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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to_____
COMMISSION FILE NUMBER 0-18083
WILLIAMS CONTROLS, INC.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1099587
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72ND AVENUE
PORTLAND, OREGON 97224
--------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
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. [ ]
As of December 31, 1997, 17,782,040 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 $29,800,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1998 Annual Meeting of
Stockholders to be filed not later than January 28, 1998 are incorporated by
reference in Part III hereof.
WILLIAMS CONTROLS, INC.
INDEX TO 1997 FORM 10-K
PART I PAGE
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 10-15
Item 8. Financial Statements and Supplementary Data 16-41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 42
PART III
Item 10. Directors and Executive Officers of the
Registrant 42
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain
Beneficial Owners and Management 42
Item 13. Certain Relationships and Related
Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 42
SIGNATURES 43
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 1985. Forward-looking statements
include, without limitation, those statements relating to development of new
products, the financial condition of the Company, the ability to increase
distribution of the Company's products, integration of businesses the Company
acquires, disposition of any current businesses of the Company, including its
Kenco division. These forward-looking statements are subject to the business
and economic risks faced by the Company. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of the factors described above and other factors described
elsewhere in this report.
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"); Williams Automotive, Inc.;
GeoFocus, Inc. ("GeoFocus"); NESC Williams, Inc. ("NESC"); Williams
Technologies, Inc. ("Technologies"); Williams World Trade, Inc. ("WWT");
Kenco/Williams, Inc. ("Kenco"); Techwood Williams, Inc. ("TWI"); Agrotec
Williams, Inc. ("Agrotec") and its 80% owned subsidiaries Hardee Williams,
Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw") is hereinafter
referred to as the "Company" or "Registrant."
GENERAL
The Company is a Delaware corporation formed in 1988. The Company's primary
business segment was founded by Norman C. Williams in 1939 and acquired by
the Company in 1988. The Company's operating subsidiaries, which are all
Delaware corporations except GeoFocus, Inc. which is Florida corporation, are
as follows:
WILLIAMS CONTROLS INDUSTRIES, INC.: Manufactures vehicle components sold
primarily in the transportation industry.
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
subsidiaries of the Company.
PREMIER PLASTIC TECHNOLOGIES, INC.: Manufactures plastic components for the
automotive industry and manufactures prototype and production molds using
rapid prototyping processes.
NESC WILLIAMS, INC.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
WILLIAMS AUTOMOTIVE, INC.: Markets the Company's products to the automotive
industry.
GEOFOCUS, INC.: Develops train tracking and cyber-farming systems using
global positioning systems ("GPS") and geographical information systems
("GIS").
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 manages
foreign sourcing for all subsidiaries of the Company, affiliates and third
party customers.
KENCO/WILLIAMS, INC.: Manufactures, assembles, packages and distributes truck
and auto accessories for the aftermarket parts industries. Kenco is reported
as a discontinued operation.
TECHWOOD WILLIAMS, INC.: Manufactured and distributed commercial wood
chippers used in landscaping and farming. Techwood ceased manufacturing
operations in fiscal 1997.
5
AGROTEC WILLIAMS, INC.: Manufactures spraying equipment for the professional
lawn care, nursery and pest control industries.
HARDEE WILLIAMS, INC.: Manufactures equipment used in farming, highway and
park maintenance.
WACCAMAW WHEEL WILLIAMS, INC.: Manufactures solid rubber tail wheels and
other rubber products, used on agricultural equipment, from recycled truck
and bus tires.
As discussed in note 12 to the Notes to Consolidated Financial Statements,
the Company's operations are divided into four industry segments.
VEHICLE COMPONENTS - The Company's transportation component product lines
include electronic throttle control systems ("ETC"), exhaust brakes and
pneumatic and hydraulic controls. These products are used in applications
which include trucks, utility and off-highway equipment, transit buses and
underground mining machines. Markets for the Company's electronic throttle
controls are developing in smaller classes of trucks and diesel powered pick
up trucks. The Company believes that gasoline powered automobiles and pick up
trucks may convert to ETC, although such conversion requires engine redesign
by the automotive manufacturers which is presently ongoing. The Company
estimates that it has over 65% market share of ETC for Class 7 & 8 trucks.
The majority of these products are sold directly to original equipment
manufacturers such as Freightliner, Navistar, Volvo, Izusu, Motor Coach
Industries and Blue Bird Corporation. The Company also sells these products
through a well-established network of independent distributors. The major
competitors in one or more product lines include Allied Signal, Morris
Controls and Furon.
AUTOMOTIVE ACCESSORIES - The automotive accessories product lines include bug
and stone deflectors, running boards, side steps and bed mats for light
trucks and sport-utility vehicles. These products are sold in the aftermarket
to mass merchants and auto supply stores such as Kmart, WalMart, Pep Boys and
Western Auto. The major competitors include Lund, Deflecta Shield, GT Styling
and Auto Vent Shade. Automotive accessories is reported as a discontinued
operation.
AGRICULTURAL EQUIPMENT - The agricultural equipment product lines include
rotary cutters, discs, harrows and sprayers. These products are sold to
independent equipment dealers located primarily in the Southeastern United
States. The major competitors include Wood Brothers, Taylor Industries, Inc.
and Alamo Group.
ELECTRICAL COMPONENTS AND GPS - The electrical components product line
includes the design and production of microcircuits, cable assemblies and
other electronic products used in telecommunication, computer and
transportation industries. Major customers include Allied Signal, Raychem and
Eaton Corp. Major competitors include CTS, AMP and Nethode. The GPS product
line includes commuter railroad train tracking and agricultural cyber-farming
using global positioning and geographic information systems. Major customers
include Tri-Rail, Florida Department of Transportation and Via Tropical Fruit.
ACQUISITIONS AND DISPOSITIONS
Through fiscal 1996, the Company pursued an acquisition strategy to diversify
its operations. During fiscal 1997, the Company discontinued its
diversification acquisition strategy in order to focus its corporate and
financial resources on opportunities emerging in the vehicle components and
GPS train tracking markets and also for the development of commercial
applications of sensor related products. The Company may consider additional
acquisitions in the future that are strategically related to these
opportunities.
On May 8, 1997, the Company signed a letter of intent to sell Kenco, which is
the sole business in the automotive accessories segment. Accordingly, Kenco
is reported as a discontinued operation. The letter of intent expired, and
the Company did not renew it; however, the Company intends to continue
working towards closing the sale of Kenco with the potential buyer, and may
enter into preliminary discussions with possible alternative buyers. The
Company anticipates that Kenco will be sold during the second quarter of
fiscal 1998, but there is no assurance that the sale will occur. In the event
that the sale does not occur, the Company will consider all strategic
alternatives for reducing its' operating losses, including sale, merger,
liquidation or abandonment. Based upon the current proposed terms of the sale,
the purchaser will acquire certain assets, excluding the Kenco finished goods
inventory and manufacturing and warehousing facility for $1,000 to $2,000 in
cash, issue the Company certain equity securities in the new company, and
assume liabilities for trade payables and other current liabilities. Under
the proposed transaction, the Company will own and warehouse the Kenco
finished goods inventory and sell such inventory to the purchaser during the
nine months following the acquisition on 60-day payment terms. The purchaser
will be obligated to purchase any unsold inventory at the end of the
nine-month period.
COMPETITION
In general, the Company's 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 the Company sells these products. The
Company's competitive position varies among its product lines.
MARKETING AND DISTRIBUTION
The Company sells its products to customers in diversified industries
worldwide; however, approximately 77% of its sales from continuing operations
are to customers in the vehicle component segment.
For the years ended September 30, 1997, 1996 and 1995, Freightliner accounted
for 13%, 14% and 17% of net sales from continuing operations, respectively.
Navistar and Volvo each accounted for 11% of net sales from continuing
operations in fiscal 1997 and fiscal 1996 and 11% and 8%, respectively in
fiscal 1995. Approximately 11%, 15% and 18% of net sales from continuing
operations in fiscal 1997, 1996 and 1995, respectively, were to customers
outside of the United States, primarily in Canada, and, to a lesser extent,
in Europe and Australia. See note 13 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.
EXISTING FUTURE SALES ORDERS
Future sales orders for the Company's products were approximately $11,700 at
September 30, 1997, compared to $8,900 at September 30, 1996. These are
orders for which customers have requested delivery at specified future dates.
The Company has not experienced significant problems delivering products on a
timely basis.
ENVIRONMENT
The Company's 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. The Company uses its
best efforts to ensure that its hazardous substances are disposed of in an
environmentally sound manner and in accordance with these guidelines.
The Company has identified certain contaminants in the soil of its Portland,
Oregon manufacturing facility, which the Company believes was disposed on the
property by a previous property owner. The Company intends to seek
indemnification from such party for the costs of permanent monitoring, or
cleanup if required. The Company has retained an environmental consulting
firm which is currently conducting tests to determine the extent of any
contamination. The Company cannot estimate the costs of permanent monitoring
or property cleanup at the present time. However, the Company believes that
it can enforce available claims against the prior property owner for any
costs of monitoring or cleanup.
GOVERNMENT REGULATION
The Company's 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
the Company is not in compliance with any of it's standards or regulations,
among other things, it may require the Company to recall its products which
are found not to be in compliance and repair or replace such products.
PRODUCT RESEARCH AND DEVELOPMENT
The Company's operating facilities engage in engineering, research and
development and quality control activities to improve the performance,
reliability and cost-effectiveness of the Company's product lines. The
Company's engineering staff works closely with its customers in the design
and development of new products and adapting products for new applications.
During 1997, 1996 and 1995, the Company spent $1,849, $2,144 and $1,445
respectively, on these activities for continuing operations. The Company
intends to increase its research and development expenditures in 1998 to
design ETC products compatible with gasoline powered vehicles, develop
commercial applications for inertia tilt, Hall effect, and optical sensor
products, and further develop train tracking products.
PATENTS AND TRADEMARKS
The Company's product lines generally have strong name recognition in the
markets which they serve. The Company has a number of product patents
obtained over a period of years which expire at various times. The Company
considers each patent to be of value and aggressively protects its rights
against infringement throughout the world. The Company owns two patents
(expiring in 2009) which it believes improved the marketability of the
electronic product line of the heavy vehicle components segment. The Company
does not consider that the loss or expiration of either patent would
materially adversely affect the Company; however, competition in the
electronic product line could increase without these patents. The Company
owns numerous trademarks which are registered in many countries enabling the
Company to market its products worldwide. These trademarks include
"Williams," "Kenco" and "Hardee". The Company believes that in the aggregate,
the rights under its patents and trademarks are generally important to its
operations, but does 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 the Company's total business except as described above.
