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, 2002
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock
at January 31, 2003: 20,125,492
WILLIAMS CONTROLS, INC.
DECEMBER 31, 2002
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 2002 (unaudited) and
September 30, 2002 1
Consolidated Statements of Operations, three months ended
December 31, 2002 and 2001 (unaudited) 2
Consolidated Statements of Cash Flows, three months ended
December 31, 2002 and 2001 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 17
PART I
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS CONTROLS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
DECEMBER 31,
2002 EPTEMBER 30,
(UNAUDITED) 2002
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 263 $ 829
Trade and other accounts receivable, less allowance of
$327 and $334 at December 31, 2002 and September 30
2002, respectively 7,197 8,764
Inventories, net 4,907 4,940
Prepaid expenses and other current assets 789 624
------------- ------------
Total current assets 13,156 15,157
Property, plant, and equipment, net 10,390 10,530
Other assets, net 272 635
------------- ------------
Total assets $ 23,818 $ 26,322
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 3,765 $ 5,326
Accrued expenses 5,678 6,856
Current portion of long-term debt and capital leases 2,773 4,084
------------- ------------
Total current liabilities 12,216 16,266
Long-term debt and capital lease obligations 1,241 1,483
Employee benefit obligations 7,059 6,293
Subordinated debt 2,139 2,139
Mandatory redeemable Convertible Series B Preferred Stock, net
(150,000 issued and outstanding at December 31, 2002 and
September 30, 2002) 13,755 13,109
Commitments and contingencies
Shareholders' Equity (Deficit):
Preferred stock ($.01 par value, 50,000,000 authorized)
Series A-1 (77,550 issued and outstanding at December 31,
2002 and September 30, 2002) 1 1
Series A (650 issued and outstanding at December 31, 2002
and September 30, 2002) - -
Common stock ($.01 par value, 50,000,000 authorized; 20,125,492
and 19,928,522 issued and outstanding at December 31, 2002 and
September 30, 2002) 201 199
Additional paid-in capital 23,687 23,559
Accumulated deficit (32,079) (32,325)
Treasury stock (130,200 shares at December 31, 2002 and
September 30, 2002) (377) (377)
Other comprehensive loss - Pension liability adjustment (4,025) (4,025)
------------- ------------
Total shareholders' equity (deficit) (12,592) (12,968)
------------- ------------
Total liabilities and shareholders' equity (deficit) $ 23,818 $ 26,322
============= ============
See accompanying notes to Unaudited Consolidated Financial Statements.
1
WILLIAMS CONTROLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
----------------------------------
2002 2001
------------ ------------
Net sales $ 12,112 $ 11,419
Cost of sales 9,116 8,728
------------ ------------
Gross margin 2,996 2,691
Operating expenses:
Research and development 773 964
Selling 346 242
Administration 1,204 1,656
------------ ------------
Total operating expenses 2,323 2,862
------------ ------------
Income (loss) from continuing operations 673 (171)
Other (income) expenses:
Interest expense 169 940
Other (income) expense, net (91) (29)
------------ ------------
Total other expenses 78 911
Income (loss) from continuing operations before income taxes 595 (1,082)
Income tax benefit 300 -
------------ ------------
Net income (loss) from continuing operations 895 (1,082)
Discontinued operations:
Gain from exchange of building for debt of the previously
discontinued agricultural equipment segment - 417
------------ ------------
Net income (loss) 895 (665)
Preferred dividends and accretion of Series B Preferred Stock (649) (241)
------------ ------------
Net income (loss) allocable to common shareholders $ 246 $ (906)
============ ============
Income (loss) per common share from continuing operations - basic $ 0.01 $ (0.07)
Income per common share from discontinued operations - basic - 0.02
------------ ------------
Net income (loss) per common share - basic $ 0.01 $ (0.05)
============ ============
Weighted average shares used in per share calculation - basic 20,059,835 19,926,022
============ ============
Income (loss) per common share from continuing operations - diluted $ 0.01 $ (0.07)
Income per common share from discontinued operations - diluted - 0.02
------------ ------------
Net income (loss) per common share - diluted $ 0.01 $ (0.05)
============ ============
Weighted average shares used in per share calculation - diluted 33,882,562 19,926,022
============ ============
See accompanying notes to Unaudited Consolidated Financial Statements.
2
WILLIAMS CONTROLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
----------------------------------
2002 2001
------------ -------------
Cash flows from operating activities:
Net income (loss) $ 895 $ (665)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Gain from discontinued operations - (417)
Loss from disposal of fixed assets 59 -
Depreciation 387 574
Amortization 8 493
Gain on GeoFocus escrow release (100) -
Changes in operating assets and liabilities
Receivables, net 1,667 1,711
Inventories 33 (286)
Accounts payable and accrued expenses (2,612) (189)
Other 956 (230)
------------ -------------
Net cash provided by operating activities 1,293 991
------------ -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (306) (118)
------------ -------------
Net cash used in investing activities (306) (118)
------------ -------------
Cash flows from financing activities:
Net (payments) borrowings of debt and lease obligations (1,553) 389
Net change in book overdraft - (193)
------------ -------------
Net cash (used in) provided by financing activities (1,553) 196
------------ -------------
Net increase (decrease) in cash and cash equivalents (566) 1,069
Cash and cash equivalents at beginning of period 829 -
------------ -------------
Cash and cash equivalents at end of period $ 263 $ 1,069
============ =============
Supplemental disclosure of cash flow information:
Interest paid $ 153 $ 182
Income taxes paid (refund) $ (300) $ -
Supplemental disclosure of non-cash investing and financing
activities:
Preferred dividends accrued but not paid and Series B accretion $ 649 $ 241
Issuance of common stock for services previously accrued 130 -
See accompanying notes to Unaudited Consolidated Financial Statements.
