timely
received or is not satisfactory to the bank, the bank could demand
immediate repayment of the loan. The Company has pledged substantially all
of its assets as collateral for the credit facility. The Company is
required to maintain certain financial ratios, and the agreement contains
certain restrictions that limit acquisitions, investments, payment of
dividends and capital expenditures. The Consolidated Financial Statements
reflect the $21,000 in borrowings outstanding under the credit facility as
a current liability until the Company can obtain alternative financing to
replace the $30,000 credit facility.
In December 1996 the Company and Ajay ("Borrowers") received a proposal
from a bank to obtain an asset-based loan facility consisting of a
revolving line of credit up to $38,000 and term loans up to $12,000. The
proposed revolving line of credit (including letters of credit) may not
exceed the lesser of $38,000 or an agreed upon percentage of eligible
accounts receivable and inventories. The revolving line of credit will
expire in three years and carry an interest rate, at the Company's option,
of the bank's prime rate or London Interbank Offering Rate (LIBOR) plus
1.75% to 3.00% depending upon the financial performance of the Company. The
revolving line of credit will require the borrowers to pay an initial fee
of 1%, an annual facility fee of 3/8 of 1%, an unused facility fee of 1/4
of 1% and will be subject to an early termination fee of 1%. The term loans
will be due in three years and carry an interest rate, at the Company's
option, of the bank's prime rate or LIBOR plus 2.00% and amortize over a
period of five to fifteen years. The term loan facility is subject to an
annual facility fee of 3/8 of 1% of the proposed unused balance. The bank
has completed its due diligence and audit procedures. The facility is
subject to final credit approval and documentation and appraisals of real
estate and machinery and equipment. The Company expects to receive a
commitment letter by February 17, 1997 and to close the new facility on or
before March 14, 1997 although there is no assurance that the commitment
letter will be received or that the loan will close by such date. Under the
terms of the proposed asset-based loan facility, the Company is required to
have availability of approximately $2,000. Under the terms of the
asset-based loan facility, the borrowers have the option to make advances
between the two companies provided the borrowers are in compliance with the
provisions of the loan facility. At December 31, 1996, the Company would
have to advance Ajay approximately $5,000 to repay its previous loan
facility, which the Company has guaranteed.
The proposed asset-based loan facility will replace the Company's $30,000
credit facility, which consists of a three-year revolving loan, with an
interest rate at either the bank's prime rate or the Interbank Offering
Rate (IBOR) plus 2% to 3% depending upon certain financial ratios. At
December 31, 1996, the outstanding balance of the credit facility was
$21,000 with interest at 7.9%, which is IBOR plus 2.5%. Due to the
technical default, the Company is restricted from borrowing additional
funds under the credit facility.
7
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
7. Segment Information
Three months Three months
ended ended
December 31, 1996 December 31, 1995
----------------- -----------------
Net sales by classes of similar products
Vehicle components $ 9,464 $ 8,214
Automotive accessories 3,163 4,384
Agricultural equipment 3,104 2,357
Electrical components 953 1,473
-------- -------
16,684 16,428
====== ======
Earnings (loss) from operations
Vehicle components 1,257 1,785
Automotive accessories (521) 39
Agricultural equipment 212 166
Electrical components (220) 153
-------- -------
728 2,143
========= ======
Capital expenditures
Vehicle components 67 100
Automotive accessories 51 49
Agricultural equipment 76 189
Electrical components 29 100
-------- -------
223 438
======= =======
Depreciation and amortization
Vehicle components 211 256
Automotive accessories 58 65
Agricultural equipment 67 48
Electrical components 61 59
-------- --------
$ 397 $ 428
======= =======
December 31, December 31,
1996 1995
----------- ------------
Identifiable assets
Vehicle components $ 19,457 $ 18,606
Automotive accessories 12,836 13,408
Agricultural equipment 13,114 9,060
Electrical components 7,583 7,677
------- -------
Total assets $ 52,990 $ 48,751
====== ======
8
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Financial Condition, Liquidity and Capital Resources
The Company's principal sources of liquidity are borrowings under its credit
facilities and funds generated from operations. In December 1996, the Company's
bank advised the Company that it was in technical default under its $30,000
credit facility primarily due to borrowings in excess of the loan availability.
