THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON 5-15-00 PURSUANT TO A RULE 201
TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18083
Williams Controls, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
- - - - - - - - - - - - - - - ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
-------------------------------------------------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's common stock as of
April 30, 2000: 19,917,478
<PAGE>
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 2000 (unaudited)
and September 30, 1999 1
Unaudited Consolidated Statements of Operations,
three and six months ended March 31, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows,
six months ended March 31, 2000 and 1999 3
Notes to Unaudited Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-14
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 16
<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>
March 31, September 30,
2000 1999
ASSETS (unaudited)
-------------------------------------
Current Assets:
Cash and cash equivalents $ 750 $2,323
Trade and other accounts receivable, less allowance of
$257 and $484 in 2000 and 1999, respectively 11,507 11,187
Inventories 10,277 9,828
Deferred income taxes and other 4,480 4,325
Net assets held for disposition 1,128 360
----------------- -----------------
Total current assets 28,142 28,023
Property plant and equipment, net 20,752 20,775
Investment in and note receivable from affiliate 5,782 6,152
Net assets held for disposition 340 500
Goodwill and intangible assets, net 5,468 5,764
Deferred income taxes 3,168 3,025
Other assets 231 265
---------------- -----------------
Total assets $63,883 $64,504
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,022 $ 9,223
Accrued expenses 3,582 3,449
Current portion of long-term debt and capital leases 5,642 5,193
Estimated loss on disposal 138 1,000
----------------- -----------------
Total current liabilities 19,384 18,865
Long-term debt and capital lease obligations 23,927 24,743
Other liabilities 3,060 2,690
Commitments and contingencies
Shareholder' Equity:
Preferred stock ($.01 par value, 50,000,000 authorized; 78,500 and
80,000 issued and outstanding at March 31, 2000 and September 30,
1999, respectively) 1 1
Common stock ($.01 par value, 50,000,000 authorized; 19,917,478 and
19,898,728 issued and outstanding at March 31, 2000 and September 30,
1999, respectively) 199 199
Additional paid-in capital 21,611 21,574
Accumulated deficit (3,422) (2,691)
Treasury stock (130,200 shares at March 31, 2000 and September
30, 1999) (377) (377)
Note Receivable (500) (500)
----------------- -----------------
Total shareholder' equity 17,512 18,206
----------------- -----------------
Total liabilities and shareholders' equity $63,883 $64,504
================= =================
</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)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months Three months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
-------------- -------------- -------------- -------------
Sales $ 17,596 $ 16,257 $ 33,473 $ 30,656
Cost of sales 13,915 11,396 26,046 21,411
-------------- -------------- -------------- -------------
Gross margin 3,681 4,861 7,427 9,245
Operating expenses:
Research and development 1,474 893 3,171 1,541
Selling 425 511 865 1,008
Administration 1,578 769 2,685 1,684
-------------- -------------- -------------- ------------
Total operating expenses 3,477 2,173 6,721 4,233
-------------- -------------- -------------- ------------
Earnings from operations 204 2,688 706 5,012
Other (income) expenses:
Interest income (40) (97) (110) (222)
Interest expense 562 325 1,191 798
Other (income) expense, net (28) - (36) 112
Equity interest in loss of affiliate 150 63 370 253
-------------- -------------- -------------- ------------
Total other expenses 644 291 1,415 941
-------------- -------------- -------------- ------------
Earnings (loss) before income tax expense (benefit) (440) 2,397 (709) 4,071
Income tax expense (benefit) (169) 920 (272) 1,563
-------------- -------------- -------------- ------------
Net earnings (loss) (271) 1,477 (437) 2,508
Dividends on preferred stock (147) (150) (294) (300)
-------------- -------------- -------------- ------------
Net earnings (loss) allocable to common shareholders $ (418) $ 1,327 $ (731) $ 2,208
============== ============== ============== ============
Basic and diluted net earnings per common share $ (0.02) $ 0.07 $ (0.04) $ 0.12
============== ============== ============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six months Six months
Ended Ended
March 31, 2000 March 31, 1999
------------------ ---------------------
Cash flows from operating activities:
Net earnings (loss) $ (437) $ 2,508
Adjustments to reconcile net earnings (loss) to net cash from continuing
operations:
Depreciation and amortization 1,439 898
Equity interest in loss of affiliate 370 253
Changes in working capital of continuing operations:
