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, 1997.
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, 1997: 17,782,040.
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1997 (unaudited)
and September 30, 1996 1
Unaudited Consolidated Statement of Stockholders' Equity,
six months ended March 31, 1997 2
Unaudited Consolidated Statements of Operations,
three and six months ended March 31, 1996 and 1997 3
Unaudited Consolidated Statements of Cash Flows,
six months ended March 31, 1996 and 1997 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
March 31, September 30,
1997 1996
----------- -------------
(unaudited)
Assets
Current Assets:
Cash $ 2,747 $ 1,379
Accounts receivable, net 11,343 13,103
Inventories 16,577 15,288
Other 2,140 1,885
------ ------
Total current assets 32,807 31,655
------ ------
Investment in affiliate 764 943
Property, plant and equipment 25,564 24,955
Less accumulated depreciation and amortization 5,856 5,154
------ -------
19,708 19,801
------ ------
Other assets 1,480 1,379
------ ------
$54,759 $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 9,024 8,388
------- ------
Total current liabilities 30,404 29,600
------- ------
Long-term debt 2,652 2,782
Other liabilities 2,861 2,673
Commitments and contingencies - -
Minority interest in consolidated subsidiaries 682 713
Stockholders' equity:
Preferred stock of $.01 par value,
50,000,000 shares authorized - -
Common stock of $.01 par value,
50,000,000 shares authorized,
17,912,240 and 17,869,987 shares issued 179 179
Additional paid-in capital 9,777 9,671
Retained earnings 9,321 9,439
Unearned ESOP shares (511) (511)
Treasury stock (130,200 and 195,200 shares) (378) (540)
Pension liability adjustment (228) (228)
-------- --------
18,160 18,010
-------- --------
$54,759 $53,778
====== ======
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Unaudited Consolidated Statement of Stockholders' Equity
(Dollars in thousands, except per share amounts)
Number of Additional Unearned Pension
Shares Common Paid-in Retained ESOP Liability Treasury Stockholders'
Issued Stock Capital Earnings Shares Adjustment Shares Equity
Balance, September 30, 1996 17,869,987 $ 179 $9,671 $9,439 $(511) $(228) $(540) $18,010
Issuance of contingent
shares for acquisition 42,253 - 106 - - - - 106
Issuance of shares from
treasury for acquisition
advisory services - - - - - - 162 162
Net loss - - - (118) - - - (118)
---------- ----- ------ ------ ----- ----- ----- -------
Balance, March 31, 1997 17,912,240 $ 179 $9,777 $9,321 $(511) $(228) $(378) $18,160
========== ==== ====== ====== ===== ===== ===== =======
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Unaudited Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Three Three Six Six
months months months months
ended ended ended ended
31-Mar-97 31-Mar-96 31-Mar-97 31-Mar-96
------------ ----------- --------- ----------
Net sales $16,176 $16,135 $32,860 $32,563
Cost of sales 12,695 12,431 25,652 24,455
------------ ----------- --------- ----------
Gross margin 3,481 3,704 7,208 8,108
------------ ----------- --------- ----------
Operating expenses:
Research and development 527 492 1,027 999
Selling 1,286 678 2,649 1,418
Administrative 1,271 1,163 2,407 2,177
------------ ----------- --------- ----------
3,084 2,333 6,083 4,594
------------ ----------- --------- ----------
Earnings from operations 397 1,371 1,125 3,514
Other expense:
Interest expense 634 482 1,185 946
Equity interest in loss
of affiliate 49 5 179 75
------------ ----------- --------- ----------
683 487 1,364 1,021
------------ ----------- --------- ----------
Earnings (loss) before
income taxes (286) 884 (239) 2,493
Income taxes (benefit) (107) 341 (90) 949
------------ ----------- --------- ----------
Earnings (loss)before
minority interest (179) 543 (149) 1,544
Minority interest in net
earnings (loss)of consolidated
subsidiaries (49) 29 (31) 40
------------ ----------- --------- ----------
Net earnings (loss) ($130) $514 ($118) $1,504
============ =========== ========= ==========
Earnings (loss) per
common shares ($0.01) $0.03 ($0.01) $0.09
============ =========== ========= ==========
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
Six months Six months
ended ended
March 31, 1997 March 31, 1996
-------------- --------------
Cash flows from operations:
Net earnings $ (118) 1,504
Non-cash adjustments to net earnings:
Depreciation and amortization 848 1,196
Minority interest in earnings (loss) of
consolidated subsidiaries (31) 40
Equity interest in loss of affiliate 179 75
Changes in working capital items net of
the effects of acquisitions:
Receivables, net 1,760 (1,625)
Inventories (1,289) (4,234)
Other (305) (378)
Accounts payable and accrued expenses 1,063 (271)
------- -------
