UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 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.
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(Exact name of registrant as specified in its charter)
Delaware 84-1099587
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(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
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(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
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.
(1) Yes X No____
(2) Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 31, 2000, 19,921,114 shares of Common Stock were outstanding and
the aggregate market value of the shares (based upon the closing price of the
shares on the NASDAQ National market) of Williams Controls, Inc. held by
nonaffiliates was approximately $12,214,074.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 2000 Annual Meeting of
Stockholders to be filed not later than February 28, 2001 are incorporated by
reference in Part III hereof.
<PAGE>
Williams Controls, Inc.
Index to 2000 Form 10-K
Part I Page
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Item 1. Description of Business 2-6
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-17
Item 8. Financial Statements and Supplementary Data 18-55
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 56
Part III
Item 10. Directors and Executive Officers of the Registrant 56
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management 56
Item 13. Certain Relationships and Related Transactions 56
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 56
Signatures 57
<PAGE>
WILLIAMS CONTROLS, INC.
Form 10-K
Part I
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, and disposition of any current business of the Company, including its
Agriculture Equipment segment. These forward-looking statements are subject to
the business and economic risks faced by the Company including the ability of
the Company to generate or obtain sufficient working capital to continue its
operations. 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.
Item 1. Description of Business (Dollars in thousands)
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"); 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 "we" "our" or "us."
General
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We are a Delaware corporation formed in 1988. The principal company in our
Vehicle Components segment, our primary business segment, was founded by Norman
C. Williams in 1939 and acquired by the Company in 1988. Our operating
subsidiaries are divided into two operating segments and one discontinued
segment that was sold in May 2000.
Vehicle Components - Our vehicle component product lines primarily include
electronic throttle control systems ("ETCs"), exhaust brakes and pneumatic,
hydraulic controls and plastic injection molded products including automotive
taillight systems. These products are used in trucks, utility and off-highway
equipment, transit buses and underground mining machines. We estimate that we
have over a 65% market share of electronic throttle control systems for Class 7
and 8 trucks. The majority of these products are sold directly to original
equipment manufacturers such as Freightliner, Navistar, Volvo, Isuzu and Motor
Coach Industries. We also sell these products through a well-established network
of independent distributors. The major competitors in one or more of our product
lines include Teleflex, VDO, Hella and Felsted. Markets for electronic throttle
control systems are developing in smaller classes of trucks, diesel-powered
pick-up trucks and automobiles. The major automotive manufacturers are
converting gasoline-powered automobiles and pick-up trucks to the electronic
throttle control system, although this requires engine redesign by the
automotive manufacturers which is presently ongoing. In addition, the passenger
vehicles market began the introduction of adjustable foot pedal systems during
1999. We purchased an adjustable foot pedal designer and manufacturer in July
1999.
Electrical Components and Global Positioning System - Our electrical components
product line includes the design and production of microcircuits, cable
assemblies, position tilt sensors and other electronic products used in the
telecommunication, computer and transportation industries. Major customers
include Allied Signal, Raychem and Eaton Corp. Major competitors include CTS,
Cooper, Wabash, AMP and Nethode. The global positioning system product line
includes commuter railroad train tracking and agricultural cyber-farming using
global positioning and geographic information systems. Our major customers
include Chicago Metra, Tri-Rail, the Florida Department of Transportation, Los
Angeles Metro and Via Tropical Fruit.
Agricultural Equipment - Our agricultural equipment product lines were sold in
May 2000. This segment's product lines included rotary cutters, discs, harrows
and sprayers. These products were sold to independent equipment dealers located
primarily in the Southeastern United States. Our major competitors had included
Allied Industries (Bushhog), Wood Brothers, Taylor Industries, Inc. and Alamo
Group. This business was previously reported as a discontinued operation.
2
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These are our operating subsidiaries, all of which are 100% owned, and a brief
description of each operating subsidiary's business (the subsidiaries that are
reported as discontinued operations or are no longer operating in 2000 are not
listed).
Vehicle Components
Williams Controls Industries, Inc.: Manufactures vehicle components sold
primarily in the commercial vehicle industry.
ProActive Acquisition Corporation.: Conducts research and development activities
related to adjustable foot pedals and manufactures adjustable pedal systems.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry. A definitive agreement has been entered into for the sale
of this subsidiary. See Note 15 to the Notes to Consolidated Financial
Statements.
NESC Williams, Inc.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
Williams Technologies, Inc.: Supports all subsidiaries of our company by
providing research and development and developing strategic business
relationships to promote "technology partnering."
Electronic Components and Global Positioning System
Aptek Williams, Inc.: Develops and produces sensors, microcircuits, cable
assemblies and other electronic products for the telecommunications and the
transportation industry, and conducts research and development activities to
develop commercial applications of sensor related products for the electronics
and automotive markets.
GeoFocus, Inc.: Develops train tracking and cyber-farming systems using global
positioning systems and geographical information systems. We signed a letter of
intent to sell GeoFocus in October 2000. See Note 12 to the Notes to
Consolidated Financial Statements.
Acquisitions and Dispositions
From fiscal 1994 through fiscal 1996, we pursued an acquisition strategy to
integrate vertically through the acquisition of a sensor manufacturing company
and horizontally through the acquisition of companies in similar industries that
could benefit from our sensor and control experience. During this period, we
acquired several companies with products that could benefit from sensor and
control applications.
In fiscal 1997, we changed our diversification acquisition strategy to focus our
corporate and financial resources on opportunities emerging in our Vehicle
Components segment. We may not be able to capitalize on opportunities emerging
in our vehicle components segment, including the development of commercial
applications of sensor related products. In addition, if we are successful in
one or more endeavors, we cannot be certain that those endeavors will be
profitable.
In March 1998, we completed the sale of our subsidiary comprising the Automotive
Accessories business unit. In June 1998, we restructured our investment in Ajay
Sports, Inc. such agreement provides for a repayment of all loans and an
increase in the dividend rate on our preferred stock investment on June 30,
2001. In July 1999, we purchased the ProActive pedals division of Active Tools
Manufacturing, Co., Inc. ProActive Pedals is a designer and developer of
adjustable foot pedal system and modular pedal systems. In May 2000, we
completed the sale of our Agricultural Equipment segment operation. In July
2000, we signed an agreement to sell Premier Plastic Technologies, Inc., which
has not been completed. In October 2000, we signed an agreement to sell Geo
Focus, Inc., which has not been completed.
3
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Competition
In general, our products are sold in highly competitive markets to customers who
are sophisticated and demanding concerning price, performance and quality.
Products are sold in competition with other independent suppliers (some of which
have substantial financial resources and significant technological
capabilities), and many of these products are, or could be, produced by the
manufacturers to which we sell these products. Our competitive position varies
among our product lines.
In the Vehicle Components segment, we are the largest domestic producer of ETCs
sold in the truck ETC market. We have only one primary competitor in the diesel
heavy truck market. We also manufacture pneumatic and air control systems for
the heavy truck market, which is comprised of numerous highly fragmented
competitors. We believe the principal method of competition for ETC in the
trucking industry is quality and engineering added value and reputation. In
addition, attainment of the ISO 9001 and QS 9000 quality certifications is
critical to qualifying as a supplier to the automotive industry and certain
manufacturers in the truck industry. Four of our manufacturing facilities in our
Vehicle Components segment have attained these certifications.
During fiscal 1999 and 2000, we began the introduction of our electronic
throttle control systems product into the passenger vehicle market that consists
of cars, small trucks, mini vans and sport utility vehicles. In August 2000, we
began production of electronic throttle controls for the Ford Super Duty series
trucks. In addition, we have been awarded production contracts for electronic
throttle controls for the General Motors W (Midsize sedans) Car and Cadillac
series, beginning in model year 2003. Our initial introduction of electronic
throttle controls for passenger vehicles have been well accepted. A competitive
advantage has been the durability and reliability of the low temperature
co-fired ceramic (LTCC) sensor we developed that will be utilized in these
designs. Continued introduction of electronic throttle controls in gasoline
engines requires modification or redesign of engine components that is dependent
upon the timing of development by the automotive manufacturers and their
original equipment manufacturers. However, based on initial acceptance, we
expect that by model year 2005, approximately 60-70% of passenger vehicles will
have converted to electronic throttle controls. Our primary competitors in the
United States are Teleflex, Hella and Felsted. Each of these companies is
substantially larger and has greater financial resources than us. Furthermore,
we have no control over the timing of the introduction of the electronic
throttle control into the automotive, small truck and sport utility vehicle
markets.
We purchased substantially all of the assets and assumed certain liabilities of
ProActive Pedals in July 1999. ProActive owns patent rights and designs for
adjustable foot pedal systems and currently produces the adjustable foot pedal
for the Dodge Viper. We hold the senior patents for rotational based adjustable
pedal systems and are examining opportunities available to us to exploit this
position, including strategic partnering and joint venture relationships. We
currently compete against Teleflex, Magna, CTI, Delphi and KSR, Inc. in the
adjustable foot pedal market, and we expect Dura Automotive and Hella to enter
the market with adjustable foot pedal designs. Thus, we will be competing
against much larger competitors in these markets with financial resources much
greater than ours and with existing long-term supplier relationships with the
automotive industry.
Marketing and Distribution
We sell our products to customers in the truck, automotive, heavy equipment,
telecommunication and other diversified industries worldwide; approximately 96%
of our sales from continuing operations are to customers in the Vehicle
Components segment and 60% of our sales from continuing operations are from
sales of ETC products.
For the years ended September 30, 2000, 1999 and 1998, Freightliner accounted
for 23%, 27% and 21%, Navistar accounted for 12%, 15%, and 16%, Volvo accounted
for 6%, 8%, and 9%, Evart Corporation accounted for 9%, 1% and 0% and General
Motors accounted for 6%, 5% and 3% of net sales from continuing operations,
respectively. Approximately 15%, 20% and 15% of net sales from continuing
operations in fiscal 2000, 1999, and 1998 respectively, were to customers
outside of the United States, primarily in Canada, Mexico and Sweden, and, to a
lesser extent, in Europe, South America and Australia. See notes 2 and 16 of
Notes to Consolidated Financial Statements.
The Company performs ongoing credit evaluations of its customers' financial
condition and maintains allowances for potential credit losses. Actual losses
and allowances have been within management's expectations.
4
<PAGE>
Existing Future Sales Orders
Future sales orders for our products were approximately $17,488 at September 30,
2000, compared to approximately $17,625 at September 30, 1999. These are orders
for which customers have requested delivery at specified future dates within one
year. We have not experienced significant problems delivering products on a
timely basis.
Environment
Our operations result in the production of small quantities of materials
identified by the Environmental Protection Agency of the United States
Government as "hazardous waste substances" which must be disposed of in
accordance with applicable local, state and federal guidelines. Substantial
liability may result to a company for failure, on the part of itself or its
contractors, to dispose of hazardous wastes in accordance with the established
guidelines, including potential liability for the clean up of sites affected by
improper disposals. We use our best efforts to ensure that any hazardous
substances are disposed of in an environmentally sound manner and in accordance
with these guidelines.
We have identified certain contaminants in the soil of our Portland, Oregon
manufacturing facility, which we believe was disposed on the property by a
previous property owner. We intend to seek indemnification from such party for
the costs of permanent monitoring, or cleanup if required. We have retained an
environmental consulting firm that has conducted tests to determine the extent
of any contamination. Based on the results of the tests and current regulations,
the contamination is not a reportable event. We believe that we can enforce
available claims against the prior property owner for any costs of monitoring or
cleanup. We believe we are currently in compliance with environmental
regulations.
Government Regulation
Our vehicle component products must comply with the National Traffic and Motor
Vehicle Safety Act of 1966, as amended, and regulations promulgated thereunder
which are administered by the National Highway Traffic Safety Administration
("NHTSA"). If, after an investigation, NHTSA finds that we are not in compliance
with any of it's standards or regulations, among other things, it may require
that we recall our products, which are found not to be in compliance, and repair
or replace such products. We believe we are currently in compliance with NHTSA.
Product Research and Development
Our operating facilities engage in engineering, research and development and
quality control activities to improve the performance, reliability and
cost-effectiveness of our product lines. Our engineering staff works closely
with our customers in the design and development of new products and adapting
products for new applications. During fiscal 2000, 1999 and 1998, the Company
spent $6,713, $3,424, and $2,778 respectively, on these activities for
continuing operations. We increased our research and development expenditures in
fiscal 2000 to design and validate ETC products compatible with gasoline powered
vehicles, develop commercial applications for inertia, tilt and position sensor
products, and for the development of adjustable foot pedal and ETC systems for
automotive, sport utility vehicles, light trucks and heavy trucks. Research and
development expenditures are expected to decrease in fiscal 2001 as we apply the
applications developed to specific solutions for our customers and begin
manufacture of these products.
Patents and Trademarks
Our product lines generally have strong name recognition in the markets in which
they serve. We have a number of product patents over a period of years, which
expire at various times. We consider each patent to be of value and aggressively
protect our rights against infringement throughout the world. We own two patents
(expiring in 2009) which we believe improve the marketability of the electronic
product line of the heavy Vehicle Components segment. We do not consider that
the loss or expiration of either patent would materially adversely affect us;
however, competition in the electronic product line could increase without these
patents. We have entered into a royalty bearing patent license agreement with a
private inventor, under which we hold an exclusive, worldwide license for three
patents covering adjustable foot pedals. The license agreement remains in effect
for the life of the patents and requires yearly minimum payments to the
inventor. We believe these licensed patents play a significant role in
establishing our proprietary position in the adjustable foot pedal market, and
the termination of the license or the loss of any of the licensed patents could
materially adversely affect our ability to market adjustable foot pedals. We own
numerous trademarks, enabling us to market our products worldwide. These
trademarks include "Williams" and "Aptek". We believe that in the aggregate, the
rights under our patents and trademarks are generally important to our
operations, but do not consider that any patent or trademark or group of them
related to a specific process or product is of material importance in relation
to our total business except as described above.
5
<PAGE>
Raw Materials; Reliance on Single Source Suppliers
We produce our products from raw materials, including brass, aluminum, steel,
plastic, rubber and zinc, which currently are widely available at reasonable
terms. We rely upon CTS Corporation and Caterpillar, Inc. as single source
suppliers for critical components and/or products as these suppliers are
currently the only manufacturers of sensors made specifically for the Company's
ETC system. We manufacture a foot pedal using a contact position sensor
manufactured by Caterpillar, Inc. used exclusively on Caterpillar engines.
Caterpillar supplies this sensor and requires that its sensor be used on all
Caterpillar engines; therefore, the Company does not consider the Caterpillar
sensor supply to be at risk. Although these suppliers have been able to meet our
needs on a timely basis, and appear to be willing to continue being suppliers
there is no assurance that a disruption in a supplier's business, such as a
strike, would not disrupt the supply of a component. In addition, we have
developed a high performance-high durability, cost effective sensor which we
expect to further refine, with the expectation that volume production will begin
in fiscal 2001. Production of these position sensors internally would tend to
reduce our reliance on certain single source suppliers.
Product Warranty
We warrant our products to the first purchaser and subsequent owners against
malfunctions occurring during the warranty period resulting from defects in
material or workmanship, subject to specified limitations. The warranty on
vehicle components is limited to a specified time period, mileage or hours of
use, and varies by product and application. We have established a warranty
reserve based upon our estimate of the future cost of warranty and related
service costs. We regularly monitor our warranty reserve for adequacy in
response to historical experience and other factors.
Employees
We employ approximately 434 employees, including 128 union employees. Our
non-union employees are engaged in sales and marketing, accounting and
administration, product research and development, production and quality
control. Our union employees are engaged in manufacturing vehicle components in
the Portland, Oregon facility and are represented by the International Union,
United Automobile Workers of America and Amalgamated Local 492 (the "Union"). We
have a collective bargaining agreement with the Union that expires in September
2002, which provides for wages and benefits (including pension, death,
disability, health care, unemployment, vacation and other benefits) and contains
provisions governing other terms of employment, such as seniority, grievances,
arbitration and Union recognition. Our management believes that our relationship
with our employees and the Union are good. We could experience a change in
non-union labor costs as a result of changes in local economies and general wage
increases.
6
<PAGE>
Item 2. Properties
(Dollars in thousands)
The following table outlines the principal manufacturing and other facilities
owned by us, subject to mortgages on all facilities except Williams and Agrotec.
Entity Facility Location Type and Size of Facility
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Williams Controls
Industries, Inc. Portland, Oregon Manufacturing and offices
120,000 square feet
Aptek Deerfield Beach, Florida Manufacturing and offices
48,000 square feet
Hardee Loris, South Carolina Manufacturing and offices
101,000 square feet
Agrotec Pendleton, North Carolina Manufacturing and office
43,000 square feet
Our manufacturing facilities are equipped with the machinery and equipment
necessary to manufacture and assemble its products. Management believes that the
facilities have been maintained adequately, and that we could increase our
production output significantly at any of our facilities with additional
equipment and work force.