3
WILLIAMS CONTROLS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 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, AND DISPOSITION OF ANY CURRENT BUSINESS OF THE
COMPANY. THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT
TO PREDICT. THEREFORE, ACTUAL OUTCOMES AND RESULTS MAY DIFFER MATERIALLY FROM
WHAT IS ANTICIPATED OR FORECASTED IN THESE FORWARD-LOOKING STATEMENTS DUE TO
NUMEROUS FACTORS, INCLUDING, BUT NOT LIMITED TO, THE ABILITY OF THE COMPANY TO
GENERATE OR OBTAIN SUFFICIENT WORKING CAPITAL TO CONTINUE ITS OPERATIONS,
CHANGES IN DEMAND FOR THE COMPANY'S PRODUCTS, THE TIMING OF CUSTOMER ORDERS AND
DELIVERIES, AND THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING. IN ADDITION,
SUCH STATEMENTS COULD BE AFFECTED BY GENERAL INDUSTRY AND MARKET CONDITIONS AND
GROWTH RATES, AND GENERAL DOMESTIC AND INTERNATIONAL ECONOMIC CONDITIONS.
NOTE 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"); WMCO-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") are
hereinafter referred to as the "Company," "we," "our," or "us."
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared by the Company and, in the opinion of management, reflect all material
normal recurring adjustments, except as otherwise disclosed in Note 6 and 12 to
the Notes to Unaudited Consolidated Financial Statements, which are necessary to
present fairly the Company's financial position as of December 31, 2002 and the
results of operations and cash flows for the three months ended December 31,
2002 and 2001. The results of operations for the three months ended December 31,
2002 are not necessarily indicative of the results to be 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, 2002 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.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ
from these estimates and assumptions.
Certain reclassifications of amounts reported in the prior period financial
statements have been made to conform to classifications used in the current
period financial statements.
NOTE 3. COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires companies to report a measure of all changes in
equity except those resulting from investments by owners and distributions to
owners. Total comprehensive income (loss) for the three months ended December
31, 2002 and 2001 was $895 and ($665), respectively, and consisted solely of net
income (loss). As of December 31, 2002, accumulated other comprehensive loss was
($4,025) 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.
4
NOTE 4. INCOME (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 based on the weighted-average number of common shares
outstanding during the period. Diluted EPS is based on the weighted-average
number of common shares outstanding and the dilutive impact of common equivalent
shares outstanding.
Following is a reconciliation of basic EPS and diluted EPS from continuing
operations:
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
-------------------------------------- -----------------------------------------
Per Per
Share Share
Income Shares Amount Loss Shares Amount
--------- ------------- ------- --------- ------------- ------------
Net income (loss) from continuing
operations $ 895 $(1,082)
Less - Preferred dividends and accretion
for Series B preferred stock (649) (241)
--------- ---------
Basic EPS -
Income (loss) allocable to common
shareholders from continuing operations $ 246 20,059,835 $0.01 $(1,323) 19,926,002 $(0.07)
========= ==========
Effect of dilutive securities -
Stock options and warrants - - - -
Preferred Stock - Series A - - - -
Preferred Stock - Series A-1 - 13,822,727 - -
Preferred Stock - Series B - - - -
--------- ------------- --------- ------------
Diluted EPS -
Income (loss) allocable to common
shareholders from continuing operations $ 246 33,882,562 $0.01 $(1,323) 19,926,002 $(0.07)
========= ============= ========= ========= ============ ==========
For the three months ended December 31, 2002, the Company had options, warrants,
convertible preferred stock - Series A and convertible preferred stock - Series
B covering 27,804,303 shares that were not considered in the dilutive EPS
calculation since they would have been antidilutive. For the three months ended
December 31, 2001, the Company had options, warrants, convertible preferred
stock - Series A, and convertible subordinated debt covering 10,358,050 shares
not considered in the dilutive EPS calculation since they would have been
antidilutive.
NOTE 5. INVENTORIES
Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30,
2002 2002
------------ ------------
Raw Materials $ 3,141 $ 3,294
Work in process 606 574
Finished goods 1,160 1,072
------------ ------------
$ 4,907 $ 4,940
============ ============
NOTE 6. SETTLEMENT OF ACCOUNTS PAYABLE
On June 28, 2002, the Company entered into an agreement with a vendor and
customer of the Company, Caterpillar, Inc. ("Caterpillar") to remedy past due
accounts between the Company and Caterpillar. Under the agreement, the Company
remitted to Caterpillar $1,250 during the first week of July, 2002 and made
monthly payments through December, 2002 for a total of $2,850, of which $1,251
was paid during the three months ended December 31, 2002. As part of this
agreement the Company and Caterpillar returned to normal vendor terms. As of
December 31, 2002, the Company's obligation to Caterpillar for past due accounts
was completely satisfied.
5
During fiscal 2001, the Company had a product recall related to weld failures on
certain electronic throttle control systems. In November 2002, the Company
reached a $163 total release and settlement of its accounts payable balance to
one of its vendors to recover certain previously incurred costs of the recall.
The settlement was recorded as a reduction of cost of sales on the accompanying
statement of operations for the three months ended December 31, 2002.
NOTE 7. INVESTMENT IN AND RECEIVABLES FROM AFFILIATE
Previously, the Company had notes and accounts receivable from Ajay Sports, Inc.
