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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18083
Williams Controls, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
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 1, 1995, 17,264,987 shares of Common Stock were outstanding and
the aggregate market value of the shares (based upon the average of the bid and
asked price of the shares on the over-the-counter market) of Williams Controls,
Inc. held by nonaffiliates was approximately $16,690,885.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1996 Annual Meeting of
Stockholders to be filed not later than January 28, 1996 are incorporated by
reference in Part III hereof.
Williams Controls, Inc.
Index to 1995 Form 10-K
Part I Page
Item 1. Business 2-6
Item 2. Properties 6
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 10-14
Item 8. Financial Statements and Supplementary Data 15-37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
Part III
Item 10. Directors and Executive Officers of the Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management 38
Item 13. Certain Relationships and Related Transactions 38
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 38
Signatures 39
1
WILLIAMS CONTROLS, INC.
Form 10-K
Part I
Item 1. Description of Business
Williams Controls, Inc., together with its consolidated subsidiaries, Williams
Controls Industries, Inc.; Kenco Williams, Inc.; NESC Williams, Inc.; Williams
Technologies, Inc.; Williams World Trade, Inc.; Williams Automotive, Inc.; Aptek
Williams, Inc.; Agrotec Williams, Inc. and its 80% owned subsidiaries Hardee
Williams, Inc. and Waccamaw Wheel Williams, Inc., 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 are as follows:
Williams Controls Industries, Inc.: Manufactures heavy vehicle components sold
primarily in the heavy vehicle manufacturing industry.
Kenco Williams, Inc.: Manufactures, assembles, packages and distributes truck
and auto accessories for the aftermarket parts industries.
NESC Williams, Inc.: Manufactures conversion kits to allow vehicles to use
compressed natural gas and gas metering and regulating products.
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, Williams World
Trade manages foreign sourcing for all subsidiaries of the Company.
Williams Automotive, Inc.: Markets the Company's products to the automotive
industry.
Aptek Williams, Inc.: Develops and produces microcircuits, cable assemblies and
other electronic products for a wide array of applications, including the
transportation industry.
Agrotec Williams, Inc.: Manufactures spraying equipment for the professional
lawn care, nursery and pest control industries.
Hardee Williams, Inc.: Manufactures equipment used in highway and park
maintenance, landscaping and farming.
Waccamaw Wheel Williams, Inc.: Manufactures solid rubber tail wheels and other
rubber products, used on landscape maintenance equipment, from recycled truck
and bus tires.
2
As discussed in note 14 to the Notes to Consolidated Financial Statements, the
Company's operations are divided into four industry segments.
Heavy Vehicle Components - The Company's heavy vehicle component product lines
include electronic throttles, exhaust brakes and pneumatic and hydraulic
controls. These products are used in applications which include heavy vehicles,
utility and off-highway equipment, transit buses and underground mining
machines. The majority of these products are sold directly to original equipment
manufacturers such as Freightliner, Navistar, Volvo, 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, Schraeder-Bellows and RMH.
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 and Dee Zee.
Landscape Maintenance Equipment - The landscape maintenance equipment product
lines include rotary cutters, sprayers, discs, harrows and trailers. These
products are sold to independent equipment dealers located primarily in the
Southeastern United States. The major competitors include Wood Brothers and
Alamo Group.
Electrical Components - The electrical components product line includes the
design and production of microcircuits, cable assemblies and other electronic
products. These products are used in telecommunication, computer and
transportation industries. The major customers include Allied Signal, AT&T and
Nokia. The major competitors include CTS, AMP and Nethode.
Acquisitions
During 1995 the Company completed acquisitions which accounted for $9,646 of
total sales and $1,039 of earnings from operations. These acquisitions are as
follows:
In February 1995 the Company acquired assets of approximately $5,400 from Hardee
Manufacturing Company, Inc. and the Waccamaw Wheel division of Red Bluff Grain
and Farm Supply, Inc., of Loris, South Carolina. The acquisition was financed
through a combination of the assumption of liabilities, debt and cash. Hardee is
a manufacturer of equipment used in highway and park maintenance, landscaping
and farming. Its product line includes sprayers, rotary cutters, discs, harrows
and highway trailers. Waccamaw Wheel manufactures solid rubber tail wheels from
recycled truck and bus tires. These are sold to Hardee and other rotary cutter
manufacturers. Hardee's and Waccamaw Wheel's products are sold primarily in the
southeastern United States. The Company completed these acquisitions through two
newly formed subsidiaries each owned 80% by the Company and 20% by the seller.
