================================================================================
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, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--- ---
Commission file number 0-18083
Williams Controls, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
- --------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's common stock as of January
31, 1999: 18,338,588
<PAGE>
Williams Controls, Inc.
Index
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, December 31, 1998
(unaudited) and September 30, 1998 1
Unaudited Consolidated Statements of Operations,
three months ended December 31, 1998 and 1997 2
Unaudited Consolidated Statements of Cash Flows,
three months ended December 31, 1998 and 1997 3
Notes to Unaudited Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
<PAGE>
Part I
Item 1.
Williams Controls Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, September 30,
1998 1998
-------------------- --------------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,251 $ 1,281
Trade and other accounts receivable, less allowance of $337 and
$325 at September 30, 1998 and December 31, 1998, 10,631 11,765
respectively
Inventories 10,229 10,693
Deferred taxes and other 2,470 2,231
Net assets held for disposition 4,732 5,117
-------------------- --------------------
Total current assets 29,313 31,087
Property plant & equipment, net 20,324 20,013
Investment in and note receivable from affiliate 5,950 6,140
Note receivable - 3,200
Net assets held for disposition 1,821 1,847
Other assets 4,092 4,072
==================== ====================
Total assets $ 61,500 $ 66,359
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 3,920 $ 4,771
Accrued expenses 2,505 3,399
Current portion of long-term debt and capital leases 1,114 1,181
Estimated loss on disposal 2,092 2,550
-------------------- -------------------
Total current liabilities 9,631 11,901
Long-term debt and capital lease obligations 24,120 27,846
Other liabilities 2,272 2,201
Commitments and contingencies
Shareholders' equity:
Preferred stock ($.01 par value, 50,000,000 authorized;
80,000 issued and outstanding) 1 1
Common stock ($.01 par value, 50,000,000 authorized;
18,468,788 and 18,311,288 issued at December 31,
1998 and September 30, 1998, respectively) 184 183
Additional paid-in capital 18,101 17,917
Retained earnings 8,325 7,444
Unearned ESOP shares (73) (73)
Treasury stock (130,200 shares at December 31, 1998
and September 30, 1998) (377) (377)
Note receivable (500) (500)
Pension liability adjustment (184) (184)
-------------------- -------------------
Total shareholders' equity 25,477 24,411
==================== ===================
Total liabilities and shareholders' equity $ 61,500 $ 66,359
==================== ===================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
1
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months Three months
Ended ended
Dec 31, 1998 Dec 31, 1997
---------------- -----------------
Sales $ 14,925 $ 12,698
Cost of sales 10,226 8,825
---------------- -----------------
Gross margin 4,699 3,873
Operating expenses:
Research and development 773 558
Selling 497 488
Administration 1,105 823
---------------- -----------------
Total operating expenses 2,375 1,869
---------------- -----------------
Earnings from continuing operations 2,324 2,004
Other expenses:
Interest expense, net 348 270
Other (income) expense 112 (6)
Equity interest in loss of affiliate 190 358
---------------- -----------------
Total other expenses 650 622
---------------- -----------------
Earnings from continuing operations before income tax expense 1,674 1,382
Income tax expense 643 531
---------------- -----------------
Net earnings from continuing operations 1,031 851
Discontinued operations:
Net loss from operations of the agricultural equipment segment - (157)
---------------- -----------------
Net earnings 1,031 694
Dividends on preferred stock 150 -
---------------- -----------------
Net earnings allocable to common shareholders $ 881 $ 694
================ =================
Earnings per common share from continuing operations - basic $ 0.05 $ 0.05
Loss per common share from discontinued operations - basic - (0.01)
---------------- -----------------
Net earnings per common share - basic $ 0.05 $ 0.04
================ =================
Weighted average shares used in per share calculation - basic 18,248,760 17,816,294
================ =================
Earnings per common share from continuing operations - diluted $ 0.05 $ 0.05
Loss per common share from discontinued operations - diluted - (0.01)
---------------- -----------------
Net earnings per common share - diluted $ 0.05 $ 0.04
================ =================
Weighted average shares used in per share calculation - diluted 21,312,041 18,392,485
================ =================
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months Three months
Ended Ended
December 31, 1998 December 31, 1997
------------------ -------------------
Cash flows from operating activities:
Net earnings $ 1,031 $ 694
Adjustments to reconcile net earnings to net cash from continuing
operations:
Loss from discontinued operations - 157
Depreciation and amortization 384 310
Equity interest in loss of affiliate 190 358
Changes in working capital of continuing operations:
Receivables 1,244 232
Inventories 464 (600)
Accounts payable and accrued expenses (1,855) 202
Other (78) 80
------------------ -------------------
Net cash provided by operating activities of continuing operations 1,380 1,433
Cash flows from investing activities:
Payments for property, plant and equipment (695) (130)
------------------ -------------------
Net cash used in investing activities of continuing operations (695) (130)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations (3,093) (450)
Borrowing under term notes 2,500 -
Preferred dividends (150) -
Proceeds from issuance of common stock 75 61
------------------ ---------------------
Net cash used in financing activities of continuing operations (668) (389)
Net cash used in discontinued operations (47) (653)
Net increase (decrease) in cash and cash equivalents (30) 261
Cash and cash equivalents at beginning of period 1,281 700
================== =====================
Cash and cash equivalents at end of period $ 1,251 $ 961
================== =====================
Supplemental disclosure of cash flow information:
================== =====================
Interest paid $ 486 $ 432
Income taxes paid, (refunded) $ 347 $ (5)
================== =====================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three Months ended December 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution of the Company's products, integration of businesses the Company
acquires, disposition of any current business of the Company, including its
Agricultural segment. These forward-looking statements are subject to the
business and economic risks faced by the Company. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of the factors described above and other factors
described elsewhere in this report.
1. Organization
Williams Controls, Inc., including its wholly-owned subsidiaries,
Williams Controls Industries, Inc. ("Williams"); Aptek Williams, Inc.
("Aptek"); Premier Plastic Technologies, Inc. ("PPT"); Williams
Automotive, Inc.; GeoFocus, Inc. ("GeoFocus"); NESC Williams, Inc.
("NESC"); Williams Technologies, Inc. ("Technologies"); Williams World
Trade, Inc. ("WWT"); Kenco/Williams, Inc. ("Kenco"); Techwood Williams,
Inc. ("TWI"); Agrotec Williams, Inc. ("Agrotec") and its 80% owned
subsidiaries Hardee Williams, Inc.("Hardee") and Waccamaw Wheel Williams,
Inc. ("Waccamaw") is hereinafter referred to as the "Company" or
"Registrant."
2. Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements have been
prepared by the Company and, in the opinion of management, reflect all
material adjustments which are necessary to a fair statement of results
for the interim periods presented. The interim results are not
necessarily indicative of the results expected for the entire fiscal
year. Certain information and footnote 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,
1998 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. Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 130, "Reporting
Comprehensive Income", which requires companies to report a measure of
all changes in equity except those resulting from investments by owners
and distributions to owners. Total comprehensive income for the three
months ended December 31, 1998 and 1997 was $1,031 and $694,
respectively, and consisted solely of net earnings. As of December 31,
1998, accumulated other comprehensive loss was $184 and consisted of
pension liability adjustment.
4. Earnings (loss) per Share
Effective in its fiscal year ended September 30, 1998, the Company
adopted SFAS 128, "Earnings Per Share". SFAS 128 prescribes new Basic and
Diluted Earnings Per Share (EPS) calculations that replace the former
calculations for Primary and Fully Diluted EPS. Prior periods have been
restated to conform to the requirements of SFAS 128. Basic EPS is
calculated using the weighted average number of common shares outstanding
for the period and diluted EPS is calculated using the weighted average
number of common shares and dilutive common equivalent shares
outstanding.
4
<PAGE>
The calculation of weighted average shares is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended Quarter Ended
December 31, 1998 December 31, 1997
-------------------- --------------------
Weighted average shares outstanding 18,248,760 17,816,294
Effect of dilutive securities-
Stock options and warrants 154,190 176,191
Expected share issuance pursuant to
an agreement - 400,000
Convertible preferred stock 2,909,091 -
-------------------- --------------------
Diluted shares outstanding 21,312,041 18,392,485
==================== ====================
</TABLE>
For purposes of diluted EPS, the dividends on preferred stock are added
back to net earnings allocable to common shareholders.