RAW MATERIALS
The Company produces its products from raw materials, including brass,
aluminum, steel, plastic, rubber and zinc, which currently are widely
available at reasonable terms. The Company relies upon, and expects to
continue to rely upon, CTS Corporation, Robertshaw and Caterpillar, Inc. as
single source suppliers for critical components and/or products. Although
these suppliers have been able to meet the Company's needs on a timely
basis, and appear to be willing to continue being suppliers to the Company,
there is no assurance that a disruption in a supplier's business, such as a
strike, would not disrupt the supply of a component.
PRODUCT WARRANTY
The Company warrants its products to the first retail 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.
The Company has established a warranty reserve based upon its estimate of the
future cost of warranty and related service costs. The Company regularly
monitors its warranty reserve for adequacy in response to historical
experience and other factors.
EMPLOYEES
The Company employs approximately 578 employees, including 129 union
employees. The non-union employees of the Company are engaged in sales and
marketing, accounting and administration, product research and development,
production and quality control. The 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"). The Company and the Union have a
collective bargaining agreement 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. Management of the Company believes that
its relationships with its employees and the Union are good.
ITEM 2. PROPERTIES
The following table outlines the principal manufacturing and other facilities
owned by the Company, subject to mortgages on all facilities except Agrotec.
Entity Facility Location Type and Size of Facility
- ------ ----------------- -------------------------
Kenco Middlebury, Indiana Manufacturing and offices
139,000 square feet
Hardee Loris, South Carolina Manufacturing and offices
101,000 square feet
Aptek Deerfield Beach, Florida Manufacturing and offices
48,000 square feet
Agrotec Pendleton, North Carolina Manufacturing and office
43,000 square feet
The Company's 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 the
Company could increase its production output significantly at any of its
facilities with minimal expansion of its present equipment and work force. In
addition, the Company leases a 160,000 square foot manufacturing facility in
Portland, Oregon.
ITEM 3. LEGAL PROCEEDINGS
The Company and its consolidated subsidiaries are parties to various pending
judicial and administrative proceedings arising in the ordinary course of
business. The Company's 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 the Company's insurance coverage, and
the Company's established reserves for uninsured liabilities. While the outcome
of the pending proceedings cannot be predicted with certainty, based on its
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
The Company did not submit any matters to a vote of its security holders during
the fourth quarter of the year ended September 30, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 the Company's common stock
for each fiscal quarter for the past two fiscal years is as follows:
1997
----
Quarter High Low
------- ----- -----
October 1 - December 31 $2.78 $1.97
January 1 - March 31 2.84 2.19
April 1 - June 30 2.59 1.94
July 1 - September 30 2.41 2.13
1996
----
Quarter High Low
------- ----- -----
October 1 - December 31 $3.41 $2.28
January 1 - March 31 3.03 2.38
April 1 - June 30 2.72 1.72
July 1 - September 30 2.75 1.44
The number of record holders of the Company's common stock as of December
31, 1997 was approximately 570. The Company has never paid a dividend with
respect to its common stock and has no plans to pay a dividend in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
Statement of Income Data:
Year ended September 30, 1997 1996* 1995** 1994*** 1993
- ------------------------ ---- ----- ------ ------- ----
Net sales from continuing operations $56,254 $51,279 $44,472 $29,954 $17,100
Earnings from continuing operations 1,135 2,363 4,971 3,520 1,167
Net earnings (loss) (2,037) (561) 4,512 3,641 1,167
Earnings from continuing operations
per common share $ .06 $ .13 $ .29 $ .21 $ .08
Net earnings (loss) per common share $ (.11) $ (.03) $ .26 $ .22 $ .14
Cash dividends per common share - - - - -
Balance Sheet Data
September 30, 1997 1996* 1995** 1994*** 1993
- ------------- ---- ----- ------ ------- ----
Current assets $26,134 $30,926 $25,788 $20,874 $10,623
Current liabilities 10,006 29,600 7,881 10,012 7,527
Working capital 16,128 1,326 17,907 10,862 3,096
Total assets 51,376 53,049 47,182 32,159 20,006
Long-term liabilities 24,072 4,726 20,244 9,699 5,690
Redeemable convertible preferred
stock, including unpaid dividends - - - - 413
Minority interest in consolidated
subsidiaries 463 713 764 - -
Shareholders' equity $16,835 $18,010 $18,293 $12,448 $ 6,376
* 1996 data includes small acquisitions from Apri1 1996. Net sales, earnings
from operations and total assets related to these acquisitions were not
material. See note 16 to the Notes to Consolidated Financial Statements for
information regarding these acquisitions.
** 1995 data includes acquisitions made in February, April and August. In 1996
net sales related to these acquisitions from date of purchase were $9,646;
earnings from operations were $1,039. Total assets at September 30, 1996
related to these acquisitions were $16,072.
*** 1994 data includes small acquisitions from January 1994. Net sales,
earnings from operations and total assets related to these acquisitions
were not material. Represents only one full month of operations of Kenco.
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
The Company's principal sources of liquidity are borrowings under its credit
facilities and funds generated from operations. At September 30, 1997, the
Company's working capital improved to $16,128 compared to $1,326 at September
30, 1996 and the current ratio improved to 2.6 at September 30, 1997 compared
to 1.0 at September 30, 1996. The improvement was primarily the result of the
refinancing of the Company's bank debt and resulting classification of the
loan as a long term obligation and also as a result of a sale/leaseback
transaction. The Company generated cash flow from continuing operations of
$2,117 for the year ended September 30, 1997 compared to $415 for the prior
fiscal year. The Company's 1997 cash flow from continuing operations
benefited from improved receivable and inventory management and a federal tax
refund. The Company generated cash flow from discontinued operations of
$1,577 for the year ended September 30, 1997, compared to cash used in
discontinued operations of $3,660 for the prior fiscal year. Cash flow from
discontinued operations improved because of lower accounts receivable and
inventory resulting from lower sales levels. At September 30, 1997 accounts
receivable decreased to $8,468, compared to $13,103 at September 30, 1996
primarily due to the reclassification of accounts receivable as net assets
held for disposition and to decreased sales at the discontinued automotive
accessories segment.
The Company anticipates that cash generated from operations and borrowings
will be sufficient to satisfy working capital and capital expenditure
requirements for current operations, but the Company will require additional
financing to fund certain research and development projects, an additional
investment in Ajay and new equipment purchases for and moving of the PPT
facility. The Company intends to raise additional capital through the sale of
Kenco, a possible sale/leaseback of a manufacturing facility and a private
placement or public offering of common or preferred stock. The proceeds of
the sale of Kenco are expected to be approximately $1,000 to $2,000 plus the
assumption of certain liabilities and a retained equity investment in the
acquiring company. In addition, the sale of Kenco inventory during the six
months following the sale are expected to generate an additional $3,000 to
$4,000 of cash. The proceeds from the sale of Kenco, if completed, will be
used to repay bank debt of approximately $1,800. Any excess proceeds will be
used towards payment of the $2,340 bridge loan provided to Ajay by the
previous lender. The Company is in discussions with investment bankers about
a possible institutional private placement of equity or equity linked
securities and is in discussion with real estate investment trusts about the
possible sale/leaseback of the Aptek manufacturing and research facility in
Deerfield Beach, Florida. There is no assurance that the Company can raise
new capital on terms acceptable to the Company or sell the Aptek facility.
In April 1997 the Company sold its Portland, Oregon manufacturing facility in
a sale-leaseback transaction for $4,524. The Company may be required to
repurchase the property in April 1998 if it cannot cure possible
environmental problems at the sold property and may be required to finance
$3,200 of the purchaser's price if the purchaser cannot obtain permanent
financing from a lender who would accept the environmental condition of the
property. The purchaser informed the Company that it has entered into a
purchase and sale agreement with a third party who will purchase the property
without any contingent repurchase obligation subject to the third party's due
diligence. The Company has the right of first refusal to repurchase the
building during the first year if the purchaser attempts to sell the property
to a third party. The acquisition agreement with the company which owned the
building prior to the Company contains provision for indemnification by the
seller of any environmental cleanup costs after the subsidiary spends $25
towards such cleanup. The Company intends to seek indemnification from the
prior property owner for permanent monitoring or cleanup costs, if any.
On July 11, 1997, the Company and Ajay refinanced their bank debt with a bank
under a $34,088 three-year revolving credit and term loan agreement.
Accordingly, the Company has reported bank debt as a long-term liability as
of September 30, 1997. At the date of the Loan closing, the Company borrowed
a total of $17,141 which was comprised of $9,619 of borrowings under the
$26,000 revolving loan facility (the "Revolver"), $2,658 under a real estate
term loan ("Real Estate Loan"), $3,864 under a machinery and equipment loan
("Term Loan I"), and $1,000 under a term loan ("Term Loan II"). The Company
had $488 of loan availability under the revolving loan as of September 30,
1997.
The Company had guaranteed the debt of Ajay to the previous lender. The
previous lender provided Ajay $2,340 of bridge financing and the Company
provided Ajay $2,268 at Loan closing to repay the previous loan in full. The
expected sources of repayment for the bridge loan are primarily derived from
expected financial transactions of the Company. Therefore, it is likely that
Ajay will need to borrow additional funds from the Company in the future to
repay the bridge loan to the extent that the bridge loan is repaid with
Company funds. These loans were necessary because the Company was prohibited
from down-streaming funds to Ajay while the previous loan was in default. The
Company has also agreed to purchase approximately $1,000 of notes payable by
Ajay to affiliated parties which had provided loans to Ajay to help Ajay
finance operations during the financial restructuring; such notes payable
have not yet been purchased.
The Company and Ajay have agreed to a plan (the "Ajay Recapitalization")
whereby Ajay plans to obtain permanent bank financing independent of the
Company's loan which, management of Ajay has informed the Company, when
combined with a final investment by the Company, would result in adequate
working capital and eliminate any requirements for further advances or
guarantees from the Company. Ajay management has informed the Company it has
signed a proposal letter with a lender for an asset based loan, which Ajay
management has informed the Company that it believes that based on expected
loan advance rates would result in an approximately $2,000 shortfall of its
projected working capital needs. The Company intends to invest up to $2,000
to provide Ajay adequate working capital, of which approximately $1,000 would
be required no later than February 1998. If Ajay successfully completes its
bank financing, the Company has also proposed to exchange up to $4,000 of
loans and advances into convertible voting preferred stock which Ajay
management has informed the Company that it believes would allow Ajay to meet
the minimum net worth criteria for continued listing on the NASDAQ. The
preferred stock would pay a dividend rate of 9% and would be convertible into
up to 12,000,000 shares of Ajay common stock. As presently proposed, the
dividend rate would increase two percentage points each in the year 2002 and
2003 if Ajay does not achieve pre-tax earnings of at least $500 in the two
consecutive years prior to 2002 and 2003.