Receivables (319) 565
Inventories (449) 689
Accounts payable and accrued expenses 785 (1,026)
Other 335 (90)
------------------ ---------------------
Net cash provided by operating activities of continuing operations 1,724 3,797
Cash flows from investing activities:
Payments for property, plant and equipment (1,148) (1,308)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations (2,368) (3,797)
Borrowing under term notes 1,800 2,500
Payments of preferred dividends (147) (300)
Proceeds from issuance of common stock 36 119
------------------ ---------------------
Net cash used in financing activities of continuing operations (679) (1,478)
Net cash used in discontinued operations (1,470) (1,002)
------------------ ---------------------
Net increase (decrease) in cash and cash equivalents (1,573) 9
Cash and cash equivalents at beginning of period 2,323 1,281
================== =====================
Cash and cash equivalents at end of period $ 750 $ 1,290
================== =====================
Supplemental disclosure of cash flow information:
Interest paid $ 1,170 $ 737
Income taxes paid $ - $ 495
Income tax refunds $ - $ 328
================== =====================
Supplemental disclosure of non-cash investing and financing activities:
Note receivable for capital lease obligation $ - $ 3,200
================== =====================
Tax benefits related to stock options $ 1 $ 113
================== =====================
Capital lease obligations incurred $ 200 $ 354
================== =====================
Preferred dividends accrued not paid $ 147 $ -
================== =====================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statements
Three and Six Months ended March 31, 2000 and 1999
(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"); ProActive Acquisition
Corporation ("Proactive"); 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, 1999 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 (loss) for the three
and six months ended March 31, 2000 and 1999 was $(271) and $1,477, and
$(437) and $2,508 respectively, and consisted solely of net earnings
(loss). As of March 31, 2000, accumulated other comprehensive income (loss)
was $(3,422) and consisted of accumulated deficit.
4
<PAGE>
4. Earnings (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 calculated using the weighted-average
number of common shares outstanding for the period and diluted EPS is
computed using the weighted-average number of common shares and dilutive
common equivalent shares outstanding.
Following is a reconciliation of basic EPS and diluted EPS from continuing
operations:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------------------- --------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
Earnings (loss) from
operations $ (271) $1,477
Less-Preferred stock dividends (147) (150)
-------- --------
Basic EPS-
Earnings (loss) from
operations allocable to
common shareholders (418) 19,786,742 $(0.02) 1,327 18,327,711 $ 0.07
---------- ----------
Effect of dilutive securities -
Stock options and warrants - - - 453,278
Convertible preferred stock - - 150 2,903,010
-------- ----------- -------- -----------
Diluted EPS -
Earnings (loss) from
continuing operations allocable
to common shareholders $(418) 19,786,742 $(0.02) $1,477 21,683,999 $ 0.07
-------- ----------- ---------- -------- ----------- ----------
Six Months Ended Six Months Ended
March 31, 2000 March 31, 1999
------------------------------- --------------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
Earnings(loss) from operations $(437) $2,508
Less-Preferred stock dividends (294) (300)
-------- --------
Basic EPS -
Earnings (loss) from operations
allocable to common shareholders (731) 19,782,585 $(0.04) 2,208 18,288,667 $ 0.12
---------- ----------
Effect of dilutive securities -
Stock options and warrants - - - 303,365
Convertible preferred stock - - 300 2,899,650
-------- ----------- -------- -----------
Diluted EPS -
Earnings (loss) from continuing
operations allocable to
common shareholders $(731) 19,782,585 $(0.04) $2,508 21,491,682 $ 0.12
-------- ----------- ---------- -------- ----------- ----------
</TABLE>
At March 31, 2000 and 1999, the Company had options and warrants covering
3,412,106 and 893,236 shares, respectively of the Company's common stock
outstanding that were not considered in the respective dilutive EPS
calculations since they would have been antidilutive. In fiscal 2000
conversion of the preferred shares would have been antidilutive and
therefore was not considered in the computation of diluted earnings per
share.
5
<PAGE>
5. Inventories
Inventories consisted of the following:
March 31, September 30,
2000 1999
------------------- ---------------------
Raw materials $ 7,505 $ 6,867
Work in process 934 697
Finished goods 1,838 2,264
------------------- --------------------
$ 10,277 $ 9,828
=================== ====================
Finished goods include component parts and finished product ready for
shipment.
