<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Revision 3, 2/12/96
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, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18083
Williams Controls, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's common stock as of
January 15, 1996: 17,224,287.
<PAGE>
WILLIAMS CONTROLS, INC.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 1995 (unaudited)
and September 30, 1995 1
Unaudited Consolidated Statement of Stockholders' Equity,
three months ended December 31, 1995 2
Unaudited Consolidated Statements of Operations,
three months ended December 31, 1995 and 1994 3
Unaudited Consolidated Statements of Cash Flows,
three months ended December 31, 1995 and 1994 4
Notes to Unaudited Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
<PAGE>
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(unaudited)
----------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 790 $ 1,653
Accounts receivable, net 11,442 10,521
Inventories 14,284 12,987
Other 1,117 627
------ -------
Total current assets 27,633 25,788
------ ------
Investment in affiliate 1,048 1,118
Property, plant and equipment:
Land and land improvements 2,723 2,713
Buildings 9,252 9,221
Machinery and equipment 9,556 9,169
Office furniture and equipment 1,436 1,426
------ ------
22,967 22,529
Less accumulated depreciation and amortization 4,036 3,731
------ ------
18,931 18,798
------ ------
Other assets 1,139 1,478
------ ------
$ 48,751 $ 47,182
====== ======
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt $ 441 $ 462
Accounts payable and accrued expenses 6,385 7,419
------ ------
Total current liabilities 6,826 7,881
------ ------
Long-term debt 19,546 18,112
Other liabilities 2,222 2,132
Minority interest in consolidated subsidiaries 775 764
Stockholders' equity:
Preferred stock of $.01 par value, 50,000,000 shares authorized - -
Common stock of $.01 par value, 50,000,000 shares
authorized, 17,319,987 and 17,264,987 shares issued 173 173
Additional paid-in capital 9,122 9,023
Unearned ESOP shares (630) (630)
Pension liability adjustment (273) (273)
Retained earnings 10,990 10,000
------ ------
19,382 18,293
------ ------
$ 48,751 $ 47,182
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
Consolidated Statements of Stockholders' Equity
Unaudited
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
<TABLE>
<CAPTION>
Number of Additional Unearned Pension
Shares Common Paid-in ESOP Liability Retained Stockholders'
Issued Stock Capital Shares Adjustment Earnings Equity
---------- --------- ----------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 17,264,987 $ 173 $9,023 $ (630) $ (273) $10,000 $18,293
Issuance of shares under
employee benefit plans 5,000 - 15 - - - 15
Issuance of shares upon
exercise of warrants 50,000 - 84 - - - 84
Net earnings - - - - - 990 990
---------- ---- ----- ----- ----- ------ ------
Balance, December 31, 1995 17,319,987 $ 173 $9,122 $ (630) $ (273) $10,990 $19,382
========== ==== ===== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Consolidated Statements of Operations
Unaudited
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, December 31,
1995 1994
------------------ -----------------
<S> <C> <C>
Net sales $ 16,428 $ 11,576
Cost of sales 12,024 8,242
------ ------
Gross margin 4,404 3,334
------ ------
Operating expenses:
Research and development 507 275
Selling 740 480
Administrative 1,014 536
------ ------
2,261 1,291
------ ------
Earnings from operations 2,143 2,043
------ ------
Other (income) expense:
Interest income, affiliate - (147)
Interest expense 464 411
Equity interest in loss of affiliate 70 216
------- ------
534 480
------ ------
Earnings before income taxes 1,609 1,563
Income taxes 608 575
------ ------
Earnings before minority interest 1,001 988
Minority interest in net earnings of consolidated subsidiaries 11 -
------- --------
Net earnings $ 990 $ 988
====== ======
Earnings per common share $ .06 $ .06
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Consolidated Statements of Cash Flows
Unaudited
(Dollars in thousands) Williams Controls, Inc.