In addition to the financing needs for the investment in Ajay and the moving
costs and new equipment purchases for PPT, the Company intends to accelerate
funding of certain research and development projects by establishing a new
product development center in its Deerfield Beach, Florida facility. These
projects will include development of new ETC products for advance vehicle
platforms, development of new electronic sensors and controls for vehicle
applications, development of industrial applications for certain existing
sensor products and development of GPS based train tracking systems.
RECENT FASB PRONOUNCEMENTS - The Financial Accounting Standards Board
("FASB") recently issued SFAS No. 128, "Earnings Per Share", which is
effective for fiscal years ending after December 15, 1997. This statement
replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
complex capital structures and requires reconciliation of the numerator and
denominator of the basic EPS computations to the numerator and denominator
of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared the
earnings of the entity. Diluted EPS is computed similar to fully diluted
EPS. SFAS No. 128 requires restatement of all EPS data that was presented
in previously filed reports. Management believes that implementation of
SFAS No. 128 will not have a material effect on earnings per share.
The FASB also recently issued SFAS No.'s 130 and 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information," respectively, Both of these statements are effective
for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes requirements for disclosure of comprehensive income which
includes certain items previously not included in the statement of income
including minimum pension liability adjustments and foreign currency
translation adjustments, among others. Reclassification of earlier
financial statements for comparative purposes is required. SFAS No. 131
revises existing standards for reporting information about operating
segments and requires the reporting of selected information in interim
financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Management believes that implementation of SFAS No. 130 and No.
131 will not materially affect the Company's financial statements.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
COMPARED TO SEPTEMBER 30, 1996
OVERVIEW
Net sales from continuing operations increased 10% to $56,254 in
fiscal 1997 from $51,279 in fiscal 1996 due to higher unit sales
volumes in the Company's vehicle component segment, which was
partially offset by declining unit sales volumes in the agricultural
equipment and electrical components and GPS segments.
Earnings from continuing operations decreased 24% to $4,272 in fiscal
1997 from $5,594 in fiscal 1996 due to increases in unit sales volumes
in the Company's vehicle component segment, which was offset by
declining unit sales volumes in the agricultural equipment and
electrical components and GPS segments.
Net losses increased to $2,037 in fiscal 1997 from $561 in the prior
fiscal year due to increased losses in the Company's discontinued
automotive accessories segment and higher losses in the agricultural
equipment and electrical components and GPS segments. Net losses in
these segments were partially offset by increased profitability in the
vehicle components segment.
NET SALES
Net sales from continuing operations in the vehicle components segment
increased 19% to $43,078 in fiscal 1997 over levels achieved in fiscal
1996 due to higher ETC unit sales volumes in the Class 7 and 8 truck
OEM markets and increased sales of plastic parts and prototyping in
the automotive manufacturing industry. Sales increases in the vehicle
component segment were partially offset by decreases in sales of 15%
and 9% in the Company's agricultural equipment and electrical
component and GPS segments, respectively. Significant sales increases
of GPS systems were offset by declines of electrical components in
that segment. Sales declines in the agricultural equipment and
electrical component and GPS segments are attributed to lower unit
volumes associated with increased competition.
GROSS MARGIN
Gross margin from continuing operations decreased 6%, to $12,890
compared to $13,673 in fiscal 1996. Gross margins increased 10% in
fiscal 1997 in the vehicle components segment due to higher unit sales
volumes. Increases in this segment were offset by decreases of 92% in
the Company's agricultural equipment segment and 17% in the electrical
component and GPS segments. Decreased gross margins in these segments
are attributed to lower unit sales volumes.
OPERATING EXPENSES
Operating expenses for continuing operations increased 7% during fiscal 1997
compared to amounts in fiscal 1996. Operating expenses as a percentage of net
sales from continuing operations in fiscal 1997 decreased slightly to 15%
from 16% in 1996. Operating expenses increased 3% in fiscal 1997 in the
vehicle component segment to $4,326 and 26% in the electronic components and
GPS segment compared to 1996 levels, while operating expenses in the
agricultural equipment segment remained relatively stable. Increases in
operating expenses were attributed to higher sales volumes of the Company's
ETC and GPS products.
Research and development expenses for continuing operations decreased
14% to $1,849 during fiscal 1997 compared to amounts in fiscal 1996.
As a percentage of net sales from continuing operations, research and
development expenses decreased from 4% to 3%. Decreases in dollar
amount were due to curtailments of research and development activities
in all business segments during the Company's bank refinancing
negotiations in fiscal 1997.
Selling expenses for continuing operations increased 20% to $2,913 in
fiscal 1997 compared to 1996 levels. Selling expenses as a percentage
of net sales from continuing operations, remained steady at 5% in fiscal 1997
and 1996. Selling
expenses increased due to increased sales volumes in the
vehicle components segment and additional sales and marketing
activities in the electrical components and GPS and agricultural
equipment segments.
General and administrative expenses for continuing operations
increased 10% in fiscal 1997 to $3,856 compared to fiscal 1996
amounts. General and administrative expenses remained stable at 7% of
net sales from continuing operations in fiscal 1997 and 1996.
Increases in dollar amount at the electrical components and GPS and
vehicle component segments in fiscal 1997 were attributed to
additional management personnel required for future growth activities.
EARNINGS FROM CONTINUING OPERATIONS
Earnings from continuing operations decreased 24% to $4,272 in fiscal
1997 from $5,594 in fiscal 1996 due to increased operating losses in
the agricultural equipment and electrical components and GPS business
segments.
OTHER EXPENSES
Other expenses increased 25% to $2,232 in fiscal 1997 from $1,782 in
fiscal 1996. Increases were attributed to increased interest rates
associated with the Company's borrowing activities and new loan
agreements and increased equity interest losses in affiliate (AJAY
Sports, Inc.).
DISCONTINUED OPERATIONS
Net losses from the discontinued automotive accessories segment were
$3,172 net of tax benefits of $2,121 for fiscal 1997, compared to
$2,924 net of tax benefits of $1,885 in fiscal 1996. The fiscal 1997
net loss includes operations through the measurement date of May 8,
1997. All losses incurred after the measurement date are reported as
losses on disposal of discontinued operations. The 1996 losses include
a pre-tax operating restructuring charge of $2,250.
Net sales from the discontinued segment declined $7,375, or 47%, in
fiscal 1997 to $8,666 from $16,043 in fiscal 1996. The decline in
automotive accessory sales were due to lower unit sales and lower
prices resulting from strong downward prices pressure generated by
competitors who are more vertically integrated and have lower cost
structures than the Company's automotive accessories segment.
The estimated loss on disposal of the business of $1,965 consists of
$1,171 of estimated future operating losses net of tax benefits of
$781 and $794 of operating losses incurred since the measurement date
net of tax benefits of $530. The $794 of operating losses since the
measurement date includes $489 of charges that are primarily for
inventory reserves. The Company has elected to include interest costs
in its estimated loss on disposal based upon the expected debt
reduction from the $5,000 of cash proceeds and the current rate of
interest.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
COMPARED TO SEPTEMBER 30, 1995
SALES
Sales for the year ended September 30, 1996 increased 15% to $51,279 compared
to $44,472 for the prior year. Sales of vehicle components, agricultural
equipment, and electrical components accounted for 70%, 22% and 8% as a
percent of total sales for the year ended September 30, 1996 compared to 78%,
15% and 7% for the prior year. Vehicle component sales were $36,141 for the
year ended September 30, 1996 compared to $34,826 for the prior year, an
increase of 4%. Agricultural equipment sales were $11,026 for the year ended
September 30, 1996 compared to $6,783 for the prior year, an increase of 63%.
Sales of electrical components were $4,112 for the year ended September 30,
1996 compared to $2,863 for the prior year, an increase of 44%. Agricultural
equipment and electrical components sales were the result of acquisitions
completed in February 1995 and April 1995.
Vehicle component sales were relatively flat for the year as retail sales of
Class 8 trucks, the primary market for the Company's electronic throttle
product line, declined over 20% compared to the prior year. Historically, the
Class 8 truck market has been cyclical with annual production ranging from
approximately 100,000 to 200,000 units. In calendar year 1995, Class 8 truck
production was over 200,000 units which capped five years of increased annual
production. In calendar 1996, Class 8 truck production declined to an
estimated 160,000 units. The decrease in the Class 8 truck market has been
offset by an increase in sales to the midrange truck market which continues
to introduce electronic throttles to new truck models as this technology
becomes more acceptable to this market segment. The Company anticipates this
trend to continue for approximately 12 to 18 months.
Agricultural equipment and electrical component sales are the results of
acquisitions in 1995 and, therefore, comparison of 1996 to 1995 is not
meaningful. The agricultural equipment segment has increased sales by
integrating small product line acquisitions into its primary dealer network.
Sales in the electrical component segment were lower than expected for the
year due to loss of two primary customers.
EARNINGS FROM OPERATIONS
Earnings from operations for the year ended September 30, 1996 were $5,594
compared to $9,498 for the prior year, a decrease of 41%. Earnings from
continuing operations as a percentage of sales for the year ended September
30, 1996 were 11% compared to 21% for the prior year. The decrease in
earnings from continuing operations is due to a combination of lower gross
margins and increased operating expenses.
Gross margin as a percentage of sales for the year ended September 30, 1996
was 27% compared to 33% for the prior year. The decrease in gross margin
results from a larger percentage of the Company's operations being in
business segments with lower gross margins primarily as a result of
acquisitions. Margins decreased in the agricultural equipment segment due to
increased cost incurred to improve product quality and because of an
unprofitable product line which was discontinued in fiscal 1996. Operating
expenses for the year ended September 30, 1996 were $8,079 or 16% of sales
compared to $5,178 or 12 % of sales for the same period in the prior year.
The increased operating expenses are due primarily to costs associated with
companies acquired in the agricultural equipment and electrical components
segments.
Earnings from operations of the vehicle component segment decreased 19% for
the year ended September 30, 1996 compared to the prior year. The decrease in
earnings from operations in this segment is due to the shift in product mix
to products used in midrange truck applications which typically have lower
margins than heavy-duty truck applications. In addition, due to the downturn
in the Class 8 truck market segment, the Company's customers are faced with
increased price pressure to compete in this cyclical market. Therefore, the
Company is
working with its customers to maintain or reduce selling prices
while absorbing the increased cost of raw materials.