Decreased loan availability resulted from decreased earnings from operations,
the major factor in determining loan availability under the credit facility. The
bank has agreed to forbear from exercising its rights under the loan agreement
through March 14, 1997 provided that the Company provides the bank with a
commitment letter satisfactory in form and content from a new lender by February
17, 1997. The Company expects to receive a commitment letter from a new lender
by February 17, 1997. If the commitment letter is not timely received or is not
satisfactory to the bank, the bank could demand immediate repayment of the loan.
The Company has pledged substantially all of its assets as collateral for the
credit facility. The Company is required to maintain certain financial ratios,
and the agreement contains certain restrictions that limit acquisitions,
investments, and payment of dividends and capital expenditures. At December 31,
1996, the outstanding balance of the credit facility was $21,000 with interest
at 7.9%, which is IBOR plus 2.5%. Due to the technical default, the Company is
restricted from increasing borrowings under the credit facility. The
Consolidated Financial Statements reflect the $21,000 in borrowings outstanding
under the credit facility as a current liability until the Company can obtain
alternative financing to replace the $30,000 credit facility.
In December 1996 the Company and Ajay ("Borrowers") received a proposal from a
bank to obtain an asset-based loan facility consisting of a revolving line of
credit up to $38,000 and term loans up to $12,000, the proceeds of which will be
used to replace the Company's current credit facility (See "Note 6. Debt" to
Unaudited Consolidated Financial Statements). The bank has completed its due
diligence and audit procedures. The loan facility is subject to final credit
approval and documentation and appraisals of real estate and machinery and
equipment. The Company expects to receive a commitment letter by February 17,
1997 and to close the new loan facility on or before March 14, 1997, although
there is no assurance that the commitment letter will be received or that the
loan will close by such date.
Under the terms of the proposed asset-based loan facility, the Company is
required to have availability of approximately $2,000 at closing. Under the
terms of the asset-based loan facility, the borrowers have the option to make
advances between the two companies provided the borrowers are in compliance with
the provisions of the loan facility. Based upon projected availability at
closing, the Company would have to advance Ajay approximately $5,000 to repay
their previous loan facility, which the Company has guaranteed to the bank. The
Company believes that it has the ability to finance, from additional outside
sources, any shortfall from refinancing and has received financing proposals
including a sale-leaseback on certain property and convertible debentures.
9
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Financial Condition, Liquidity and Capital Resources (continued)
The Company owns 4,117,647 shares of Ajay common stock, which represents
approximately 18% of Ajay's outstanding common stock and the Company has vested
options to acquire 11,110,873 shares of Ajay common stock at prices ranging from
$.34 to .50 per share (See "Note 5. Investment in Affiliate" to Unaudited
Consolidated Financial Statements). The bank has claimed that if it discontinues
its forbearance against Williams, the loan from the bank to Ajay would be in
default. The Company has guaranteed Ajay's $13,500 credit facility
(approximately $11,000 outstanding at December 31, 1996) and is charging Ajay a
fee of 1/2% of 1% per annum on the outstanding loan amount for providing this
guaranty. Ajay has agreed to an amendment to its loan facility which limits its
borrowing under the revolver to $7 million, but the line will increase to $7.5
million through February 28, 1997 and to $8 million through March 14, 1997 if
Ajay delivers a satisfactory commitment letter from a new lender before February
17, 1997. The amendment does not affect the $5 million currently borrowed under
Ajay's "bulge" loan. The Company and Ajay have entered into negotiations with
another bank to obtain a replacement loan facility as described above.
At December 31, 1996 the Company had working capital of $2,310 compared to
$2,055 at September 30, 1996. The current ratio on December 31, 1996 was 1.1
compared to 1.1 at September 30, 1996. The Company generated cash flow from
operations of $599 for the three months end December 31, 1996 compared to cash
used for operations of $1,937 for the same period in the prior year.