("Ajay") with a carrying value of $3,565, including a $500 note receivable which
was reflected as a reduction in the Company's shareholders' equity. The
Company's former chief executive officer and former Chairman of the Board,
Thomas W. Itin, is an officer and shareholder of Ajay. The investment in and
certain loans of the Company to Ajay were guaranteed by Thomas W. Itin.
The Company evaluated the realizability of its investment in and receivables
from Ajay and based on the Company's collection efforts determined the
investment in and receivables from Ajay were impaired; accordingly, an
impairment loss for the entire carrying value of $3,565 was recorded in the
second quarter of fiscal 2002. Additionally, the Company evaluated the
collectability of the guarantees of Mr. Itin, including the cost of collections
and concluded that these guarantees were worthless.
In November 2002, the Company settled all claims related to Ajay and Mr. Itin,
including previously filed suits in the Circuit Court for Oakland County,
Michigan and the Multnomah Circuit Court for the State of Oregon. As part of the
settlement, the Company retained a $2,500 interest in the notes receivable owed
to the Company by Ajay; however, no amounts have been recorded on the financial
statements for these interests. Additionally, as part of the settlement,
although the Company believed the guarantees of Mr. Itin were enforceable, based
on the Company's evaluation of the ultimate collectability of the guarantees,
including the cost of collections, Mr. Itin was relieved of his guaranty
obligation.
NOTE 8. FINANCING ARRANGEMENTS - RECAPITALIZATION
On July 1, 2002 the Company completed the previously announced recapitalization
transaction with American Industrial Partners ("AIP") whereby an affiliate of
AIP invested $13,000, less fees and expenses, into the Company by acquiring
130,000 shares of the Company's newly authorized Series B Preferred Stock, 15%
Redeemable Convertible Series (Series B Preferred). As a result of the
transaction, AIP is entitled to and has elected a majority of the members of the
Company's Board of Directors. Along with the investment by AIP, an investor
group that held $2,000 of the Company's 12% secured Subordinated Debentures
exchanged those securities for $2,000 of Series B Preferred. As additional
elements of the recapitalization transaction, the Company (i) entered into a new
five-year revolving and term loan agreement with its existing primary lender,
Wells Fargo Credit, Inc. ("Wells"); (ii) repaid from the cash proceeds of sale
of Series B Preferred the remaining $3,000 face amount of 12% secured
subordinated debentures, after giving consideration to the $2,000 of debentures
converted to Series B Preferred; (iii) eliminated the conversion feature,
increased the interest rate to 12.0% (further increasing to 15.0% in July 2003)
and extended the maturity to July 1, 2004 of approximately $2,139 face amount of
convertible subordinated debentures; (iv) exchanged approximately $7,755 in
Series A Preferred Stock, 7 1/2% Convertible Redeemable Series, (Series A
Preferred) shares for Series A-1 Preferred Stock, Non-Redeemable Convertible
Series, (Series A-1 Preferred); (v) cancelled in the fourth quarter of fiscal
2002 accrued but unpaid dividends of $1,413 on Series A preferred exchanged for
Series A-1 Preferred which were outstanding as of July 14, 2002 and (vi) accrued
in the fourth quarter of 2002 a one-time dividend on the new Series A-1
Preferred in an amount equal to the dividends canceled as a result of the
exchange of the Series A Preferred. The remaining cash proceeds from the
recapitalization are being used for working capital purposes, including the
payment of certain past due accounts payable.
The Series B Preferred is convertible into shares of common stock at $.85 per
share. The shares of Series A-1 Preferred are convertible into shares of common
stock at $.66. Both conversion prices are subject to customary anti-dilution
adjustment. The Series B and Series A-1 conversion price may also be adjusted
based on certain future transactions. Series B Preferred is mandatorily
redeemable on July 1, 2009 or following a change of control of the Company.
Dividends on Series B Preferred are payable in cash when and if declared by the
Company's Board of Directors. Accrued dividends can be converted by the holders
into the Company's common stock at the then current conversion rate. The Series
B Preferred has been recorded net of expenses and is being accreted to its
redemption value of $15,000 over seven years. Dividends accrued on the Series B
Preferred are included in the carrying value of the Series B Preferred stock.
6
NOTE 9. DEBT
As part of the recapitalization transaction on July 1, 2002, the Company entered
into a new five-year credit facility with Wells, which replaced the Company's
prior loan Facility with Wells. On July 1, 2002, the Company's existing term
loan balances of $2,175 and the existing revolving credit balance of $5,692 from
the prior loan agreement with Wells were converted to the new credit terms. The
new loan facility with Wells provides for $12,200 in revolving and term loans.
Interest rates under the new agreement are currently Well's prime rate plus
2.00% for the revolving debt and Well's prime rate plus 2.25% for the term
loans. Fees under the loan agreement include an unused revolver fee of .25% on
the unused portion, a term loan prepayment fee of 2% in the first year and 1%
thereafter, and a revolving loan termination fee of $200 in year 1 and $100
thereafter. The revolver and term loan A mature on July 1, 2007 and term loan B
matures on July 1, 2004. The loans are secured by essentially all of the assets
of the Company. The Company has available under its revolving credit facility
$6,058 and $4,400 at December 31, 2002 and September 30, 2002, respectively.
On October 25, 2002 the Company entered into a loan agreement with Imperial
Premium Finance for the financing of the Company's fiscal 2003 insurance policy
premiums. The loan agreement provided financing of $662 and bears interest at
5.75%. The Company made a required down payment on the loan of $170 in October
2002. The remaining balance is to be repaid with nine monthly payments of $56,
including interest, beginning November 1, 2002. The loan agreement matures on
July 1, 2003.