6. Debt
In February 2000 and April 2000, the Company amended its credit facility
with a bank (the "Bank"). Terms of the amendments extended the due date of
Term Loan III from February 1, 2000 to April 30, 2000, advance the Company
$1,000 under a new term loan ("Term Loan IV") which was due April 30, 2000
and bears interest at the Bank's prime rate plus 1.25%, advance $800 under
Term Loan I (subject to adjustment for a subsequent appraisal of certain
equipment), and advance certain lesser amounts as a result of the change in
eligibility of certain receivables. Had a private placement of debt or
equity been successful before April 30, 2000, $1,000 of the first $3,000 of
net proceeds received by the Company were to be paid to the Bank in payment
of Term Loan IV. 75% of the net proceeds received by the Company in excess
of $3,000 were to be paid to the Bank in payment of Term Loan III, until
retired. The Company completed a private placement in April 2000 (see note
7). The Bank agreed that none of the proceeds received by the Company would
be paid to the Bank.
In addition, under the amendments to the credit facility with the Bank,
certain financial covenants were revised. The amendments require the
Company to maintain certain tangible net worth, which requirement was
$10,800 at March 31, 2000; achieve certain consolidated net income from
continuing operations, which requirement was $300 for the six months ended
March 31, 2000; and maintain a debt service coverage ratio (as defined in
the agreement). The Company was not in compliance with the latter two of
its financial covenants as of and for the six months ended March 31, 2000.
The Company has obtained a waiver of noncompliance from the Bank and is in
the process of amending its covenants for future periods. Additionally, the
Bank has indicated it will extend the due dates of the above loans from
April 30, 2000 to June 30, 2000. In addition, the amendment to the credit
facility provides for additional capital leases during each fiscal year not
to exceed $2,500. The Company paid the Bank $50 and $20, respectively, for
the amendments to the credit facility.
The Company has a real estate loan due to a bank, originally due December
5, 1999, which due date has been extended to June 15, 2000.
7. Convertible Subordinated Debt
In April 2000, the Company issued 7.5% convertible subordinated debentures
totaling $2,140, due March 31, 2003. Net proceeds to the Company after
expenses, were $1,965 and were used for general working capital purposes.
The debentures are unsecured obligations, subordinate to all senior
indebtedness (as defined). The debentures are convertible into shares of
the Company's common stock, par value $.01 per share, at a conversion price
of $2.00 per share. In addition, the Company issued to each purchaser of
debentures a three year warrant to purchase common stock of the Company
equal to 20% of the shares of common stock into which such purchaser's
debenture is convertible. The exercise price of the warrants is $2.375. The
Company issued the placement agent a five year warrant to purchase shares
of the Company's common stock equal to 7.0% of the total shares of common
stock issuable upon the conversion of the debentures.
6
<PAGE>
8. Agriculture Equipment Segment
In May, 2000, the Company completed the sale of its previously
discountinued Agriculture Equipment Segment operation. Proceeds at closing
were $1,760 in cash and notes plus the assumption by the buyer of $200 of
liabilities. In conjunction with the sale the Company received a note for
$300 at 8% interest, payable April 30, 2003. Additional proceeds,
approximating $1,200, are expected to be realized on or before September
30, 2000 from the future sale of existing inventory to the buyer. In
conjunction with the future sale of inventory, the Company will receive a
note at 8% interest, for any inventory not purchased by September 30, 2000,
payable in three years, with interest accruing from until April 30, 2001.
No loss in excess of that previously provided was realized as a result of
the sale of the discountinued Agriculture Equipment Segment.
9. Acquisition
In July, 1999, the Company purchased the ProActive Pedals division of
Active Tools Manufacturing Co., Inc. ProActive Pedal is a designer and
developer of patented adjustable foot pedal systems and modular pedal
systems. The purchase price included $5,750 in cash, plus the assumption of
approximately $286 in liabilities. In addition, the Company entered into a
patent license with the patent holder that required an initial payment of
$600 and minimum annual royalty payments of $95 per year for ten years.
Assets acquired include tooling designs, technology and patent rights on
adjustable foot pedal systems, as well as designs of modular foot pedal
systems. The acquisition was accounted for using the purchase method of
accounting and the results of operations of ProActive have been included in
the consolidated results of operations of the Company from the acquisition
date. The purchase price allocation resulted in a $1,750 charge to
operations for acquired in-process research and development, determined by
independent appraisal, for the year ended September 30, 1999. The
technological feasibility of the acquired technology, which has no
alternative future use, had not been established prior to the purchase. The
allocation of the purchase price also resulted in $1,820 being allocated to
developed technology, which is being amortized over a seven year period.