In April 1995 the Company acquired substantially all of the business assets of
Aptek Technologies, Inc. of Deerfield Beach, Florida, for $1,400. In June 1995
the Company acquired the land and building comprising the Aptek operating
facilities for $4,600. The $6,000 purchase price was a combination of cash of
$4,200 and Company common stock valued at $1,800 (543,806 shares). Aptek designs
and produces microcircuits, cable assemblies and other electronic products used
in the telecommunication, computer and medical industries.
3
In August 1995 the Company acquired substantially all the assets of Agrotec,
Inc. of Pendleton, North Carolina, for approximately $500 and the assumption of
certain liabilities. These acquisitions have been accounted for as purchases
and, accordingly, the results of operations have been included in the
Consolidated Statements of Operations from their purchase dates.
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 such products. The Company's
competitive position varies among its product lines.
Marketing and Distribution
For the years ended September 30, 1995, 1994 and 1993, Freightliner accounted
for 12%, 14% and 19%, respectively, of net sales while in 1994 and 1993,
Navistar accounted for 10% and 14%, respectively, of net sales and Volvo
accounted for 10% and 9%, respectively, of net sales.
During the years ended September 30, 1995, 1994, and 1993, approximately 13%,
16% and 20% of the Company's total net sales were to customers outside of the
United States, primarily in Canada, and to a lesser extent in Europe and
Australia. See note 15 to the Notes to Consolidated Financial Statements.
Existing Future Sales Orders
Future sales orders for the Company's products were approximately $9,200,000 at
September 30, 1995, compared to $6,600,000 at September 30, 1994. Future sales
orders are orders for which customers have requested delivery at specified
future dates. The Company has not experienced any 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 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 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.
4
Government Regulation
The Company's heavy 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 investigation, NHTSA finds that the
Company is not in compliance with any standard or regulation, 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 customers in the design and development of
new products and adapting products for new applications. During 1995, 1994 and
1993, the Company spent $1,445,000, $1,145,000 and $1,102,000 respectively, on
these activities.
Patents and Trademarks
The Company's product lines generally have strong identities in the markets in
which they serve. The Company has a number of product patents obtained over a
period of years and which expire at various times. The Company considers each
patent to be of value and aggressively protects its rights against infringement
throughout the world. Although the Company owns two patents (expiring in 2009)
which the Company believes improved the marketability of the electronic product
line of the heavy vehicle components segment and which are subject to a civil
action (described in Item 3 - "Legal Proceedings"), the Company does not
consider that the loss or expiration of any particular patent would materially
adversely affect the Company; however, competition in this product line could
increase if these patents are not successfully defended. The Company owns
numerous trademarks which are registered in many countries enabling the Company
to market its products worldwide. These trademarks include "Williams," "Kenco,"
"Hardee" and "Bugman." 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, rubber and zinc which currently are widely available on reasonable terms.
The Company relies upon, and expects to continue to rely upon, CTS Corporation,
Conner Formed Metal Products, Inc. and Caterpillar, Inc. as single source
suppliers for critical components and/or products. Although these suppliers have
been able to meet the Company's future needs on a timely basis, or be willing to
continue to be a supplier 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.
5
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 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 120 union employees and 380 nonunion
employees. The nonunion 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 heavy 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 which expires in
September 1997, 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
relationship with its employees and the Union is good.
Item 2. Properties
The following table outlines the principal manufacturing and other facilities
owned by the Company, subject to mortgages on each facility. See notes 7 and 8
to the Notes to Consolidated Financial Statements.