5. Inventories
Inventories consisted of the following:
December 31, September 30,
1998 1998
------------------- -------------------
Raw material $ 5,122 $ 5,152
Work in process 1,965 1,333
Finished goods 3,142 4,208
------------------- -------------------
$ 10,229 $ 10,693
=================== ===================
Finished goods include component parts and finished product ready for
shipment.
6. Sale Leaseback and Financing
In April 1997 the Company sold its Portland, Oregon manufacturing
facility in a sale-leaseback transaction for approximately $4,600. The
transaction was accounted for as a financing and the capitalized lease
obligations of approximately $4,600 were recorded as long term
liabilities. In April 1998, under the terms of the agreement, the Company
provided a mortgage note to the purchaser in the amount of $3,200 which
was reported as a note receivable at September 30, 1998. In December
1998, the Company exercised an option to repurchase the building for
$4,700, consisting of cash of $1,500 and the note receivable of $3,200.
Accordingly, the note receivable of $3,200 and the capital lease
obligation of $4,600 have been eliminated from the balance sheet at
December 31, 1998. The costs associated with the building repurchase are
reported in other expenses during the quarter ended December 31, 1998.
The Company borrowed $2,500 from its bank under amended term loans to
finance the repurchase transaction and for working capital purposes.
Approximately $1,222 of the additional financing was borrowed under an
amendment to the Company's existing Term Loan I which increased the Term
Loan I balance to $4,105. Term Loan I is payable in equal monthly
installments of $60 with the remaining balance of $2,897 due at maturity
on July 1, 2001. Approximately $1,278 of the additional financing was
provided under an amended Term Loan II payable in 18 equal monthly
installments of $71, plus variable interest (8.5% at December 31, 1998).
5
<PAGE>
7. Segment Information
Three months Three months
Ended Ended
December 31, December 31,
1998 1997
------------ ------------
Sales by classes of similar products
from continuing operations
Vehicle components $ 14,296 $ 11,698
Electrical components and GPS 629 1,000
------------ ------------
$ 14,925 $ 12,698
============ ============
Earnings (loss) from continuing operations
Vehicle components $ 3,142 $ 2,394
Electrical components and GPS (818) (390)
------------ ------------
$ 2,324 $ 2,004
============ ============
Identifiable assets
Vehicle components $ 36,818 $ 28,945
Electrical components and GPS 8,177 7,569
Corporate 5,950 3,812
------------ ------------
Total assets - continuing operations 50,945 40,326
Automotive accessories - discontinued operations 4,002 2,225
Agricultural equipment - discontinued operations 6,553 5,995
------------ ------------
Total assets $ 61,500 $ 48,546
============ ============
Capital expenditures
Vehicle components $ 655 $ 45
Electrical components and GPS 40 85
------------ ------------
Total capital expenditures - continuing operations 695 130
Automotive accessories - discontinued operations - 38
Agricultural equipment - discontinued operations - 109
------------ ------------
Total capital expenditures $ 695 $ 277
============ ============
Depreciation and amortization
Vehicle components $ 300 $ 230
Electrical components and GPS 84 80
------------ ------------
Total depreciation and amortization -
continuing operations 384 310
Automotive accessories - discontinued operations - 59
Agricultural equipment - discontinued operations 88 50
------------ ------------
Total depreciation and amortization $ 472 $ 419
============ ============
The Company has classified the investment in and note receivable from affiliate
as a corporate asset under identifiable assets. Identifiable assets for
discontinued segments reflect the net assets held for disposition.
6
<PAGE>
Item 2.
Williams Controls, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
The Company's principal sources of liquidity are borrowings under its credit
facilities, leases for equipment purchases from various leasing companies and
funds generated from operations. The Company anticipates that cash generated
from operations, bank borrowings and leases will be sufficient to satisfy
working capital and capital expenditure requirements for current operations
for the next twelve months. At December 31, 1998, the Company's working
capital working capital improved to $19,682 compared to $19,186 at September
30, 1998 and the current ratio was 3.0 compared to 2.6 at September 30, 1998.