The discontinued automotive accessories segment had losses from operations of
$2,924 for the year ended September 30, 1996 compared to losses from
operations of $459 for the prior year. The primary reason for the increased
loss is due to a one-time restructuring charge of $2,250 recognized during
the third quarter.
The electrical components and GPS segment had losses from operations of $659
for the year ended September 30, 1996 compared to earnings from operations of
$182 for the prior year. The loss from operations was due primarily to the
loss of two of its major customers in the telecommunication industry. The
electrical and GPS components segment was added through an acquisition
completed in April of 1995. The electrical components segment continues to
focus on product development efforts to enhance future sales opportunities.
The agricultural equipment segment had losses from operations of $578 for the
year ended September 30, 1996 compared to earnings from operations of $857
for the prior year. The agricultural equipment segment resulted from
acquisitions in February 1995. The agricultural equipment segment had
increased overhead and production inefficiencies and an unprofitable
product line which was discontinued in August 1996. It also had increased
costs to improve its product line to meet the quality of competition.
OTHER EXPENSES
Interest expense included in continuing operations for the year ended
September 30, 1996 was $1,607 compared to $1,674 for the year ended September
30, 1995. Interest expense included in discontinued operations for the year
ended September 30, 1996 and 1995 was $456. Interest income, affiliate
relates to a loan provided to Ajay which was repaid in July of 1995.
NET EARNINGS (LOSS)
The net loss for the year ended September 30, 1996 was $561 or $.03
per share compared to net earnings of $4,512 or $.26 per share for the
prior year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WILLIAMS CONTROLS, INC.
Index to Consolidated Financial Statements
PAGE
Consolidated Balance Sheet at September 30, 1997 and 1996 17
Consolidated Statement of Shareholders' Equity for the
years ended September 30, 1997, 1996 and 1995 18
Consolidated Statement of Operations for the
years ended September 30, 1997, 1996 and 1995 19
Consolidated Statement of Cash Flows for the
years ended September 30, 1997, 1996 and 1995 20
Notes to Consolidated Financial Statements 21-40
Independent Auditors' Report 41
See page 44 for Index to Schedules and page 47 for Index to Exhibits.
WILLIAMS CONTROLS INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
September 30, September 30,
1997 1996
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 700 $ 1,379
Trade and other accounts receivable, less allowance of $185 and
$1,250 in 1997 and 1996, respectively 8,468 13,103
Inventories 14,517 15,288
Prepaid expenses and other 1,811 1,156
Net assets held for disposition 638 -
------- -------
Total current assets 26,134 30,926
Investment in affiliate 559 943
Property plant and equipment, net 18,080 19,801
Receivables from affiliate 3,645 -
Net assets held for disposition 1,610 -
Other assets 1,348 1,379
------- -------
Total assets $51,376 $53,049
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,070 $ 5,895
Accrued expenses 3,008 2,493
Current portion of long-term debt and capital leases 1,428 212
Estimated loss on disposal 500 -
Revolving line of credit - 21,000
------- -------
Total current liabilities 10,006 29,600
Long-term debt and capital lease obligations 22,857 2,782
Other liabilities 1,215 1,944
Commitments and contingencies - -
Minority interest in consolidated subsidiaries 463 713
Shareholders' equity:
Preferred stock ($.01 par value, 50,000,000 authorized) - -
Common stock ($.01 par value, 50,000,000 authorized;
17,912,240 and 17,869,987 issued at September 30,
1997 and 1996, respectively) 179 179
Additional paid-in capital 9,822 9,671
Retained earnings 7,402 9,439
Unearned ESOP shares (191) (511)
Treasury stock (130,200 and 195,200 shares at
September 30, 1997 and 1996, respectively) (377) (540)
Pension liability adjustment - (228)
------- -------
Total shareholders' equity 16,835 18,010
------- -------
Total liabilities and shareholders' equity $51,376 $53,049
------- -------
------- -------
The accompanying notes are an integral part of these statements.
WILLIAMS CONTROLS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Issued
Common stock Pension
----------------- Additional Retained Unearned Liability Treasury Shareholders'
Shares Amount Paid in Capital Earnings ESOP Shares Adjustment Shares Equity
-------- ------ --------------- -------- ----------- ---------- -------- -------------
Balance, September 30, 1994 16,676,181 $167 $ 7,066 $5,488 $ - $ (273) $ - $ 12,448
Net earnings - - - 4,512 - - - 4,512
Common stock issued pursuant to
acquisitions 588,806 6 1,957 - - - - 1,963
Unearned ESOP shares - - - - (630) - - (630)
---------- ---- ------- ------ ------ ------ ------ --------
Balance, September 30, 1995 17,264,987 173 9,023 10,000 (630) (273) - 18,293
Net loss - - - (561) - - - (561)
Issuance of shares upon exercise
of stock options and warrants 455,000 4 231 - - - - 235
Common stock issued pursuant to
acquisitions 150,000 2 288 - - - - 290
Reduction of unallocated ESOP shares - - 129 - 119 - - 248
Change in pension liability adjustment - - - - - 45 - 45
Cost of treasury shares acquired - - - - - - (540) (540)
---------- ---- ------- ------ ------ ------ ------ --------
Balance, September 30, 1996 17,869,987 179 9,671 9,439 (511) (228) (540) 18,010
Net loss - - - (2,037) - - - (2,037)
Issuance of contingent shares
for acquisition 42,253 - 106 106
Treasury stock issued for acquisition
services - - - - - - 163 163
Reduction of unallocated ESOP shares - - 45 320 365
Change in pension liability adjustment - - - - - 228 - 228
---------- ---- ------- ------ ------ ------ ------ --------
Balance, September 30, 1997 17,912,240 $179 $ 9,822 $7,402 $ (191) $ - $ (377) $ 16,835
---------- ---- ------- ------ ------ ------ ------ --------
---------- ---- ------- ------ ------ ------ ------ --------
The accompanying notes are an integral part of these statements.
WILLIAMS CONTROLS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
For the year ended September 30
1997 1996 1995
------------ ------------ -------
Sales $ 56,254 $ 51,279 $ 44,472
Cost of sales 43,364 37,606 29,796
--------------------------------------------------
Gross margin 12,890 13,673 14,676
Operating expenses:
Research and development 1,849 2,144 1,445
Selling 2,913 2,421 1,384
Administration 3,856 3,514 2,349
--------------------------------------------------
Total operating expenses 8,618 8,079 5,178
--------------------------------------------------
Earnings from continuing operations 4,272 5,594 9,498
Other (income) expenses:
Interest expense 1,848 1,607 1,674
Interest income, affiliate - - (601)
Equity interest in loss of affiliate 384 175 282
--------------------------------------------------
Total other expenses 2,232 1,782 1,355
--------------------------------------------------
Earnings from continuing operations before income tax expense 2,040 3,812 8,143
Income tax expense 1,155 1,505 3,108
--------------------------------------------------
Earnings from continuing operations before minority interest 885 2,307 5,035
Minority interest in net (earnings) loss of consolidated subsidiaries 250 56 (64)
--------------------------------------------------
Earnings from continuing operations 1,135 2,363 4,971
Discontinued operations:
Loss from operations of automotive accessories segment (1,207) (2,924) (459)
Loss on disposal of automotive accessories segment, including
provision of $1,171 for operating losses during phase-out period (1,965) - -
--------------------------------------------------
Loss from discontinued operations (3,172) (2,924) (459)
--------------------------------------------------
Net earnings (loss) $ (2,037) $ (561) $ 4,512
--------------------------------------------------
--------------------------------------------------
Earnings per common share from continuing operations $ 0.06 $ 0.13 $ 0.29
Loss per common share from discontinued operations (0.17) (0.16) (0.03)
--------------------------------------------------
Net earnings (loss) per common share $ (0.11) $ (0.03) $ 0.26
--------------------------------------------------
--------------------------------------------------
Weighted average shares used in per share calculation 18,200,000 17,800,000 17,600,000
--------------------------------------------------
--------------------------------------------------
The accompanying notes are an integral part of these statements.
WILLIAMS CONTROLS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the year ended September 30,
1997 1996 1995
---------- --------- ----------
Cash flows from operating activities:
Net income (loss) $ (2,037) $ (561) $ 4,512
Adjustments to reconcile net income (loss) to net
cash from continuing operations:
Loss from discontinued operations 3,172 2,924 459
Depreciation and amortization 1,375 1,899 1,382
Minority interest in earnings (loss) in consolidated subsidiaries (250) (56) 64
Equity interest in loss of affiliate 384 175 282
Deferred income taxes (1,368) (491) 167
Changes in working capital of continuing operations, net of acquisitions:
Receivables (108) 349 (846)
Inventories 771 (2,401) (1,068)
Accounts payable and accrued expenses 258 (310) (449)
Other (80) (1,113) 253
---------------------------------
Net cash provided by operating activities of continuing operations 2,117 415 4,756
Cash flows from investing activities:
Repayments from (loans to) an affiliate (3,645) - 4,913
Payments for acquisitions - (1,220) (6,766)
Payments for property, plant and equipment (811) (1,237) (1,147)
---------------------------------
Net cash used for investing activities of continuing operations (4,456) (2,457) (3,000)
Cash flows from financing activities:
Proceeds from long-term debt and capital lease obligations 16,809 6,000 15,000
Repayments of long-term debt and capital lease obligations (21,000) (267) (8,564)
Proceeds from sale/leaseback transaction 4,274 - -
Proceeds from issuance of common stock - 235 -
Repurchase of common stock - (540) -
Net repayments under lines of credit - - (3,187)
Payment of debt issuance costs - - (364)
---------------------------------
Net cash provided by financing activities of continuing operations 83 5,428 2,885
Net cash provided by (used in) discontinued operations 1,577 (3,660) (3,230)
Net increase (decrease) in cash and cash equivalents (679) (274) 1,411
Cash and cash equivalents at beginning of period 1,379 1,653 242
---------------------------------
Cash and cash equivalents at end of period $ 700 $ 1,379 $ 1,653
---------------------------------
---------------------------------
Supplemental disclosure of cash flow information:
---------------------------------
---------------------------------
Interest paid $ 2,275 $ 1,800 $ 2,400
Income taxes paid, net of refund $ (424) $ 1,200 $ 2,600
---------------------------------
---------------------------------
The non-cash activity related to the Company's investing activity is
described in note 4, and non-cash activity related to the Company's
acquisitions is described in note 16.