The Company's long-term debt consists of the following:
DECEMBER 31, 2002 SEPTEMBER 30,
2002
---------------- -----------------
Bank revolving credit facility due July 1, 2007, bearing
interest at a variable rate, (6.25% at December 31, 2002)
included in current liabilities $1,436 $2,981
Bank Term Loan A due July 1, 2007, balance bearing
interest at a variable rate, (6.50% at December 31, 2002)
payable in monthly installments of $23 1,260 1,330
Bank Term Loan B due July 1, 2004, balance bearing
interest at a variable rate, (6.50% at December 31, 2002)
payable in monthly installments of $33 600 700
Note Payable - terminated lease - Mitsubishi due August
1, 2003, balance bearing interest at 8.5% per annum
payable in monthly installments of $14 97 137
Note Payable - terminated lease - Wells Fargo leasing,
balance bearing interest at 10.0% per annum payable in
monthly installments of $15, due in full March 1, 2003 99 155
Note Payable - Imperial Premium Finance, balance Bearing
interest at 5.75% per annum payable in monthly
Installments of $56, due in full July 1, 2003 330 -
Capital Leases 192 264
---------------- -----------------
4,014 5,567
Less current portion 2,773 4,084
---------------- -----------------
$1,241 $1,483
================ =================
7
NOTE 10. PRODUCT WARRANTIES
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
This interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure requirements
in this interpretation are effective for financial statements of interim or
annual periods ending after December 15, 2002.
The Company establishes a product warranty reserve based on a percentage of
product sales. The established reserve is based on historical return rates of
products and is included in accrued expenses on the accompanying consolidated
balance sheet. Included in the warranty reserve is an accrual for a product
recall of $279 and $283 at December 31, 2002 and September 30, 2002,
respectively. Following is a reconciliation of the changes in the Company's
warranty reserve for the three months ended December 31, 2002 as required by FIN
45.
BALANCE AS OF BALANCE AS OF
SEPTEMBER 30, ADDITIONAL DECEMBER 31,
2002 PAYMENTS ACCRUALS 2002
------------- ----------- ------------ --------------
$ 1,293 (186) 156 $ 1,263
Subsequent to December 31, 2002, the Company has been notified of a higher than
normal warranty claims on one of its electronic throttle control systems with
one customer. Management is currently in the early stages of its investigation
and at this time cannot estimate the costs the Company will incur related to
this issue. However, management believes this item could possibly have a
material affect on the Company's results of operations, but would not have a
material adverse affect on the Company's financial condition.
NOTE 11. GAIN FROM DISCONTINUED OPERATIONS
In October 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. 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.
NOTE 12. SEGMENT INFORMATION
The Company accounts for its segments in accordance with SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company operates in two business segments: (1) vehicle components and (2)
electrical components. As a result of terminating and selling certain product
lines, the Company has no significant current operations in the electrical
components segment. Accordingly the operations for the three months ended
December 31, 2002 are presented as one segment. In the prior period the
electrical components segment met certain quantitative thresholds for disclosure
pursuant to SFAS No. 131, therefore financial information for the electrical
components segment is shown for the three months ended December 31, 2001.
THREE MONTHS
ENDED DECEMBER
31, 2001
--------------
Net sales by classes of similar products
Vehicle components $11,296
Electrical components
123
--------------
$11,419
==============
Earnings (loss) from continuing operations
Vehicle components $ 318
Electrical components (489)
--------------
$ (171)
==============
8
Identifiable assets
Vehicle components $23,750
Electrical components 1,779
Corporate 3,167
--------------
Total assets - continuing operations $28,696
==============
Capital expenditures
Vehicle components $ 118
Electrical components -
--------------
Total capital expenditures $ 118
==============
Depreciation and amortization
Vehicle components $ 1,002
Electrical components 65
--------------
Total depreciation and amortization $ 1,067
==============
In December 2002, the Company recorded a $100 gain from the release of escrow
funds related to the sale of GeoFocus, the Company's previously owned global
positioning system business and part of the electrical components segment. The
gain has been recorded in other (income) expense on the accompanying statement
of operations and reflected as a gain on the sale of GeoFocus in the
accompanying statement of cash flows.
NOTE 13. LABOR ISSUES
The Company's employees engaged in the manufacturing of vehicle components in
the Portland, Oregon facility are represented by the International Union, United
Automobile Workers of America and Amalgamated Local 492. The five-year contract
with the union expired on August 31, 2002 and on September 9, 2002 the union
employees engaged in a strike action, which continues as of the date of this
filing. The Company has continued to negotiate with the union during the strike;
however no contract agreement has been reached. Since the date of the strike,
the Company has operated the Portland facility with salaried employees and
replacement workers. No significant disruptions of deliveries to customers have
occurred during the strike.
In September and October, 2002 the union made various unfair labor practice
claims against the Company. To conclude these claims, the National Relations
Regional Director directed the Company to post for 60 days a notice to employees
pledging no future violation of the claims with no admission of unfair practices
in the past. Management does not expect that the Company will incur any
financial liability as a result of this settlement. In January 2003 the union
filed two additional unfair labor practice claims. The Company has vigorously
defended all such claims as they are without merit and will continue to do so.
Of the Company's total workforce, approximately 50% are represented by the
United Auto Workers union. No other employees of the Company have union
representation.
NOTE 14. EMPLOYEE BENEFIT PLANS
In the quarter ended December 31, 2001, the Company recorded $170 as an
additional estimate of additional liability to participants of the Company's
Employee Stock Ownership Plan ("ESOP"). As a result of the Company's benefit
plans being audited by the Department of Labor ("DOL") during fiscal 2001, the
Company made payments subsequent to December 31, 2001 totaling $125 into the
ESOP fund at the suggestion of the DOL, and now regards itself to be in full
compliance with DOL regulations.