Net cash provided by (used for) operations 2,107 (3,693)
------- -------
Cash flows from investing:
Payment for equipment (609) (963)
------- -------
Cash flows from financing:
Payments of long term debt (105) -
Proceeds from long-term debt - 4,050
Payments of capital leases (25) (46)
Repurchase of common stock - (540)
Proceeds from stock issuance - 235
------- -------
Net cash provided by (used for) financing (130) 3,699
------- -------
Net increase (decrease) in cash 1,368 (957)
Cash at beginning of period 1,379 1,653
------- -------
Cash at end of period $ 2,747 $ 696
======= =======
Cash paid for:
Interest $ 1,139 $ 950
======= =======
Taxes paid (refund) $ (653) $ 750
======== =======
The accompanying notes are an integral part of these statements.
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
1. Organization
The interim consolidated financial statements include the accounts of
the Company and 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 the Company's 80% owned subsidiaries, Hardee Williams, Inc.
("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw"). All
significant intercompany accounts and transactions have been eliminated.
2. The Interim Consolidated Financial Statements
The interim unaudited 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. Such adjustments consisted only of normal
recurring items. 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. The interim financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto in the Company's annual report on Form 10-K. The interim period
results are not necessarily indicative of results which may be expected for
any other interim period or for the full year. 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.
3. Earnings (Loss) per Share
Earnings per share are computed based on the weighted average number of
common shares and common stock equivalent shares outstanding during the
period. Options and warrants are considered common stock equivalents for
the purposes of this computation. The weighted average number of common
shares used in computation of earnings per share were 17,782,000 and
17,767,000 for the three and six months ended March 31, 1997, respectively
and 17,600,000 for the three and six months ended March 31, 1996. Common
stock equivalents which are antidilutive are not included in the earnings
per share calculation.
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
4. Inventories
March 31, September 30,
1997 1996
------- -------
Raw material $ 8,196 7,243
Work-in-process 1,443 1,349
Finished goods 6,938 6,696
------- -------
$16,577 $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, or approximately 18% of Ajay's outstanding common stock, and the
Company owns vested options to acquire 11,110,873 of Ajay's 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 $606 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. The Company has guaranteed Ajay's $13,500 credit
facility (approximately $11,800 outstanding at March 31, 1997) and is
charging Ajay a fee of 1/2 of 1% per annum of the outstanding loan amount
for providing this guaranty. At March 31, 1997, the market value of the
Company's investment in Ajay was $772 based upon the closing price of $.19
per share.
6. Debt
In December 1996, the Company's current lender (the "Current Lender")
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 provided under the credit facility. Decreased loan
availability resulted from decreased earnings from operations, the major
factor in determining loan availability 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 addition, in March 1997 the
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
6. Debt (continued)
Current Lender advised Ajay that Ajay's loan was in default as a result of
the Company's default. The Company is a guarantor of Ajay's bank loan.
In January 1997, the Current Lender advised the Company that it was
forbearing from exercising its rights under the loan agreement and was
continuing to provide financing under the credit facility with the
understanding that the Company would attempt to close a refinancing with a
new lender by May 31, 1997. In April 1997, the Current Lender advised the
Company that it would provide financing until June 30, 1997 under an
asset-based loan structure and with an increase in the interest rate to the
Current Lender's prime rate plus 2.5%. The Current Lender also restructured
the Ajay loan on terms less favorable to Ajay until required repayment on
June 30, 1997. The Company expects to close a new loan facility with an
asset based lender before June 30, 1997. If the Company does not close the
new loan facility and repay the Current Lender by June 30, 1997, the
Current Lender could demand payment of the loan and demand payment under
the Ajay loan guarantee.