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF OPERATIONS
Williams Controls, Inc, including its wholly-owned subsidiaries, Williams
Controls Industries, Inc. ("Williams"); Aptek Williams, Inc. ("Aptek");
Premier Plastic Technologies, Inc. ("PPT"); Williams Automotive, Inc.;
GeoFocus, Inc. ("GeoFocus"); NESC Williams, Inc. ("NESC"); Williams
Technologies, Inc. ("Technologies"); Williams World Trade, Inc. ("WWT");
Kenco/Williams, Inc. ("Kenco"); Techwood Williams, Inc. ("TWI"); Agrotec
Williams, Inc. ("Agrotec") and its 80% owned subsidiaries Hardee Williams,
Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw") is 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 transportation industry.
PREMIER PLASTIC TECHNOLOGIES, INC.: Manufactures plastic components for the
automotive industry and manufactures prototype and production molds using
rapid prototyping processes.
NESC WILLIAMS, INC.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
WILLIAMS AUTOMOTIVE, INC.: Markets the Company's products to the automotive
industry.
ELECTRICAL COMPONENTS AND GPS
APTEK WILLIAMS, INC.: Develops and produces 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
subsidiaries of the Company.
GEOFOCUS, INC.: Develops train tracking and cyber-farming systems using
global positioning systems ("GPS") and geographical information systems
("GIS").
AGRICULTURAL EQUIPMENT
AGROTEC WILLIAMS, INC.: Manufactures spraying equipment for the
professional lawn care and nursery and pest control industries.
HARDEE WILLIAMS, INC.: Manufactures equipment used in farming, highway and
park maintenance.
WACCAMAW WHEEL WILLIAMS, INC.: Manufactures solid rubber tail wheels and
other rubber products, used on agricultural equipment, from recycled truck
and bus tires.
TECHWOOD WILLIAMS, INC.: Manufactured and distributed commercial wood
chippers used in landscaping and farming. Techwood ceased manufacturing
operations in fiscal 1997.
AUTOMOTIVE ACCESSORIES
KENCO/WILLIAMS, INC.: Manufactures, assembles, packages and distributes
truck and auto accessories for the aftermarket parts industries. Kenco is
reported as a discontinued operation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
OTHER SUBSIDIARIES
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 manages
foreign sourcing for subsidiaries of the Company, affiliates and third
party customers.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
all of the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS - All short-term highly liquid investments
purchased with an original maturity of three months or less are considered
to be cash equivalents.
INVENTORIES - Inventories are valued at the lower of cost (first-in, first-
out) 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 - The excess of cost over net assets of acquired companies is
being amortized using the straight-line method over periods not exceeding
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.
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 77% of its sales from continuing
operations are to customers in the vehicle component segment.
For the years ended September 30, 1997, 1996 and 1995, Freightliner
accounted for 13%, 14% and 17% of net sales from continuing operations,
respectively. Navistar and Volvo each accounted for 11% of net sales from
continuing operations in fiscal 1997 and fiscal 1996 and 11% and 8%,
respectively in fiscal 1995. Approximately 11%, 15% and 18% of net sales
from continuing operations in fiscal 1997, 1996 and 1995 respectively were
to customers outside of the United States, primarily in Canada, and, to a
lesser extent, in Europe and Australia. See note 13 of Notes to
Consolidated Financial Statements.
The Company performs ongoing credit evaluations of its customers' financial
condition and maintains allowances for potential credit losses. In the
opinion of management, actual losses and allowances have been within its
expectations.
DEBT ISSUANCE COSTS - Costs incurred in the issuance of debt financing are
amortized over the term of the debt agreement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND 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. Actual product warranty costs have not differed
materially from accrued estimated amounts.
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 PER SHARE - Earnings per share are computed on the basis of the
weighted average number of shares outstanding plus the common stock
equivalents which would arise from the exercise of stock options and
warrants. Primary and fully diluted earnings per share are the same for
1997, 1996 and 1995.
RECLASSIFICATIONS - Certain amounts previously reported in the 1995 and
1996 financial statements have been reclassified to conform to 1997
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 based on borrowing rates
currently available to the Company for loans with similar terms. The fair
value of receivables from an affiliate is not practicable to estimate due
to the indefinite payment terms and due to the related party nature of the
underlying transaction.
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 9). If the accounting provisions of
SFAS 123 had been adopted, the effect on net income would have been
immaterial.
RECENT FASB PRONOUNCEMENTS - The Financial Accounting Standards Board
("FASB") recently issued SFAS No. 128, "Earnings Per Share", which is
effective for fiscal years ending after December 15, 1997. This statement
replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
complex capital structures and requires reconciliation of the numerator and
denominator of the basic EPS computations to the numerator and denominator
of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared the
earnings of the entity. Diluted EPS is computed similar to fully diluted
EPS. SFAS No. 128 requires restatement of all EPS data that was presented
in previously filed reports. Management believes that implementation of
SFAS No. 128 will not have a material effect on earnings per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The FASB also recently issued SFAS No.'s 130 and 131, "Reporting
Comprehensive Income" and "Disclosures about Segments of an Enterprise and
Related Information," respectively, Both of these statements are effective
for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes requirements for disclosure of comprehensive income which
includes certain items previously not included in the statement of income
including minimum pension liability adjustments and foreign currency
translation adjustments, among others. Reclassification of earlier
financial statements for comparative purposes is required. SFAS No. 131
revises existing standards for reporting information about operating
segments and requires the reporting of selected information in interim
financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Management believes that implementation of SFAS No. 130 and No.
131 will not materially affect the Company's financial statements.
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 consisted of the following:
1997 1996
---- ----
Raw material $ 5,305 $ 7,243
Work in process 2,035 1,349
Finished goods 7,177 6,696
------- -------
$14,517 $15,288
------- -------
------- -------
Finished goods include component parts and finished product ready for
shipment.
NOTE 4. INVESTMENT IN AND RECEIVABLES FROM AFFILIATE
Prior to July 1995, the Company had a loan receivable from Ajay Sports,
Inc. and its subsidiaries ("Ajay"). In October 1994, the Company exercised
options to acquire 4,117,647 shares of Ajay common stock through a
reduction in the loan receivable. At September 30, 1997, the Company owns
4,117,647 shares of Ajay common stock, which represents approximately 18%
of Ajay's outstanding common stock. Ajay manufactures and distributes golf
accessories primarily to retailers throughout the United States. The
investment in Ajay is recorded as an investment in affiliate in the
Consolidated Balance Sheet net of the Company's equity interest in Ajay's
losses since acquisition ($384, $175 and $282 for the years ended
September 30, 1997, 1996 and 1995, respectively). The Company is required
to account for the investment in Ajay on the equity method due to common
ownership by the Chairman and President of the Company who is also the
Chairman and President of Ajay.
In addition, 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 through July 11, 1997. At September 30, 1997,
the Company also has manufacturing rights in certain Ajay facilities
through 2002, under a joint venture agreement, and the Company has vested
options to acquire 11,110,873 shares of Ajay common stock at prices ranging
from $.34 to .50 per share.
The Company had guaranteed Ajay's $13,500 credit facility to the previous
lender ("Previous Lender") of which $12,051 was outstanding at July 11,
1997, the date which the previous loan was repaid with proceeds from a new
combined loan for the Company and Ajay (the "Loan") with a new lender (the
"Bank"). Ajay's loan availability at the date of the Loan closing was
insufficient to repay the Previous Lender. The previous Lender provided
Ajay $2,340 of bridge financing and the Company provided Ajay $2,268 at
Loan closing to repay its previous loan in full. The expected sources of
repayment for the bridge loan are primarily derived from expected financial
transactions of the Company. Therefore, it is likely that Ajay will need to
borrow additional funds from the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Company in the future to repay the bridge loan to the extent that the
bridge loan is repaid with Company funds. As a condition to the
non-interest bearing loans made by the Company to Ajay, Ajay granted
the Company a security interest in all of the assets of Ajay
subordinate to the liens of the Bank and the Previous Lender. The Chairman
of the Company has provided a guaranty to the Company for the Company's
investments and loans to Ajay. In addition, the Company has agreed to
provide 400,000 newly issued shares of the Company's common stock to Ajay
which will be security for the bridge loan. Such shares have not yet been
issued. The Company has also agreed to purchase approximately $1,000 of
notes payable by Ajay to affiliated parties which had provided loans to
Ajay to help Ajay finance operations during the financial restructuring.
These loans were necessary because the Company was prohibited from down-
streaming funds to Ajay while the previous loan was in default.
The Company and Ajay have agreed to a plan (the "Ajay Recapitalization")
whereby Ajay plans to obtain permanent bank financing which, when combined
with a final investment by the Company, Ajay management has informed the
Company it believes will result in adequate working capital and eliminate
any requirements for further advances or guarantees from the Company. Ajay
management informed the Company it has signed a proposal letter with a
lender for an asset based loan which, Ajay management has informed the
Company that it believes, based on expected loan advance rates, would leave
Ajay approximately $2,000 short of its projected minimum working capital
needs. The Company intends to invest up to $2,000 to provide Ajay adequate
working capital, of which approximately $1,000 will be required in February
1998. If Ajay successfully completes its bank financing, the Company has
agreed to exchange up to $4,000 of loans and advances into convertible
voting preferred stock which Ajay management has informed the Company that
it believes will allow Ajay to meet the minimum net worth requirement,
which is one of the criteria for continued listing on the NASDAQ. As
presently proposed, the preferred stock will pay a dividend rate of 9% and
would be convertible into up to 12,000,000 shares of Ajay common stock. As
presently proposed, the dividend rate will increase two percentage points
each in the year 2002 and 2003 if Ajay does not achieve pre-tax earnings of
at least $500 in the two consecutive years prior to 2002 and 2003.