Facilities that are encumbered by mortgages at September 30, 2000 are as
follows: Hardee, $467, and Aptek $2,248. A bank holds a deed of trust on the
Williams facility.
Additionally, the Company leases approximately 54,100 square feet of
production and administrative office space in Sterling Heights Michigan,
pursuant to a ten year lease signed in January 1998.
The Company also holds various leases to maintain the operations of its
subsidiaries.
Item 3. Legal Proceedings
Williams Controls, Inc. and its consolidated subsidiaries are parties to various
pending judicial and administrative proceedings arising in the ordinary course
of business. Our management and legal counsel have reviewed the probable outcome
of these proceedings, the costs and expenses reasonably expected to be incurred,
the availability and limits of our insurance coverage, and our established
reserves for uninsured liabilities. While the outcome of the pending proceedings
cannot be predicted with certainty, based on our review, management believes
that any liabilities that may result are not reasonably likely to have a
material effect on the Company's liquidity, financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matters to a vote of its security holders during the
fourth quarter of the year ended September 30, 2000.
7
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the over-the-counter market of the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National Market
System under the symbol "WMCO."
The range of high and low bid closing quotations for our common stock for each
fiscal quarter for the past two fiscal years is as follows:
2000
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Quarter High Low
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October 1 - December 31 $2.56 $1.97
January 1 - March 31 2.44 2.00
April 1 - June 30 2.25 1.50
July 1 - September 30 1.90 1.25
1999
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Quarter High Low
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October 1 - December 31 $2.50 $2.00
January 1 - March 31 3.00 2.19
April 1 - June 30 3.25 2.19
July 1 - September 30 3.13 2.47
There were 430 record holders of our common stock as of November 30, 2000. We
have never paid a dividend with respect to our common stock and have no plans to
pay a dividend in the foreseeable future.
8
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Item 6. Selected Financial Data
(Dollars in thousands - except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Year ended September 30, 2000* 1999** 1998 1997 1996***
---------------------------------------------- -------- --------- -------- -------- ---------
Net sales from continuing operations $ 67,725 $ 61,422 $ 57,646 $ 46,671 $ 40,253
Net earnings (loss) from continuing operations (16,744) (3,928) 4,611 2,515 2,975
Net earnings (loss) (16,744) (9,539) 312 (2,037) (561)
Earnings (loss) from continuing operations per
common share - basic (0.88) (0.24) 0.24 0.14 0.18
Earnings (loss) from continuing operations per
common share - diluted (0.88) (0.24) 0.23 0.14 0.17
Net earnings (loss) per common share - basic (0.88) (0.54) 0.00 (0.12) (0.03)
Net earnings (loss) per common share - diluted (0.88) (0.54) 0.00 (0.12) (0.03)
Cash dividends per common share - - - - -
Consolidated Balance Sheet Data
September 30, 2000* 1999** 1998 1997 1996***
---------------------------------------------- -------- --------- -------- -------- ---------
Current assets $ 20,561 $ 27,777 $ 31,716 $ 25,156 $ 30,926
Current liabilities 38,239 18,865 12,767 9,028 29,600
Working capital (deficit) (17,678) 8,912 18,949 16,128 1,326
Total assets 49,149 64,504 68,565 48,313 53,049
Long-term liabilities 9,866 27,433 31,387 22,450 4,726
Minority interest in consolidated subsidiaries - - - - 713
Shareholders' equity 1,044 18,206 24,411 16,835 18,010
</TABLE>
Note: Except for the balance sheet amounts for 1996, the above amounts reflect
the Automotive Accessories and Agricultural Equipment segments as discontinued
operations. See Note 14 to the Notes to Consolidated Financial Statements.
* 2000 data includes recognition of $5,044 expense for equity interest in
loss of affiliate. The recognition of the loss was significantly increased
due to the implementation of Emerging Issues Task Force Bulletin 99-10
"Percentage Used to Determine the Amount of Equity Method Losses". The 2000
data also includes a $6,896 deferred tax expense for a valuation
allowance for previously recognized deferred income tax assets which may no
longer be realizable based on management's current assessment of their
ultimate realizability. See also Notes 4 and 11 to Notes to Consolidated
Financial Statements for information on the equity interest in loss of
affiliate and the valuation allowance for deferred income taxes,
respectively.
** 1999 data includes an acquisition made in July. Net sales, loss from
operations (including expense of $1,750 for acquired in-process research
and development), and total assets related to this acquisition were $55,
$(2,066) and $6,320, respectively. The 1999 loss from continuing operations
includes a loss from impairment of assets of $5,278. See Notes 10 and 19 to
the Notes to Consolidated Financial Statements for information on the
impairment loss and the acquisition, respectively.
*** 1996 data includes acquisitions made in April and July 1996. Net sales,
loss from operations and total assets related to these acquisitions were
$2,782, $(46) and $2,869, respectively.
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands - except per share amounts)
See "Cautionary Statement" contained at the beginning of this report.
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
As shown in the consolidated financial statements during the years ended
September 30, 2000, 1999 and 1998, the Company incurred (losses) income of
($16,744), ($9,539) and $312, respectively. In addition, accounts payable has
increased from $9,223 at September 30, 1999 to $11,363 at September 30, 2000;
working capital has decreased from $8,912 at September 30, 1999 to a deficit of
($17,678) at September 30, 2000; and stockholders' equity has decreased from
$18,206 at September 30, 1999 to $1,044 at September 30, 2000. Also, as
described in Note 6 to Consolidated Financial Statements, the Company was not in
compliance with the covenants of its credit agreement at September 30, 2000. The
credit agreement with the Company's primary bank matures on July 11, 2001, the
Company has extended the debt due with another bank and the Company is in
default on the payment of certain bank debt as discussed in Note 6 to
Consolidated Financial Statements; as a result, the Company has classified its
debt owed to its primary bank as a current liability at September 30, 2000.
Subsequent to September 30, 2000, the Company reached the borrowing capacity
under its credit agreement and required an overadvance from its primary bank to
support operations. Due to the lack of borrowing capacity under the credit
facility, the Company's working capital deficit, the Company's debts, including
accounts payable, and other factors as outlined herein, the Company has a
significant lack of liquidity. Accordingly, the Company's continuation as a
going concern is dependent upon, among other things, its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply with
the terms of its credit agreement, to obtain additional financing or refinancing
as may be required, and ultimately to attain profitability.
The North American truck market has seen a significant decline in sales of new
trucks as a result of the large number of used trucks on the market,
significantly increased gasoline prices and interest rates. As a result, the
Company has experienced a significant decline in sales in the first three months
of fiscal 2001 as compared to fiscal 2000, and expects the trend to continue for
a period of time. As a result of the decline in sales, the Company has taken
certain actions including reducing the hourly workforce to a four-day workweek
and reducing the salaried workforce by approximately 15%.
After reviewing its working capital needs, management of the Company estimates
that additional working capital for fiscal 2001 of approximately $7,000 will be
needed. Management is reviewing how it might reduce the amount of working
capital needed and is pursuing alternatives to raise capital, both debt and/or
equity. In addition, the Company is reviewing the sale of non-strategic assets
and has engaged an investment banking firm to investigate alternatives available
to it, including selling all or part of the Company to a third party, obtaining
bridge financing to enable the Company to continue operating until such time as
a buyer can be identified or sufficient equity and/or debt financing can be
raised to support the operations of the Company.
There is no assurance that the Company will be able to obtain adequate working
capital in the amounts needed to sustain its operations or sell its business or
parts of it in a timely fashion.
The above matters raise a substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
Cash decreased $2,293 at September 30, 2000 compared to September 30, 1999. Cash
flow from continuing operations decreased from $7,644 for the year ended
September 30, 1999 to $2,979 for the year ended September 30, 2000. The decrease
was primarily due to the increase in the net loss between years. The positive
cash flow from continuing operations for 2000 differs from the net loss from
operations primarily because of (1) non cash operating expenses of $3,189 for
deprecation and amoritzation, an increase of $1,133 over 1999, equity interest
in loss of affiliate of $5,044 (see Note 4 of the Notes to Consolidated
Financial Statements), an increase of $4,556 over 1999 and deferred tax
provision of $6,896 (see Note 11 of the Notes to Consolidated Financial
Statements), an increase of $9,461 over 1999 and (2) an increase in accounts
payable and accrued expenses of $2,696 and a decrease in inventory of $1,819.
10
<PAGE>
Cash flow used in investing activities decrease from $9,181 for the year ended
September 30, 1999 to $2,343 for the year ended September 30, 2000. In 1999 the
Company used cash of $6,350 for the acquisition of ProActive Pedals (see Note 19
of the Notes to Consolidated Financial Statements). Cash used for the
acquisition of property, plant and equipment was $2,343 and $2,948 for 2000 and
1999, respectively. Capital expenditures are expected to be $2,850 in fiscal
2001, primarily for existing customers and new automotive ETC business.
Cash flow from financing activities was a use of $2,718 for the year ended
September 30, 2000, reflecting a net payment on long-term debt of $4,098 offset
by an increase in cash of $1,965 representing the net proceeds from the issuance
of convertible subordinated debt (see Note 6 of the Notes to Consolidated
Financial Statements). In 1999, the Company had net cash provided by financing
activities of $4,557 due primarily from a net increase in long-term debt of
$1,605 and net proceeds from the issuance of common stock in a private placement
of $3,379. Cash flow from financing activities in 1999 was used to purchase the
net assets of ProActive Pedals.
Market Risk - The Company may be exposed to future interest rate changes on its
debt. The Company does not believe that a hypothetical 10 percent change in end
of period interest rates would have a material effect on the Company's cash
flow.
In June 2000 the FASB issued Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133" ("SFAS 138"). 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
133, as amended by SFAS 137 and 138 establishes accounting and reporting
standards for all derivative instruments. SFAS 133 and 138 are effective for
fiscal years beginning after June 15, 2000. The Company has made a preliminary
assessment of its potential derivative instruments and based on that assessment
does not expect that the adoption of SFAS 133 and 138 will have any material
impact on the Company's financial position or results of operations.
11
<PAGE>
Results of Operations
Year ended September 30, 2000 compared to the year ended September 30, 1999
Net sales from continuing operations increased 10.3% to $67,725 in fiscal 2000
from $61,422 in fiscal 1999 due to higher unit sales volumes in the Company's
Vehicle Components segment.
In fiscal 2000, loss from continuing operations was $1,548, compared to loss
from continuing operations of $3,031 in fiscal 1999. The decrease in losses,
totaling $1,483, was partially the result of a $1,105 decrease in gross margin
from the prior year caused by $7,610 in increased cost of sales in the Vehicle
Components segment affected primarily by the plastic injection molding
subsidiary, decreased absorption of overhead related to lower finished goods and
work in process inventory levels, as well as the impact from product mix
shifting away from higher margin ETC sales. Additionally, research and
development expenses increased $3,289, selling expenses decreased $121 and
administrative expenses increased $1,272 in 2000. These increases were offset by
1999 expenses of $1,750 for research and development efforts in process at the
date of acquisition of ProActive and $5,278 loss from the impairment of assets
related to Kenco, our former Automotive Accessories segment, which were not
incurred in fiscal 2000.
Net loss allocable to common shareholders increased $7,197 to $17,332 in fiscal
2000 compared to net loss allocable to common shareholders of $10,135 in the
prior fiscal year due to the factors described above, as well as the recognition
of $5,044 expense for equity interest in loss of affiliate. The recognition of
the loss was significantly increased due to the implementation of Emerging
Issues Task Force Bulletin 99-10 "Percentage Used to Determine the Amount of
Equity Method Losses". The net loss allocable to common shareholders also
includes a $6,896 deferred tax provision resulting from a valuation allowance
for previously recognized deferred income tax assets which may no longer be
realizable based on management's current assessment of their ultimate
realizability. Net interest expense increased $968 due to increased bank
borrowings, increased capital leases, the issuance of convertible subordinated
debt in April 2000, and a decreased allocation of interest to the discontinued
Agricultural Equipment Segment.
Net Sales
---------
Net sales from continuing operations increased $6,303, or 10.3%, to $67,725 in
the year ended September 30, 2000 from $61,422 in the year ended September 30,
1999 primarily due to higher unit sales volumes in our Vehicle Components
segment.
Net sales from continuing operations in the Vehicle Components segment increased
$7,127, or 12.3%, to $65,263 in the year ended September 30, 2000 over levels
achieved in the year ended September 30, 1999 due to $4,893 higher plastic
injection molding sales and automotive pedal sales. Sales from continuing
operations in our Electrical Components and GPS segment decreased $824, or
25.1%, due to lower unit sales of electrical components.
12
<PAGE>
Gross margin
------------
Gross margin from continuing operations decreased $1,105, or 6.5%, to $15,979
(23.6% of sales) compared to $17,084 (27.8% of sales) in the year ended
September 30, 1999. Gross margin decreased $482 or 2.8%, in the year ended
September 30, 2000 in the Vehicle Components segment due primarily to $1,133
reduction in margin loss in the plastic injection molding subsidiary driven by
higher volume of production over which fixed costs were allocated offset by
$1,741 decrease in margins in our Portland and Florida subsidiaries due to
decreased absorption of overhead related to lower finished goods inventory
levels, as well as the impact from product mix shifting slightly away from
higher margin ETC sales. The Electrical Components and GPS segment also
recognized an increase in gross margin loss of $623 to $735 compared to prior
fiscal year's gross margin loss of $112.
Our plastic injection molding and tooling subsidiary ("PPT"), the operating
results of which are included in the Vehicle Components segment, reported a
$3,638 loss from operations for the year ended September 30, 2000, a decrease of
$807 compared to the prior year's loss from operations of $4,445. Sales, gross
margin (loss) and operating loss for the year ended September 30, 2000 were
$10,146, ($1,950), and ($3,638) compared to $5,253, ($3,083), and ($4,445),
respectively, in the prior fiscal year. The increase in sales is the result of
new business that was awarded and began production in the second quarter of
fiscal 2000. The Company has signed a definitive agreement for the merger of PPT
into 3DM International, Inc. ("3DMI"). No loss is expected to be realized under
the terms of the definitive agreement. Closing of the transaction is subject to
customary closing conditions and 3DMI's payment of all advances relating to PPT
under the secured lending facility with the Bank and subject to 3DMI obtaining
sufficient financing. Financing has not been completed and there is no assurance
that the transaction will be completed. No other plan to dispose of PPT has been
adopted. In addition, the Company has entered into an operating agreement
whereby an affiliate of the potential buyer is managing the operations of PPT
during the interim period until the sale is consummated.
Gross margin loss at the Electrical Components and GPS segment increased $623
from $112 for the year ended September 30, 1999 to $735 for the year ended
September 30, 2000, primarily as a result of fixed overhead combined with
declining sales at the electronic components operations, offset by increased
margins of $171 at the GPS operations, primarily due to the completion of a GPS
contract in the current fiscal year.
Operating expenses
------------------
In conjunction with the acquisition of the ProActive Pedal Division of Active
Tool and Manufacturing Co., Inc. in July, 1999, we expensed $1,750 of the
purchase price as acquired in-process research and development during the year
ended September 30, 1999. Also, during the year ended September 30, 1999, we
recognized a $5,278 loss from the impairment of assets related to Kenco, the
Company's former Automotive Accessories segment. The loss consisted of an
impairment of non-voting preferred stock and notes and accounts receivable
totaling $4,655 and impairment of property totaling $623 (see Note 10 to the
Notes to Consolidated Financial Statements). These items did not recur in fiscal
2000.
Operating expenses before the charge for acquired in-process research and
development and the loss from impairment of assets increased $4,440, or 33.9%,
to $17,527 for the year ended September 30, 2000 compared to $13,087 for the
year ended September 30, 1999, primarily as a result of increased research and
development expenses of $3,289, a decrease in selling expenses of $121, and an
increase in administration expenses of $1,272. Research and development expenses
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. Research and development expenses as a
percentage of sales were 9.9% for the year ended September 30, 2000 compared to
5.6% for the year ended September 30, 1999. However, they are expected to
decrease in the fiscal year ending September 30, 2001 as the focus shifts to
production of automotive pedals and sensor-related products. Operating expenses
before the charge for acquired in-process research and development and loss from
the impairment of assets increased $4,899, or 47.8%, in the year ended September
30, 2000 in the Vehicle Components segment and decreased $459, or 16.2%, in the
Electrical Components and GPS segment compared to the prior year period.
Selling expenses were reduced $121 for the year ended September 30, 2000
compared to 1999. Selling expenses as a percent of sales decreased to 2.8% in
the year ended September 30, 2000 compared to 3.3% in the prior year.
13
<PAGE>
Administration expenses increased $1,272 to $8,938 for the year ended September
30, 2000 from $7,666 for the comparable period in the prior year, due primarily
to increased costs of $339 to support the increased volume of sales at the
plastics injection molding subsidiary, increased amortization of intangibles
totaling $540 as a result of an acquisition completed in fiscal year 1999, as
well as start-up costs of $474 related to the implementation of operations at
the automotive pedal plant, offset by decreased costs of $285 at our Portland
subsidiary due to reduction in bad debt expense.