Type and Size
Entity Facility Location of Facility
------ ----------------- -------------
Williams Portland, Oregon Manufacturing and offices
160,000 square feet
Kenco Middlebury, Indiana Manufacturing and offices
139,000 square feet
Hardee Loris, South Carolina Manufacturing and offices
100,000 square feet
Aptek Deerfield Beach, Florida Manufacturing and offices
50,000 square feet
Agrotec Pendleton, North Carolina Manufacturing and office
50,000 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.
6
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.
On April 24, 1995 CTS Corporation filed a civil action in the U.S. District
Court for the Northern District of Indiana, seeking to invalidate two of the
Company's patents or, in the alternative, a declaration of joint ownership of
the patent rights thereunder, and unspecified damages. These patents relate to a
component used in the Company's electronic foot throttle controls. The Company
has denied the claims of CTS and filed a counterclaim for infringement of these
patents seeking a permanent injunction and treble damages. The Company believes
that CTS's claims are without merit, that payment of damages is remote and is
vigorously defending its patent rights. The Company is unable to predict the
outcome of th1s litigation; however; if the patents are not successfully
defended, It believes that competion in this product line could increase.
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, 1995.
7
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". Until January 12, 1995 the
Company's common stock was quoted on the NASDAQ Small Cap Market.
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:
1995
High Low
Quarter
October 1 - December 31 $ 3.50 $ 2.69
January 1 - March 31 3.72 3.41
April 1 - June 30 3.72 3.09
July 1 - September 30 3.69 3.22
1994
High Low
Quarter
October 1 - December 31 $ 2.44 $ 1.53
January 1 - March 31 3.90 2.47
April 1 - June 30 3.69 2.50
July 1 - September 30 3.16 2.31
The number of record holders of the Company's common stock as of September 30,
1995 was approximately 550. 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.
8
Item 6. Selected Financial Data (Dollars in thousands - except per share
amounts)
Statement of Operations Data
Year ended September 30 1995* 1994** 1993*** 1992 1991
- ---------------------------- --------- -------- --------- --------- ---------
Net sales $60,614 $41,761 $25,897 $20,072 $16,200
Earnings (loss) from operations 9,491 6,615 3,750 2,028 (303)
Earnings (loss) before extraordinary item
and cumulative effect of accounting change 4,512 3,641 1,956 1,012 (1,316)
Net earnings (loss) 4,512 3,641 1,956 1,267 (1,403)
Earnings (loss) per common share:
Primary:
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change .26 .22 .14 .07 (.14)
Net earnings (loss) .26 .22 .14 .09 (.15)
Fully diluted:
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change .26 .22 .13 .07 (.14)
Net earnings (loss) .26 .22 .13 .09 (.15)
Cash dividends per common share - - - - -
Balance Sheet Data
September 30 1995* 1994** 1993*** 1992 1991
- ------------ --------- -------- -------- -------- --------
Current assets $25,788 $20,874 $10,623 $ 6,869 $ 6,112
Current liabilities 7,881 10,012 7,527 5,547 8,669
Working capital (deficit) 17,907 10,862 3,096 1,322 (2,557)
Total assets 47,182 32,159 20,006 13,142 12,290
Long-term liabilities 20,244 9,699 5,690 3,863 925
Redeemable convertible preferred stock,
including unpaid dividends - - 413 492 450
Minority interest in consolidated subsidiaries 764 - - - -
Stockholders' equity 18,293 12,448 6,376 3,240 2,246
* 1995 data includes acquisitions made in February, April and August. In 1995
net sales related to these acquisitions from date of purchase were $9,646;
earnings from operations were $1,039. Total assets at September 30, 1995
related to these acquisitions were $16,072. See note 18 to the Notes to
Consolidated Financial Statements for information regarding these
acquisitions.
** 1994 data includes small acquisitions from January 1994. Net sales,
earnings from operations and total assets related to these acquisitions
were not material. See note 18 to the Notes to Consolidated Financial
Statements for information regarding these acquisitions.
*** 1993 data includes acquisitions from August 1993. Net sales related to
these acquisitions for 1993 were $1,397; earnings from operations were $23.