Following is a summary of condensed unaudited financial information of Ajay
as of and for the twelve months ended September 30, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Current assets $ 14,264 $ 13,951 $ 9,405
Other assets 4,449 4,101 1,577
--------- --------- -------
$ 18,713 $ 18,052 $10,982
--------- --------- -------
--------- --------- -------
Current liabilities $ 5,031 $ 14,207 $ 2,870
Other liabilities 12,061 17 3,600
Stockholders' equity 1,621 3,828 4,512
--------- --------- -------
$ 18,713 $ 18,052 $10,982
--------- --------- -------
--------- --------- -------
Net sales $ 29,063 $ 24,669 $15,645
--------- --------- -------
--------- --------- -------
Gross margin $ 3,772 $ 4,412 $ 2,083
--------- --------- -------
--------- --------- -------
Net loss $ (2,133) $ (985) $(1,565)
--------- --------- -------
--------- --------- -------
If valued at the September 30, 1997 quoted closing price of publicly traded
Ajay shares, the value of the Company's investment in Ajay would be
approximately $774. At September 30, 1997 Ajay had approximately $4,212 of
outstanding preferred stock that is convertible to approximately 8,000,000
shares of Ajay common stock and outstanding options and warrants (in
addition to the Company's options) to purchase approximately 4,200,000
shares of Ajay common stock at prices ranging from $.34 to $1.00 per share
(unaudited).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5. DEBT
On July 11, 1997, the Company and Ajay refinanced their bank debt with a
bank ("the Bank") under a $34,088 three-year revolving credit and term loan
agreement ("the Loan"). Accordingly, the Company has reported bank debt as
a long term liability as of September 30, 1997. At the date of the Loan
closing, the Company borrowed a total of $17,141 which was comprised of
$9,619 of borrowings under the $26,000 revolving loan facility (the
"Revolver"), $2,658 under a real estate term loan ("Real Estate Loan"),
$3,864 under a machinery and equipment loan ("Term Loan I"), and $1,000
under a term loan ("Term Loan II"). The Loan is a joint and several
obligation of the Company and Ajay. At the date of the Loan closing, Ajay
borrowed a total of $7,391 which was comprised of $6,825 under the Revolver
and $566 under Term Loan I (a total of $6,280 at September 30, 1997). The
proceeds from the Company's and Ajay's borrowings plus cash on hand were
used to repay the Previous Lender. In addition, the Previous Lender
provided bridge financing of $2,340 to Ajay which is to be repaid
primarily from the proceeds of the sale of Kenco, the sale of other
assets, or from a specified percentage of future combined Ajay and the
Company's cash flow. The Company's Chairman has guaranteed Term Loan II to
the Bank.
Under the Revolver, the Company and Ajay can borrow up to $26,000 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 (8.5% at September 30, 1997) plus .5%. The Real
Estate Loan and Term Loan I bear interest at the Bank's prime rate plus
.75%. At the Company's option, the Company may borrow funds under the
Revolver, the Real Estate Loan and the Term Loan I at the London InterBank
Offering Rate ("Libor") plus 2.75%, 3% and 3%, respectively. The Revolver,
Real Estate Loan and Term Loan I mature on July 14, 2000 and are secured by
substantially all of the assets of the Company and Ajay. The real estate
term loan is being amortized over twenty years and Term Loan I is being
amortized over seven years with all remaining principal outstanding due at
the July 11, 2000. Term Loan II matures on June 1, 1999 with principal
payments based upon an amortization period of twenty four months plus
additional principal payments equal to any excess proceeds from the sale of
Kenco after repayment of any Revolver due on Kenco plus principal payments
equal to 50% of the Company's and Ajay's annual consolidated excess cash
flow. The loan agreement prohibits payment of any dividends by the Company,
requires the Company and Ajay in the aggregate to maintain minimum working
capital of $25,000 exclusive of the Revolver and minimum tangible net worth
of $11,000. The Loan also prohibits additional indebtedness and common
stock repurchases, and restricts combined Company and Ajay annual capital
spending and increased operating lease obligations to $2,500 and $600,
respectively. The loan agreement imposes a prepayment penalty declining
from 3% in the first year of the loan to .5% in the year 2000 which is
waived if the loan is repaid with proceeds from the sale of assets or is
refinanced with an affiliate of the Bank. The Company had $488 of
availability under the revolving loan as of September 30, 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company's long-term debt consists of the following: 1997 1996
---- ----
Bank revolving credit facility due on July 11, 2000; variable interest rate
(9.0% at September 30, 1997) $ 9,498 -
Bank Term Loan I, due on July 11, 2000, variable interest rate 9.25%,
payable in monthly installments of $46, with a remaining balance due
of $2,300 at maturity 3,818 -
Bank Term Loan II, due on June 1, 1999 variable interest rate
9.5%, payable in monthly installments of $42, with a remaining
balance due of $83 at maturity 958 -
Real Estate loan, due on July 1, 2000, variable interest rate 9.25%,
payable in monthly installments of $11, with a remaining balance due
of $2,270 at maturity 2,647 -
Mortgage loan, due in 1998; variable interest rate (9.5% at September
30, 1997), payable in monthly installments of $8 plus interest 775 875
Sale leaseback financing, due in 2003, 8.0% interest rate, payable in
monthly installments of $38, including interest 4,526 -
Mortgage loan, due in 2003, 8.8% interest rate, payable in monthly
installments of $21 including interest 1,178 1,321
Unsecured subordinated note payable, due in 2005, interest only at
prime (8.50% at September 30, 1997) 750 750
Other 135 48
------- ------
24,285 2,994
Less current portion 1,428 212
------- ------
$22,857 $2,782
------- ------
------- ------
Maturities of long-term debt are as follows:
1998 $ 1,428
1999 1,457
2000 14,883
2001 307
2002 4,852
Thereafter 1,358
-------
$24,285
-------
-------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6. PENSION PLANS
The Company maintains two pension plans; one plan covers the 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. Net pension cost is computed as follows:
1997 1996 1995
---- ---- ----
Service cost $ 227 $ 226 $ 169
Interest cost 451 450 388
Actual return on plan assets (476) (477) (360)
Other components 21 21 29
------ ------ ------
$ 223 $ 220 $ 226
------ ------ ------
------ ------ ------
The expected long-term rate of return on plan assets is 9.0%. The discount
rate and rate of increase in future compensation levels used in determining
the actuarial present value of accumulated benefit obligations was 7.5% and
5.0% in 1997, 8.0% and 5.0% in 1996, and 8.5% and 5.0% in 1995,
respectively. Plan assets consist substantially of equity and fixed income
securities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SFAS No. 87 requires recognition in the balance sheet of a minimum pension
liability for underfunded plans. The minimum liability that must be
recognized is equal to the excess of the accumulated benefit obligation
over plan assets. At September 30, 1997 and 1996 the minimum liability for
the Company's underfunded plan was $0 and $228, respectively.
The funded status as of September 30 is as follows:
Salaried Hourly
Employees Employees
1997 Plan Plan
---- -------- ------
Actuarial present value of vested benefits $ 2,418 $ 2,792
Actuarial present value of non-vested benefits 112 534
-------- --------
Accumulated benefits obligation 2,530 3,326
-------- --------
-------- --------
Actuarial present value of projected benefits obligation (2,901) (3,606)
Plan assets at fair market value 3,091 3,379
-------- --------
Funded status 190 (227)
-------- --------
-------- --------
Unrecognized net (losses) gain 226 (99)
Prior service costs 138 (374)
Prepaid (accrued) pension cost (174) 246
-------- --------
$ 190 $ (227)
-------- --------
-------- --------
Funded status
Salaried Hourly
Employees Employees
1996 Plan Plan
---- -------- ------
Actuarial present value of vested benefits $ 2,173 $ 2,558
Actuarial present value of non-vested benefits 80 457
-------- --------
Accumulated benefits obligation 2,253 3,015
-------- --------
-------- --------
Actuarial present value of projected benefits obligation (2,667) (3,053)
Plan assets at fair market value 2,634 2,669
-------- --------
Funded status (33) (384)
-------- --------
-------- --------
Unrecognized net losses (89) (228)
Prior service costs 150 (316)
Prepaid (accrued) pension cost (94) 160
-------- --------
Funded status $ (33) $ (384)
-------- --------
-------- --------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1997 and 1996, property, plant and equipment consist
of the following:
1997 1996
------- -------
Land and land improvements $ 2,750 $ 2,742
Buildings 9,466 9,407
Machinery and equipment 10,225 10,872
Office furniture and equipment 1,704 1,934
------- -------
24,145 24,955
Less accumulated depreciation (6,065) (5,154)
------- -------
$18,080 $19,801
------- -------
------- -------
Net property, plant and equipment of $18,080 at September 30, 1997 excludes
certain machinery, equipment and office equipment held for disposition.
NOTE 8. INCOME TAXES (BENEFIT)
The provision for income taxes (benefit) is as follows:
1997 1996 1995
-------- -------- ------
Continuing operations:
Current $ 2,523 $ 1,996 $2,941
Deferred (1,368) (491) 167
-------- -------- ------
1,155 1,505 3,108
Discontinued operations (2,121) (1,885) (283)
-------- -------- ------
$ (966) $ (380) $2,825
-------- -------- ------
-------- -------- ------
The reconciliation between the effective tax rate and the statutory
federal tax rate on earnings from continuing operations as a percent is
as follows:
1997 1996 1995
---- ---- ----
Statutory federal income tax rate 34.0 34.0 34.0
State taxes, net of federal income
tax benefit 4.0 4.0 4.0
Effect of change in valuation
allowance 17.1
Other 1.5 1.5 .2
---- ---- ----
56.6 39.5 38.2
---- ---- ----
---- ---- ----
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1997 and 1996 are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1997 1996
Deferred tax assets:
Inventories, due to obsolescence reserve
and additional costs inventoried for
tax purposes pursuant to the Tax
Reform Act of 1986 $ 431 $ 385
Accrual for compensated absences 145 108
Accrual for retiree medical benefits 383 345
Accounts receivable reserves 138 389
Estimated loss on disposal 189
Equity interest in loss on affiliate 320 174
Tax gain on sale/leaseback 659 -
Accrued other reserves 144 138
State net operating loss carryforwards 727 480
------- -------
Total gross deferred tax assets 3,136 2,019
Less valuation allowance 620 270
------- -------
Net deferred tax assets 2,516 1,749
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation
and amortization 1,485 1,219
------- -------
Net deferred income tax asset $ 1,031 $ 530
------- -------
------- -------
Current deferred income tax assets $ 1,098 $ 1,020
Long-term deferred income tax assets, net 1,418 729
Long-term deferred income tax liabilities (1,485) (1,219)
------- -------
$ 1,031 $ 530
------- -------
------- -------
At September 30, 1997, the Company has approximately $12,000 of state
net operating loss carry forwards, which are available to the Company
in certain state tax jurisdictions and expire in 2006 through 2012.