Acquired In-Process Research and Development
--------------------------------------------
In connection with its acquisition of the assets of ProActive Pedals in July
1999, the Company recorded a pretax charge of $1,750 for research and
development efforts in process at the date of the acquisition. See Note 19 of
Notes to Consolidated Financial Statements.
The value assigned to the in-process research and development efforts represents
those efforts in process at the date of acquisition that had not reached the
point where technological feasibility had been established and that had no
alternative future uses. Accounting rules require that these costs be expensed
as incurred. The significant projects in process at the time of the acquisition
were for the development of commercially viable designs and concepts for
adjustable pedal systems. The value was determined by estimating the costs to
further develop the acquired in-process technology into commercially viable
products, estimating the resulting net cash flows from such products, and
discounting the net cash flows back to their present value. The discount rate
included a factor that took into account the uncertainty surrounding the
successful development of the acquired in-process technology. At the time of the
acquisition, the in-process technology under development was expected to be
commercially viable in 2001. Expenditures to complete these projects were
expected to total approximately $3.5 million. This estimate is subject to
change, given the uncertainties of the development process, and no assurances
can be given that deviations from these estimates will not occur. Additionally,
these projects will require expenditures for additional research and development
after they have reached a state of technological and commercial feasibility. To
date, expenditures and results have not differed significantly from the forecast
assumptions.
Interest and Other Expenses
---------------------------
Interest expense increased $856 to $3,010 in the year ended September 30, 2000
from $2,154 in the year ended September 30, 1999. The reasons for the increase
were increased debt owing to a Bank, increased capital leases and a decreased
allocation of interest to the discontinued Agricultural Equipment Segment.
Allocation of interest to the discontinued Agricultural Equipment Segment
decreased by $192 in fiscal 2000 compared to fiscal 1999 as a result of
significantly decreased net assets at this segment. In addition, the issuance of
convertible subordinated debt in April 2000 increased interest expense
approximately $72. Allocated interest expense included in discontinued
operations for the year ended September 30, 2000 and 1999 was $85 and $277,
respectively.
Discontinued operations
-----------------------
The Company reported a net loss from discontinued operations of $5,611 for year
ended September 30, 1999. The Company adopted a plan of disposal for the
Agriculture Equipment segment in late 1998. As a result, a net loss on disposal
totaling $1,403 was recorded for this segment. However, during the year ended
September 30, 1999, an additional net loss on disposal totaling $5,611 was
recorded for the disposal of this segment. The loss in fiscal 1999 was based on
events and information, which resulted in management's revised estimate of the
net realizable value of the Agricultural Equipment Segment. The revised estimate
was based on contract negotiations and lower than anticipated bids for portions
or the entire segment. During fiscal 2000, the Agricultural Equipment segment
was sold. No loss in excess of that previously provided was realized as a result
of the sale.
Income Taxes
------------
The income tax expense of $7,527 for the year ended September 30, 2000 is
primarily the result of a valuation allowance recorded for previously recognized
deferred income tax assets as of September 30, 2000 which may no longer be
realizable based on management's current assessment of their ultimate
realizability.
Net earnings (loss) allocable to common shareholders
----------------------------------------------------
Net earnings (loss) allocable to common shareholders was ($17,332) in the year
ended September 30, 2000 compared to ($10,135) in the prior fiscal year due to
the factors described above.
14
<PAGE>
Results of Operations
Year ended September 30, 1999 compared to the year ended September 30, 1998
Overview
--------
Net sales from continuing operations increased 6.6% to $61,422 in fiscal 1999
from $57,646 in fiscal 1998 due to higher unit sales volumes in the Company's
vehicle components segment.
In fiscal 1999, loss from continuing operations was $3,031, compared to earnings
from continuing operations of $8,991 in fiscal 1998. The decrease, totaling
$12,022, was the result of reduced gross margin of $2,284, primarily due to
increased warranty expenses and increased inventory reserves based on events in
the fourth quarter of fiscal 1999. Also in fiscal 1999, we expensed $1,750 for
research and development efforts in process at the date of acquisition of
ProActive and recognized a $5,278 loss from the impairment of assets related to
Kenco, our former Automotive Accessories segment.
Net loss allocable to common shareholders was $10,135 in fiscal 1999 compared to
net income allocable to common shareholders of $42 in the prior fiscal year due
to the factors described above, as well as an increased net loss from
discontinued operations based upon events and information that resulted in
management's revised estimates of the net realizable value of the Agricultural
Equipment
segment.
Net Sales
---------
Sales from continuing operations increased $3,776, or 6.6%, to $61,422 in the
year ended September 30, 1999 from $57,646 in the year ended September 30, 1998
primarily due to higher unit sales volumes in our Vehicle Components segment.
Sales from continuing operations in the Vehicle Components segment increased
$4,065, or 7.5%, to $58,136 in the year ended September 30, 1999 over levels
achieved in the year ended September 30, 1998 due to higher ETC unit sales.
Sales from continuing operations in our Electrical Components and GPS segment
decreased $289, or 8.1%, due to lower unit sales of electrical components.
Gross Margin
------------
Gross margin from continuing operations decreased $2,284, or 11.8%, to $17,084
(27.8% of sales) compared to $19,368 (33.6% of sales) in the year ended
September 30, 1998. Gross margin decreased $977 or 5.4%, in the year ended
September 30, 1999 in the Vehicle Components segment due primarily to increased
losses at the company's plastic injection molding and tooling subsidiary and
increased warranty costs of $781.
Our plastic injection molding and tooling subsidiary, the operating results of
which are included in the Vehicle Components segment, reported an increased loss
from operations in the year ended September 30, 1999 of $3,673 over the prior
year. Sales, gross margin (loss) and operating loss for the year ended September
30, 1999 were $5,253, ($3,083), and ($4,445), respectively compared to $4,949,
$205 and ($772) in the prior fiscal year. The operation moved to a new facility
in the fourth quarter of fiscal 1998 that has a higher breakeven sales level and
plant capacity than the prior facility. In addition, the plastic injection and
molding subsidiary experienced operating problems resulting from inefficient
production from defective molds supplied by customers and operating problems on
the manufacturing floor. Also, in response to the issues previously mentioned,
in the fourth quarter of fiscal 1999, the tooling operation was closed down.
Gross margin at the Electrical Components and GPS segment decreased $852 from
$740 for the year ended September 30, 1998 to ($112) for the year ended
September 30, 1999 primarily due to fixed expenses and other charges.
Operating expenses
------------------
In conjunction with the acquisition of the ProAIn conjunction with the
acquisition of the ProActive Pedal Division of Active Tool and Manufacturing
Co., Inc. in July, 1999, we expensed $1,750 of the purchase price as acquired
in-process research and development during the year ended September 30, 1999.
Also, during the year ended September 30, 1999, we recognized a $5,278 loss from
the impairment of assets related to Kenco, the Company's former Automotive
Accessories segment. The loss consisted of an impairment of non-voting preferred
stock and notes and accounts receivable totaling $4,655 and impairment of
property totaling $623 (see Note 10 to the Notes to Consolidated Financial
Statements).
15
<PAGE>
Operating expenses before the charge for acquired in-process research and
development and the loss from impairment of assets increased $2,710, or 26.1%,
to $13,087 for the year ended September 30, 1999 compared to $10,377 for the
year ended September 30, 1998 primarily as a result of increased research and
development expenses of $646 and an increase in administration expenses of
$2,132. Research and development expenses were increased to support new product
development for development of the automotive ETC product, for development of
sensor-related products and for existing customers. Operating expenses before
the charge for acquired in-process research and development and loss from
impairment of assets as a percentage of sales, was 21.3% and 18.0% in the year
ended September 30, 1999 and 1998. Operating expenses before the charge for
acquired in-process research and development and loss from the impairment of
assets increased $3,383, or 47.1%, in the year ended September 30, 1999 in the
Vehicle Components segment and decreased $219, or 8.0%, in the Electrical
Components and GPS segment compared to the prior year period.
Selling expenses were reduced $68 for the year ended September 30, 1999 compared
to 1998. Selling and expenses as a percent of sales decreased to 3.3% in the
year ended September 30, 1999 compared to 3.6% in the prior year .
In addition, administration expenses increased $2,132, primarily to support
management information service needs with the recent implementation of new ERP
systems, as well an increased bad debt expense, totaling $225, primarily related
to closing the tooling operation at the plastic injection molding facility, and
increased payroll and related costs totaling $160 to support the sophisticated
machinery and expanded operations at our plastic injection molding and tooling
subsidiary.
Acquired In-Process Research and Development
--------------------------------------------
In connection with its acquisition of the assets of ProActive Pedals in July
1999, the Company recorded a pretax charge of $1,750 for research and
development efforts in process at the date of the acquisition. See Note 19 of
Notes to Consolidated Financial Statements.
The value assigned to the in-process research and development efforts represents
those efforts in process at the date of acquisition that had not reached the
point where technological feasibility had been established and that had no
alternative future uses. Accounting rules require that these costs be expensed
as incurred. The significant projects in process at the time of the acquisition
were for the development of commercially viable designs and concepts for
adjustable pedal systems. The value was determined by estimating the costs to
further develop the acquired in-process technology into commercially viable
products, estimating the resulting net cash flows from such products, and
discounting the net cash flows back to their present value. The discount rate
included a factor that took into account the uncertainty surrounding the
successful development of the acquired in-process technology. At the time of the
acquisition, the in-process technology under development was expected to be
commercially viable in 2001. Expenditures to complete these projects were
expected to total approximately $3.5 million. This estimate is subject to
change, given the uncertainties of the development process, and no assurances
can be given that deviations from these estimates will not occur. Additionally,
these projects will require expenditures for additional research and development
after they have reached a state of technological and commercial feasibility. To
date, expenditures and results have not differed significantly from the forecast
assumptions.
Interest and Other Expenses
---------------------------
Interest expense increased $349 to $2,154 in the year ended September 30, 1999
from $1,805 in the year ended September 30, 1998. Interest expense increased
primarily as a result of increased capital lease obligations that are at a
higher average interest rate than bank debt. Allocated interest expense included
in discontinued operations for the year ended September 30, 1999 and 1998 was
$277 and $477, respectively.
Discontinued operations
-----------------------
The Company reported a net loss from discontinued operations of $5,611 for year
ended September 30, 1999 compared to a net loss of $4,299 for the year ended
September 30, 1998. The Company adopted a plan of disposal for the Agriculture
Equipment segment in late 1998. As a result, a net loss on disposal totaling
$1,403 was recorded for this segment. However, during the year ended September
30, 1999, an additional net loss on disposal totaling $5,611 was recorded for
the disposal of this segment. The loss in fiscal 1999 is based on events and
information, which resulted in management's revised estimate of the net
realizable value of the Agricultural Equipment Segment. The revised estimate is
based on contract negotiations and lower than anticipated bids for portions or
all of the segment.
16
<PAGE>
Net sales from the Agriculture Equipment segment declined $1,275, or 15.0% to
$7,225 in the year ended September 30, 1999 compared to $8,500 in the year ended
September 30, 1998. The decline in sales was due to lower unit sales
attributable primarily to a weak farm economy.
Estimated future losses from discontinued operations for the Automotive
Accessories segment were accrued in fiscal 1997. The Automotive Accessories
segment was sold in March 1998, and the loss was $1,625 net of income tax
benefits of $1,001. The additional loss in fiscal 1998 over that accrued in
fiscal 1997 resulted from the loss on the actual disposition of the Automotive
Accessories segment which was sold in 1998.
Net earnings (loss) allocable to common shareholders
----------------------------------------------------
Net earnings (loss) allocable to common shareholders were $(10,135) in the year
ended September 30, 1999 compared to $42 in the prior fiscal year due to
decreased earnings from operations, including the charge for acquired in-process
research and development and the loss from impairment of assets as described
above.
The effective income tax rate for continuing operations was (27.5)% and 33.9%
for the year ended September 30, 1999 and 1998.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
Williams Controls, Inc.
Index to Consolidated Financial Statements
Page
----
Consolidated Balance Sheets at September 30, 2000 and 1999 19
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 2000, 1999 and 1998 20
Consolidated Statements of Operations for the
years ended September 30, 2000, 1999 and 1998 21
Consolidated Statements of Comprehensive
Income (Loss) for the years ended
September 30, 2000, 1999 and 1998 22
Consolidated Statements of Cash Flows for the
years ended September 30, 2000, 1999 and 1998 23
Notes to Consolidated Financial Statements 24-54
Report of Independent Public Accountants 55
See page 58 for Index to Schedules and page 60 for Index to Exhibits.
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share information)
September 30, September 30,
ASSETS 2000 1999
----------------- -----------------
Current Assets:
Cash and cash equivalents $ $ 30 $ 2,323
Trade and other accounts receivable, less allowance of
$508 and $484 in 2000 and 1999, respectively 11,357 10,941
Inventories, net 8,016 9,828
Deferred income taxes and other 1,158 4,325
Net assets held for disposition - 360
----------------- -----------------
Total current assets 20,561 27,777
Property plant and equipment, net 21,486 20,775
Investment in and note and accounts receivable from 1,615 6,398
affiliate
Net assets held for disposition - 500
Goodwill and intangible assets, net 5,165 5,764
Deferred income taxes - 3,025
Other assets 322 265
----------------- -----------------
Total assets $ 49,149 $ 64,504
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,363 $ 9,223
Accrued expenses 4,574 3,449
Non-refundable deposit 500 -
Current portion of long-term debt and capital leases 21,802 5,193
Estimated loss on disposal - 1,000
----------------- -----------------
Total current liabilities 38,239 18,865
Long-term debt and capital lease obligations 4,567 24,743
Other liabilities 3,259 2,690
Convertible subordinated debt, net 2,040 -
Commitments and contingencies (Note 23)
Shareholders' Equity:
Preferred stock ($.01 par value, 50,000,000 authorized; 78,400 and
78,500
issued and outstanding at September 30, 2000 and 1999, respectively) 1 1
Common stock ($.01 par value, 50,000,000 authorized; 19,921,114 and
19,898,728 issued and outstanding at September 30, 2000 and 1999,
respectively) 199 199
Additional paid-in capital 21,744 21,574
Accumulated deficit (20,023) (2,691)
Treasury stock (130,200 shares at September 30, 2000 and 1999) (377) (377)
Note receivable (500) (500)
----------------- -----------------
Total shareholders' equity 1,044 18,206
----------------- -----------------
Total liabilities and shareholders' equity $ 49,149 $ 64,504
================= =================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Williams Controls, Inc.