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, December 31,
1995 1994
------------------ ------------------
<S> <C> <C>
Cash flows from operations:
Net earnings $ 990 $ 988
Non-cash adjustments to net earnings:
Depreciation and amortization 428 281
Equity interest in loss of affiliate 70 216
Minority interest in earnings of consolidated subsidiaries 11 -
Changes in working capital items net of the effect of acquisitions:
Receivables, net (921) (895)
Inventories (1,297) (1,367)
Accounts payable and accrued expenses (1,034) 869
Other (184) (1,135)
------- -------
Net cash used for operations (1,937) (1,043)
------ -------
Cash flows from investing:
Payments for property, plant and equipment (438) (316)
------ ------
Net cash used for investing (438) (316)
------ ------
Cash flows from financing:
Net borrowings under revolving loan - 1,129
Payments of long-term debt (57) (247)
Proceeds from long-term debt 1,500 565
Payments of capital leases (30) (33)
Payment of debt issuance cots - (34)
Proceeds from stock issuances 99 -
------ -------
Net cash provided by financing 1,512 1,380
------ ------
Net increase (decrease) in cash (863) 21
Cash at beginning of period 1,653 242
------ ------
Cash at end of period $ 790 $ 263
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1995 and 1994
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
1. Organization
The Company includes its wholly-owned subsidiaries, Williams Controls
Industries, Inc.; Kenco Williams, Inc.; NESC Williams, Inc.; Williams
Technologies, Inc.; Williams World Trade, Inc.; Williams Automotive,
Inc.; Aptek Williams, Inc.; Agrotec Williams, Inc. and its 80% owned
subsidiaries Hardee Williams, Inc. and Waccamaw Wheel Williams, Inc.
2. The Interim Consolidated Financial Statements
The interim consolidated financial statements have been prepared by the
Company and, in the opinion of management, reflect all material
adjustments which are necessary to a fair statement of results for the
interim periods presented. Certain information and footnote disclosure
made in the last annual report on Form 10-K have been condensed or
omitted for the interim consolidated statements. Certain costs are
estimated for the full year and allocated to interim periods based on
activity associated with the interim period. Accordingly, such costs are
subject to year-end adjustment. It is the Company's opinion that, when
the interim consolidated statements are read in conjunction with the
September 30, 1995 annual report on Form 10-K, the disclosures are
adequate to make the information presented not misleading. The interim
consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
3. Earnings per Share
Earnings per share are based on the weighted average number of shares and
common stock equivalent shares outstanding during the period assuming
proceeds therefrom are used to purchase common stock at the average
market price during the period (treasury stock method). The weighted
average number of common shares used in computation of earnings per share
was 17,900,000 for the three months ended December 31, 1995 and
17,500,000 for the three months ended December 31, 1994. Common stock
equivalents which are antidilutive are not included in the earnings per
share calculation.
5
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1995 and 1994
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
4. Inventories
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
<S> <C> <C>
Raw material $ 7,141 $ 6,401
Work-in-process 1,145 1,031
Finished goods 5,998 5,555
------ ------
$14,284 $12,987
====== ======
</TABLE>
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
During 1994 the Company provided a $7,000 loan to Ajay Sports, Inc.
("Ajay") for Ajay's operating subsidiary. Ajay manufactures and
distributes golf and billiard accessories primarily to retailers
throughout the United States. In July 1995 Ajay obtained an $8,500 credit
facility (subsequently increased to $13,500 in October 1995) which was
used to pay off the loan provided by the Company. The Company has
guaranteed Ajay's credit facility and is charging Ajay a fee of 1/2 of 1%
per annum of the outstanding loan amount for providing this guaranty. The
Chairman and President of the Company is also Chairman and President of
Ajay, and has guaranteed Ajay's obligation to the Company under the loan
guaranty.
In exchange for the Company providing interim financing, the Company
received an option to purchase up to 15,228,520 shares of Ajay common
stock (which would represent approximately 45% of Ajay's then outstanding
common stock) and received manufacturing rights in certain Ajay
facilities through 2002, under a joint venture agreement. At December 31,
1995 the Company has vested options to acquire 11,110,873 shares of Ajay
common stock at prices ranging from $.34 to $.50 per share. In October
1994 the Company exercised options to acquire 4,117,647 shares of Ajay
common stock through a reduction in the loan in the amount of $1,400,
resulting in the Company owning approximately 18% of Ajay's then
outstanding common stock. The investment in Ajay is recorded as an
investment in affiliate in the Consolidated Balance Sheets net of the
Company's equity interest of $352 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.