During the year ended September 30, 1997, the Company increased its
valuation allowance against certain state net operating loss
carryforwards it does not expect to utilize.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9. STOCK OPTION PLANS
The Company has issued stock options and warrants at exercise prices
ranging from $.34 - 3.63 per share, the market value at the date of
issuance. These options and warrants expire between 1998 and 2000. This
stock option activity during the periods indicated are as follows:
Shares Option Prices
------- -------------
Outstanding at September 30, 1994 755,000 $ .46
Granted 40,000 3.63
Exercised - -
Canceled - -
------- -------------
Outstanding at September 30, 1995 795,000 .46 - 3.63
Granted -
Exercised (455,000) .52
Canceled - -
------- -------------
Outstanding at September 30, 1996 340,000 .46 - 3.63
Granted - -
Exercised - -
Canceled - -
------- -------------
Outstanding at September 30, 1997 340,000 $ .46 - 3.63
------- -------------
------- -------------
The Company extended the expiration date of 150,000 options held by
Acrodyne Corporation, a related party from November 8, 1997 to November 8,
1999.
In addition to the stock options noted above, the Company has two other
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. At September 30, 1997, the Company had 388,125 shares available for
future grants. Stock option activity during the periods indicated under the
1993 Plan are as follows:
Shares Option Prices
--------- -------------
Outstanding at September 30, 1994 458,000 $1.63 - 3.23
Granted 10,000 3.23
Exercised - -
Canceled - -
--------- -------------
Outstanding at September 30, 1995 468,000 1.63 - 3.23
Granted -
Exercised
Canceled (68,000) 1.63 - 3.23
--------- -------------
Outstanding at September 30, 1996 400,000 1.63 - 3.23
Granted 1,078,800 1.94
Exercised - -
Canceled (366,925) 1.63 -3.23
--------- -------------
Outstanding at September 30, 1997 1,111,875 $1.63 - 3.23
--------- -------------
--------- -------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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. At September 30, 1997 there were
110,000 shares available for grant under the 1995 Plan.
Stock option activity during the periods indicated under the 1995 Plan are
as follows:
Shares Option Prices
------ -------------
Outstanding at September 30, 1994 - -
Granted 30,000 $ 3.66
Exercised - -
Canceled - -
------ -------------
Outstanding at September 30, 1995 30,000 3.66
Granted 30,000 3.63
Exercised - -
Canceled - -
------ -------------
Outstanding at September 30, 1996 60,000 3.63-3.66
Granted 30,000 2.66
Exercised -
Canceled - -
------ -------------
Outstanding at September 30, 1997 90,000 $2.66-3.66
------ -------------
------ -------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10. STOCK REPURCHASE PROGRAM
In January 1996 the Company initiated a stock repurchase program of up to
1,000,000 shares of its common stock. Under this program the Company has
acquired 195,200 shares during fiscal 1996 at an average price of $2.77
per share, which include 100,000 shares of common stock at $2.75 per share
representing the market price on the date purchased from Enercorp, Inc., a
publicly-held business development company which beneficially owns
approximately 11% of the Company's stock. The Chairman and President of
the Company is a significant shareholder of Enercorp. During the year
ended September 30, 1997, the Company issued 65,000 treasury shares at
$2.50 per share to Enercorp and a consultant for acquisition advisory
work. The Loan prohibits further purchases under this program.
NOTE 11. DISCONTINUED OPERATIONS/RESTRUCTURING CHARGE
In July 1996, the Company adopted a restructuring plan for its automotive
accessories business and recorded a restructuring charge of $2,250 in
fiscal 1996. The restructuring provision primarily represented non-cash,
asset write-offs related to product line restructuring.
On May 8, 1997, the Company signed a letter of intent to sell Kenco which
is the sole business in the automotive accessories segment. Accordingly,
Kenco is reported as a discontinued operation in the statement of
operations. The letter of intent expired, and the Company did not renew it;
however, the Company intends to continue working with the potential buyer
towards closing the sale of Kenco, and also may enter into preliminary
discussions with possible alternative buyers. The Company anticipates that
Kenco will be sold during the second quarter of fiscal 1998, but there is
no assurance that the sale will occur. In the event that the sale does not
occur, the Company will consider all strategic alternatives for reduction
of operating losses including sale, merger, liquidation or abandonment.
Based upon the current proposed terms of the sale, the purchaser will
acquire certain assets, excluding Kenco's finished goods inventory and
manufacturing and warehousing facility, for $1,000 to $2,000 in cash, issue
the Company certain equity securities in the company owned by the proposed
buyer, and assumption of liabilities for trade payables and other current
liabilities. Under the proposed transaction, the Company will own and
warehouse the Kenco finished goods inventory and sell such inventory to the
purchaser during the nine months following the acquisition on 60 day
payment terms. The purchaser will be obligated to purchase any unsold
inventory at the end of the nine month period.
The summarized results for Kenco for the years ended September 30 are as
follows:
1997 1996 1995
------- -------- -------
Net sales $ 8,666 $ 16,043 $15,863
------- -------- -------
------- -------- -------
Loss from operations before allocated
interest expense and income tax benefit (1,727) (4,353) (286)
Allocated interest expense (290) (456) (456)
------- -------- -------
Loss from operations before income tax benefit (2,017) (4,809) (742)
Income tax benefit 810 1,885 283
------- -------- -------
Loss from operations (1,207) (2,924) (459)
Loss on disposal before interest
and income taxes (2,771) - -
Allocated interest expense (505) - -
------- -------- -------
Loss on disposal before
income tax benefit (3,276) - -
Income tax benefit 1,311 - -
------- -------- -------
Loss on disposal (1,965) - -
------- -------- -------
Total loss on discontinued operations $(3,172) $(2,924) $ (459)
------- -------- -------
------- -------- -------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The estimated pre-tax loss on disposal of $3,276 includes $1,952 of
estimated future operating losses of which $500 remains as an estimated
liability at September 30, 1997. The Company has elected to include
estimated interest costs in its estimated loss on disposal based upon the
expected debt reduction from the proceeds and the current rate of interest.
The net assets and liabilities of the discontinued operations held for
disposition included in the accompanying balance sheet as of September 30,
1997, are as follows:
Current assets (liabilities):
Accounts receivable $1,673
Prepaid assets 257
Accounts payable (970)
Accrued expenses and other (322)
------
Net current assets $ 638
------
------
Long term assets (liabilities):
Machinery and equipment, net $1,185
Office equipment, net 254
Other assets 183
Long term liabilities (12)
------
Net long term liabilities $1,610
------
------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12. BUSINESS SEGMENT INFORMATION
1997 1996 1995
------- ------- -------
NET SALES BY CLASSES OF SIMILAR PRODUCTS FROM
CONTINUING OPERATIONS
Vehicle components $43,078 $36,141 $34,826
Agricultural equipment (1) 9,419 11,026 6,783
Electrical components and GPS (2) 3,757 4,112 2,863
------- ------- -------
56,254 51,279 44,472
------- ------- -------
------- ------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
Vehicle components 7,477 6,831 8,459
Agricultural equipment (1) (1,988) (578) 857
Electrical components and GPS(2) (1,217) (659) 182
------- ------- -------
4,272 5,594 9,498
------- ------- -------
------- ------- -------
IDENTIFIABLE ASSETS
Vehicle components 21,281 20,003 18,624
Agricultural equipment (1) 10,211 11,806 8,528
Electrical components and GPS(2) 8,413 7,542 7,544
------- ------- -------
Total assets - continuing operations 39,905 39,351 34,696
Automotive accessories - discontinued operations 11,471 13,698 12,486
------- ------- -------
Total assets 51,376 53,049 47,182
------- ------- -------
------- ------- -------
CAPITAL EXPENDITURES
Vehicle components 420 532 852
Agricultural equipment (1) 145 487 220
Electrical components and GPS(2) 246 218 75
------- ------- -------
Total capital expenditures - continuing operations 811 1,237 1,147
Automotive accessories - discontinued operations 330 358 536
------- ------- -------
Total capital expenditures 1,141 1,595 1,683
------- ------- -------
------- ------- -------
DEPRECIATION AND AMORTIZATION
Vehicle components 821 1,372 1,142
Agricultural equipment (1) 239 288 121
Electrical components and GPS(2) 315 239 119
------- ------- -------
Total depreciation and amortization -
continuing operations 1,375 1,899 1,382
Automotive accessories - discontinued operations 231 257 256
------- ------- -------
Total depreciation and amortization $ 1,606 $ 2,156 $ 1,638
------- ------- -------
------- ------- -------
(1) Primary operation acquired February 1995
(2) Primary operation acquired April 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13. NET SALES FROM CONTINUING OPERATIONS - GEOGRAPHIC REGION
1997 1996 1995
-------- -------- --------
Canada $ 2,795 $ 4,570 $ 5,326
Other 3,560 3,261 2,754
-------- -------- --------
Net sales-export 6,355 7,831 8,080
United States 49,899 43,448 36,392
-------- -------- --------
Net $ 56,254 $ 51,279 $ 44,472
-------- -------- --------
-------- -------- --------
NOTE 14. 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, 1997 the
outstanding balance of the loan was approximately $191 which has been used
to finance the purchase of approximately 424,000 shares of common stock.
The Company is required to make contributions to the ESOP to repay the loan
including interest.
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 15. 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. The cost of
these benefits is expensed as claims are paid.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In September 1997, the Company concluded negotiations of a five-year union
contract which has been ratified by union members and is awaiting final
signature. As a part of the contract, the Company has reduced its retiree
health care obligations and obtained cost sharing between the retired
employees and the Company for future cost increases.
The following table provides information on the post retirement plan status
at September 30, 1997:
Accumulated Post Retirement Benefit Obligation
Retirees $ 1,293
Fully eligible active participants 579
Other active Plan participants 1,094
-------
2,966
Plan assets -
-------
Accumulated post retirement benefit
obligation in excess of Plan assets 2,966
Unrecognized gain 687
Unrecognized prior service cost (810)
Unrecognized transition obligation (1,835)
-------
Accrued post retirement benefit cost
in the consolidated balance sheet $ 1,008
-------
-------
Post retirement benefits expense for 1997 included the
follow components:
Service cost $ 74
Interest cost 218
Amortization of unrecognized net obligation at transition 165
-------
Post retirement benefits expense $ 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 7.5%.
If the assumed medical costs trends were increased by 1%, the APBO as of
September 30, 1997 would increase by $203, and the aggregate of the
services and interest cost components of the net annual post retirement
benefit cost would be increased by $24.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16. ACQUISITIONS
In April 1996, the Company acquired the assets of the Burda Group of
Companies located in West Linn, Oregon, a distributor of a commercial
chipper line, for $20. This company was operated as Techwood Williams, Inc.
and ceased operations in fiscal 1997.
In April 1996, the Company also acquired the assets of Neumann
Manufacturing and Engineering, Inc. located in Madison Heights, Michigan, a
manufacturer of plastic components for the automotive industry, for $1,200.