The excess of the purchase price over the fair value of the assets acquired
and liabilities assumed of $2,162 was recorded as goodwill and is being
amortized on a straight line basis over a 15 year period.
The following unaudited proforma results of operations for the three and
six months ended March 31, 1999 include the results of ProActive Pedals
assuming such acquisition occurred as of October 1, 1998 and excludes the
acquired in-process research and development charge.
Three Months Six Months
Ended Ended
March 31, 1999 March 31, 1999
-------------- ---------------
Sales $ 16,284 $ 30,786
Operating income 1,973 3,496
Earnings from continuing operations 936 1,468
Net earnings per share - basic .04 .06
Net earnings per share - diluted .04 .06
The purchase was financed through the private placement of 1,331,149 shares
of the Company's common stock with net proceeds of approximately $3,379. In
addition, the Company borrowed $2,500 from its bank under a new term loan
facility ("Term Loan III").
10. Reclassifications
Certain amounts previously reported in the statements of operations for
the six months ended March 31, 1999 have been reclassified to conform to
current fiscal year presentation.
7
<PAGE>
11. Segment Information
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three months Three months Six months Six months
Ended Ended Ended Ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
--------------- -------------- --------------- ---------------
Sales by classes of similar products from
continuing operations
Vehicle components $ 16,908 $ 15,542 $ 31,932 $ 29,313
Electrical components and GPS 688 715 1,541 1,343
--------------- -------------- --------------- --------------
$ 17,596 $ 16,257 $ 33,473 $ 30,656
=============== ============== =============== ==============
Earnings (loss) from continuing operations
Vehicle $ 470 $ 3,301 $ 2,120 $ 6,443
components Electrical components and GPS (266) (613) (1,414) (1,431)
--------------- -------------- --------------- --------------
$ 204 $ 2,688 $ 706 $ 5,012
=============== ============== =============== ==============
Capital expenditures
Vehicle $ 766 $ 445 $ 961 $ 1,100
components Electrical components and GPS 183 168 187 208
--------------- -------------- --------------- --------------
Total capital expenditures $ 949 $ 644 $ 1,148 $ 1,308
=============== ============== =============== ==============
Depreciation and amortization
Vehicle components $ 646 $ 400 $ 1264 $ 700
Electrical components and GPS 72 114 175 198
--------------- -------------- --------------- --------------
Total depreciation and amortization $ 718 $ 514 $ 1,439 $ 898
=============== ============== =============== ==============
Identifiable assets
Vehicle components $ 45,013 $ 41,791
Electrical components and GPS 11,620 8,340
Corporate 5,782 5,887
--------------- ---------------
Total assets - continuing operations 62,415 56,018
Agricultural equipment - discontinued operations 1,468 7,240
=============== ===============
Total assets $ 63,883 $ 63,258
=============== ===============
</TABLE>
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.
8
<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 funds generated from
operations, borrowings under its credit facilities and capital raised from
private placements. The Company anticipates that cash generated from operations,
bank borrowings and from private placements will be sufficient to satisfy
working capital and capital expenditure requirements for current operations for
the next twelve months. At March 31, 2000, the Compan's working capital was
$8,754 compared to $9,158 at September 30, 1999 and the current ratio was 1.45
at March 31, 2000 compared to 1.49 at September 30, 1999. Cash flows from
continuing operations were $1,797 for the first six months ended March 31, 2000
compared to $3,797 for the first six months of fiscal 1999. In the six months
ended March 31, 2000, the primary reason for the decline in net cash provided by
operating activities of continuing operations was decreased earnings. Also,
higher receivable and inventory balances contributed to the decline, but were
more than offset by higher depreciation and amortization and increased accounts
payable. The Company's discontinued operations used cash of $1,470 and $1,002
for the six months ended March 31, 2000 and 1999, respectively. Cash used by
discontinued operations increased primarily because of reduced sales at this
segment. In May 2000 the Company completed the sale of its discontinued
Agricultural Equipement segment (see Note 8).