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
Issued Retained
Preferred Issued Additional Earnings Unearned Pension Share-
Stock Common Stock Paid-in (Accumulated ESOP Treasury Note Liability holders'
Shares Amount Shares Amount Capital Deficit) Shares Stock Receivable Adjustment Equity
-----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1997 - $ - 17,912,240 $ 179 $ 9,822 $ 7,402 $ (191) $ (377) $ - $ - $16,835
Net earnings - - - - - 312 - - - - 312
Issuance of
preferred stock 80,000 1 - - 7,336 - - - - - 7,337
Dividends on
preferred stock - - - - - (270) - - - - (270)
Common stock
issued in
satisfaction
of note payable - - 42,329 1 99 - - - - - 100
Issuance of stock
upon exercise
of stock options - - 150,000 1 61 - - - - - 62
Common stock
issued to
affiliate for
note receivable - - 206,719 2 498 - - - (500) - -
Reduction of
unallocated
ESOP Shares - - - - 7 - 118 - - - 125
Change in pension
liability
adjustment - - - - - - - - - (184) (184)
Income tax benefit
of non-qualified
stock option
exercises - - - - 94 - - - - - 94
-----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1998 80,000 1 18,311,288 183 17,917 7,444 (73) (377) (500) (184) 24,411
Net loss - - - - - (9,539) - - - - (9,539)
Dividends on
preferred stock - - - - - (596) - - - - (596)
Common stock
issued private
placement - - 1,331,149 13 4,539 - - - - - 4,552
Equity issuance
costs - - - - (1,173) - - - - - (1,173)
Issuance of stock
upon exercise of
stock options - - 201,750 2 167 - - - - - 169
Common stock
issued from
conversion
of preferred
stock (1,500) - 54,541 1 (1) - - - - - -
Change in pension
liability
adjustment - - - - - - - - - 184 184
Reduction of
unallocated
ESOP shares - - - - 7 - 73 - - - 80
Income tax
benefit of
non-qualified
stock option
exercise - - - - 118 - - - - - 118
-----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 1999 78,500 1 19,898,728 199 21,754 (2,691) - (377) (500) - 18,206
Net loss - - - - - (16,744) - - - - (16,744)
Dividends on
preferred stock - - - - - (588) - - - - (588)
Equity issuance
costs - - - - (33) - - - - - (33)
Warrants issued
in connection
with convertible
subordinated debt - - - - 166 - - - - - 166
Issuance of stock
upon exercise
of stock options - - 18,750 - 37 - - - - - 37
Common stock issued
from conversion
of preferred
stock (100) - 3,636 - - - - - - - -
-----------------------------------------------------------------------------------------------------------------
Balance,
September 30, 2000 78,400 $ 1 19,921,114 $ 199 $21,744 $ (20,023) $ - $ (377) $ (500) $ - $ 1,044
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended September 30,
2000 1999 1998
----------------- ---------------- ----------------
Net sales $ 67,725 $ 61,422 $ 57,646
Cost of sales 51,746 44,338 38,278
----------------- ---------------- ----------------
Gross margin 15,979 17,084 19,368
Operating expenses:
Acquired-in process research and development - 1,750 -
Research and development 6,713 3,424 2,778
Selling 1,876 1,997 2,065
Administration 8,938 7,666 5,534
Loss from impairment of assets - 5,278 -
----------------- ---------------- ----------------
Total operating expenses 17,527 20,115 10,377
Earnings (loss) from continuing operations (1,548) (3,031) 8,991
Other (income) expenses:
Interest income (231) (343) (297)
Interest expense 3,010 2,154 1,805
Other (income) expense (154) 85 -
Equity interest in loss of affiliate 5,044 488 506
----------------- ---------------- ----------------
Total other expenses 7,669 2,384 2,014
----------------- ---------------- ----------------
Earnings (loss) from continuing operations before income taxes (9,217) (5,415) 6,977
Income tax (benefit) expense 7,527 (1,487) 2,366
----------------- ---------------- ----------------
Net earnings (loss) from continuing operations (16,744) (3,928) 4,611
Discontinued operations:
Net loss from operations of the agricultural equipment segment - - (1,271)
Net loss on disposal of the agricultural equipment segment,
including $638 and $496 for operating losses during
phase-out period, respectively - (5,611) (1,403)
Net loss on disposal of automotive accessories segment,
including $387 for operating losses during phase-out
period - - (1,625)
----------------- ---------------- ----------------
Net loss from discontinued operations - (5,611) (4,299)
----------------- ---------------- ----------------
Net earnings (loss) (16,744) (9,539) 312
Dividends on preferred stock (588) (596) (270)
----------------- ---------------- ----------------
Net earnings (loss) allocable to common shareholders $ (17,332) $ (10,135) $ 42
================= ================ ================
Earnings (loss) per common share from continuing operations - $ (0.88) $ (0.24) $ 0.24
----------------- ---------------- ----------------
Loss per common share from discontinued operations - basic $ - $ (0.30) $ (0.24)
----------------- ---------------- ----------------
Net earnings (loss) per common share - basic $ (0.88) $ (0.54) $ 0.00
----------------- ---------------- ----------------
Weighted average shares used in per share calculation - basic 19,788,031 18,603,057 17,922,558
================= ================ ================
Earnings (loss) per common share from continuing
operations - diluted $ (0.88) $ (0.24) $ 0.23
----------------- ---------------- ----------------
Loss per common share from discontinued operations - diluted $ - $ (0.30) $ (0.23)
----------------- ---------------- ----------------
Net earnings (loss) per common share - diluted $ (0.88) $ (0.54) $ 0.00
----------------- ---------------- ----------------
Weighted average shares used in per share calculation - diluted 19,788,031 18,603,057 19,808,460
================= ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
For the year ended September 30,
2000 1999 1998
----------- ------------ ------------
Net earnings (loss) $ (16,744) $ (9,539) $ 312
Change in pension liability
adjustment - 184 (184)
----------- ------------ ------------
Comprehensive income (loss) $ (16,744) $ (9,355) $ 128
=========== ============ ============
The accompanying notes are an integral part of these statements.
22
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended September 30,
2000 1999 1998
----------- ---------- ----------
Cash flows from operating activities:
Net earnings (loss) $(16,744) $ (9,539) $ 312
Adjustments to reconcile net earnings (loss) to net cash provided by
continuing operations:
Loss from discontinued operations - 5,611 4,299
Depreciation and amortization 3,189 2,056 1,406
Equity interest in loss of affiliate 5,044 488 506
Deferred income taxes 6,896 (2,565) (96)
Acquired in-process research and development - 1,750 -
Loss from impairment of assets - 5,278 -
Changes in working capital of continuing operations, net of
acquisition:
Receivables (458) (141) (3,739)
Inventories 1,819 974 (2,213)
Accounts payable and accrued expenses 2,696 3,277 722
Other 494 475 886
----------- ---------- ----------
Net cash provided by operating activities of continuing operations 2,936 7,664 2,083
Cash flows from investing activities:
Investment in and loans to affiliate - (500) (2,292)
Proceeds from sale of building - 1,192 -
Investment in note receivable - (575) (3,200)
Payment for acquisition of ProActive - (6,350) -
Payments for property, plant and equipment (2,343) (2,948) (2,685)
Other, net 43 - -
----------- ---------- ----------
Net cash used in investing activities of continuing (2,300) (9,181) (8,177)
Cash flows from financing activities:
Proceeds from long-term debt 1,800 5,592 4,201
Repayments of long-term debt and capital lease obligations (5,898) (3,987) (2,079)
Net proceeds from issuance of convertible subordinated debt 1,965 - -
Net proceeds from issuance of common stock for private placement and
upon exercise of stock options 3 3,548 62
Preferred dividends (588) (596) (270)
Issuance of preferred stock - - 7,337
----------- ---------- ----------
Net cash provided by (used in) financing activities of continuing
operations (2,718) 4,557 9,251
Cash flows from discontinued operations:
Proceeds from sale of Automotive Accessories segment - - 1,124
Proceeds from sale of Agricultural Equipment segment 1,460 - -
Net cash used in operations (1,671) (1,998) (3,700)
----------- ---------- ----------
Net cash used in discontinued operations (211) (1,998) (2,576)
----------- ---------- ----------
Net increase (decrease) in cash and cash (2,293) 1,042 581
Cash and cash equivalents at beginning of period 2,323 1,281 700
----------- ---------- ----------
Cash and cash equivalents at end of period $ 30 $ 2,323 $ 1,281
=========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 2,677 $ 1,993 $2,189
Income taxes paid $ 122 $ 503 $ 90
=========== ========== ==========
</TABLE>
The non-cash activity related to the Company's investing activity is described
in notes 4 and 12 and 20, non-cash activity related to the Company's financing
activity is described in note 6 and non-cash activity related to the Company's
acquisition is described in note 19.
The accompanying notes are an integral part of these statements.
23
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999 and 1998
(Dollars in thousands, except share and per share amounts)
Note 1. Summary of Operations and Current Events
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"); 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
herein referred to as the "Company" or "Registrant". The subsidiaries are
detailed as follows:
Vehicle Components
------------------
Williams Controls Industries, Inc.: Manufactures vehicle components sold
primarily in the commercial vehicle industry.
ProActive Acquisition Corporation: Conducts research and development activities
related to adjustable foot pedals and manufactures electronic throttle controls
and adjustable pedal systems for passenger vehicles.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry. In July 2000, an agreement to sell Premier Plastic
Technologies was signed. See Note 15 of Notes to Consolidated Financial
Statements.
NESC Williams, Inc.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
Williams Technologies, Inc.: Supports all subsidiaries of the Company by
providing research and development and developing strategic business
relationships to promote "technology partnering".
Williams World Trade, Inc.: Located in Kuala Lumpur, Malaysia, WWT managed
foreign sourcing for subsidiaries of the Company, affiliates and third party
customers. Significant portions of WWT's revenues were derived from Ajay Sports,
Inc., an affiliate. This subsidiary ceased operations in fiscal 2000.
Electrical Components and GPS
-----------------------------
Aptek Williams, Inc.: Develops and produces sensors, microcircuits, cable
assemblies and other electronic products for the telecommunications and the
transportation industry, and conducts research and development activities to
develop commercial applications of sensor related products for the electronics
and automotive markets.
GeoFocus, Inc.: Develops train tracking and cyber-farming systems using global
positioning systems ("GPS") and geographical information systems ("GIS"). A
letter of intent to sell Geo Focus, Inc. was signed in October 2000. See Note 12
of Notes to Consolidated Financial Statements.
Agricultural Equipment
----------------------
The operations of the subsidiaries comprising the Agricultural Equipment segment
were sold in May 2000 and had previously been reported as discontinued
operations.
Agrotec Williams, Inc.: Manufactured spraying equipment for the professional
lawn care, nursery and pest control industries.
24
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Hardee Williams, Inc.: Manufactured equipment used in farming, highway and park
maintenance.
Waccamaw Wheel Williams, Inc.: Manufactured solid rubber tail wheels and other
rubber products used on agricultural equipment, from recycled truck and bus
tires.
Automotive Accessories
----------------------
Kenco/Williams, Inc.: Manufactured, assembled, packaged and distributed truck
and auto accessories for the after market parts industries. Substantially all of
the assets of Kenco were sold in fiscal 1998.
Current Events
--------------
Going Concern Matters
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements during the years ended September 30, 2000, 1999 and 1998,
the Company incurred (losses) income of ($16,744), ($9,539) and $312,
respectively. In addition, accounts payable has increased from $9,223 at
September 30, 1999 to $11,363 at September 30, 2000; working capital has
decreased from $8,912 at September 30, 1999 to a deficit of ($17,678) at
September 30, 2000; and stockholders' equity has decreased from $18,206 at
September 30, 1999 to $1,044 at September 30, 2000. Also, as described in Note 6
to Consolidated Financial Statements, the Company was not in compliance with the
covenants of its credit agreement at September 30, 2000. The credit agreement
with the Company's primary bank matures on July 11, 2001, the Company has
extended the debt due with another bank and the Company is in default on the
payment of certain bank debt as discussed in Note 6 to Consolidated Financial
Statements; as a result, the Company has classified its debt owed to its primary
bank as a current liability at September 30, 2000. Subsequent to September 30,
2000, the Company reached the borrowing capacity under its credit agreement and
required an overadvance from its primary bank to support operations. Due to the
lack of borrowing capacity under the credit facility, the Company's working
capital deficit, the Company's debts, including accounts payable, and other
factors as outlined herein, the Company has a significant lack of liquidity.
Accordingly, the Company's continuation as a going concern is dependent upon,
among other things, its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms of its credit agreement,
to obtain additional financing or refinancing as may be required, and ultimately
to attain profitability.
After reviewing its working capital needs, management of the Company estimates
that additional working capital for fiscal 2001 of approximately $7,000 will be
needed. Management is reviewing how it might reduce the amount of working
capital needed and is pursuing alternatives to raise capital, both debt and/or
equity. In addition, the Company is reviewing the sale of non-strategic assets
and has engaged an investment banking firm to investigate alternatives available
to it, including selling all or part of the Company to a third party, obtaining
bridge financing to enable the Company to continue operating until such time as
a buyer can be identified or sufficient equity and/or debt financing can be
raised to support the operations of the Company.
There is no assurance that the Company will be able to obtain adequate working
capital in the amounts needed to sustain its operations or sell its business or
parts of it in a timely fashion.
The above matters raise a substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
25
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 2. Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include all
of the accounts of Williams Controls, Inc. and its majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents - All short-term highly liquid investments purchased
with maturity at purchase of three months or less are considered to be cash
equivalents.
Inventories - Inventories are valued at the lower of standard cost, which
approximates actual cost, or market.
Property, Plant and Equipment - Land, buildings, equipment and improvements to
existing facilities are recorded at cost. Maintenance and repairs are expensed
as incurred. Depreciation has been computed using the straight-line method over
the estimated useful lives of property and equipment as follows: buildings 31.5
years, furniture, machinery and equipment 3 to 12 years. Capitalized leases are
amortized using the same method over the shorter of the estimated useful lives
or the lease term.
Goodwill and Intangible Assets - Goodwill, which represents the excess of cost
over net assets of acquired companies, is being amortized using the
straight-line method over periods from 15 to 40 years. At each balance sheet
date, management assesses whether there has been an impairment in the carrying
value of cost in excess of net assets of businesses acquired, primarily by
comparing current and projected sales, operating income and annual cash flows,
on an undiscounted basis, with the related annual amortization expenses as well
as considering the equity of such companies. Other intangible assets includes
developed technology which is being amortized on a straight line basis over the
estimated useful life of the asset, or seven years. In addition, intangible
assets include the cost of a patent license agreement, which is being amortized
on a straight line basis over the shorter of the legal or estimated useful life
of the asset, which is eleven years.
Concentration of Risk - The Company invests a portion of its excess cash in debt
instruments of financial institutions with strong credit ratings and has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. The Company has not experienced any losses on its cash
equivalents.
The Company sells its products to customers in diversified industries worldwide;
however, approximately 96% of its sales from continuing operations are to
customers in the Vehicle Components segment. Approximately 60% of the Company's
sales from continuing operations are electronic throttle controls ("ETC").
For the years ended September 30, 2000, 1999 and 1998, Freightliner accounted
for 23%, 27% and 21%, Navistar accounted for 12%, 15% and 16%, Evart Corporation
accounted for 9%, 1% and 0%, Volvo accounted for 6%, 8% and 9% and General
Motors accounted for 6%, 5% and 3% of net sales from continuing operations,
respectively. Approximately 15%, 20% and 15% of net sales from continuing
operations in fiscal 2000, 1999 and 1998, respectively, were to customers
outside of the United States, primarily in Canada, Sweden and Mexico, to a
lesser extent, in Europe, South America and Australia. See Note 16 of Notes to
Consolidated Financial Statements.
Debt Issuance Costs - Costs incurred in the issuance of debt financing are
amortized over the term of the debt agreement, approximating the effective
interest method.
Revenue Recognition - The Company recognizes revenue upon shipment, when title
passes to the customer.
26
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Product Warranty - The Company provides a warranty covering defects arising from
products sold. The warranty is limited to a specified time period, mileage or
hours of use, and varies by product and application. The Company has provided a
reserve, which in the opinion of management is adequate to cover such warranty
costs.
Research and Development Costs - Research and development costs are expensed as
incurred.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statement of operations in the period that includes the enactment
date.
Post-retirement Benefits - Statement of Financial Accounting Standards ("SFAS")
No. 106, "Employers' Accounting for Post Retirement Benefits Other than
Pensions" requires the Company to accrue retiree insurance benefits over the
period in which employees become eligible for such benefits. The Company
implemented SFAS No. 106 by amortizing the transition obligation over twenty
years.
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.
27
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Following is a reconciliation of basic EPS and diluted EPS from continuing
operations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended
September 30, 2000 September 30, 1999
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
---------- ----------- -------- --------- ----------- --------
Loss from continuing
operations $ (16,744) $ (3,928)
Less - Preferred stock
dividends (588) (596)
---------- ---------
Basic EPS-
Earnings (loss)
allocable to
common shareholders (17,332) 19,788,031 $ (0.88) (4,524) 18,603,057 $ (0.24)
--------- ---------
Effect of dilutive
securities-
Stock options
and warrants - - - -
Convertible
preferred stock - - - -
Convertible
subordinated
debt - - - -
---------- ---------- --------- ----------
Diluted EPS-
Earnings (loss)
allocable to
common shareholders $ (17,332) 19,788,031 $ (0.88) $ (4,524) 18,603,057 $ (0.24)
========== ========== ======== ========= ========== ========
Year Ended
September 30, 1998
Per
Share
Loss Shares Amount
---------- ----------- --------
Earnings from continuing
operations $ 4,611
Less - Preferred stock
dividends (270)
----------
Basic EPS-
Earnings allocable
to common
shareholders 4,341 17,922,558 $ 0.24
--------
Effect of dilutive
securities-
Stock options
and warrants - 564,766
Convertible
preferred stock 270 1,321,136
---------- -----------
Diluted EPS-
Earnings allocable
to common
shareholders $ 4,611 19,808,460 $ 0.23
========== ========== ========
</TABLE>
At September 30, 2000, 1999 and 1998, the Company had options and warrants
covering 3,690,629, 3,548,797 and 582,236 shares, respectively of the Company's
common stock outstanding that were not considered in the respective diluted EPS
calculations since they would have been antidilutive. In 2000 and 1999,
conversion of the preferred shares, and in 2000, conversion of the convertible
subordinated debt, would have been anti-dilutive and, therefore, was not
considered in the computation of diluted earnings per share.
28
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Reclassifications - Certain amounts previously reported in the 1999 and 1998
financial statements have been reclassified to conform to 2000 financial
statement classifications.
Fair Value of Financial Instruments - The carrying values of the Company's
current assets and liabilities approximate fair values primarily because of the
short maturity of these instruments. The fair values of the Company's long-term
debt approximated its carrying values because the debt is primarily variable
rate debt. The fair value of preferred stock and receivables from an affiliate
is not practicable to estimate due to the related party nature of the underlying
transaction. The carrying value of the convertible subordinated debt, excluding
the value of warrants recorded as debt discount, approximates fair value due to
its recent issuance.