Total assets at September 30, 1993 related to these acquisitions were
$6,836.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in thousands - except per share amounts)
Financial Position and Capital Resources
The Company's financial condition improved during 1995 due to a combination of
strong operating results for the year ended September 30, 1995 and obtaining a
three-year $30,000 credit facility. At September 30, 1995 the Company had
working capital of $17,907 compared to $10,862 at September 30, 1994, an
increase of 65%. The current ratio on September 30, 1995 was 3.3 compared with
2.1 at September 30, 1994.
Stockholders' equity increased to $18,293 at September 30, 1995 from $12,448 at
September 30, 1994. The increase in stockholders' equity is due primarily to net
earnings of $4,512 and the issuance of common stock of $1,963 issued in
connection with acquisitions.
In July 1995 the Company obtained a $30,000 credit facility to replace its
previous financing package comprised of term loans of $8,600 and a revolving
loan of $10,000. The $30,000 credit facility is a 3 year revolving loan which
carries an interest rate at either the bank's prime rate or the Interbank
Offering Rate (IBOR) plus 2% to 3% depending upon certain financial ratios. The
Company has the option to borrow at the bank's prime rate or the IBOR plus rate.
The Company has borrowed approximately $15,000 under the new credit facility
with interest at 7.9% which is IBOR plus 2%. The Company has pledged
substantially all of its assets as collateral for the credit facility. The
Company is required to maintain a minimum net worth and maintain certain
financial ratios. The loan agreement also contains certain restrictions that
limit acquisitions, investments, payment of dividends, and capital expenditures.
During 1994 the Company provided a $7,000 revolving loan facility to Ajay
Sports, Inc. ("Ajay") for Ajay's operating subsidiary. The loan to Ajay was
recorded as a note receivable, affiliate in the Consolidated Balance Sheets. In
July 1995 Ajay obtained an $8,500 credit facility which was used to pay off the
revolving loan provided by the Company. The Company has guaranteed Ajay's $8,500
credit facility and is charging Ajay a fee of 1/2 of 1% per annum of the
outstanding loan amount for providing this guaranty. The Chairman and President
of the Company is also Chairman and President of Ajay, and has guaranteed Ajay's
obligation to the Company under the loan guaranty.
In exchange for the Company providing this financing the Company received an
option to purchase up to 15,228,520 shares of Ajay common stock (which would
represent approximately 45% of Ajay's then outstanding common stock) and
received manufacturing rights in certain Ajay facilities through 2002 under a
joint venture agreement. In October 1994 the Company exercised options to
acquire 4,117,647 shares of Ajay common stock for $.34 per share, through a
reduction in the note receivable in the amount of $1,400, resulting in the
Company owning approximately 18% of Ajay's then outstanding common stock. The
investment in Ajay is recorded as an investment in affiliate in the unaudited
Consolidated Balance Sheets net of the Company's equity interest of $282 in
Ajay's loss for the twelve-month period ending September 30, 1995. The Company
is required to account for the investment in Ajay on the equity method due to
common ownership by the Chairman and President of the Company who is also
Chairman and President of Ajay. At September 30, 1995 the Company has vested
options to acquire 11,110,873 shares of Ajay common stock at prices ranging from
$.34 to $.50 per share.
10
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in thousands - except per share amounts)
In October 1995 Ajay increased its bank line from $8,500 to $13,500 and the
Company increased its guaranty of this loan from $8,500 to $13,500. The Chairman
and President of the Company, who also is Chairman and President of Ajay,
correspondingly increased his guaranty to the Company from $8,500 to $13,500.
The increase allowed Ajay to complete two acquisitions. All other terms of the
agreement between the Company and Ajay remained as described above.
During 1995 the Company completed acquisitions which accounted for $9,646 of
total sales and $1,039 of earnings from operations. These acquisitions are as
follows:
In February 1995 the Company acquired assets of approximately $5,400 from Hardee
Manufacturing Company, Inc. and the Waccamaw Wheel division of Red Bluff Grain
and Farm Supply, Inc., of Loris, South Carolina. The acquisition was financed
through a combination of the assumption of liabilities, debt and cash. Hardee is
a manufacturer of equipment used in highway and park maintenance, landscaping
and farming. Its product line includes sprayers, rotary cutters, discs, harrows
and highway trailers. Waccamaw Wheel manufactures solid rubber tail wheels from
recycled truck and bus tires. These are sold to Hardee and other rotary cutter
manufacturers. Hardee's and Waccamaw Wheel's products are sold primarily in the
southeastern United States. The Company completed these acquisitions through two
newly formed subsidiaries each owned 80% by the Company and 20% by the seller.