Under the existing loan facilities, the Company is restricted from increased
borrowings. Under the proposed new bank facility, the Company anticipates that
cash generated from operations and borrowings will be sufficient to satisfy
working capital and capital expenditure requirements for the following year. The
Company may seek additional financing to provide the Company with financial
flexibility to respond to business opportunities, including opportunities for
growth through internal development, strategic joint ventures or acquisitions.
Results of Operations
Three months ended December 31, 1996 compared to the three months ended December
31, 1995.
SALES: Sales for the three months ended December 31, 1996 were $16,684 compared
to sales of $16,428 for the three months ended December 31, 1995, an increase of
2%. Sales of vehicle components, automotive accessories, agricultural equipment
and electrical components accounted for 57%, 19%, 18% and 6% of total sales for
the three months ended December 31, 1996 compared to 50%, 27%, 14%, and 9% for
the same period in the prior year. Vehicle components' sales included $1,300 of
sales from Premier Plastic Technologies, Inc. ("PPT") acquired in April of 1996.
10
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Results of Operations (continued)
Vehicle component sales were $9,464 for the three months ended December 31, 1996
compared to $8,214 for the same period in the prior year, an increase of 15%.
The increase in sales for vehicle component segment was due to the acquisition
of PPT in April of 1996. Automotive accessories sales were $3,163 for the three
months ended December 31, 1996 compared to $4,384 for the same period in the
prior year, a decrease of 28%. The decrease in sales for the automotive
accessories segment was due to the elimination of certain product lines and
product mix changes made in conjunction with the operational restructuring in
the third quarter of 1996 combined with a slow-down in consumer spending on
after-market automotive accessories. Agricultural equipment sales were $3,104
for the three months ended December 31, 1996 compared to $2,357 for the same
period in the prior year, an increase of 32%. The increase in sales and
operating earnings in the agricultural equipment business results from increased
shipments under a pre-season discount program which may result in offsetting
lower sales and operating earnings in future quarters. Electrical component
sales were $953 for the three months ended December 31, 1996 compared to $1,453
for the same period in the prior year, a decrease of 35%. The decrease in sales
for the electrical component segment is due primarily to the loss of two major
customers during the second quarter of the prior year.
EARNINGS FROM OPERATIONS: Earnings from operations were $728 for the three
months ended December 31, 1996 compared to $2,143 for the same period in the
prior year, a decrease of 66%. Earnings from operations as a percentage of sales
were 4% for the three months ended December 31, 1996 compared to 13% for the
same period in the prior year. Gross margin as a percentage of sales was 22% for
the three months ended December 31, 1996 compared to a gross margin as a
percentage of sales of 27% for the same period in the prior year. Earnings from
operations declined as a result of decreased earnings at the automotive
accessories and electrical component businesses and losses at PPT.
Operating expenses were $2,999 for the three months ended December 31, 1996
compared to $2,261 for the same period in the prior year, an increase of 33%.
Operating expenses as a percentage of sales were 18% for the three months ended
December 31, 1996 compared to 14% for the same period in the prior year. The
increase in operating expenses is due primarily to increased selling expenses
for the automotive accessories and agricultural equipment segments. Automotive
accessories segment selling expenses increased as a result of costs incurred to
secure shelf space to sell products at mass merchants and chain stores. The
increased selling expenses for the agricultural equipment segment is the result
of increased sales and the costs associated with expanding its sales territory
outside the Southeastern United States.
OTHER EXPENSES: Interest expense was $551 for the three months ended December
31, 1996 compared to $464 for the same period in the prior year. The increase in
interest expense is due to primarily to increased average borrowings for the
period. The equity interest in loss of affiliate represents the Company's 18%
ownership interest of Ajay.
11
Part II
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
12
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.
/s/ Thomas W. Itin
-------------------------------------
Thomas W. Itin, Chairman, President
and CEO
/s/ Gerard A. Herlihy
-------------------------------------
Gerard A. Herlihy, Chief Financial
Officer
/s/ Dale J. Nelson
---------------------------------------
Dale J. Nelson, Controller
Date: February 14, 1997