Stock-Based Compensation - SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") allows companies to choose whether to account for
stock-based compensation on a fair value method, or to continue accounting for
such compensation under the method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The
Company has chosen to continue to account for stock-based compensation using APB
25 (see Note 13 of Notes to Consolidated Financial Statements).
Recent FASB Pronouncements - In June 2000 the FASB issued Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 138"). 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 133 and 138 establish accounting and reporting
standards for all derivative instruments. SFAS 133 and 138 are effective for
fiscal years beginning after June 15, 2000. The Company has made a preliminary
assessment of its potential derivative instruments and, based on that assessment
does not expect the adoption of SFAS 133 and 138 will have any material impact
on the Company's financial position or results of operations.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Management makes these
estimates using the best information available at the time the estimates are
made; however, actual results could differ materially from these estimates.
Note 3. Inventories
Inventories consist of the following at September 30:
2000 1999
------- -------
Raw materials $ 6,108 $ 6,867
Work in process 1,088 697
Finished goods 820 2,264
------- -------
$ 8,016 $ 9,828
======= =======
Finished goods include finished product ready for shipment.
29
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 4. Investment in and Receivables from Affiliate
At September 30, 2000 the Company had notes and accounts receivable from Ajay
Sports, Inc. ("Ajay") with a carrying value of $2,115, including a $500 note
receivable, reflected as a reduction in the Company's shareholders' equity,
relating to the issuance of 206,719 shares of the Company's common stock to
Ajay. Ajay manufactures and distributes golf accessories and outdoor leisure
furniture primarily to retailers in the United States and during 1999, purchased
ProGolf Discount ("Pro Golf"), a franchisor of golf equipment and accessories
retail stores. The Company has manufacturing rights in certain Ajay facilities
through 2002 under a joint venture agreement. On June 1, 2000 Ajay adopted a
strategic plan calling for the liquidation of its Delavan, Wisconsin operations
(Ajay Leisure Products, Inc., Palm Springs Golf Inc., and Prestige Golf Inc.)
and the sale of its Baxter, Tennessee operation (Leisure Life, Inc.). During
June 2000, Ajay closed its Mexicali, Mexico facility and in August 2000,
completed the closing of the Wisconsin facility.
The Company's note and accounts receivable from affiliate at September 30, 2000
is comprised of a secured note receivable with a carrying amount of $1,020 and
accounts receivable of $595. In addition, the Company could be obligated to
advance to Ajay up to an additional $1,515 under the terms of an intercreditor
agreement. The chairman of the Company has provided a guarantee of certain of
the loans to Ajay. The accounts receivable due from Ajay are for unpaid interest
and fees incurred during the years ended September 30, 2000 and 1999. At
September 30, 1999 the Company had an investment in Ajay preferred stock, note
and accounts receivable with carrying amounts of $4,565, $1,587 and $246,
respectively.
Prior to July 11, 1997, the Company had guaranteed Ajay's $13,500 credit
facility and charged Ajay a fee of 1/2 of 1% per annum on the outstanding loan
amount for providing this guaranty. From July 11, 1997 through June 30, 1998,
the Company and Ajay had a joint and several loan obligation to a bank. On June
30, 1998, the Company restructured its investment in Ajay (the "Ajay
Restructuring"). The objective of the Ajay Restructuring was to separate the
Company's and Ajay's financing, eliminate Ajay's dependency on the Company for
capital and provide Ajay with adequate working capital to grow its operations
and improve shareholder value, which would benefit the Company. The
restructuring provides Ajay three years to improve shareholder value at which
time the notes receivable become due and payable. No dividends are accrued and
payable on the preferred stock through July 31, 2001. The preferred stock
dividend rate increases to an annual rate of 17% in 2001 and 24% in 2002, rates
which the Company believes would require Ajay to raise capital from new sources
to redeem the preferred stock.
As a result of the Ajay Restructuring, the bank provided separate loan
facilities to the Company and Ajay. As consideration to the bank for the
separate loan facilities, the Company provided Ajay $2,000 in additional capital
during 1998 which included the purchase of Ajay notes payable of $948 previously
provided by affiliated parties of the Company, and agreed to convert $5,000 of
advances to Ajay into a new cumulative convertible preferred stock. The
preferred stock is convertible into 3,333,333 shares of Ajay common stock.
The secured promissory notes bear an annual interest rate of 16% payable
monthly, subject to increase based upon a calculation provided for in the
agreement. In addition, Ajay has agreed to pay the Company annual administrative
fees of $90 and a management fee for sourcing products overseas in the amount of
$80 annually.
The Company owns 686,274 shares of common stock in Ajay, which represents
approximately 16% of Ajay's outstanding common stock at September 30, 2000. In
addition, the company has options to purchase 1,851,813 shares of common stock
at an exercise price of $1.08. The investment is recorded on the equity method
of accounting due to the common ownership of Ajay and the Company by the
chairman of the Company, who is also the chairman of Ajay. For the three years
ended September 30, 2000, 1999, and 1998, the Company reported losses on its
investment in Ajay in the amount of $5,044, $488, and $506, respectively. During
the year ended September 30, 2000, the Company applied the provisions of
Emerging Issues Task Force 99-10 "Percentage Used to Determine the Amount of
Equity Method Losses" ("EITF 99-10") in the calculation of Equity Interest in
Loss of Affiliate in the Consolidated Financial Statements. This pronouncement
provides for the percentage of ownership to be determined by the liquidation
order of the investment held to the total of each particular level of investment
held by the investor contained in the financial statements of the investee. For
the years ended September 30, 1999 and 1998, the Equity Interest in Loss of
Affiliate was computed utilizing the percentage of common stock ownership held
30
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
by Williams in Ajay. The effect of EITF 99-10 in 2000 was to substantially
increase the Company's equity interest in loss of affiliate from amounts that
would have been recorded using only the percentage of common stock ownership.
During 1999, the investment in Ajay common stock was reduced to zero in the
Consolidated Balance Sheet as a result of the Company's equity interest in
Ajay's losses since acquisition. During the year ended September 30, 2000 and
1999, the Company's investment in Ajay's preferred stock was reduced by $4,565
and $435, respectively, as a result of continuing recognition of the Company's
equity interest in Ajay's losses. In addition, during the year ended September
30, 2000, the Company's investment in note receivable from Ajay was reduced from
$1,587 to $1,020, as a result of continuing recognition of the Company's equity
interest in Ajay's losses.
Based upon the closing bid price, the market value of the investment in Ajay
common shares was approximately $182 at September 30, 2000.
Following is a summary of condensed unaudited financial information of Ajay as
of and for the twelve months ended September 30, 2000, 1999 and 1998.
2000 1999 1998
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
Current assets $ 2,539 $ 9,193 $ 9,584
Other assets 29,093 15,243 4,212
----------- ----------- -----------
$31,632 $24,436 $13,796
=========== =========== ===========
Current liabilities $ 2,276 $ 4,949 $ 2,030
Other liabilities 25,796 18,128 8,003
Common and preferred
shareholders' equity 3,560 1,359 3,763
----------- ----------- -----------
$31,632 $24,436 $13,796
=========== =========== ===========
Loss, including loss
from discontinued
operations, before
income tax benefit $(9,956) $(2,713) $(2,858)
=========== =========== ===========
At September 30, 2000, Ajay had approximately 4,120,000 common shares
outstanding. In addition to the company's options and convertible preferred
stock at September 30, 2000, Ajay had outstanding preferred stock that is
convertible to approximately 1,686,000 shares of Ajay common stock and
outstanding options and warrants to purchase approximately 834,000 shares of
Ajay common stock at prices ranging from $1.08 to $6.00 per share (unaudited).
An officer of Ajay provided management services to the Company as an officer of
the Company. Ajay was reimbursed approximately $114 in total for his fiscal 1999
and 1998 time and services. The Company accepted the officer's resignation in
December 1998.
31
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 5. Goodwill and Intangible Assets
At September 30, goodwill and intangible assets consist of the following:
2000 1999
------------ ------------
Goodwill $ 2,955 $ 2,955
Developed technology 1,820 1,820
Patent and patent license agreement 1,439 1,439
Less accumulated amortization (1,049) (450)
------------ ------------
$ 5,165 $ 5,764
============ ============
Amortization expense on intangible assets was $599, $173 and $85 for the years
ended September 30, 2000, 1999 and 1998, respectively.
Note 6. Financing Arrangements
Debt - On June 30, 1998, the Company restructured its credit facility with a
bank (the "Bank") to consist of a revolving credit facility of up to $16,500, a
$3,100 term loan (Term Loan I) and a $2,700 real estate loan. In December 1998,
the Company borrowed $2,500 under Term Loan II. In July 1999, the Company
borrowed $2,500 under Term Loan III. In February 2000, the Company borrowed
$1,000 as an overadvance (Term Loan IV) of its credit agreement. Under the
revolver, the Company can borrow up to $14,000 (as per amendment to the credit
agreement) based upon a borrowing base availability calculated using specified
percentages of eligible accounts receivable and inventory. The revolver bears
interest at the Bank's prime rate plus 2.00% (11.50% at September 30, 2000.) The
Real Estate and Term Loan I loans bear interest at the Bank's prime rate plus
2.25% and Term Loan III and an overadvance bear interest at the banks prime rate
plus 3.25%. The loans under the revolving credit facility mature on July 11,
2001. The Real Estate loan is being amortized over twenty years and Term Loan I
is being amortized over seven years with all remaining principal outstanding due
at July 11, 2001. The advance under Term Loan II was repaid during 2000. Term
Loan III is being amortized over eighteen months, with an original maturity date
of February 2000. The overadvance is non-amortizing with an original maturity
of July 15, 2000. Subsequent amendments to the credit agreement provide for
payment by November 15, 2000, of both Term Loan III and the overadvance. The
Company did not repay Term Loan III or the overadvance as per the amended due
date, and is in default under the terms of the credit agreement under this
provision. All loans are secured by substantially all of the assets of the
Company.
The loan agreement prohibits payment of dividends by the Company except for the
Series A Preferred dividend, and requires the Company to maintain minimum
working capital of $12,000 and minimum tangible net worth, as defined, of
$11,500. The loan also prohibits additional indebtedness and common stock
repurchases except for through the use of proceeds from stock options exercised,
and restricts capital expenditures to an amount not to exceed $10,500 for the
two years ended September 30, 1999 and not to exceed $2,500 annually thereafter.
In addition, the loan limits incremental operating lease obligations to $600
annually. Fees under the loan agreement include an unused revolver fee of .25%
and a prepayment penalty fee declining from 3% in 1998 to .5% in the year 2001.
The prepayment fee is waived if the loan is repaid with proceeds from the sale
of assets or is refinanced with an affiliate of the Bank. At September 30, 2000,
the Company was not in compliance with its debt covenants for debt with the Bank
and was in default on debt payments to the Bank for Bank Term Loans III and IV.
No waivers have been obtained and the default has not been cured. Accordingly,
all of the debt with the Bank of $20,362 has been classified as current
liabilities in the accompanying Consolidated Balance Sheet at September 30,
2000.
From July 11, 1997 through June 30, 1998, the Company and Ajay had a joint and
several loan with the Bank. Under the restructured facility, all joint and
several liability, cross collateral agreements and guarantees of the Company
with respect to the Ajay portion of the credit facility prior to the
restructuring have been terminated. In consideration to the Bank for the
restructured facility, the Company agreed to invest $2,000 in Ajay and convert
$5,000 of advances to Ajay into preferred stock.
32
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Prior to July 11, 1997, the Company had guaranteed the bank debt of Ajay with a
previous lender which debt was in default under Ajay's loan agreement. The
Company and Ajay refinanced their bank debt on July 11, 1997 with the Bank under
a $34,088 three-year revolving joint and several liability credit and term loan
agreement. As a result of a shortfall in Ajay's available collateral, the
previous lender provided bridge financing of $2,340 to Ajay under an
inter-creditor agreement. The bridge loan is to be repaid from any proceeds from
the sale of Kenco, the sale of other assets, from a specified percentage of
future Ajay and Company cash flow and from monthly principal payments by Ajay.
The balance of the bridge loan was $1,515 at September 30, 2000.
The Company's long-term debt consists of the following at September 30:
2000 1999
-------- --------
Bank revolving credit facility $ 12,547 $ 14,278
due July 11, 2001; balance bearing
interest at a variable rate of 11.50%
at September 30, 2000.
Bank Term Loan I, due July 11, 2001, 3,595 3,426
balance bearing interest at a
variable interest rate of 11.75% at
September 30, 2000, payable in
monthly installments of $47 through
November then increasing to $137
commencing on December 1, 2000,
with remaining balance of $2,405
due at maturity.
Bank Term Loan II, balance paid on
July 1, 2000 - 709
Bank Term Loan III, due November 15, 972 2,500
2000 with variable interest rate
of 12.75% at September 30, 2000,
payable in monthly installments of
$139 with remaining balance of $694
due at maturity.
Bank Term Loan IV, due November 15, 1,000 -
2000 with variable interest rate of
12.75% at September 30, 2000,
with principal and accrued
interest payable at maturity.
Bank Real Estate loan, due July 11, 2,248 2,381
2001, variable interest rate 11.75%
at September 30, 2000, payable in
monthly installments of $11, with
remaining balance of $2,138 due at
maturity.
Unsecured debt, due February 1, 2005, 700 700
variable interest rate (10.5% at
September 30, 2000), interest only,
balance due at maturity.
Real Estate loan, due October 15, 2001, 467 570
variable interest rate (11.5% at September
30, 2000), payable in monthly installments
of $8, with remaining balance of $367 due
at maturity.
Other - 5
------------ -------------
21,529 24,569
Less current portion 20,462 4,188
------------ -------------
$ 1,067 $ 20,381
============ ============
33
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Maturities of long-term debt at September 30, 2000, reflecting debt in default
as current, are as follows:
2001 $ 20,462
2002 367
2003 -
2004 -
2005 700
Thereafter -
--------
$ 21,529
========
Capital Leases - The Company has acquired certain assets, primarily machinery
and equipment, through capital leases. The leases have terms ranging from three
to seven years, and are payable in monthly and quarterly installments with
interest (at rates ranging from 7.5% to 10.5%).
Future minimum lease payments under capital leases are as follows for the years
ending September 30:
2001 1,691
2002 1,644
2003 956
2004 765
2005 535
Thereafter 34
------
Total future minimum lease payments 5,625
Less - amount representing interest 785
------
Present value of future minimum lease payments 4,840
Less - current portion 1,340
------
$3,500
======
During 2000 and 1999, the Company incurred additional capital leases of $458 and
$1,819, respectively. Capital lease obligations totaled $5,367 at September 30,
1999. The current portion of capital lease obligation totaled $1,005 at
September 30, 1999. Capital lease obligations, all of which were incurred in
fiscal 1998, totaled $4,146 at September 30, 1998.
Convertible Subordinated Debt - In April, 2000, the Company issued 7.5%
convertible subordinated debentures in an aggregate principal amount of $2,140,
due March 31, 2003 including $140 issued in lieu of the underwriting fee. Net
proceeds to the Company after expenses, excluding the value of warrants issued,
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
34
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
which such purchaser's debenture is convertible. The exercise price of the
warrants is $2.375 per share. 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. The
exercise price of the placement agent warrants is $2.40 per share. The fair
value of warrants issued, totaling $166, is included as "Warrants issued in
connection with convertible subordinated debt" in the accompanying Consolidated
Statements of Shareholders' Equity with an offset of $110 against the
"Convertible Subordinated Debt" for the warrants issued to debenture holders and
an increase of $56 in other assets for the placement agent warrants in the
accompanying Consolidated Balance Sheet. The discount of the debentures and the
debt issuance costs are being amortized using the effective interest method over
the lives of the debentures.
The conversion price for the convertible subordinated debt shall be adjusted if
the Company sells or distributes common stock, options or warrants to purchase
common stock or securities convertible into common stock at a price below the
conversion price of the convertible subordinated debt, subject to certain
exceptions defined in the agreement. The formula for adjustment is as defined in
the agreement.
Upon a change in control, each holder of convertible subordinated debt, within
15 days of the change in control, may elect to accelerate the maturity date of
the convertible subordinated debt held by such holder to a date not less than 30
but not more than 45 days after the date of notice by the Company of the change
in control.
In the event of default by the Company on any debt agreement in excess of
$250,000, a holder owning 15% or more of the convertible subordinated debt may,
at their option, declare the principal and accrued interest due and payable
immediately. No holders own 15% or more of the convertible subordinated debt and
therefore the default by the Company on certain of its debt payments with its
primary Bank has had no impact on the maturity date of the convertible
subordinated debt.