NOTE 15. SUBSEQUENT EVENT
In January 2003, the Company reached a settlement with a prior customer on a
cancelled supply contract from 1999. Under the terms of the settlement, the
Company will receive $900, of which $800 was received in January 2003 with the
remainder due in March 2003. As the ultimate outcome of these negotiations was
uncertain at December 31, 2002, the settlement represented a contingent gain and
no amount was recorded in the three months ended December 31, 2002.
On January 10, 2003, the Company entered into employment agreements with its
three executive vice presidents. Each contract is for a term of four years
beginning on October 1, 2002 and specifies an initial base salary per year, plus
bonus based on parameters established by the board of directors. The agreements
also provide for a one-year severance payment under certain circumstances in the
event the Company terminates the agreements prior to the end of the contract
period. 9
WILLIAMS CONTROLS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OVERVIEW
The Company is a leading manufacturer of electronic throttle controls for
automobiles and commercial vehicles. We have a significant portion of the United
States market for electronic throttle controls systems for heavy trucks and
busses and a minor portion of the international markets for the same products.
We sell the majority of our products directly to large original equipment
manufacturers such as Freightliner, Volvo, Navistar and Paccar. We also sell our
products through a network of independent distributors who sell to smaller
original equipment manufacturers and to truck and bus owners as replacement
parts. We also manufacture pneumatic and air control systems for the diesel
heavy truck, transit bus and off-highway vehicles market. Many of the customers
for these products are the same customers as for our diesel heavy truck and
transit bus electronic throttle control systems.
The demand for electronic throttle control systems is expanding into smaller
trucks, diesel-powered pick-up trucks, automobiles and off-highway vehicles as
the major automotive manufacturers and off-highway vehicle producers are
beginning to convert gasoline-powered vehicles to electronic throttle control
systems. Demand for electronic throttle controls will depend, in part, on how
quickly these manufacturers proceed with the ongoing engine modifications needed
to use such systems. We have supplied a limited number to Ford and General
Motors and, through existing contracts, anticipate we will increase the number
of such systems sold to Ford and General Motors throughout fiscal 2003.
We also manufacture sensors that we use in our automotive and a limited number
of our heavy truck electronic throttle controls. We anticipate we will expand
using our sensors in additional truck lines, bus and off-highway electronic
throttle control systems in fiscal 2003. We do not currently have any outside
customers for our sensors.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In response to the SEC's Release No. 33-8098, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," we have identified the most
critical accounting principles upon which our financial status depends. We have
determined the critical principles by considering accounting policies that
involve the most complex decisions or assessments. We 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 FASB
Statement No. 144. We test for impairment when factors indicate that the asset
may not be recoverable from future undiscounted cash flows and calculate 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. For the three months
ended December 31, 2002, there was no impairment of long-lived assets.
WARRANTY AND PRODUCT RECALL
We provide a warranty covering defects arising from products sold. We have
established a warranty reserve based on historical return rates of products. In
addition, the Company issued a product recall in late fiscal year 2001. We
recorded a reserve for this product recall based on estimates of the number of
units to be returned and the estimated costs of repair. At December 31, 2002,
the product recall accrual was $279. All of the units that were in distributors'
inventories have been returned and replaced. The remaining possible defective
units are installed on vehicles, and will be replaced if and when they fail.
PENSIONS AND POST-RETIREMENT BENEFIT OBLIGATIONS
We account for pensions and post-retirement benefits in accordance with FASB
Statement No. 87 and FASB Statement No. 106. FASB Statement No. 87 requires the
Company to calculate its 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 the Company's 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.
10
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 2001.
The following table sets forth, for the periods indicated, selected statements
of operations data expressed as a percentage of net sales.
THREE MONTHS ENDED
DECEMBER 31,
-------------------
2002 2001
------- ---------
Net sales 100.0 % 100.0 %
Cost of sales 75.3 76.4
------- ---------
Gross margin 24.7 23.6
Operating expenses:
Research and development 6.4 8.5
Selling 2.9 2.1
Administration 9.9 14.5
------- ---------
Total operating expenses 19.2 25.1
Income (loss) from continuing operations 5.5 (1.5)
Interest expense 1.4 8.3
Other (income) expense, net (0.8) (0.3)
------- ---------
Income (loss) from continuing operations before income taxes 4.9 (9.5)
Income tax benefit 2.5 -
------- ---------
Net income (loss) from continuing operations 7.4 % (9.5)%
======= =========
NET SALES
Net sales increased $693 or 6.1% to $12,112 in the first quarter of fiscal 2003
from $11,419 in the first quarter of fiscal 2002. The increase in net sales is
primarily due to an increase in sales volumes of our electronic throttle control
systems to our heavy truck and transit bus customers, which is offset by lower
sales volumes of our automotive electronic throttle control systems, pneumatic
and air control systems and electrical components. Sales to the heavy truck and
transit bus customers increased $1,505 or 15.5% for the three months ended
December 31, 2002 compared to the three months ended December 31, 2001. Sales of
automotive electronic throttle control systems decreased $533 or 42.1% for the
three months ended December 31, 2002 compared to the three months ended December
31, 2001, primarily due to elimination of sales for the Dodge Viper program,
which was completed in the fourth quarter of fiscal 2002 and a significant
decrease in Ford electronic throttle control system sales, due to product change
overs to new models.
GROSS MARGIN
Gross margin was $2,996, or 24.7% of net sales in the first quarter of 2003, an
increase of $305 compared to the gross margin of $2,691, or 23.6% of net sales,
in the comparable fiscal 2002 period.