In December 1996, the Company and Ajay ("Borrowers") received a proposal
from a bank (the "Replacement Lender") for an asset-based loan facility
consisting of a revolving line of credit up to $38,000 and term loans up to
$12,000. In January 1997, the Company paid a deposit to the Replacement
Lender which began its due diligence investigations. In reliance upon
representations from the Replacement Lender that a commitment letter would
be delivered on or before February 17, 1997, the Company and Ajay signed
formal forbearance agreements and loan amendment agreements with the
Current Lender. The amendments contained provisions that would result in
default under the loan agreements and severely reduced borrowing
availability for Ajay if the commitment letter was not timely delivered.
In March 1997, the Company learned that the Replacement Lender, despite
representations to the contrary, had not yet sought credit approval for the
loan commitment and had not yet completed its credit approval application.
Subsequently, in March 1997, the Company discontinued negotiations with the
Replacement Lender after the Company learned that the Replacement Lender
had been negotiating to acquire the Current Lender during the period. In
March 1997, the Replacement Lender publicly announced that it had agreed to
acquire the Current Lender.
The Company immediately sought alternative financing with other asset based
lenders and received several proposals. The Company and Ajay have signed
loan proposal agreements with two different asset-based lenders who have
begun their respective due diligence investigations. The loans under each
of the proposal agreements would supply funds sufficient to repay the
Current Lender. The Company intends to close on the loan which, in its
opinion, offers the best terms to the Company, including timing.
Both loan proposals contain provisions for advances against receivables,
inventory, machinery and equipment and real estate, but in varying advance
rate formulas. Both loans provide for $1,000 to $2,000 of unsecured
borrowing if the available borrowing based upon the collateral is
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
6.Debt (continued)
insufficient to repay the entire loan with the Current Lender at the time
of closing. Interest rates on the loan facilities are approximately
one-half percent higher than the pre-default rate on the loan with the
Current Lender. Interest rates are based upon the bank's prime rate plus
1/4% to 1% with options to fix the interest rate based upon the London
Inter Bank Offering Rate ("LIBOR") plus 2.75% to 3.25%. Under the terms of
one of the asset-based loan facilities, the Company may make advances
between the Company and Ajay provided the borrowers are in compliance with
the provisions of the loan facility. Under the other asset based loan
facility, the Company may make total advances of not more than $7,000 to
Ajay. At March 31, 1997, based on projected borrowing availability, the
Company would have to advance Ajay approximately $5,000 to repay its
current loan facility, which the Company has guaranteed to the Current
Lender. Both loan proposals require the Company to present plans to sell or
otherwise dispose of Kenco Williams within six months. In addition, one of
the loans is contingent upon the sale-leaseback of the Portland
manufacturing facility, which was completed on April 18, 1997. The
sale-leaseback generated net proceeds of $4,300 which was used to pay
$3,500 of the loan with the remaining amount held in escrow for possible
taxes payable on the gain on the sale.
The proposed asset-based loan facility will replace the Company's $30,000
credit facility. At March 31, 1997, the outstanding balance of the credit
facility was $21,000 with interest at the prime rate, or 8.5% (increasing
to the prime rate plus 2.5%, or11% in May 1997). Due to the technical
default, the Company is restricted from borrowing additional funds under
the current credit facility.
7. Treasury Shares - Stock Repurchase Program
In January 1996 the Company initiated a stock repurchase program of up to
one million shares of the Company's common stock. Under this program,
through December 1997, the Company acquired approximately 195,200 shares at
an average price of $2.77 per share. During the six months ended March 31,
1997, the Company issued 65,000 treasury shares to related parties for
acquisition advisory work.
8. Subsequent Event - Contingent Liability
In April 1996 the Company sold a manufacturing facility in a sale-leaseback
transaction for $4,524 less $250 withheld in an escrow fund for possible
environmental cleanup costs. The Company may be required to repurchase the
property within one year if it cannot cure possible environmental problems
at the sold property and intends to seek indemnification from the prior
property owner for cleanup costs, if any.