In February and April 2000, the Company amended its credit facility with a bank
(the "Bank"). Terms of the amendments extended the due date of Term Loan III
from February 1, 2000 to April 30, 2000, advanced the Company $1,000 under a new
term loan ("Term Loan IV") which was due April 30, 2000 and bears interest at
the Bank's prime rate plus 1.25%, advance $800 under Term Loan I (subject to
adjustment for a subsequent appraisal of certain equipment), and advance certain
lesser amounts as a result of the change in eligibility of certain receivables.
Terms of the amendment included that had a private placement of debt or equity
been successful before April 30, 2000, $1,000 of the first $3,000 of net
proceeds received by the Company were to be paid to the Bank in payment of Term
Loan IV. 75% of the net proceeds received by the Company in excess of $3,000
were to be paid to the Bank in Payment of Term Loan III, until retired.
In April, 2000, the Company issued 7.5% convertible subordinated debentures
totaling $2,140, due March 31, 2003. Net proceeds to the Company after expenses
were $1,965 and was used for general working capital purposes. The debentures
are unsecured obligations, subordinate to all senior indebtedness (as defined).
The debentures are convertible into shares of the Company's common stock, par
value $.01 per share, at a conversion price of $2.00 per share. In addition, the
Company issued to each purchaser of debentures a three year warrant to purchase
common stock of the company equal to 20% of the shares of common stock into
which such purchaser's debenture is convertible. The exercise price of the
warrants is $2.375. The Bank waived the requirement to pay $1,000 of the
proceeds obtained from the private placement of convertible subordinated
indentures in repayment of Term Loan IV.
The Company is subject to certain financial covenants under its credit facility
with the Bank. The Company is required to maintain certain tangible net worth,
which requirement was $10,800 at March 31, 2000, achieve certain consolidated
net income (loss) from continuing operations, which requirement was $300 for the
six months ended March 31, 2000; and maintain a debt service coverage ratio (as
defined in the agreement). The Company was in compliance with the tangible net
worth requirement at March 31, 2000. The Company was not in compliance with the
net income (loss) requirement or the debt service coverage ratio at March 31,
2000. The Bank has waived compliance with the covenants covering consolidated
net income (loss) from continuing operations and debt service coverage ratio at
March 31, 2000, and intends to amend the agreement to establish adjusted
covenants during the third fiscal quarter.
Term Loan III, previously payable in three monthly installments of $139 (plus
interest) with the remaining balance due on April 30, 2000, and Term Loan IV,
previously due April 30, 2000 or upon the receipt of the proceeds from a private
placement, have had their due dates extended by the bank until June 30, 2000.
9
<PAGE>
The Company is exploring various alternatives for obtaining additional capital
to support the Company's projected growth, additional research and development
costs expected to be incurred to support such growth and for the payment of
current maturities of debt. In addition, the Company will continue to assess the
availability of capital from the private placement market. Should the Company
not be able to raise additional funds to repay the debt due in June 2000 of
$3,599, it will seek further extension of the payment dates with the Banks.
Market Risk - The Company has not entered into derivative financial instruments.
The Company may be exposed to future interest rate changes on its variable
interest rate debt. A hypothetical 10 percent change in interest rates as of
March 31, 2000 would change the Company's cash interest expense by approximately
$227 on an annual basis.
Recent FASB Pronouncements - In June 1999 the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 137"). SFAS 137 is an amendment to SFAS 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS 137 establishes accounting
and reporting standards for all derivative instruments. SFAS 137 is effective
for fiscal years beginning after June 15, 2000. The Company does not have any
derivative instruments and accordingly, the adoption of SFAS 137 is expected to
have no impact on the Company's financial position or results of operations.
10
<PAGE>
Williams Controls, Inc.
Management's Discussion and Analysis of
Results of Operations
(Dollars in thousands, except per share amounts)
Results of Operations
Three months ended March 31, 2000 compared to
the three months ended March 31, 1999
Overrview
Sales from continuing operations increased $1,339, or 8.2%, to $17,596 in the
second quarter of fiscal 2000 from $16,257 in the second quarter of fiscal 1999
due to higher unit sales volumes in the Company's Vehicle Components segment.
Earnings from continuing operations decreased $2,484 to $204 in the second
quarter of fiscal 2000 from $2,688 in the second quarter of fiscal 1999. The
decrease was the result of increased cost of sales, research and development
expenses and administration costs, partially offset by increased sales as
described above.