The increase in gross margin in fiscal 2003 is driven by sales of electronic
throttle control systems for heavy truck and transit bus customers, which
accounted for over 93% of net sales during the three month period ended December
31, 2002. Electronic throttle control system sales for heavy trucks and transit
busses showed an increase in gross margin of .5% from 30.1% of net sales during
the three months ended December 31, 2002 compared to 29.6% of net sales during
the comparable period of fiscal 2002. The increase in gross margin for heavy
trucks and transit busses is mainly due to the reduction of cost of sales
related to the settlement of warranty product recall costs as described in Note
6 of the Unaudited Notes to the Consolidated Financial Statements. The increase
in gross margin for heavy trucks and transit busses is offset by an increase in
negative margin for electronic throttle control systems for automotive
customers. Automotive electronic throttle control system sales had negative
margin for the three months ended December 31, 2002 of (48.4%) of net sales
compared to (23.1%) of net sales during the comparable period of fiscal 2002.
The increase in negative margin for automotive electronic throttle control
systems is primarily due to manufacturing overhead costs remaining constant
between periods, but increasing as a percentage of net sales. Manufacturing
overhead costs were 58.7% of net sales for the three months ended December 31,
2002 compared to 30.3% for the three months ended December 31, 2001.
11
OPERATING EXPENSES
Operating expenses for research and development, selling and administration were
$2,323 for the three months ended December 31, 2002 compared to $2,862 for the
three months ended December 31, 2001, a decrease of $539 or 18.8%. Operating
expenses as a percentage of net sales, were 19.2% for the first fiscal quarter
of 2003, which were lower than the 25.1% for the first fiscal quarter of 2002.
Research and development expenses decreased $191 or 19.8% to $773 for the first
fiscal quarter of 2003 compared to $964 for the comparable period in 2002. The
largest factor in lower research and development expenses was a $141 decline in
research and development spending for automotive electronic throttle control
systems, which reduced overall product development activity. The Company's
research and development expenditures will fluctuate based on the products under
development at any given point in time.
Administration expenses for the three months ended December 31, 2002 of $1,204
were lower than the $1,656 for the same fiscal period in 2001, a reduction of
$452 or 27.3%. This decrease is primarily due to significant decreases in
administration expenses for both the Corporate office and the automotive
electronic throttle control systems product line. Administration expenses for
Corporate decreased $294 or 33.0% during the first fiscal quarter ended 2003
compared to the first fiscal quarter of 2002. This decrease is attributable to
significant reductions in payroll and legal expenses due to the completion of
the recapitalization transaction, which is discussed in Note 8 in the Notes to
Unaudited Consolidated Financial Statements. During the three months ended
December 31, 2001, the Company entered into a settlement with the Department of
Labor regarding certain of its employee benefit plans. As part of this
settlement, the Company recorded $170 in expenses related to the Company's ESOP
Plan. The recording of this expense is part of the overall decrease of
administrative expenses and at this time the Company does not expect to incur
any additional expenses related to the settlement with the Department of Labor.
The automotive electronic throttle control systems administration expenses
decreased $156 or 38.7% during the three months ended December 31, 2002 compared
to the comparable period in fiscal 2002. The significant decrease is
attributable to the consolidation of our automotive operations into one facility
in Sarasota, Florida.
INTEREST EXPENSE AND OTHER INCOME
Interest expense decreased $771 or 82.0% to $169 in the first quarter of fiscal
2003 from $940 in the first quarter of fiscal 2002. This reduction is the result
of overall reduced interest rates and reduced debt levels resulting from the
receipt of cash proceeds associated with the recapitalization transaction
discussed in Note 8 of Notes to the Unaudited Consolidated Financial Statements.
Other income increased $62 to $91 for the three months ended December 31, 2002
from $29 in the first quarter of fiscal 2002. This increase is primarily due to
recording a $100 gain from the release of escrow funds related to the sale of
GeoFocus as described in Note 12 in the Notes to Unaudited Consolidated
Financial Statements.
INCOME TAXES
The Company is in a net operating loss carry-forward position and is providing a
100% valuation allowance on all deferred tax assets due to the uncertainty
regarding their realization. Federal net operating losses are subject to
provisions of the Internal Revenue Code which restrict the utilization of this
type of tax attribute in the event of an "ownership change" (as defined in the
Internal Revenue Code Section 382). Changes in ownership resulting from the
recapitalization transaction coupled with other future changes in ownership may
significantly defer the utilization of net operating loss carry forwards in the
future.
A tax benefit of $300 was recorded in the three months ended December 31, 2002
resulting from filing an amended federal 1998 tax return in the first quarter of
fiscal quarter 2003.
DISCONTINUED OPERATIONS-AGRICULTURAL SEGMENT
As of September 30, 2001, the Company had recorded on its consolidated balance
sheet $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 for the three month period ended December 31, 2001 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.
12
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
Net income (loss) allocable to common shareholders increased to income of $246
for the three months ended December 31, 2002 compared to a loss of $(906) in the
comparative prior year period. There were slightly lower margins and
significantly higher interest expense and operating expenses for the three month
period ended December 31, 2001 when compared to the same period of fiscal 2003.
Excluding the gain on sale of building from discontinued operations, the net
loss allocable to common shareholders for the first fiscal quarter of 2002 would
have been $(1,323).
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2002 the Company continued the efforts begun in 2001 with the goal
of strengthening our financial condition and operating results. In fiscal 2002
we took a number of crucial steps to position the Company for improved
operational and financial performance in the future, primarily through the
recapitalization transaction discussed in Note 8 in the Notes to Unaudited
Consolidated Financial Statements and the consolidation of the Florida
facilities into one location.