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
8. Segment Information
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
-------- -------- ------- ------
Net sales by classes of similar products
Vehicle components $ 11,113 $ 8,956 $20,577 $17,170
Automotive accessories 1,928 3,537 5,091 7,921
Agricultural equipment 2,408 2,669 5,512 5,026
Electrical components 727 973 1,680 2,446
-------- -------- ------- ------
16,176 16,135 32,860 32,563
====== ====== ====== ======
Earnings (loss) from operations
Vehicle components 1,988 1,669 3,245 3,454
Automotive accessories (756) (473) (1,277) (434)
Agricultural equipment (419) 358 (207) 524
Electrical components (416) (183) (636) (30)
------ ----- ------ ------
397 1,371 1,125 3,514
======= ====== ====== ======
Capital expenditures
Vehicle components 110 142 177 242
Automotive accessories 168 111 219 160
Agricultural equipment 53 162 129 351
Electrical components 55 110 84 210
------ ------- ------ ------
386 525 609 963
======= ======= ====== ======
Depreciation and amortization
Vehicle components 228 597 439 853
Automotive accessories 64 63 122 128
Agricultural equipment 78 50 145 98
Electrical components 81 58 142 117
-------- -------- ------ ------
$ 451 $ 768 $ 848 $1,196
======= ======= ====== ======
Identifiable assets
Vehicle components 22,817 17,149
Automotive accessories 11,999 15,040
Agricultural equipment 12,052 12,736
Electrical components 7,891 7,657
------- -------
Total assets $54,759 $52,582
======= =======
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
current lender (the "Current Lender") 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 provided under the credit facility. Decreased
loan availability resulted from decreased earnings from operations, the major
factor in determining loan availability 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
replacement financing. 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 loan agreement contains certain restrictions
that limit acquisitions, investments, payment of dividends and capital
expenditures.
In January 1997, the Current Lender advised the Company that it was forbearing
from exercising its rights under the loan agreement and was continuing to
provide financing under the credit facility with the understanding that the
Company would attempt to close a refinancing with a new lender by May 31, 1997.
In March 1997, the Current Lender advised Ajay that Ajay's loan was in default
as a result of the Company's default. The Company is a guarantor of Ajay's bank
loan of which $11,800 was outstanding as of March 31, 1997. In April 1997, the
Current Lender advised the Company that it would provide the Company financing
until June 30, 1997 under an asset-based loan structure. The Current Lender also
restructured the Ajay loan on terms less favorable to Ajay until required
repayment on June 30, 1997. The Company expects to close a new loan facility
with an asset based lender before June 30, 1997. If the Company does not close
the new loan and repay the Current Lender by June 30, 1997, the Current Lender
could demand payment of the loan and demand payment under the Ajay loan
guarantee.
The Company and Ajay have signed loan proposal agreements with two different
asset-based lenders who have begun their respective due diligence
investigations. The loans under each of the proposal agreements would supply
funds sufficient to repay the Current Lender. The Company intends to close on
the loan which, in its opinion, offers the best terms to the Company, including
timing.
Both loan proposals contain provisions for advances against receivables,
inventory, machinery and equipment and real estate, but in varying advance rate
formulas. The loans provide for up to $2,000 of unsecured borrowing if the
available borrowing based upon the collateral is insufficient to repay the
entire loan with the Current Lender at the time of closing. Both loan proposals
require the Company to present plans to sell or otherwise dispose of Kenco
Williams within six months. In addition, one of the loan proposals is contingent
upon the sale-leaseback of the Portland manufacturing facility, which was
completed on April 18, 1997. Under the terms of one of the proposed asset-based
loan facilities, the Company may make advances between the Company and Ajay
provided the borrowers are in compliance with the provisions of the loan
facility. Under the other asset based loan facility, the Company may make total
advances of not more than $7,000 to Ajay. At March
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)
31, 1997, based on projected borrowing availability, the Company would have to
advance Ajay approximately $5,000 to repay its current loan facility, which the
Company has guaranteed to the Current Lender.