Cash flows from continuing operations were $1,380 for the first quarter ended
December 31, 1998 compared to $1,433 for the first quarter in fiscal 1998. In
the quarter ended December 31, 1998, increased earnings and funds provided by
lower inventory and accounts receivable levels were used to reduce accounts
payable and accrued expenses. The Company's discontinued operations used cash
of $47 and $653 for the three months ended December 31, 1998 and 1997,
respectively. Cash used by discontinued operations declined primarily as a
result of cash flows generated by the Agricultural Equipment segment from
reduced accounts receivable and inventory in the first quarter of fiscal 1999.
In addition, the discontinued Automotive Accessories segment used cash of $272
in the first quarter of fiscal 1998 and did not use cash in the first quarter
of fiscal 1999.
At December 31, 1998 accounts receivable decreased to $10,631 compared to
$11,765 at September 30, 1998, primarily as a result of collection of tooling
accounts receivable at the plastic injection molding subsidiary. At December
31, 1998 long term debt and capital leases decreased $3,793 to $25,234,
compared to $29,027 at September 30, 1998, due primarily to elimination of the
capital lease of $4,600 as discussed below.
In April 1997 the Company sold its Portland, Oregon manufacturing facility in
a sale-leaseback transaction for $4,600. The transaction was accounted for as
a financing and the capitalized lease obligations of $4,600 were recorded as
long term liabilities. In April 1998, under the terms of the agreement, the
Company provided a mortgage note to the purchaser in the amount of $3,200
which was reported as a note receivable at September 30, 1998. In December
1998, the Company exercised a repurchase option on the property and
repurchased the building for $4,700 consisting of cash of $1,500 and the note
receivable of $3,200. Accordingly, the note receivable of $3,200 and the
capital lease obligation of $4,600 have been eliminated from the balance sheet
at December 31, 1998. The costs associated with the building repurchase is
reported in other expenses during the quarter ended December 31, 1998.
The Company borrowed $2,500 from its bank under amended term loans to finance
the repurchase transaction and for working capital purposes. Approximately
$1,222 of the additional financing was borrowed under an amendment to the
Company's existing Term Loan I which is payable in equal monthly installments
of $60 with the remaining balance of $2,897 due at maturity on July 1, 2001.
Approximately $1,278 of the additional financing was provided under an amended
Term Loan II payable in 18 equal monthly installments of $71, plus variable
interest (8.5% at December 31, 1998).
Recent FASB Pronouncements - The Financial Accounting Standards Board ("FASB")
recently issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". This statement is effective for fiscal years beginning
after December 15, 1997. SFAS No. 131 revises existing standards for reporting
information about operating segments and requires the reporting of selected
information in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. Management believes that implementation of SFAS
No. 131 (which has not been adopted with this quarterly report) will not
materially affect the Company's financial statements.
In June 1998 the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
7
<PAGE>
derivative instruments. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not have any derivative instruments and
accordingly, the adoption of SFAS 133 will have no impact on the Company's
financial position or results of operations.
Year 2000 Conversion. The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures. Software
failures due to processing errors potentially arising from calculations using
the Year 2000 date are a known risk. The Company is addressing this risk to
the availability and integrity of financial systems and the reliability of the
operational systems. The Company has established processes for evaluating and
managing the risks and cost associated with this problem, including
communicating with suppliers, dealers and others with which it does business
to coordinate Year 2000 conversion. During 1998, the Company began
implementing the installation of new financial software that is Year 2000
compliant for the purpose of improving operations and service to its existing
and prospective truck and automotive customers. The decision to upgrade the
Company's software was made irrespective of Year 2000 compliance issues. The
system is expected to be fully operational in the summer of 1999. The Company
has contingency plans in place in the event that the software implementation
is delayed.
Since January 1998 the Company has been engaged in achieving Year 2000
compliance. The Company's Year 2000 project is divided into several phases and
is progressing with corrective actions for major systems well under way. All
hardware, software, services and business relationships with trading partners
which could be affected by Year 2000 issues are being audited for Year 2000
compliance.