6
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1995 and 1994
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
6. Debt
In July 1995 the Company obtained a $30,000 credit facility comprised of
a three year revolving loan which carries an interest rate at the option
of the Company at either the bank's prime rate or the Interbank Offering
Rate (IBOR) plus 2% to 3% depending upon certain financial ratios. At
December 31, 1995 the Company had borrowed approximately $16,500 under
the new credit facility with interest at 7.5% which is IBOR plus 2%. The
Company has pledged substantially all of its assets as collateral for the
credit facility. The Company is required to maintain a minimum net worth
and maintain certain financial ratios. The loan agreement also contains
certain restrictions that limit acquisitions, investments, payment of
dividends, and capital expenditures.
7. 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 in open market
transactions. Under this program the Company has acquired approximately
95,000 shares at an average price of $2.80 per share.
7
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1995 and 1994
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
8. Segment Information
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net sales by classes of similar products
Heavy vehicle components $ 8,214 $ 7,687
Automotive accessories 4,384 3,889
Landscape maintenance equipment 2,357 -
Electrical components 1,473 -
------ ------
16,428 11,576
====== ======
Earnings from operations
Heavy vehicle components 1,785 1,855
Automotive accessories 39 188
Landscape maintenance equipment 166 -
Electrical components 153 -
------ ------
2,143 2,043
====== ======
Identifiable assets
Heavy vehicle components 18,606 26,996
Automotive accessories 13,408 8,044
Landscape maintenance equipment 9,060 -
Electrical components 7,677 -
------ ------
Total assets 48,751 35,040
====== ======
Capital expenditures
Heavy vehicle components 100 99
Automotive accessories 49 217
Landscape maintenance equipment 189 -
Electrical components 100 -
------ ------
438 316
======= =======
Depreciation and amortization
Heavy vehicle components 256 240
Automotive accessories 65 41
Landscape maintenance equipment 48 -
Electrical components 59 -
------ ------
$ 428 $ 281
======= =======
</TABLE>
8
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Financial Condition, Liquidity and Capital Resources
On December 31, 1995 the Company had working capital of $20,807 compared to
$17,907 at September 30, 1995. The current ratio on December 31, 1995 was 4.0
compared with 3.3 at September 30, 1995. During the three months ended December
31, 1995, the Company's accounts receivable increased by $921 and inventories
increased by $1,297 due primarily to a 42% increase in sales for the quarter.
The increase in accounts receivable and inventories was financed by increases in
accounts payable, accrued expenses and debt financing.
In July 1995 the Company obtained a $30,000 credit facility comprised of a three
year revolving loan which carries an interest rate at the option of the Company
at either the bank's prime rate or the Interbank Offering Rate (IBOR) plus 2% to
3% depending upon certain financial ratios. At December 31, 1995 the Company had
borrowed approximately $16,500 under the new credit facility with interest at
7.9% which is IBOR plus 2%. The Company has pledged substantially all of its
assets as collateral for the credit facility. The Company is required to
maintain a minimum net worth and maintain certain financial ratios. The loan
agreement also contains certain restrictions that limit acquisitions,
investments, payment of dividends, and capital expenditures.
During 1994 the Company provided a $7,000 loan to Ajay Sports, Inc. ("Ajay") for
Ajay's operating subsidiary. Ajay manufactures and distributes golf and billiard
accessories primarily to retailers throughout the United States. In July 1995
Ajay obtained an $8,500 credit facility (subsequently increased to $13,500 in
October 1995) which was used to pay off the loan provided by the Company. The
Company has guaranteed Ajay's credit facility and is charging Ajay a fee of 1/2
of 1% per annum of the outstanding loan amount for providing this guaranty. The
Chairman and President of the Company is also Chairman and President of Ajay,
and has guaranteed Ajay's obligation to the Company under the loan guaranty.