The Company believes it has sufficient borrowing availability under the proposed
loans to repay the Current Lender in full and to finance the expected loan
availability shortfall at Ajay. If the available borrowing is insufficient to
repay the Current Lender, the proposed asset based loans provide for up to
$2,000 of unsecured borrowing. Furthermore, the Company believes that it has the
ability to finance from additional outside sources a shortfall from refinancing,
if any, including generating sources from the sale of assets and raising
additional capital from private or public equity and debt markets. The Company
has initiated certain transactions to reduce the loan payable at or prior to
closing. The Company completed the sale-leaseback of the Portland, Oregon
manufacturing facility and the Company paid $3,500 of the $4,300 sales proceeds
to the bank and reduced the loan outstanding to $17,500. The remaining sales
proceeds will be used to reduce the loan balance further after final
determination of any estimated federal and state tax payments due. The Company
may be required to repurchase the property within one year if it cannot cure
possible environmental problems at the sold property. Also, on May 8, 1997, the
Company signed a letter of intent to sell Kenco for $6,000 plus the assumption
of certain trade payables. The sale is subject to due diligence, financing and
legal documentation and is expected to close by June 30, 1997. The proceeds from
the proposed sale of Kenco would be used to reduce the loan balance.
At March 31, 1997 the Company had working capital of $2,403 compared to $2,055
at September 30, 1996. The current ratio on March 31, 1997 was 1.1 compared to
1.1 at September 30, 1996. The Company generated cash flow from operations of
$2,107 for the six months end March 31, 1997 compared to cash used for
operations of $3,693 for the same period in the prior year.
Under the existing loan facilities, the Company is restricted from increased
borrowings. Under the proposed new borrowing facilities, 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 and six months ended March 31, 1997 compared to the three and six
months ended March 31, 1996.
SALES: Sales for the three months ended March 31, 1997 were $16,176 compared to
sales of $16,135 for the three months ended March 31, 1996. Sales for the three
months ended March 31, 1997 included $1,512 of sales from Premier Plastic
Technologies, Inc. ("PPT") acquired in April of 1996. Excluding sales at PPT,
sales declined $1,471, or 9% for the quarter. Sales of vehicle components,
automotive accessories, agricultural equipment and electrical components
accounted for 69%, 12%, 15% and 4% of total sales for the three months ended
March 31, 1997 compared to 56%, 22%, 17%, and 5% for the same period in the
prior year.
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 increased $2,157, or 24% for the three months ended
March 31, 1997 compared to the same period in the prior year due primarily to
sales at PPT which was acquired in April of 1996 and increased sales of
component parts to heavy truck manufacturers. Agricultural equipment sales
declined $261, or 10% for the three months ended March 31, 1997 compared to the
same period in the prior year due to a pre-season discount selling program
initiated in the quarter ended December 31, 1996. Electrical component sales
declined $246, or 25% for the three months ended March 31, 1997 compared to the
same period in the prior year due primarily to the loss of two major customers
Sales for the six months ended March 31, 1997 were $32,860 compared to sales of
$32,563 for the six months ended March 31, 1996. Sales for the six months ended
March 31, 1997 included $2,821 of sales from Premier PPT acquired in April of
1996. Excluding sales at PPT, sales declined $2,524, or 8% for the six month
period. Sales of vehicle components, automotive accessories, agricultural
equipment and electrical components accounted for 62%, 16%, 17% and 5% of total
sales for the six months ended March 31, 1997 compared to 53%, 24%, 15%, and 8%
for the same period in the prior year.
Vehicle component sales increased $3,407, or 20% for the six months ended March
31, 1997 compared to the same period in the prior year due primarily to sales at
PPT which was acquired in April of 1996 and increased sales of component parts
to heavy truck manufacturers. Agricultural equipment sales increased $486, or
10% for the six months ended March 31, 1997 compared to the prior year.
Electrical component sales declined $766, or 31% for the six months ended March
31, 1997 compared to the same period in the prior year due primarily to the loss
of two major customers.