During the first three months of fiscal 2003, net cash provided by operating
activities was $1,293 compared with $991 in the first three months of fiscal
2002. Cash flows from operations improved significantly through net income of
$895 compared to a net loss of $665 for the three months ended December 31,
2001. This increase in cash flows from higher earnings in the first fiscal
quarter in 2003 is offset by a reduction in depreciation of $187 due to fewer
capital assets, a reduction in amortization of $485 due to a significant
decrease in bank fees and debt costs, and an overall reduction in cash generated
from net changes in operating assets and liabilities. The Company generated cash
of $44 from net changes in operating assets and liabilities in the quarter ended
December 31, 2002, compared to a cash generation of $1,006 from net changes in
operating assets and liabilities in the quarter ended December 31, 2001. This
decrease in cash from net changes in operating assets and liabilities is
primarily due to significant reductions in accounts payable and payments of
prior year bonuses offset by increased collections on receivables, reductions in
inventory and net proceeds on customer reimbursable tooling. In previous
periods, we had been past due on accounts payable and with the proceeds from the
recapitalization were able to bring payables to current, thus causing the
significant reduction in accounts payable. See also Note 6 of the Notes to
Unaudited Consolidated Financial Statements.
Cash from investing activities was a use of $306 for the three months ended
December 31, 2002 and was comprised of purchases of equipment. This compared to
purchases of equipment of $118 for the three months ended December 31, 2001.
Cash used in financing activities was $1,553 for the quarter ended December 31,
2002 compared to cash provided by financing activities of $196 for the quarter
ended December 31, 2001. The change was primarily due to repayment of borrowings
on short-term and long-term debt. Cash provided by financing activities for the
three months ended December 31, 2001 also included a $193 net change in book
overdraft.
At December 31, 2002, our contractual obligations consisted of bank debt of
$3,296, capital leases of $192, notes payable of $196 related to settlement of
lease obligations, notes payable of $330 related to financing of insurance
premiums, and operating lease commitments, which at December 31, 2002 are $103
due during the remaining of fiscal year 2003, $60 due in 2004 and $60 in 2005.
We do not have any material letters of credit, purchase commitments, or debt
guarantees outstanding at December 31, 2002.
Due to the reduction in interest rates and reduction in the fair value of
assets, cash payments to fund our pension obligation will increase significantly
in fiscal 2003. However, we have $6,058 available under our revolving credit
facility at December 31, 2002 plus cash at December 31, 2002 of $263, and we
believe this availability along with cash provided by operations will be
adequate to meet our cash needs in fiscal 2003.
Included in the accompanying consolidated balance sheet is approximately $1,649
of old accounts payable related to closed insolvent subsidiaries of the Company.
Management does not believe they will ultimately have to pay the full amount of
these payables.
13
RECENT FASB PRONOUNCEMENTS
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." SFAS No. 143 requires the Company to record the fair value
of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or normal
use of the assets. We also record a corresponding asset that is depreciated over
the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. SFAS No. 144 amends SFAS No. 121 but retains many of
its fundamental provisions and provides a single accounting model for long-lived
assets to be disposed of. SFAS No. 144 also changes the criteria for classifying
an asset as held-for-sale and broadens the scope of businesses to be disposed of
that qualify for reporting as discontinued operations and changes the timing of
recognizing losses on such operations. These statements are effective for our
fiscal year ended 2003. The adoption of SFAS No. 143 and No. 144 did not have an
impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This statement nullifies Emerging Issues Task
Force Issue No. 94-3 (Issue 94-3), "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity is recognized when the
liability is incurred. Under Issue 94-3, a liability for an exit cost as defined
in Issue 94-3 was recognized at the date of an entity's commitment to an exit
plan. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment to SFAS No. 123." This
statement amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both the annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
Company will adopt the disclosure provisions of this statement in the second
quarter for fiscal 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has approximately $3,300 in short and long-term debt, held by its
bank, with interest rates that change in accordance with the terms of the
relevant debt instruments. As a result, the Company may be exposed to risks
associated with 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.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in Rule 13a-14(c) and Rule 15d-14(c) under the
Securities Exchange Act of 1934, as amended (the "Act")) as of a date (the
"Evaluation Date") within 90 days before the filing date of this quarterly
report, have concluded that as of the Evaluation Date, the Company's disclosure
controls and procedures were effective and designed to reasonably ensure that
(a) material information relating to the Company and the Company's consolidated
subsidiaries is accumulated and communicated to them, and (b) information
required to be disclosed by the Company in the reports that it files or submits
under the Act is recorded, processed, summarized and reported, within the
required time periods.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in the Company's internal controls
or in other factors that could significantly affect those controls subsequent to
the Evaluation Date, including any corrective actions with regard to significant
deficiencies and material weaknesses.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are parties to various pending judicial and administrative proceedings
arising in the ordinary course of business. Our management and legal counsel
have reviewed the probable outcome of these proceedings, the costs and expenses
reasonably expected to be incurred, the availability and limits of our insurance
coverage, and our established reserves for uninsured liabilities. While the
outcome of the pending proceedings cannot be predicted with certainty, based on
our review, we believe that any liability that may result is not reasonably
likely to have a material effect on our liquidity, financial condition or
results of operations.
Mr. Thomas Itin, the Company's former Chairman of the board and former President
and Chief Executive Officer of the Corporation, had guaranteed certain
investments in and advances to Ajay Sports, Inc., an affiliate of the Company.