In exchange for the Company providing interim financing, the Company received an
option to purchase up to 15,228,520 shares of Ajay common stock (which would
represent approximately 45% of Ajay's then outstanding common stock) and
received manufacturing rights in certain Ajay facilities through 2002, under a
joint venture agreement. At December 31, 1995 the Company has vested options to
acquire 11,110,873 shares of Ajay common stock at prices ranging from $.34 to
$.50 per share. In October 1994 the Company exercised options to acquire
4,117,647 shares of Ajay common stock through a reduction in the loan in the
amount of $1,400, resulting in the Company owning approximately 18% of Ajay's
then outstanding common stock. The investment in Ajay is recorded as an
investment in affiliate in the Consolidated Balance Sheets net of the Company's
equity interest of $352 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.
9
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Financial Condition, Liquidity and Capital Resources (continued)
The Company anticipates that cash generated from operations and debt financing
will be sufficient to satisfy working capital and capital expenditure
requirements for the foreseeable future and will provide the Company with
financial flexibility to respond quickly to business opportunities, including
opportunities for growth through internal development or through strategic joint
ventures or acquisitions.
Results of Operations
Three months ended December 31, 1995 compared to the three months ended December
31, 1994.
(Dollars in thousands, except per share amounts)
SALES: Sales for the three months ended December 31, 1995 were $16,428 compared
to sales of $11,576 for the three months ending December 31, 1994, an increase
of 42%. Heavy vehicle component sales were $8,214, an increase of 7% compared to
the same period in the prior year. Automotive accessories sales were $4,384 for
the three months ended December 31, 1995, an increase of 13% compared to the
same period in the prior year. Acquisitions made during 1995 accounted for 23%
of sales for the three months ended December 31, 1995. Landscape maintenance
equipment sales were $2,357 and electrical component sales were $1,473.
GROSS MARGIN: Gross margin as a percentage of sales for the three months ended
December 31, 1995 was 27% compared to a gross margin of 29% for the three months
ended December 31, 1994. The decrease in gross margin as a percentage of sales
is due primarily to the acquisitions which have lower margin product lines and
the competitive automotive accessory market.
OPERATING EXPENSES: Operating expenses for the three months ended December 31,
1995 were $2,261 or 14% of sales compared to $1,291 or 11% of sales for the same
period in the prior year. The increase in operating expenses is due primarily to
the administrative and additional selling expenses associated with the
acquisitions made during 1995.
OTHER EXPENSES: Interest expense for the three months ended December 31, 1995
was $464 compared to $411 for the three months ended December 31, 1994. The
increase in interest expense is due primarily to debt incurred to finance
acquisitions which have been offset by lower interest rates. The equity interest
in the loss of affiliate of $70 represents the Company's 18% ownership interest
in the estimated losses of Ajay for the quarter ending December 31, 1995.
NET EARNINGS: Net earnings for the three months ended December 31, 1995 were
$990 or $.06 per share compared to $988 or $.06 per share for the same period in
the prior year.
10
<PAGE>
Part II. Other Information Williams Controls, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
11
<PAGE>
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/ Dale J. Nelson
-------------------------------------------
Dale J. Nelson, Chief Financial Officer
February 10, 1996
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 790
<SECURITIES> 0
<RECEIVABLES> 11,442
<ALLOWANCES> 0
<INVENTORY> 14,284
<CURRENT-ASSETS> 27,633
<PP&E> 22,967
<DEPRECIATION> 4,036
<TOTAL-ASSETS> 48,751
<CURRENT-LIABILITIES> 6,826
<BONDS> 19,546
0
0
<COMMON> 173
<OTHER-SE> 19,209
<TOTAL-LIABILITY-AND-EQUITY> 48,751
<SALES> 16,428
<TOTAL-REVENUES> 16,428
<CGS> 12,024
<TOTAL-COSTS> 2,261
<OTHER-EXPENSES> 70
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 464
<INCOME-PRETAX> 1,609
<INCOME-TAX> 608
<INCOME-CONTINUING> 1,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 990
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