The Company relies on computer systems and software to operate its business,
including applications used in sales, purchasing, inventory management,
finance and various administrative functions. The Company has determined that
certain of its software applications will be unable to interpret appropriately
the calendar Year 2000 and subsequent years. As of December 31, 1998, 60% of
the Company's systems are Year 2000 compliant. The target date for full
compliance is June 30, 1999.
The Company's total budget for its Year 2000 project is $150, approximately
half of which amount will be spent through March 1999. This amount represents
approximately 17 percent of total IT expenditures budgeted for the period from
October 1998 through September 1999. The Company continues to manage total IT
expenses by re-prioritizing or curtailing less critical investments,
incorporating Year 2000 readiness into previously planned system enhancements
and by using existing staff to implement its Year 2000 program. The Company
has hired outside consultants for its Year 2000 project, and it may need to
purchase additional hardware or software.
The Company acquires a majority of its inventory from approximately 22
vendors. If these vendors have unresolved Year 2000 issues which affect their
ability to supply merchandise, the Company could be adversely affected. The
Company plans to complete a Year 2000 readiness survey of its top vendors by
March 1999. In the event that it appears a vendor will be adversely affected
by Year 2000 issues, the Company believes that it will be able to find
alternative suppliers.
Should the Company not achieve full compliance in a timely manner or complete
its Year 2000 project within its current cost estimates, the Company's
business, financial condition and results of operations could be adversely
affected. However, in the event that the Company fails to meet the deadlines
above, the Company believes that the financial impact will not be material
since all systems believed by the Company to be critical are expected to be
Year 2000 compliant.
8
<PAGE>
Williams Controls, Inc.
Management's Discussion and Analysis of
Results of Operations
Three months ended December 31, 1998 compared to
the three months ended December 31, 1997
(Dollars in thousands, except per share amounts)
Results of Operations
---------------------
Overview
--------
Sales from continuing operations increased $2,227, or 18%, to $14,925 in the
first quarter of fiscal 1999 from $12,698 in the first quarter of fiscal
1998 due to higher unit sales volumes in the Company's Vehicle Components
segment.
Earnings from continuing operations increased $320, or 16%, to $2,324 in
fiscal 1999 from $2,004 in fiscal 1998. The increase was due to increased
earnings from continuing operations of $748 in the Company's Vehicle
Components segment due to higher unit sales, which was offset by higher
losses from continuing operations of $428 in the Electrical Components and
GPS segment due primarily to $204 of increased operating expenses for
research and development and administration incurred for sensor development.
Net earnings from continuing operations increased 21%, or $180 in the first
quarter of fiscal 1999, primarily as a result of increased earnings from
continuing operations and lower equity loss in affiliate of $168 offset by
increased interest expense of $78 and other expenses of $118.
Net earnings allocable to common shareholders were $881 in the first quarter
of fiscal 1999 compared to $694 in the prior fiscal year due to increased
net earnings from continuing operations offset by preferred dividends of
$150 in the first quarter of fiscal 1999. No preferred dividends were
payable in the first quarter of fiscal 1998. Net earnings in the first
quarter of fiscal 1998 were affected by losses of $157 in the Company's
discontinued Agricultural Equipment segment.
The effective income tax rate was 38.4% for the first quarter ended December
31, 1998 and 1997.
Sales
-----
Sales from continuing operations in the Vehicle Components segment increased
$2,598, or 22%, to $14,296 in in the first quarter of fiscal 1999 over
levels achieved in the first quarter of fiscal 1998 due to higher ETC unit
sales. Sales from continuing operations in the Company's Electrical
Components and GPS segments decreased $371, or 37%, due to lower unit sales
of electrical components.
Gross margin
------------
Gross margin from continuing operations increased $826, or 21%, to $4,699
compared to $3,873 in the first quarter of fiscal 1998. Gross margin
increased $1,050 or 28%, in the first quarter of fiscal 1999 in the Vehicle
Components segment due to higher unit sales volumes of ETC products.
Increases in this segment were offset by a decrease in gross margin of $224
in the Electrical Components and GPS segment. Decreased gross margin in this
segment is attributed to lower unit sales volumes. Gross margins as a
percent of sales increased to 31.5% in the first quarter of fiscal 1999
compared to 30.5% in the first quarter of fiscal 1998 primarily as a result
of improved product mix from higher unit ETC sales.