This company is being operated as Premier Plastics Technologies, Inc.
In July 1996, the Company completed the acquisition of GeoFocus, Inc.
located in Gainesville, Florida for 150,000 shares of the Company's common
stock valued at $290. GeoFocus develops train tracking and cyber-farming
systems using global positioning systems ("GPS") and geographical
information systems ("GIS").
These acquisitions were accounted for using the purchase method of
accounting and the results of operations of these businesses have been
included in the consolidated results of operations of the Company from the
acquisition dates.
NOTE 17. SALE LEASEBACK
In April 1997 the Company sold its Portland, Oregon manufacturing facility
in a sale-leaseback transaction for $4,524, less $250 withheld in an escrow
fund for possible environmental cleanup costs. The Company may be required
to repurchase the property within one year if it cannot cure possible
environmental problems at the sold property and may be required to finance
part of the purchaser's price in January 1998 if the purchaser cannot
obtain permanent financing from a lender who would accept the environmental
condition of the property. The acquisition agreement between the Company
and the previous building owner contains provisions for indemnification of
any environmental cleanup costs after the Company spends $25 towards such
cleanup. The Company intends to seek indemnification from the prior
property owner for permanent monitoring or cleanup costs, if any. The
purchaser informed the Company that it has entered into a purchase and sale
agreement with a third party who would purchase the building without any
contingent repurchase obligation subject to third party due diligence. The
Company has the right of first refusal to repurchase the building during
the first year if the purchaser attempts to sell the property to a third
party.
The transaction was accounted for as a financing where the property is
recorded as an asset and continues to be depreciated and the capitalized
lease obligations are recorded as long term liabilities. The lease has a
term of fifteen years and requires minimum annual payments of $450 with
rental increases every two years equal to the increase in the consumer
price index for the Portland, Oregon area but not greater than a 5% nor
less than a 3% increase for every two-year period. The Company has a
deferred gain on the sale of the building of $1,686. At the time that the
contingent repurchase obligation is eliminated, the Company will record the
transaction as an operating lease. At such time, the gain on the sale will
be recognized and the capitalized costs and lease obligation will be
eliminated from the balance sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 18. QUARTERLY DATA (UNAUDITED)
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter Annual
---- --------- --------- --------- --------- ---------
Continuing operations:
Net sales $ 13,521 $ 14,248 $ 14,536 $ 13,949 $ 56,254
Gross margin 3,627 3,381 2,966 2,916 12,890
Operating expenses 2,056 2,294 2,306 1,962 8,618
--------- --------- --------- --------- ---------
Earnings from continuing operations 392 391 179 173 1,135
Loss from discontinued operations (380) (521) (2,271) - (3,172)
--------- --------- --------- --------- ---------
Net earnings (loss) $ 12 $ (130) $ (2,092) $ 173 $ (2,037)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per common share from continuing operations $ 0.02 $ 0.02 $ 0.01 $ .01 $ .06
(Loss) per common share from discontinued operations (0.02) (0.02) (.13) .00 (.17)
--------- --------- --------- --------- ---------
Earnings (loss) per common share $ .00 $ (0.00) $ (.12) $ .01 $ (.11)
--------- --------- --------- --------- ---------
Weighted average shares outstanding 17,800 17,900 18,500 18,500 18,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
First Second Third Fourth(1)
1996 Quarter Quarter Quarter Quarter Annual
---- --------- --------- --------- --------- ---------
Continuing operations:
Net sales $ 12,044 $ 12,598 $ 13,474 $ 13,163 $ 51,279
Gross margin 3,823 3,593 3,779 2,478 13,673
Operating expenses 1,719 1,749 2,018 2,593 8,079
--------- --------- --------- --------- ---------
Earnings (loss) from operations 1,035 879 730 (281) 2,363
Loss from discontinued operation (45) (365) (1,824) (690) (2,924)
--------- --------- --------- --------- ---------
Net earnings (loss) $ 990 $ 514 $ (1,094) $ (971) $ (561)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per common share from continuing operations $ .06 $ .05 $ .04 $ (.02) $ .13
(Loss) per common share from discontinued operations .00 (.02) (.10) (.04) (.16)
--------- --------- --------- --------- ---------
Earnings (loss) per common share $ .06 $ .03 $ (.06) $ (.06) $ (.03)
--------- --------- --------- --------- ---------
Weighted average shares outstanding 17,900 17,600 17,600 17,800 17,800
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
1) The fourth quarter of 1996 continuing operations includes the operation
of acquisitions from date of purchase. The results of operations of these
acquisitions are not material. The fourth quarter of 1996 continuing
operations includes a $1,000 write down due to an unfavorable inventory
adjustment resulting from increased overhead and production
inefficiencies and an unprofitable product line which was discontinued in
August 1996 and additional inventory and account receivable reserves of
approximately $300.
NOTE 19. CONTINGENCIES
The Company has identified certain contaminants in the soil of its
Portland, Oregon manufacturing facility which the Company believes was
disposed of on the property by a previous property owner. The Company
intends to seek indemnification from such party for the costs of permanent
monitoring, or cleanup if required. The Company has retained an
environmental consulting firm which is currently conducting tests to
determine the extent of any contamination. The Company cannot estimate the
costs of permanent monitoring or property clean up at the present time.
However, the Company believes that it can enforce valid claims against the
prior property owner for any costs it may incur.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Williams Controls, Inc.
Portland, Oregon
We have audited the accompanying consolidated balance sheets of Williams
Controls, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended September
30, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the
years in the three-year period ended September 30, 1997, in conformity with
generally accepted accounting principles.
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 18, 1997
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference from the Company's 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. See Exhibit Index on page 47 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 44 of this Form 10-K.
4. Reports on Form 8-K.
None.
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: December 18, 1997 By /s/ Thomas W. Itin
THOMAS W. ITIN, CHAIRMAN,
PRESIDENT AND CEO
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: December 18, 1997 By /s/ Thomas W. Itin
THOMAS W. ITIN, CHAIRMAN,
PRESIDENT AND CEO
Date: December 18, 1997 By /s/ Gerard A. Herlihy
GERARD A. HERLIHY
CHIEF FINANCIAL AND
ADMINISTRATIVE OFFICER
Date: December 18, 1997 By /s/ William N. Holmes
CORPORATE CONTROLLER AND PRINCIPAL
ACCOUNTING OFFICER
Date: December 18, 1997 By /s/ R. William Caldwell
R. WILLIAM CALDWELL, DIRECTOR
Date: December 18, 1997 By /s/ H. Samuel Greenawalt
H. SAMUEL GREENAWALT, DIRECTOR
Date: December 18, 1997 By /s/ Timothy Itin
TIMOTHY ITIN, DIRECTOR
WILLIAMS CONTROLS, INC.
INDEX TO SCHEDULES
PAGE
Independent Auditors' Report 45
Schedule II Valuation and Qualifying Accounts 46
All other schedules are omitted because they are not required, not
applicable or the required information is given in the Consolidated
Financial Statements.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Williams Controls, Inc.
Portland, Oregon
We have audited the 1997, 1996 and 1995 consolidated financial statements
of Williams Controls, Inc. and subsidiaries, referred to in our report
dated December 18, 1997 which is included under Item 8 in this Form 10-K.
In connection with our audit of these financial statements, we audited the
1997, 1996 and 1995 financial statement schedule, listed under Item 14 of
this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information stated therein, when
considered in relation to the financial statements taken as a whole.
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 18, 1997
WILLIAMS CONTROLS, INC.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(DOLLARS IN THOUSANDS)
Beginning Charged to
Description balance expenses
----------- --------- ----------
For Year Ended
September 30, 1997
Total reserves for doubtful accounts
and obsolete inventory $ 1,064 $937
--------- ----------
--------- ----------
For Year Ended
September 30, 1996
Total reserves for doubtful accounts
and obsolete inventory $2,959 $1,691
--------- ----------
--------- ----------
For Year Ended
September 30, 1995
Total reserves for doubtful accounts
and obsolete inventory $ 575 $ 1,125
--------- ----------
--------- ----------
NOTE: Valuation and qualifying accounts were not individually
significant; and, therefore, additions and deductions information has not
been provided in this schedule.
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)
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 R. William Caldwell, 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)
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) Kenco Williams, Inc.
(c) Hardee Williams, Inc.
(d) 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.
(c) Kenco 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)
10.3(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 The Company's 1995 Stock Option Plan for Non-Employee Directors.
(INCORPORATED BY REFERENCED 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")
10.5 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)
10.6(a) Mortgage and Security Agreement, dated August 31, 1988, by
Sparkomatic Corporation in favor of MetLife Capital Credit
Corporation. (INCORPORATED BY REFERENCE TO EXHIBIT 10.7(A)
TO THE REGISTRANT'S 1993 FORM 10-K)
10.6(b) Mortgage Note in the principal amount of $1,700,000, dated
August 31, 1988, from Sparkomatic Corporation to MetLife Capital
Credit Corporation. (INCORPORATED BY REFERENCE TO EXHIBIT 10.7(B)
TO THE REGISTRANT'S 1993 FORM 10-K)
EXHIBIT
NUMBER DESCRIPTION
10.6(c) Loan Assumption, Modification and Extension Agreement (the
"Assumption Agreement"), dated August 12, 1993, among Kenco
Williams, Inc., Sparkomatic Corporation and MetLife Capital
Corporation and the Guaranty given by Williams to MetLife to
guaranty the obligations of Kenco Williams, Inc. to MetLife
thereunder. (INCORPORATED BY REFERENCE TO EXHIBIT 10.9 TO THE
REGISTRANT'S POST-EFFECTIVE AMENDMENT NO. 1, AS FILED WITH THE
COMMISSION ON SEPTEMBER 23, 1993, ON FORM S-3 TO THE 1989 FORM
S-18 (THE "POST-EFFECTIVE AMENDMENT"))
10.6(d) Guaranty dated as of March 31, 1994 made by the Registrant in
favor of MetLife Capital Corporation. (INCORPORATED BY REFERENCE
TO EXHIBIT 10.1 TO THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1994)
10.7(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)
10.7(b) Amendment One to the Itin Guaranty. FILED HEREWITH
10.8 Security Agreement between Ajay and its subsidiaries, as debtors,
and the Registrant and its subsidiaries, as secured parties.
FILED HEREWITH.
21.1 List of Subsidiaries. SEE ITEM 1 IN THIS REPORT
27.1 Financial Data Schedule. FILED HEREWITH