Note 7. Patent License Agreement
In conjunction with the acquisition in 1999 of the ProActive Pedals division of
Active Tool & Manufacturing Co., Inc., (Note 19) the Company entered into a
patent license agreement with a private inventor, under which the Company holds
an exclusive, worldwide license for three patents covering adjustable foot
pedals. The license agreement remains in effect for the life of the patents. The
Company paid an initial license fee of $600 and the agreement requires yearly
minimum payments of $95 to the inventor for a period of approximately ten years.
Accrued minimum royalties consist of the following at September 30:
2000 1999
-------------- -------------
Minimum future royalties $ 950 $ 1,045
Less imputed interest (389) (406)
-------------- -------------
Present value of payments 561 639
Less current portion included in
Accrued expenses (34) (78)
-------------- -------------
Long-term portion included in
Other Liabilities $ 527 $ 561
============== =============
Note 8. Pension Plans
The Company maintains two pension plans; one plan covers salaried employees and
the other plan covers the Company's hourly employees. Annual net periodic
pension costs under the pension plans are determined on an actuarial basis. The
Company's policy is to fund these costs accrued over 15 years and obligations
arising due to plan amendments over the period benefited. The assets and
liabilities are adjusted annually based on actuarial results.
35
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Salaried Employees Plan Hourly Employees Plan
September 30, 2000 1999 2000 1999
------------------------------- ------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,546 $ 3,300 $ 3,732 $ 3,792
Service cost 147 103 159 133
Interest cost 269 219 283 251
Actuarial (gain) (560) 42 (221) (313)
Benefits paid (144) (118) (139) (131)
------------------------------- ------------------------------
Benefit obligation at end of year $ 3,258 $ 3,546 $ 3,814 $ 3,732
------------------------------- ------------------------------
</TABLE>
36
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Salaried Employees Plan Hourly Employees Plan
September 30, 2000 1999 2000 1999
------------------------------- ------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 3,191 $ 2,916 $ 3,608 $ 3,180
Actual return on plan assets 308 393 244 559
Benefits paid (144) (118) (139) (131)
------------------------------- ------------------------------
Fair value of plan assets at end of year $ 3,355 $ 3,191 $ 3,713 $ 3,608
------------------------------- ------------------------------
Funded status 97 (355) (101) (124)
Unrecognized actuarial (gain) loss (381) 209 (272) (123)
Unrecognized prior service cost (102) (114) 250 292
------------------------------- ------------------------------
Net amount recognized $ (386) $ (260) $ (123) $ 45
------------------------------- ------------------------------
Amounts recognized in the statement of Financial position consist of:
Prepaid benefit cost $ - $ - $ - $ 45
Accrued benefit liability (386) (260) (123) (74)
Intangible asset - - - 74
------------------------------- ------------------------------
Net amount recognized $ (386) $ (260) $ (123) $ 45
------------------------------- ------------------------------
Weighted-average assumptions as of September
30, 2000 1999 2000 1999
------------------------------- ------------------------------
Discount rate 7.75% 8.00% 7.75% 8.00%
Expected return on plan assets 9.00 9.00 9.00 9.00
Rate of compensation increase 4.00 4.00 - -
Salaried Employees Plan Hourly Employees Plan
2000 1999 1998 2000 1999 1998
--------------------------------- -----------------------------
Components of net periodic benefit cost for
the years ended September 30:
Service Cost $ 147 $ 103 $ 105 $ 159 $ 133 $ 129
Interest Cost 269 219 213 283 251 266
Expected return on plan assets (278) (257) (273) (315) (280) (307)
Amortization of prior service cost (12) (12) (12) 41 41 41
Amortization of (gain) loss - - - - 7 -
--------------------------------- -----------------------------
Net periodic benefit cost $ 126 $ 53 $ 33 $ 168 $ 152 $ 129
--------------------------------- -----------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and the fair
value of plan assets for the hourly employees plan with accumulated benefit
obligations in excess of plan assets were $3,732, $3,637 and $3,608,
respectively as of September 30, 1999.
37
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 9. Property, Plant and Equipment
At September 30, 2000 and 1999, property, plant and equipment consist of the
following:
2000 1999
------- -------
Land and land improvements $ 2,545 $ 2,499
Buildings 7,953 6,241
Machinery and equipment 16,791 15,966
Office furniture and equipment 8,516 4,368
------- -------
$35,805 $29,074
Less accumulated depreciation (14,319) ( 8,299)
------- -------
$21,486 $20,775
======= =======
Capital leases for machinery and equipment and office furniture and equipment
included above were $5,257 and $6,490 at September 30, 2000 and 1999,
respectively. Accumulated depreciation on capital leases was $1,092 and $673 at
September 30, 2000 and 1999, respectively.
Note 10. Impairment of Assets
During the year ended September 30, 1999 the Company recognized a $5,278 loss
from the impairment of assets related to Kenco, the Company's former Automotive
Accessories segment, consisting of the following items:
Impairment of non-voting preferred stock and notes and
accounts receivable $4,655
Impairment of property 623
------
Total loss from impairment of assets $5,278
======
At the date the impairment loss was taken, the Company had non-voting preferred
stock and notes and accounts receivable related to Kenco of $797 and $3,858.
Since the sale of the operating assets of Kenco to Kenco Products, Inc. ("KPI")
in 1998, KPI has reported operating losses and experienced cash flow and other
financing difficulties. In addition, KPI has not made any payments on its notes
and accounts payable to the Company. In 1999, KPI filed for bankruptcy in
consideration of this and after evaluation of the business prospects of KPI and
its need for additional capital, the Company determined it was not probable that
it would recover the value of the preferred stock and notes and accounts
receivable, and an impairment loss totaling $4,655 was recorded for the year
ended September 30, 1999.
In addition, the Company recorded an impairment loss related to certain property
retained from the Kenco sale. The majority of the impairment loss for property
related to the sale in July 1999 of a building and land that were being leased
by KPI from the Company. This property was sold, and after retiring $891 of debt
secured by the property, resulted in cash proceeds of $1,192. The proceeds to
the Company, after deducting approximately $692 of expenses to assist in the
relocation of KPI and to ready the building for sale were paid to a previous
lender, on behalf of an affiliated company, under the terms of an intercreditor
agreement. The estimated loss on the sale of land and building, which has been
recorded in loss from impairment of assets, is $528.
38
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 11. Income Tax Expense (Benefit)
The provision for income tax expense (benefit) is as follows for the years ended
September 30:
2000 1999 1998
------ -------- -------
Continuing operations:
Current $ 631 $1,078 $2,462
Deferred 6,896 (2,565) (96)
------ -------- -------
7,527 (1,487) 2,366
Discontinued operations - (3,189) (2,932)
------ -------- -------
$7,527 $(4,676) $ (566)
====== ======== =======
The reconciliation between the effective tax rate and the statutory federal tax
rate on earnings (loss) from continuing operations as a percent for 1999 and
1998 is as follows:
1999 1998
-------- ------
Statutory federal income tax rate (34.0) 34.0
State taxes, net of federal income
tax benefit (4.0) 4.0
Credits for state income tax
refunds - (8.4)
Effect of change invaluation 8.8 3.2
allowance
Other 1.7 1.1
-------- ------
(27.5) 33.9
======== ======
The Company recorded an income tax expense of $7,527, as opposed to an expected
benefit, for the 2000 loss as a result of providing a 100% valuation allowance
on the net deferred tax assets.
39
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
----------------------------------
Deferred tax assets:
Inventories, due to obsolescence reserve and additional
costs inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 $ 394 $ 253
Warranty reserves 307 550
Accrual for compensated absences 177 130
Accrual for retiree medical benefits 856 689
Accounts receivable reserves 361 225
Estimated loss from writedown of assets of automotive
accessories segment - 1,824
Estimated loss on disposal of agriculture equipment segment 2,522 3,105
Equity interest in loss on affiliate 2,642 705
Tax gain on sale/leaseback 628 628
In-process research and development 627 672
Accrued other reserves 263 249
Federal net operating loss carryforwards 2,280 -
State net operating loss carryforwards 2,245 1,835
----------------------------------
Total deferred tax assets 13,302 10,865
Less valuation allowance (11,356) (2,310)
----------------------------------
Deferred tax assets, net of valuation allowance 1,946 8,555
----------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and amortization 1,946 1,659
----------------------------------
Net deferred income tax assets $ - $ 6,896
==================================
Current deferred income tax assets $ 4,024 $ 3,871
Long-term deferred income tax assets 9,278 6,994
Long-term deferred income tax liabilities (1,946) (1,659)
Valuation allowance (11,356) (2,310)
----------------------------------
$ - $ 6,896
==================================
</TABLE>
At September 30, 2000, the Company has approximately $6,700 of federal net
operating loss carryforwards which are available to the Company and expire
through 2019. At September 30, 2000, the Company has approximately $38,000 of
state net operating loss carry forwards which are available to the Company in
certain state tax jurisdictions and expire in 2006 through 2014. During the year
ended September 30, 2000, in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", the Company increased its
valuation allowance by $9,046 such that the net deferred tax assets are fully
reserved, due to the uncertain realizability of the amounts.
40
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 12. Sale of GeoFocus, Inc.
On October 25, 2000, the Company announced it had signed a letter of intent for
the sale of the GPS equipment subsidiary, GeoFocus, Inc. Proceeds are expected
to be $2,750 and the assumption of certain liabilities, with incentives that
could increase cash payment to $3,350 if certain operating objectives are met. A
gain is expected to be realized under the terms of the letter of intent.
Closing of the transaction is subject to customary closing conditions, and the
buyer's ability to obtain sufficient financing. The transaction has not been
completed and there is no assurance that the transaction will be completed. No
other plan to dispose of GeoFocus has been adopted. Accordingly, GeoFocus
continues to be consolidated in the accompanying consolidated financial
statements. Total assets of GeoFocus at September 30, 2000 were not material to
the consolidated financial statements. Net sales and loss from operations of
GeoFocus were $737 and $(561), respectively, for the year ended September 30,
2000.
Note 13. Shareholders' Equity
Common Stock - In July 1999, the Company completed a private placement of
1,244,065 shares of common stock of the Company and received net proceeds of
$3,379. In addition, 87,084 shares of the Company's common stock were issued in
lieu of the underwriting fee, for a total of 1,331,149 shares issued in
conjunction with the offering. For every share issued in the private placement,
the purchasing shareholders received warrants to purchase .35 common shares or
465,902 additional shares of common stock, at $3.125 per share. In addition, for
every share issued to the placement agent, the placement agent received warrants
to purchase .35 common shares, or 87,084 additional shares of common stock, at
$3.30 per share. The warrants issued may be exercised at any time over the next
five years. The fair value of such warrants and the shares in lieu of the
underwriting fee, totaling $1,118, is included in "Common stock issued in
private placement" with a corresponding charge to "Equity issuance costs" in the
accompanying Consolidated Statements of Shareholders' Equity.
Preferred Stock - In April 1998, the Company completed a private placement of
80,000 shares of Series A convertible redeemable preferred stock at $100 per
share, or $8,000 in gross proceeds and received net proceeds of $7,337. The
preferred stock bears a dividend rate of 7.5%, which is payable quarterly, and
was convertible at the option of the holder into 2,909,091 shares of the
Company's common stock. Dividends are cumulative and have preference over other
equity distributions. The preferred stock conversion price shall be adjusted if
the Company sells or distributes common stock, options or warrants to purchase
common stock or securities convertible into common stock at a price below the
preferred stock conversion price. The formula for adjustment is as defined in
the agreement. As a result of the issuance of the convertible subordinated debt
in April 2000, the preferred stock conversion price was adjusted to
approximately $2.70. The revised conversion price does not represent a
beneficial conversion feature to the holders of the preferred stock.
The preferred stock is redeemable at the Company's option anytime after April
21, 2001. The preferred stock is not mandatorily redeemable. In addition, the
Company can force conversion of the preferred stock into common shares if the
Company's common stock trades at or above $4.125 for twenty out of thirty
consecutive trading days. Holders of the Series A preferred stock are entitled
to a number of votes equal to those they would have assuming conversion into
common stock, without taking into account fractional shares. The preferred stock
has priority over other classes of capital stock upon liquidation.
The preferred stock also has change of control provisions that allow the holders
to, upon the occurrence of certain events, maintain the value of the preferred
stock or convert at the lower of the conversion price at the time of a
transaction or the price per share of common stock payable in the change of
control transaction.
41
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Commencing with the quarterly period beginning July 1, 2001, the annual dividend
rate will increase each quarter by 2.5% up to a maximum dividend of 24% per
annum. The Company used the proceeds of the offering to provide $3,200 of debt
financing to the purchaser of the Portland, Oregon manufacturing facility,
repayment of a bank term loan of $667 and an investment of $1,500 in Ajay. The
remaining balance was used for general working capital purposes.
Stock Options and Warrants - The Company had issued stock options and warrants
at exercise prices ranging from $.41 - $3.63 per share, the market value at the
date of issuance. All remaining unexercised options and warrants under this plan
expired in fiscal 2000. The stock option activity during the periods indicated
is as follows:
Shares
Subject to Option
Options Prices
---------- ----------
Outstanding at September 30, 1997 340,000 $0.41-3.63
Exercised (150,000) 0.41
---------- ----------
Outstanding at September 30, 1998 190,000 0.41-3.63
Exercised (150,000) 0.41
Cancelled (10,000) -
---------- ----------
Outstanding at September 30, 1999 30,000 3.63
Cancelled (30,000) 3.63
---------- ----------
Outstanding at September 30, 2000 - $ -
========== ==========
The Company currently has two qualified stock option plans. The Company adopted
the 1993 Stock Option Plan ("the 1993 Plan") which reserves an aggregate of
1,500,000 shares of the Company's common stock for the issuance of stock options
which may be granted to employees, officers and directors of and consultants to
the Company. Under the terms of the 1993 Plan, the Company may grant "incentive
stock options" or "non-qualified options" at not less than the fair market value
on the date of grant. Options granted under the 1993 Plan are exercisable as to
25 percent of the shares covered thereby commencing six months after the earlier
of the date of grant or the date of employment, and as to an additional 25%,
cumulatively, on the first, second and third anniversaries of the date of grant,
and expire ten years after the date of grant. In each of January, 1998 and in
February, 1999, the Company reserved an additional 1,500,000 shares of the
Company's common stock for the issuance of stock options under the 1993 Plan. At
September 30, 2000, the Company had 1,984,393 shares available for future
grants.
42
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Stock option activity during the periods indicated under the 1993 Plan is as
follows:
Shares Shares
Available for Subject to Option
Grant Options Prices
--------------------------------------------
Outstanding at September 30, 1997 388,125 1,111,875 $ 1.94 - 3.63
Additional shares reserved 1,500,000 - -
Granted (1,183,887) 1,183,887 2.31 - 3.00
Canceled 117,975 (117,975) 1.94 - 2.94
--------------------------------------------
Outstanding at September 30, 1998 822,213 2,177,787 1.94 - 3.63
Additional shares reserved 1,500,000 - -
Granted (744,000) 744,000 2.06 - 3.00
Exercised - (51,750) 1.94 - 2.50
Canceled 137,862 (137,862) 1.94 - 3.63
--------------------------------------------
Outstanding at September 30, 1999 1,716,075 2,732,175 1.94 - 3.00
Granted (64,000) 64,000 1.50 - 2.50
Exercised - (18,750) 1.94
Canceled 332,318 (332,318) 1.94 - 3.00
--------------------------------------------
Outstanding at September 30, 2000 1,984,393 2,445,107 $ 1.50 - 3.00
--------------------------------------------
During 1996 the shareholders of the Company approved a stock option plan which
reserves an aggregate of 200,000 shares of the Company's stock for non-employee
Directors of the Company (the "1995 Plan"). The 1995 Plan provides for automatic
granting of 10,000 options to each non-employee director of the Company at a
price equal to the market value on the date of grant which is the date of the
annual shareholders' meeting each year, exercisable for 10 years after the date
of the grant. These options are exercisable as to 25% of the shares thereby on
the date of grant and as to an additional 25%, cumulatively on the first, second
and third anniversaries of the date of grant. In March 2000, the company
reserved an additional 200,000 share of the Companies common stock for the
issuance of stock options under the 1995 plan. At September 30, 2000 there were
200,000 shares available for grant under the 1995 Plan.