The Company's plastic injection molding subsidiary, Premier Plastics
Technologies, Inc. ("PPT"), the operating results of which are included in the
Vehicle Components segment, reported an increased loss from operations of $1,095
in the three months ended March 31, 2000 compared to the same period of 1999.
Sales, gross margin (loss) and operating loss for the three months ended March
31, 2000 were $2,566, ($702), and ($1,095) respectively compared to $1,377,
($74) and ($320) in the prior fiscal period. The increase in sales is the result
of new business that was awarded and began production in the second quarter of
fiscal 2000. PPT has been experiencing operating problems resulting from several
factors, including inefficient production from defective molds supplied by
customers, a high material scrap rate and high material usage rate and from
operating problems on the manufacturing floor. In addition, PPT hired additional
employees in anticipation of new business awarded by a customer, one-half of
which was subsequently withdrawn. In March 2000, the Company retained a
consulting firm to evaluate PPT's operating problems, assess its workforce
levels, and evaluate the profitability of various products. Based upon the
review and an ongoing analysis of economic effects of various alternatives, the
Company is considering its strategic alternatives including possibly disposing
of the operation. While no formal decision has been made regarding the potential
disposition of PPT, the Company has signed a non-binding letter of intent with a
buyer that, if completed, would result effectively in the sale of PPT. In
addition, the Company has entered into an operating agreement whereby an
affiliate of the potential buyer will operate PPT during the interim period
until the sale, if any, is consummated. The Company is evaluating its
alternatives with respect to obtaining the greatest shareholder value with this
subsidiary and expects to have a plan in place by the end of the third fiscal
quarter of 2000.
The effective income tax rate was 38.4% for the quarters ended March 31, 2000
and 1999, respectively.
Sales
Sales from continuing operations in the Vehicle Components segment increased
$1,366, or 8.8%, to $16,908 in the second quarter of fiscal 2000 over levels
achieved in the second quarter of fiscal 1999 primarily due to higher at PPT.
Sales from continuing operations in the Company's Electrical Components and GPS
segments decreased $25, or 3.5%, due to lower unit sales of electrical
components.
11
<PAGE>
Gross Margin
Gross margin from continuing operations was $3,681 in the second quarter of
fiscal 2000 compared to $4,861 in the second quarter of fiscal 1999. Gross
margin decreased $1,057 or 22.4%, in the second quarter of fiscal 2000 in the
Vehicle Components segment due to reduced gross margins of $628 at the plastic
injection molding operation and increased costs for implementation of a new
enterprise resource planning system and decreased absorption of overhead related
to lower inventory levels at one of its plants. The gross margin in the
Electrical Components and GPS segment decreased $123 to $27 in the second
quarter of fiscal 2000 from $150 in the prior period primarily as a result of
reduced sales of electrical components and certain fixed overhead costs. Gross
margins as a percent of sales decreased to 20.9% in the second quarter of fiscal
2000 compared to 29.9% in the second quarter of fiscal 1999.
Operating Expenses
Operating expenses for continuing operations increased $1,304, or 60%, to $3,477
in the second quarter of fiscal 2000 compared to $2,173 in the second quarter of
fiscal 1999. Operating expenses as a percentage of net sales from continuing
operations increased to 19.8% in the second quarter of fiscal 2000 compared to
13.4% in the second quarter of fiscal 1999.
Research and development expenses for continuing operations increased $581, or
65%, to $1,474 during the second quarter of fiscal 2000 compared to $893 in the
second quarter of fiscal 1999. As a percentage of sales from continuing
operations, research and development expenses increased from 5.5%% to 8.4%.
Research and development expenses were increased for development of the
automotive ETC and adjustable foot pedal products related to the 1999
acquisition of ProActive pedals and support of new product development for
existing customers and for development of sensor-related products.
Administration expenses for continuing operations increased $809 or 105%, in the
second quarter of fiscal 2000 to $1,578 compared to $769 in the second quarter
of fiscal 1999. Administration expenses as a percent of sales from continuing
operations increased to 9.0% in the second quarter of fiscal 2000 compared to
4.7% in the second quarter of fiscal 1999. Administration costs increased
primarily as a result of increased administration costs of $144 at PPT to
support increased plastic molding contracts and $363 at the ProActive subsidiary
primarily related to the amortization of intangible assets as a result of an
acquisition completed in the third fiscal quarter of 1999.
Selling expenses decreased $86, or 2.4% of sales in the second quarter of fiscal
2000 compared to 3.1% of sales in fiscal 1999.