Automotive accessories sales decreased $1,609, or 46% and $2,830, or 36% for the
three and six months ended March 31, 1997 compared to the same periods in the
prior year. The decline in automotive accessory sales was due to strong downward
price pressure generated by competitors who are vertically integrated and have
lower cost structures than the Company's automotive accessories segment.
Although the Company believes that the automotive accessories segment could
achieve profitability through vertical integration of manufacturing, the Company
has instead accepted and signed a letter of intent to sell automotive
accessories subject to financing, due diligence and legal documentation. As the
sale is presently structured, the Company would retain an equity ownership
interest in the sold operations which would result in no material gain or loss
on the transaction. The transaction is expected to close by June 30, 1997, but
there is no assurance that the sale will occur. In the event that the sale does
not occur, the Company will consider all strategic alternatives for reduction of
operating losses in the automotive accessories segment including sale, merger or
disposal.
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)
EARNINGS FROM OPERATIONS: Earnings from operations were $397 for the three
months ended March 31, 1997 compared to $1,371 for the same period in the prior
year, a decrease of 71%. Earnings from operations were $1,125 for the six months
ended March 31, 1997 compared to $3,514 for the same period in the prior year, a
decrease of 68%. Earnings from operations as a percentage of sales were 2% and
3% for the three and six months ended March 31, 1996, respectively compared to
8% and 11% for the same periods in the prior year.
Earnings from operations at the vehicle components segment increased 19% to
$1,988 for the quarter ended March 31, 1997 and decreased 6% to $3,245 for the
six months ended March 31, 1997. Losses from operations increased $283 and $843
in the automotive accessories segment, $777 and $731 in the agricultural
equipment segment, and $233 and $606 in the electrical equipment segment for the
quarter and six months ended March 31, 1997, respectively compared to the prior
year quarter and six month periods. Losses from operations at these segments
increased due primarily to lower gross margins and higher operating expenses at
the automotive accessories segment resulting from lower sales and competitive
selling pressures, lower gross margins and higher selling expenses in the
agricultural equipment segment, and reduced margins in the electrical equipment
segment resulting from lower sales volume.
Gross margin as a percentage of sales was 22% and 22% for the three and six
months ended March 31, 1997, respectively compared to 23% and 25% for the same
periods in the prior year. Gross margin percentages declined due to reduced
sales levels at the electrical component segment, competitive pricing pressures
in the automotive accessories segment, higher manufacturing costs at the
agricultural equipment segment and the inclusion of additional sales from PPT
which generated minimal gross margins in the vehicle component segment.
Operating expense as a percentage of sales was 19% and 19% for the three and six
months ended March 31, 1997, respectively compared to 15% and 14% for the same
periods in the prior year. Operating expenses increased $751, or 32% for the
three months ended March 31, 1996 and $1,489, or 32% for the six months ended
March 31, 1996 compared to the same periods in the prior year. The increase in
operating expenses is due primarily to increased selling expenses at PPT, which
was not acquired until April of 1996, and increased selling expenses at the
agricultural equipment and automotive accessories segments. Automotive accessory
operating expenses increased due to increased advertising and promotion costs
incurred to mitigate erosion of market share.
OTHER EXPENSES: Interest expense increased $152, or 32% for the three months
ended March 31, 1997and $239, or 25% for the six months ended March 31, 1997
compared to the prior year due primarily to increased average borrowings for the
period. The equity interest in loss of affiliate represents the Company's pro
rata share of the loss resulting from its 18% ownership interest of Ajay.
Part II
Item 4. Submission of Matters to a Vote of Security Holders
On February 28, 1997 the Company held its annual meeting of stockholders.
The stockholders approved the election of one director.
The tabulation of votes cast for the proposal is as follows:
Proposal Number One - Election of Director
For Withheld
---------- --------
Timothy S. Itin 16,225,285 181,068
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 W. Itin
----------------------------------------
Thomas W. Itin, Chairman, President and CEO
By:/s/ Gerard A. Herlihy
----------------------------------------
Gerard A. Herlihy, Chief Financial Officer
Date: May 8, 1997