Mr. Itin is an officer and shareholder of Ajay Sports, Inc. Mr. Itin has filed
suit in Michigan seeking a determination as to the enforceability of these
guarantees. We filed suit against Ajay Sports, Inc. and Mr. Itin in Oregon
seeking payment of all amounts due from Ajay Sports, Inc. and Mr. Itin. In
November 2002, we settled all claims in both lawsuits related to Ajay Sports,
Inc. and Mr. Itin. As part of the settlement, we retained a $2,500 interest in
the notes receivable owed to the Company by Ajay Sports, Inc.; however, no
amounts have been recorded on the financial statements for these interests.
Additionally, as part of the settlement, although the Company believed the
guarantees of Mr. Itin were enforceable, based on the Company's evaluation of
the ultimate collectability of the guarantees, including the cost of
collections, Mr. Itin was relieved of his guaranty obligation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting for 2002 and special meeting in lieu of an annual
meeting for 2001 was held on September 19, 2002, for the purpose of electing
directors and voting on a proposal to increase the number of authorized shares
of common stock of the Company from 50,000,000 to 125,000,000. The meeting was
adjourned three times, to October 15, 2002, November 14, 2002 and December 13,
2002. The proposal to elect directors was adopted by a vote of the shareholders
present in person or by proxy. The proposal to increase the number of authorized
shares of common stock of the Company did not receive the required votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant as
amended. (INCORPORATED BY REFERENCE TO EXHIBIT 3.1 TO
THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1995).
3.2 Certificate to Provide for the Designation,
Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series A Preferred
Stock, 7 1/2% Redeemable Convertible Series
(INCORPORATED BY REFERENCE TO EXHIBIT 3.1 TO THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1998).
3.3 Certificate to Provide for the Designation,
Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series A-1 Preferred
Stock, Non-Redeemable Convertible Series.
(INCORPORATED BY REFERENCE TO EXHIBIT 3.3 TO THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 2002).
15
3.4 Certificate to Provide for the Designation,
Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series B Preferred
Stock, 15% Redeemable Convertible Series
(INCORPORATED BY REFERENCE TO EXHIBIT (D)(V) TO THE
SCHEDULE TO-I/A FILED ON JULY 5, 2002).
3.5 Certificate of Elimination for Mandatory Preferred
Stock (INCORPORATED BY REFERENCE TO EXHIBIT (D)(VI)
TO THE SCHEDULE TO-I/A FILED ON JULY 5, 2002).
3.6 Restated By-Laws of the Registrant as amended July 1,
2002. (INCORPORATED BY REFERENCE TO EXHIBIT 3.6 TO
THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED JUNE 30, 2002).
4.1 Series B Preferred Stock Purchase Agreement, dated
May 31, 2002. (INCORPORATED BY REFERENCE TO EXHIBIT
(D)(I) TO THE SCHEDULE TO-I/A FILED ON JUNE 11,
2002).
4.2 Series B Preferred Registration Rights Agreement,
dated as of July 1, 2002, by and among the Company,
American Industrial Partners Capital Fund III, L.P.,
and Dolphin Offshore Partners L.P. (INCORPORATED BY
REFERENCE TO EXHIBIT (D)(VII) TO THE SCHEDULE TO-I/A
FILED ON JULY 5, 2002).
4.3 Series B Preferred Shareholder Agreement, by and
among the Company, American Industrial Partners
Capital Fund III, L.P., Dolphin Offshore Partners
L.P. and Eubel, Brady & Suttman Asset Management,
Inc. (INCORPORATED BY REFERENCE TO EXHIBIT (D)(VIII)
TO THE SCHEDULE TO-I/A FILED ON JULY 5, 2002).
4.4 Series A-1 Preferred Registration Rights Agreement,
dated as of July 15, 2002, by and among the Company
and the holders of Series A-1 Preferred Stock.
(INCORPORATED BY REFERENCE TO EXHIBIT 4.5 TO THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 2002).
4.5 Form of Amended and Restated Subordinated Debenture
Due July 1, 2004 (INCORPORATED BY REFERENCE TO
EXHIBIT (D)(XII) TO THE SCHEDULE TO-I/A FILED ON JULY
5, 2002).
4.6 Form of warrant (INCORPORATED BY REFERENCE TO EXHIBIT
(D)(III) TO THE SCHEDULE TO-I/A FILED ON JUNE 11,
2002).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 for R. Eugene Goodson.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 for Dennis E. Bunday.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on October 3, 2002
reporting under Item 5 - Other Events, the initiation of a
strike by certain of the Company's union employees.
16
SIGNATURES
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.
Date: February 14, 2003 /s/ R. EUGENE GOODSON
--------------------------------
R. Eugene Goodson
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
/s/ DENNIS E. BUNDAY
--------------------------------
Dennis E. Bunday
CHIEF FINANCIAL OFFICER
17
CERTIFICATION PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
I, R. Eugene Goodson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Williams Control,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 14, 2003 /s/ R. EUGENE GOODSON
---------------------
R. Eugene Goodson
Chief Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002
I, Dennis E. Bunday, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Williams Control,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 14, 2003 /s/ DENNIS E. BUNDAY
--------------------
Dennis E. Bunday
Chief Financial Officer
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Williams Controls, Inc (the
"Company") on Form 10-Q for the period ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, R.
Eugene Goodson, Chairman of the Board and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
/s/ R. EUGENE GOODSON
R. Eugene Goodson
Chief Executive Officer
Williams Controls, Inc
February 14, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Williams Controls, Inc (the
"Company") on Form 10-Q for the period ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis
E. Bunday, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
/s/ DENNIS E. BUNDAY
Dennis E. Bunday
Chief Financial Officer
Williams Controls, Inc
February 14, 2003