Interest and Other Expenses
Interest expense increased $237, or 73%, to $562 in the second quarter of fiscal
2000 from $325 in the second quarter of fiscal 1999 due to higher debt levels
and higher interest rates. Additionally, allocated interest expense included in
discontinued operations for the quarters ended March 31, 2000 and 1999 was $44
and $107, respectively. Interest income decreased $57, or 59% in the second
quarter of fiscal 2000 due primarily to interest on a state tax refund in fiscal
1999.
Discontinued operations
No loss on the discontinued operations of the Agriculture Equipment Segment was
reported in the three months ended March 31, 2000 or 1999. An expense for
estimated loss on disposal was recorded in September 1998. Additional
information was gained, and an additional expense for estimated loss on disposal
was recorded in September 1999.
Net sales from the Agriculture Equipment segment declined $20, or 1% to $2,007
in the second quarter of fiscal 2000 compared to $2,027 in the second quarter of
fiscal 1999. The loss from operations for the Agriculture Equipment segment
decreased $63 to $255 due to a $139 increase in gross margins offset by a $76
increase in operating expenses.
12
<PAGE>
Results of Operations
Six months ended March 31, 2000 compared to the six months ended March 31, 1999
Overview
Sales from continuing operations increased $2,817, or 9.2%, to $33,473 in the
six months ended March 31, 2000 from $30,656 in the six months ended March 31,
1999 due to higher unit sales volumes in the Company's Vehicle Components
segment, and higher sales from a GPS contract, partially offset by lower unit
sales volumes of electrical components in the Electrical Components and GPS
segment.
Earnings from continuing operations decreased $4,306 to $706 in fiscal 2000 from
$5,012 in fiscal 1999. Earnings from continuing operations decreased $4,323 in
the Company's Vehicle Components segment due to increased cost of sales,
increased research and development costs and increased administration costs.
Losses from continuing operations decreased $17 in the Electrical Components and
GPS segment due to decreased research and development costs, mostly offset by
lower gross margins of $116 due to certain fixed overhead costs.
The Company's plastic injection molding subsidiary, Premier Plastics
Technologies, Inc. ("PPT"), the operating results of which are included in the
Vehicle Components segment, reported an increased loss from operations of $1,903
for the six months ended March 31, 2000 compared to the same period of 1999.
Sales, gross margin (loss) and operating loss for the six months ended March 31,
2000 were $3,796, ($1,135), and ($1,903) respectively compared to $2,814, ($12)
and ($509) in the prior fiscal period. The increase in sales is the result of
new business that was awarded and began production in the second quarter of
fiscal 2000. PPT has been experiencing operating problems resulting from several
factors, including inefficient production from defective molds supplied by
customers, a high material scrap rate and high material usage rate and from
operating problems on the manufacturing floor. In addition, PPT hired additional
employees in anticipation of new business awarded by a customer, approximately
one-half of which was subsequently withdrawn. In March 2000, the Company
retained a consulting firm to evaluate PPT's operating problems, assess PPT's
workforce levels, and evaluate the profitability of various products. Based upon
the review and an ongoing analysis of economic effects of various alternatives,
the Company is considering its strategic alternatives including possibly
disposing of the operation. While no formal decision has been made regarding the
potential disposition of PPT, the Company has signed a non-binding letter of
intent with a buyer that, if completed, would effectively result in the sale of
PPT. In addition, the Company has entered into an operating agreement whereby an
affiliate of the potential buyer will operate PPT during the interim period
until the sale, if any, is consummated. The Company is evaluating its
alternatives with respect to obtaining the greatest shareholder value with this
subsidiary and expects to have a plan in place by the end of the third fiscal
quarter of 2000.
Net earnings (loss) allocable to common shareholders was ($734) in the six
months ended March 31, 2000 compared to $2,208 in the prior fiscal year
primarily due to the reasons discussed above.
The effective income tax rate was 38.4 % for the six months ended March 31, 2000
and 1999, respectively.
Sales
Sales from continuing operations in the Vehicle Components segment increased
$2,619, or 8.9%, to $31,932 in the six months ended March 31, 2000 over levels
achieved in the six months ended March 31, 1999 due primarily to higher
passenger vehicle ETC sales of $1,393 and plastic injection molding sales of
$920, offset by lower truck ETC sales of $732. Sales from continuing operations
in the Company's Electrical Components and GPS segment increased $198, or 14.8%,
due to increased sales from a GPS contract of $395, partially offset by lower
unit sales of electrical components.