9
<PAGE>
Operating expenses
------------------
Operating expenses for continuing operations increased $506, or 27%, to
$2,375 in the first quarter of fiscal 1999 compared to $1,869 in the first
quarter of fiscal 1998. Operating expenses as a percentage of net sales from
continuing operations increased to 15.9% in the first quarter of fiscal 1999
compared to 14.7% in the first quarter of fiscal 1998. Operating expenses
increased $302, or 23%, in the first quarter of fiscal 1999 in the Vehicle
Components segment and $204, or 36%, in the Electrical Components and GPS
segment compared to the prior year quarter. Increases in operating expenses
were attributed to higher research and development expenses related to new
product development and increased administration costs to support the
increased sales levels.
Research and development expenses for continuing operations increased $215,
or 39%, to $773 during the first quarter of fiscal 1999 compared to $558 in
the first quarter of fiscal 1998. As a percentage of sales from continuing
operations, research and development expenses increased from 4.4% to 5.2%.
Research and development expenses were increased to support new product
development for existing customers, for development of the automotive ETC
product and for development of sensor-related products.
Administration expenses for continuing operations increased $282, or 34%, in
the first quarter of fiscal 1999 to $1,105 compared to $823 in the first
quarter of fiscal 1998. Administration expenses as a percent of sales from
continuing operations increased to 7.4% in the first quarter of fiscal 1999
compared to 6.5% in the first quarter of fiscal 1998. Increases in dollar
amount in fiscal 1999 were attributed to additional administrative expenses
required to support increased sales volumes.
Interest and Other Expenses
---------------------------
Interest expenses increased $78, or 29%, to $348 in the first quarter of
fiscal 1999 from $270 in the first quarter of fiscal 1998. Prior year first
quarter interest expense was lower because of allocations of interest
expense to discontinued operations. Allocated interest expense included in
discontinued operations for the quarters ended December 31, 1998 and 1997
was $87 and $162, respectively. Equity interest in loss of affiliate
decreased $168, or 47% to $190 in the first quarter of fiscal 1999 from $358
in the first quarter of fiscal 1998 due to decreased losses of Ajay Sports,
Inc. Other expenses increased $118 in the first quarter of fiscal 1999 due
primarily to costs associated with the repurchase of the Company's building
previously sold in a sale/leaseback transaction.
Discontinued operations
-----------------------
The Company reported a net loss from discontinued operations of $157 in the
first quarter of fiscal 1998. The Company adopted a plan of disposal for the
Agriculture Equipment segment in fiscal 1998, and accordingly, the estimated
future operating losses of the segment were expensed in the fourth quarter
of fiscal 1998.
Net sales from the Agriculture Equipment segment declined $470, or 21% to
$1,776 in the first quarter of fiscal 1999 compared to $2,246 in the first
quarter of fiscal 1998. The decline in sales was due to lower unit sales
attributable primarily to a poor farm economy. The loss from operations for
the Agriculture Equipment segment increased $451 to $629 due to lower gross
margins of $119 and higher operating expenses of $332. The net loss for the
Agriculture Equipment segment, net of income tax benefit of $286, increased
$301 to $458.
Net losses from the discontinued Automotive Accessories segment were $391
net of tax benefits of $201 for the first quarter ended December 31, 1997.
Estimated future losses from discontinued operations were accrued in fiscal
1997; therefore, there was no net loss effect in the first quarter of 1998.
Net sales from the discontinued segment in the first quarter of fiscal 1998
were $1,582. At December 31, 1997 the Company had estimated losses on
disposal of $109 remaining as a current liability.
10
<PAGE>
Part II
Item 1. Legal Proceedings
None
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(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.
/s/ Gerard A. Herlihy
-------------------------------
Gerard A. Herlihy,
Chief Financial Officer
and Principal Accounting Officer
Date: February 16, 1999
12
<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:
-------------------------------
Gerard A. Herlihy,
Chief Financial Officer
and Principal Accounting Officer
Date: February 16, 1999
12
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0
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