43
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Stock option activity during the periods indicated under the 1995 Plan is as
follows:
Shares Shares
Available for Subject to
Grant Options Option Prices
-------------- ---------- -------------
Outstanding at September 30, 1997 110,000 90,000 $ 2.66 - 3.66
Granted (30,000) 30,000 2.44
---------------------------------------------
Outstanding at September 30, 1998 80,000 120,000 2.44 - 3.66
Granted (50,000) 50,000 2.68
---------------------------------------------
Outstanding at September 30, 1999 30,000 170,000 2.44 - 3.66
Additional shares reserved 200,000
Granted (30,000) 30,000 2.125
---------------------------------------------
Outstanding at September 30, 2000 200,000 200,000 $ 2.125 - 3.66
=============================================
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for employee stock options and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to continue to
use the accounting treatment in APB 25 must make pro forma disclosures of net
earnings (loss) and, if presented, earnings per share, as if the fair value
based method of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the company has computed, for pro forma disclosure purposes,
the value of all options granted during the years ended September 30, 2000,
1999 and 1998, using the Black-Scholes option pricing model as prescribed by
SFAS 123 using the following weighted average assumptions for grants:
2000 1999 1998
-------- -------- -------
Risk-free interest rate 6.40% 5.13% 6.00%
Expected dividend yield 0% 0% 0%
Expected lives 7 years 7 years 7 years
Expected volatility 53.6% 55.5% 57.1%
Using the Black-Scholes methodology, the total value of options granted during
the years ended September 30, 2000, 1999 and 1998, was $133, $1,064 and $1,458
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically three years). The weighted average per share
fair value of options granted during the years ended September 30, 2000, 1999
and 1998, was $1.28, $1.36 and $1.60 respectively. If the Company had accounted
for its stock-based compensation plans in accordance with SFAS 123, the
Company's net earnings (loss) and net earnings (loss) per share would
approximate the pro forma disclosures below:
44
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------------- ------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
Net earnings (loss) $ (16,744) $ (17,747) $ (9,539) $ (10,203) $ 312 $ (176)
Basic net earnings
(loss) per share (0.88) (0.93) (0.54) (0.60) 0.00 (0.02)
Diluted net earnings
(loss) per share (0.88) (0.93) (0.54) (0.60) 0.00 (0.02)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to the year ended
September 30, 1996, and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding at
September 30, 2000:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------------
Weighted Number of shares
Number Average Weighted Exercisable at Weighted
Range of Outstanding at Remaining Average September 30, Average
Exercise Prices September 30, 2000 Contractual Exercise Price 2000 Exercise
Life - Years Price
------------------ -------------------- ---------------- --------------- ------------------ ------------
$1.50 - 2.57 2,284,507 7.4 $2.25 1,728,895 $2.23
2.58 -3.66 360,600 6.3 2.91 298,100 2.95
------------------ -------------------- ---------------- --------------- ------------------ ------------
$ 1.50 - 3.66 2,645,107 7.2 $2.34 2,026,995 $2.33
</TABLE>
At September 30, 1999 and 1998, 1,653,987 and 1,171,121 options, respectively,
were exercisable at weighted average exercise prices of $2.38 and $2.13 per
share, respectively.
45
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 14. Discontinued Operations
Agriculture Equipment Segment - On May 3, 2000, the Company completed the sale
of the previously discontinued Agriculture Equipment Segment operation. Proceeds
at closing were $1,760 in cash and a note plus the assumption by the buyer of
$200 of liabilities. In conjunction with the sale the Company has received notes
for $300 at 8% interest, payable April 30, 2003. No amounts have been recorded
for the notes due to the uncertainty of their collectibility. No loss in excess
of that previously provided was realized as a result of the sale of the
discontinued Agriculture Equipment Segment.
In December 1998, the Company announced its intention to divest its Agriculture
Equipment segment. The operations are reflected as discontinued operations for
all periods prior to 2000 presented in the Company's Statements of Operations.
During 1999, the Company recorded an estimated net loss on disposal of $5,611,
net of tax benefit of $3,189, or $(0.30) per common share, associated with the
divestiture of the Agriculture Equipment segment. The loss was based upon events
and information that resulted in management's revised estimate of the net
realizable value of the Agriculture Equipment segment. The revised estimate was
based upon contract negotiations and lower than anticipated bids for portions of
the segment which resulted in a write-down of certain assets and a provision for
associated costs. Liabilities of the Agriculture Equipment segment to be
retained by the Company as of September 30, 1999, amounted to $462 included in
accounts payable and $217 included in the accrued expenses caption of the
accompanying Consolidated Balance Sheet for current payables and accruals.
Additionally, $570 was included in the current portion of Long-term Debt and
Capital Leases and $700 was included in the Long-term Debt and Capital Leases
obligations caption for debt to be retained.
The summarized results for the Agriculture Equipment segment for the years ended
September 30 are as follows:
2000 1999
---- ----
Net sales $ 3,915 $ 7,225
=========================
Loss from operations before allocated interest
expense and income tax benefits $ - $ -
Allocated interest expense - -
-------------------------
Loss from operations before income tax benefit - -
Income tax benefit - -
Loss allocable to minority interest - -
-------------------------
Loss from operations - -
Loss on disposal before interest and income taxes - (8,700)
Allocated interest expense - (100)
-------------------------
Loss on disposal before income tax benefit - (8,800)
Income tax benefit - 3,189
Loss allocable to minority interest - -
-------------------------
Loss on disposal - (5,611)
-------------------------
Total loss on discontinued operations $ - $ (5,611)
=========================
46
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
The net assets of the Agriculture Equipment segment held for disposition
included in the accompanying Consolidated Balance Sheet, net of writedown to
estimated net realizable value, as of September 30, 1999, was as follows:
Current assets:
Accounts receivable and inventory, net $ 360
======
Long term assets:
Property, plant and equipment, net $ 500
======
The Company elected to allocate interest expense to discontinued operations
based upon the net assets of the segment being disposed of at each respective
year-end. In 2000, certain assets of the Agricultural Equipment segment,
primarily property and equipment, were retained by the Company and are being
leased to a third party. These amounts, totaling approximately $371, have been
reclassified from net assets held for disposition to property, plant and
equipment in the accompanying Consolidated Balance Sheet at September 30, 2000.
Automotive Accessories Segment - On March 16, 1998, the Company completed the
sale of a substantial portion of the assets of Kenco, to Kenco Products, Inc.
("KPI"). The principal owner of KPI is Colfax Group, Inc., a Delaware
corporation. One of the principal owners of Colfax Group, Inc. had been acting
as general manager in charge of operating the business of Kenco. Colfax Group,
Inc. is unrelated to the Company.
Consideration to the Company consisted of $1,000 cash, $430 of receivables,
assumption of $1,000 of liabilities and 2,000 shares of non-voting convertible
preferred stock of KPI. Under the agreement, KPI agreed to purchase $2,600 of
Kenco inventory during the six months following the sale. Approximately $430 of
inventory was unsold at September 30, 1998, which was purchased subsequent to
year-end. The sale was recorded based upon the estimated fair market value of
the assets disposed of. The Company previously reported Kenco as a discontinued
operation beginning with the measurement date of May 8, 1997. For the year ended
September 30, 1998, the Company reported an additional loss on the sale of Kenco
in the amount of $2,626 before income tax benefit resulting in an additional net
loss on disposal of discontinued operations of $1,625.
Colfax and one of the principal owners of Colfax Group, Inc. guaranteed the
obligations of KPI to Kenco. The Company had a security interest in all of the
assets of KPI subordinate to the security interest of KPI's bank. During the
year ended September 30, 1999, KPI filed for bankruptcy.
47
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
The summarized results for Kenco for the year ended September 30, 1998 are as
follows reflecting operating results through the measurement date:
Net sales $ 4,964
=========
Loss from operations before allocated interest
expense and income tax benefit -
Allocated interest expense -
---------
Loss from operations before income tax benefit -
Income tax benefit -
---------
Loss from operations -
Loss on disposal before interest and income taxes (2,428)
Allocated interest expense (198)
---------
Loss on disposal before income tax benefit (2,626)
Income tax benefit 1,001
---------
Loss on disposal (1,625)
---------
Total loss on discontinued operations $ (1,625)
=========
Note 15. Sale of Premier Plastic Technologies, Inc
On July 11, 2000, the Company announced it had signed a definitive agreement for
the merger of the plastic injection molding subsidiary, Premier Plastic
Technologies, Inc. ("PPT"), into 3DM International, Inc. (3DMI). Proceeds are
expected to be 1.4 million shares of 3DMI stock, representing approximately 7%
of the outstanding 3DMI shares. The transaction is intended to qualify as a
tax-free reorganization under IRC Section 368(a)(1)(A). No loss is expected to
be realized under the terms of the definitive agreement.
Closing of the transaction is subject to customary closing conditions, and
3DMI's payment of all advances relating to Premier Plastic Technologies under
the secured lending facility with the Bank, subject to 3DMI obtaining sufficient
financing. Financing has not been completed and there is no assurance that the
transaction will be completed. No other plan to dispose of PPT has been adopted.
Accordingly, PPT continues to be consolidated in the accompanying consolidated
financial statements. Total assets of PPT at September 30, 2000 consisted
primarily of accounts receivable and inventory of $3,812 and property, plant and
equipment, net of $5,161.
3DM International has also advanced $500 as a nonrefundable deposit for the
benefit of Premier Plastic Technologies, Inc., to be used for working capital
purposes. The amount is shown as Nonrefundable Deposit on the accompanying
consolidated balance sheet.
Note 16. Business Segment Information
In the fourth quarter of 1999, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 changes the method
of disclosing segment information to the manner in which the Company's chief
operating decision maker organizes the components for making operating
decisions, assessing performance and allocating resources. The Company has
organized the segments based on the type of products sold, which are described
in Note 1. As required by SFAS 131, all prior years' segment data has been
restated.
The Company accounts for its segments under the same policies as described in
the principal accounting policies footnote. Intersegment revenues and related
earnings are not material. Management evaluates segment performance primarily
based on revenue and operating income; therefore, other items included in pretax
income, consisting primarily of interest income or expense, are not reported in
segment results. Operating income is net of all corporate expenses, which are
allocated based on measurable services provided to each segment or for general
corporate expenses, which are allocated on a revenue and capital basis.
48
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Identifiable corporate assets consist primarily of investment in an affiliated
company and other assets including assets retained of the previously
discontinued Agricultural Equipment segment in 2000, and deferred taxes.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
--------------------------------------------
Net sales by classes of similar products from continuing operations
Vehicle Components $ 65,263 $ 58,136 $ 54,071
Electrical Components and GPS 2,462 3,286 3,575
--------------------------------------------
$ 67,725 $ 61,422 $ 57,646
============================================
Earnings (loss) from continuing operations
Vehicle Components:
Before loss from impairment of assets
and acquired in-process research
and developed expense $ 1,572 $ 6,632 $ 10,992
Loss from impairment of assets - (5,278) -
Acquired in-process research and
development expense - (1,750) -
--------------------------------------------
Total Vehicle Components 1,572 (396) 10,992
Electrical Components and GPS (3,120) (2,635) (2,001)
--------------------------------------------
$ (1,548) $ (3,031) $ 8,991
============================================
Identifiable assets
Vehicle Components $ 32,582 $ 41,358 $ 38,694
Electrical Components and GPS 14,498 8,992 8,353
Corporate 2,069 13,294 8,344
--------------------------------------------
Total assets - continuing operations 49,149 63,644 55,391
Automotive accessories - discontinued operations - - 3,963
Agricultural equipment - discontinued operations - 860 9,211
--------------------------------------------
Total assets $ 49,149 $ 64,504 $ 68,565
============================================
Capital expenditures
Vehicle Components $ 1,094 $ 3,721 $ 6,446
Electrical Components and GPS 1,707 1,046 386
--------------------------------------------
Total capital expenditures - continuing operations 2,801 4,767 6,832
Agricultural equipment - discontinued operations - 92 191
--------------------------------------------
Total capital expenditures $ 2,801 $ 4,859 $ 7,023
============================================
Depreciation and amortization
Vehicle Components $ 2,823 $ 1,652 $ 1,077
Electrical Components and GPS 366 404 329
--------------------------------------------
Total depreciation and amortization - continuing operations 3,189 2,056 1,406
Automotive accessories - discontinued operations - - 179
Agricultural equipment - discontinued operations - 92 309
--------------------------------------------
Total depreciation and amortization $ 3,189 $ 2,148 $ 1,894
============================================
</TABLE>
49
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
For geographic information, revenues are allocated between the United States and
International, depending on whether the shipments are to customers within the
United States or located outside the United States. Long-lived assets outside
the United States were immaterial for all periods presented.
Year ended September 30, 2000 1999 1998
------- ------- -------
Canada $ 3,536 $ 5,493 $ 3,377
Sweden 1,895 1,868 2,073
Mexico 1,284 2,276 35
Other 3,231 2,947 3,201
------- ------- -------
9,946 12,584 8,686
Net sales-export 57,779 48,838 48,960
------- ------- -------
$67,725 $61,422 $57,646
======= ======= =======
United States
Note 17. Other Benefit Plans
The Company maintains an Employee Stock Ownership Plan (ESOP) for non-union
employees. The ESOP may buy shares of the Company's stock from time to time on
the open market or directly from the Company. The ESOP has been authorized to
borrow up to $1,000 from the Company or financial institutions to finance its
purchases. At September 30, 2000 all shares had been allocated under the plan
and there were no amounts under the loan outstanding.
The Company sponsors salaried employees and union employees matching 401(k)
plans, in which eligible employees may elect to contribute a portion of their
compensation.
Note 18. Post Retirement Benefits other than Pensions
The Company provides health care and life insurance benefits for certain of its
retired employees ("Post Retirement Plan"). These benefits are subject to
deductibles, co-payment provisions and other limitations. The Company may amend
or change the Post Retirement Plan periodically.
Effective October 1, 1993 the Company adopted SFAS No. 106, "Employers'
Accounting for Post Retirement Benefits other than Pensions" ("SFAS 106"). SFAS
106 requires companies to accrue the cost of post retirement health care and
life insurance benefits within employees' active service period rather than
recognizing these costs on a cash basis as had been prior practice.
The Company elected to amortize the Accumulated Post Retirement Benefit
obligation at October 1, 1993 over twenty years as a component of post
retirement benefits expense.
50
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
The following table provides information on the post retirement plan status at
September 30:
Accumulated Post Retirement Benefit Obligation 2000 1999
-------------------------
Retirees $ 1,185 $ 1,503
Fully eligible active participants 778 662
Other active Plan participants 1,194 1,312
-------------------------
3,157 3,477
Plan assets - -
-------------------------
Accumulated post retirement benefit
obligation in excess of Plan assets 3,157 3,477
Unrecognized gain 1,068 500
Unrecognized prior service cost (504) (576)
Unrecognized transition obligation (1,491) (1,606)
-------------------------
Accrued post retirement benefit cost
in the consolidated balance sheet $ 2,230 $ 1,795
=========================
Post retirement benefits expense included the following components for the years
ended September 30:
2000 1999 1998
-------------------------------------
Service cost $ 89 $ 92 $ 74
Interest cost 264 239 218
Amortization of unrecognized
net obligation at transition 178 190 165
-------------------------------------
Post retirement benefits expense $ 531 $ 521 $ 457
=====================================
The assumed health care cost trend rate used in measuring the accumulated post
retirement benefit obligation (APBO) ranged between 4.5%-10% in the first year,
declining to 4.5% - 5.0% after 8 years. The discount rate used in determining
the APBO was 7.75%, 8.00% and 6.75% for the years ended September 30, 2000, 1999
and 1998, respectively.
If the assumed medical costs trends were increased by 1%, the APBO as of
September 30, 2000 would increase by $159, and the aggregate of the services and
interest cost components of the net annual post retirement benefit cost would be
increased by $25. If the assumed medical costs trends were decreased by 1%, the
APBO as of September 30, 2000 would decrease by $270, and the aggregate of the
services and interest cost components of the net annual post retirement benefit
cost would be decreased by $38.
51
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 19. Acquisition
In July, 1999, the Company purchased the ProActive Pedals division of Active
Tools Manufacturing Co., Inc. ProActive Pedals 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 which 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 Pedals 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,
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 significant projects in process at the
acquisition date were for the development of commercially viable designs and
concepts for adjustable pedal systems. The value was determined by estimating
the resulting net cash flows from such products, and discounting the net cash
flows back to their present value. The discount rate included a factor that took
into account the undertainty surrounding the successful development of the
acquired in-process technology. At the time of the acquisition, the in-process
technology under development was expected to be commercially viable in 2001.
Expenditures to complete these products were expected to total approximately
$3.5 million. These estimates are subject to change, given the uncertainties of
the development process, and no assurances can be given that deviations from
these estimates will not occur. Additionally, these projects will require
expenditures for additional research and development after they have reached a
state of technological and commercial feasibility. To date, expenditures and
results have not differed significantly from the forecast assumptions. 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 Company, for the
years ended 1999 and 1998 includes the results of ProActive Pedals assuming such
acquisition occurred as of October 1, 1997 and includes the acquired in-process
research and development charge in the period where incurred:
1999 1998
--------- ---------
Net sales $ 63,059 $ 57,856
Operating income (loss) (5,401) 6,360
Loss from continuing operations (11,137) (1,495)
Net loss per share - basic (0.63) (0.09)
Net loss per share - diluted (0.63) (0.09)
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").
Note 20. Sale Leaseback
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
September 30, 1999. The costs associated with the building repurchase are
reported in other expenses during the year ended September 30, 1999.
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 $3,150 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. Term
Loan II was paid off in July 2000.