13
<PAGE>
Gross margin
Gross margin from continuing operations decreased $1,818, or 20%, to $7,427
compared to $9,245 in the six months ended March 31, 1999. Gross margin
decreased $1,702 or 19%, in the six months ended March 31, 2000 in the Vehicle
Components segment due to decreased margins at the plastic injection molding
subsidary as well as increased costs for implementation of a new enterprise
resource planning system and decreased absorption of overhead at one of the
plants. The Electrical Component and GPS segment margin decreased $116, from
$100 in the six months ended March 31, 1999 to ($16) in the prior period,
primarily the result of fixed overhead combined with declining sales at the
electronic components operations offset by increased margins of $188 at the GPS
operation. Gross margins as a percent of sales decreased to 22.2% in the six
months ended March 31, 2000 compared to 30.2% in the six months ended March 31,
1999.
Operating expenses
Operating expenses increased $2,488, or 59%, to $6,721 in the six months ended
March 31, 2000 compared to $4,233 in the six months ended March 31, 1999
primarily as a result of increased research and development costs of $1,630 and
increased administration costs of $1,001. Operating expenses as a percentage of
sales was 20.1% in the six months ended March 31, 2000 and 13.8% in the same
period of 1999. Operating expenses increased $2,621, or 51%, in the six months
ended March 31, 2000 in the Vehicle Components segment and decreased $133, or
8.7%, in the Electrical Components and GPS segment compared to the prior year
period.
Research and development expenses increased $1,630, or 106%, to $3,171 during
the six months ended March 31, 2000 compared to $1,541 in the six months ended
March 31, 1999. As a percentage of sales, research and development expenses
increased from 5.0% to 9.5%. Research and development expenses were increased to
support new product development for the automotive and truck ETC and adjustable
foot pedal products, and for development of sensor-related products and for
existing customers.
Administration expenses increased $1,001 in the six months ended March 31, 2000
as compared to the same period in 1999. The primary reasons are increased
administration to support the increased volume of sales at the plastic injection
molding subsidiary and increased amortization of intangibles as a result of an
acquisition completed in fiscal 1999.
Interest and Other Expenses
Interest expense increased $393, or 49% to $1,191 in the six months ended March
31, 2000 from $798 in the six months ended March 31, 1999. The reasons for the
increase were higher debt levels and higher interest rates as well as a
decreased allocation of interest to the discontinued Agriculture Equipment
Segment of $142 in fiscal 2000 compared to fiscal 1999 as a result of
significantly decreased net assets at this segment. Interest income decreased
$112 in the six months ended March 31, 2000 compared to the same prior period
primarily due to interest on a state tax refund of $85 which was received in the
fiscal 1999 period.
Discontinued operations
No losses on the discontinued operations of the Agriculture Equipment Segment
was reported in the six months ended March 31, 2000 or 1999. An expense for
estimated loss on disposal was recorded in September 1998. Additional
information was gained, and an additional expense for estimated loss on disposal
was recorded in September 1999.
Net sales from the Agriculture Equipment segment declined $347, or 9.1% to
$3,456 in the six months ended March 31, 2000 compared to $3,803 in the six
months ended March 31, 1999. 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 decreased $224 to $723 from $947 in the prior
fiscal period as a result of reduced administration costs.
14
<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
On March 24, 2000 the Company held its annual meeting of
stockholders. The stockholders re-elected one director and
approved an amendment to increase the number of shares available for
grant under the Company's 1995 Stock Option Plan from
200,000 to 400,000 shares.
The tabulation of votes cast for the election of the director and
amendment to the Company's 1995 Stock Option Plan are as
follows:
Proposal Number One - Election of Director
For Withheld
Timothy S. Itin 11,693,400 174,090
Proposal Number Two - Amendment to the 1995 Stock Option Plan
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Increased Shares from For Against Abstentions Not Voted
200,000 to 400,000 11,654,286 198,631 13,773 10,870,604
</TABLE>
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
15
<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
/s/ Kim L. Childs
------------------------
Kim L. Childs,
Corporate Controller
and Principal Accounting Officer
Date: May 15, 2000
16
<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
By:
Kim L. Childs, Corporate Controller
and Principal Accounting Officer
Date: May 15, 2000
16
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