52
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
Note 21. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Restated
---------------------------------------
First Second Third Fourth
2000 (1) Quarter (2) Quarter (2) Quarter (2) Quarter (3) Annual
------------------------------------------ ------------ ------------ ----------- ------------ -------------
Continuing operations:
Net sales $ 15,877 $ 17,596 $ 18,022 $ 16,230 $ 67,725
Cost of sales 11,386 13,089 13,368 13,903 51,746
------------ ------------ ----------- ------------ -------------
Gross margin $ 4,491 $ 4,507 $ 4,654 $ 2,327 $ 15,979
============ ============ =========== ============ =============
Operating expenses $ 3,989 $ 4,303 $ 4,892 $ 4,343 $ 17,527
============ ============ =========== ============ =============
Net earnings (loss) $ (1,312) $ (988) $ (1,173) $(13,271) $(16,744)
============ ============ =========== ============ =============
Earnings (loss) per common share - basic $ (0.07) $ (0.06) $ (0.07) $ (0.68) $ (0.88)
============ ============ =========== ============ =============
Earnings (loss) per common share - diluted $ (0.07) $ (0.06) $ (0.07) $ (0.68) $ (0.88)
============ ============ =========== ============ =============
First Second Third Fourth
1999 (1) Quarter Quarter Quarter (4) Quarter (5) Annual
------------------------------------------- ------------ ------------ ----------- ------------ -------------
Continuing operations:
Net sales $ 14,399 $ 16,257 $ 15,749 $ 15,017 $ 61,422
Cost of sales 9,005 10,611 10,606 14,116 44,338
------------ ------------ ----------- ------------ -------------
Gross margin $ 5,394 $ 5,646 $ 5,143 $ 901 $ 17,084
============ ============ =========== ============ =============
Operating expenses $ 3,070 $ 2,958 $ 8,558 $ 5,529 $ 20,115
============ ============ =========== ============ =============
Earnings (loss) from continuing operations $ 1,031 $ 1,477 $ (2,378) $ (4,058) $ (3,928)
Loss from discontinued operations - - - (5,611) (5,611)
============ ============ =========== ============ =============
Net earnings (loss) $ 1,031 $ 1,477 $ (2,378) $ (9,669) $ (9,539)
============ ============ =========== ============ =============
Earnings per common share from continuing
operations - basic $ 0.05 $ 0.07 $ (0.14) $ (0.22) $ (0.24)
(Loss) per common share from discontinued
operations - basic - - - (0.29) (0.30)
------------ ------------ ----------- ------------ -------------
Earnings (loss) per common share - basic $ 0.05 $ 0.07 $ (0.14) $ (0.51) $ (0.54)
============ ============ =========== ============ =============
Earnings per common share from continuing
operations - diluted $ 0.05 $ 0.07 $ (0.14) $ (0.22) $ (0.24)
(Loss) per common share from discontinued
operations - diluted - - - (0.29) (0.30)
------------ ------------ ----------- ------------ -------------
Earnings (loss) per common share - diluted $ 0.05 $ 0.07 $ (0.14) $ (0.51) $ (0.54)
============ ============ =========== ============ =============
</TABLE>
53
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 2000, 1999, and 1998
(Dollars in thousands, except per share amounts)
(1) Certain reclassifications have been made to the first three quarters for
the year ended September 30, 2000 and to all quarters for the year ended
September 30, 1999 from amounts previously reported to conform with the
year end September 30, 2000 financial statement classification.
(2) The first three quarters of 2000 net loss have been restated to include
recognition of an additional $1,146, $717 and $594 of loss, over amounts
previously reported, for equity interest in loss of affiliate. The
recognition of the loss was significantly increased due to the
implementation of Emerging Issues Task Force Bulletin 99-10 "Percentage
Used to Determine the Amount of Equity Method Losses".
(3) The fourth quarter of 2000 net loss includes a $6,896 expense for deferred
tax provision resulting from a 100% valuation allowance for previously
recognized deferred income tax assets which may no longer be realizable due
to management's assessment of their ultimate realizability, $633 for the
elimination of previously provided income tax benefits in the first three
quarters for the year ended September 30, 2000 and changes in estimated
amounts for warranty reserves.
(4) The third quarter of 1999 operating expenses includes a $5,278 loss from
the impairment of assets related to Kenco, our former Automotive
Accessories segment, consisting of $4,655 for the impairment of non-voting
preferred stock and notes and accounts receivable and $623 for the
impairment of property.
(5) The fourth quarter of 1999 operating expenses includes $1,750 expense for
acquired in-process research and development and changes in estimated
amounts for warranty and inventory reserves based on fourth quarter events.
The fourth quarter of 1999 loss from discontinued operations includes an
additional loss for the Agricultural Equipment Segment which reflects
events and information which resulted in management's revised estimate of
the net realizable value of this segment.
Note 22. Related Parties
In addition to related party transactions discussed elsewhere in the notes to
the consolidated financial statements, during the years ended September 30, 2000
and 1999, $94 and $157, respectively, was paid to an affiliated company, for
website development and e-commerce designs. The chairman of the Company is a
controlling shareholder of the affiliated company.
Note 23. Contingencies
The Company and its subsidiaries are involved in various lawsuits incidental to
their businesses. It is the opinion of management that the ultimate outcome of
these actions will not have a material effect on the Company's financial
position or results of operations.
The Company has identified certain contaminants in the soil and groundwater of a
manufacturing facility located in an industrial area, which the Company
believes, was disposed of on the property by a previous property owner. The
Company's environmental consulting firm has conducted tests to determine the
levels of contaminants. The Company has been advised by counsel that the
contamination is not a reportable condition under current statutes. In the event
that remediation were required in the future, the Company would seek
indemnification from the prior property owner under the terms of the asset
purchase agreement. The prior property owner has advised the Company that it
would dispute any liability for remediation costs. The Company believes it can
enforce available claims against the prior property owner for any costs of
investigation and remediation.
54
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Williams Controls, Inc.:
We have audited the accompanying consolidated balance sheets of Williams
Controls, Inc. and subsidiaries as of September 30, 2000 and 1999, and the
related consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the three years in the period
ended September 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States.. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Williams Controls,
Inc. and subsidiaries as of September 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2000, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to Consolidated
Financial Statements, the Company has suffered recurring losses from operations,
is out of compliance with it debt covenants, is in default on payment of certain
debt and has significant negative working capital. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Schedule of Valuation
and Qualifying accounts is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein, in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 12, 2001
55
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference from the Company's 2000 Proxy Statement.
Item 11. Executive Compensation
Incorporated by reference from the Company's 2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the Company's 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the Company's 2000 Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. See Exhibit Index on page 59 of this Form 10-K.
2. See Index to Financial Statements in Item 8 of this Form 10-K.
3. See Index to Schedules on page 57 of this Form 10-K.
4. Reports on Form 8-K.
56
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
Date: January 12, 2001 By /s/ Thomas K. Ziegler
-----------------------------
Thomas K. Ziegler, President,
Chief Executive Officer and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: January 12, 2001 By /s/ Thomas K. Ziegler
-----------------------------
Thomas K. Ziegler, Principal
Executive Officer, President,
Chief Executive Officer and
Chief Operating Officer and
Director
Date: January 12, 2001 By /s/ Kim L. Childs
-----------------------------
Kim L. Childs
Principal Accounting Officer
Date: January 12, 2001 By /s/ Thomas W. Itin
-----------------------------
Thomas W. Itin, Chairman of
the Board and Director
Date: January 12, 2001 By /s/ H. Samuel Greenawalt
-----------------------------
H. Samuel Greenawalt,
Director
Date: January 12, 2001 By /s/ Timothy Itin
-----------------------------
Timothy Itin, Director
Date: January 12, 2001 By
-----------------------------
Charles G. McClure, Director
57
<PAGE>
Williams Controls, Inc.
Index to Schedules
Page
Schedule II Valuation and Qualifying Accounts 58
All other schedules are omitted because they are not required, not applicable or
the required information is given in the Consolidated Financial Statements.
58
<PAGE>
Williams Controls, Inc.
Valuation and Qualifying Accounts
Schedule II
(Dollars in thousands)
Beginning Ending
Description balance balance
----------- --------- -------
For Year Ended
September 30, 2000
Total reserves for doubtful accounts
and obsolete inventory $1,066 $ 759
For Year Ended
September 30, 1999
Total reserves for doubtful accounts
and obsolete inventory $569 $1,066
For Year Ended
September 30, 1998
Total reserves for doubtful accounts
and obsolete inventory $855 $ 569
NOTE: Valuation and qualifying accounts were not individually significant;
and, therefore, additions and deductions information has not been provided
in this schedule. Charges to the accounts are for the purposes for which the
reserves were created.
59
<PAGE>
Williams Controls, Inc.
Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of the Registrant as amended. (Incorporated by
reference to Exhibit 3.1 to the Registrants' annual report on form 10-K for
the fiscal year ended September 30, 1995 (the "1995 form 10-K"))
3.2 By-Laws of the Registrant. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-18, Registration No. 33-
30601-S, as filed with the Commission on August 18, 1989 (the "1989 Form
S-18"))
4.1 Specimen Unit Certificate (including Specimen Certificate for shares of
Common Stock and Specimen Certificate for the Warrants). (Incorporated by
reference to Exhibits 1.1 and 1.2 to the Registrant's Registration
Statement on Form 8-A, Commission File No. 0-18083, filed with the
Commission on November 1, 1989)
4.2 Form of Placement Agent's Warrant Agreement (Incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form S-3,
Registration No. 333-59397 as filed with the Commission on July 20, 1998)
10.1(a) Indemnification Agreement for Thomas W. Itin ("Itin Indemnification
Agreement"). (Incorporated by reference to Exhibit 10.9 to the 1989 Form
S-18)
10.1(b) Amendment No. 1 to Itin Indemnification Agreement. (Incorporated by
reference to Exhibit 10.1(b) to the Registrant's Annual Report on form 10-K
for the Fiscal Year Ended September 30, 1993 (the "1993 Form-10K"))
10.1(c ) Form of Indemnification Agreement for H. Samuel Greenawalt and Timothy
Itin. (Incorporated by reference to Exhibit 10.1(c) to the Registrant's
1993 Form 10-K)
10.2(a) Credit Agreement dated July 11, 1997 among Registrant and its
subsidiaries and Ajay Sports, Inc. ("Ajay") and its subsidiaries, all as
borrowers, and Wells Fargo Bank, National Association, as lender (the
"Credit Agreement"). (Incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1997 (the "June 1997 Form 10-Q"))
10.2(b) Promissory Notes under the Credit Agreement:
(a) Revolving Credit Loans Promissory Note
(b) Term Loan I Promissory Note
(c) Term Loan II Promissory Note
(d) Real Estate Loan Promissory Note
(All incorporated by reference to Exhibit 10.2 to the
Registrant's June 1997 Form 10-Q)
(e) Term Loan III Promissory Note (Incorporated by reference
to the Form 10-K for the year ended September 30, 1999)
60
<PAGE>
Exhibit
Number Description
------- -----------
10.2(c) Mortgage and Security Agreement between Aptek Williams, Inc. and Wells
Fargo Bank. (Incorporated by reference to Exhibit 10.3 to the Registrant's
June 1997 Form 10-Q)
10.2(d) Patent Assignment and Security Agreements for:
(a) Williams Controls Industries, Inc.
(b) Hardee Williams, Inc.
(c) Aptek Williams, Inc.
(All incorporated by reference to Exhibit 10.4 to the
Registrant's June 1997 Form 10-Q)
10.2(e) Trademark Security Agreements for:
(a) Agrotec Williams, Inc.
(b) Hardee Williams, Inc.
(All incorporated by reference to Exhibit 10.5 to the
Registrant's June 1997 Form 10-Q)
10.2(f) Continuing Unconditional Guaranty of Thomas W. Itin in favor of Wells
Fargo Bank. (Incorporated by reference to Exhibit 10.6 to the June 1997
Form 10-Q)
10.2(g) First Amendment to Credit Agreement dated June 30, 1998 (Incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K,
Date of report June 30, 1998)
10.2(h) Replacement Term Loan I Promissory Note, dated June 30, 1998 made by
Registrant payable to Wells Fargo Bank (Incorporated by reference to
Exhibit 10.2 to the Registrant's June 30, 1998 Form 8-K)
10.3(a) Intercreditor Agreement dated July 11, 1997 among Registrant and
subsidiaries, Ajay Sports, Inc. and subsidiaries, United States National
Bank of Oregon ("US Bank"), Thomas W. Itin and Wells Fargo Bank, National
Association. (Incorporated by reference to Exhibit 10.7 to the Registrant's
June 1997 Form 10-Q)
10.3(b) Consent, Reaffirmation and Release Agreement with US Bank. (Incorporated
by reference to Exhibit 10.8 to the Registrant's June 1997 Form 10-Q)
10.3(c) Promissory Note of Ajay for $2,340,000 to US Bank. (Incorporated by
reference to Exhibit 10.9 to the Registrant's June 1997 Form 10-Q)
10.3(d) Mortgage, Assignment of Rents, Security Agreement and Fixture Filing by
Aptek Williams, Inc. in favor of US Bank. (Incorporated by reference to
Exhibit 10.10 to the Registrant's June 1997 Form 10-Q)
10.3(e) Guaranty to US Bank. (Incorporated by reference to Exhibit 10.11 to the
Registrant's June 1997 Form 10-Q)
10.4(a) The Company's 1995 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1995 (the "March 1995
Form 10-Q"))
10.4(b) The Registrant's 1993 Stock Option Plan as amended to date
10.5 Williams/Ajay Loan and Joint Venture Implementation Agreement dated May 6,
1994, as amended by letter agreement dated April 3, 1995. (Incorporated by
reference to Exhibit 10.4 to the Registrant's March 1995 Form 10-Q)
61
<PAGE>
Exhibit
Number Description
------- -----------
10.6(a) Guaranty dated as of October 2, 1995 by Thomas W. Itin to the Registrant
(the "Itin Guaranty"). (Incorporated by reference to Exhibit 10.9 to the
Registrant's 1995 Form 10-K)
10.6(b) Amendment One to the Itin Guaranty. (Incorporated by reference to
Exhibit 10.7(b) to the Registrant's Annual Report on Form 10-K for the
period ended September 30, 1997 (the "1997 Form 10-K"))
10.7 Security Agreement between Ajay and its subsidiaries, as debtors, and the
Registrant and its subsidiaries, as secured parties. (Incorporated by
reference to Exhibit 10.8 to the 1997 Form 10-K)
10.8 Agreement, dated June 30, 1998, by and among the Registrant and Ajay
Sports, Inc. and its subsidiaries (Incorporated by reference to Exhibit
10.3 to the Registrant's June 30, 1998 Form 8-K)
10.9 Asset Purchase Agreement and related Exhibits between Kenco Williams, Inc.
and Kenco Products, Inc. (Incorporated by reference to exhibit 10.1 to the
Registrant's current report on Form 8-K, date of report March 16, 1998)
10.10(a) Asset Purchase Agreement, dated July 28, 1999, by and between Active
Tool & Manufacturing Co., Inc., and the Registrant and its subsidiary,
ProActive Acquisition Corporation (Incorporated by reference to the Form
10-K for the year ended September 30, 1999)
10.10(b) Patent License Agreement, dated July 28, 1999, by and between Edmond B.
Cicotte and the Registrant and its subsidiary, ProActive Acquisition
Corporation (Incorporated by reference to the Form 10-K for the year ended
September 30, 1999)
21.1 List of Subsidiaries. See Item 1 in this report
23 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (Filed Herewith)
62
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 12, 2001, included in this Form 10-K, into
the Company's previously filed Registration Statement Nos. 333-59397 and
333-90565 on Form S-3 and No. 333-56591 on Form S-8.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 12, 2001
<PAGE>
Exhibit 27.1
Financial Data Schedule for FYE 9-30-00
ARTICLE 5
CIK 0000854860
NAME Williams Controls, Inc.
MULTIPLIER 1,000
CURRENCY US DOLLARS
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END SEP-30-2000
PERIOD-START OCT-01-1999
PERIOD-END SEP-30-2000
EXCHANGE-RATE 1
CASH 30
SECURITIES 0
RECEIVABLES 11,865
ALLOWANCES 508
INVENTORY 8,016
CURRENT-ASSETS 20,561
PP&E 35,805
DEPRECIATION 14,319
TOTAL-ASSETS 49,149
CURRENT-LIABILITIES 38,239
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 1
COMMON 199
OTHER-SE 844
TOTAL-LIABILITY-AND-EQUITY 49,149
SALES 67,725
TOTAL-REVENUES 67,725
CGS 51,746
TOTAL-COSTS 17,527
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 3,010
INCOME-PRETAX (9,217)
INCOME-TAX 7,527
INCOME-CONTINUING (16,744)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (17,332)
EPS-BASIC (0.88)
EPS-DILUTED (0.88)