In April 1995 the Company acquired substantially all of the business assets of
Aptek Technologies, Inc. of Deerfield Beach, Florida, for $1,400. In June 1995
the Company acquired the land and building comprising the Aptek operating
facilities for $4,600. The $6,000 purchase price was a combination of cash of
$4,200 and Company common stock valued at $1,800 (543,806 shares). Aptek designs
and produces microcircuits, cable assemblies and other electronic products used
in the telecommunication, computer and medical industries.
In August 1995 the Company acquired substantially all the assets of Agrotec,
Inc. of Pendleton, North Carolina, for approximately $500 and the assumption of
certain liabilities. These acquisitions have been accounted for as purchases
and, accordingly, the results of operations have been included in the
Consolidated Statements of Operations from their purchase dates.
The Company's results of operations have historically been dependent upon the
heavy vehicle component segment, which accounted for over 55% of sales and over
90% of earnings from operations in 1995 and 1994. Over the past five years, the
heavy vehicle industry growth has been due to the strength of class 8 truck
sales which are expected to exceed 200,000 units in 1995. Based upon the
projections of industry analysts, class 8 truck sales could decrease by at least
15% to 20% during 1996. Management believes that the impact of the anticipated
decrease in class 8 truck sales on the Company's operations will be mitigated
due to the following factors: 1) the Company was awarded a contract to provide
electronic throttles for the new Ford class 8 truck, 2) the class 6 and 7 truck
market is continuing to increase the use of electronic throttles, 3) new product
offerings by current class 8 customers are expected to capture additional market
share, and 4) the use of electronic throttles in off-highway applications is
expected to increase during the next few years.
11
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in thousands - except per share amounts)
The Company's automotive accessories segment has been experiencing lower margins
as a result of increased competition and soft retail sales by mass merchants.
Management has implemented a program to reduce product costs through more
efficient production and distribution to improve these margins. The impact of
these changes may not be realized until the later part of 1996. The automotive
accessories segment's primary distribution channel is through mass merchants.
The financial press recently reported the financial difficulties facing Kmart,
which is one of Kenco's largest customers. Although Kmart is not a significant
customer to the overall Company, the loss of its business would have a
significant impact on the operations of the Kenco subsidiary. Kenco's sales to
Kmart were approximately $1,500 during 1995, and Kmart maintained an accounts
receivable balance which averaged approximately $500. Management is closely
monitoring its extension of credit to the financial condition of Kmart.
It is anticipated that acquisitions made during the year will have a favorable
impact on the Company's financial position and results of operations; however,
management is faced with the challenge of integrating the operations of its
acquisitions with its existing businesses while minimizing operating expenses.
The Company anticipates that cash generated from operations and utilization of
its loan facility will be sufficient to satisfy working capital and capital
expenditure requirements for the foreseeable future, and provide the Company
with financial flexibility to respond quickly to business opportunities,
including opportunities for growth through internal development, strategic joint
ventures or acquisitions.
The Financial Accounting Standards Board has recently issued SFAS No. 107,
Disclosures about Fair Value of Financial Instruments; No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments; and
SFAS No. 121, Accounting for Impairment of Long-lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS No. 107 and No. 119 are effective for the Company
for fiscal years ending after December 15, 1995, and SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. Adoption of SFAS No. 107,
No. 119 and No. 121 are not expected to have a material impact on the Company's
financial position or results of operations.
12
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in thousands - except per share amounts)
Results of Operations
Year ended September 30, 1995
Compared to September 30, 1994
Sales - Sales for 1995 were $60,614 compared to $41,761 for 1994, an increase of
45%. Heavy vehicle component sales, which accounted for 58% of total sales,
increased 22% to $35,105 compared to $28,678 in the prior year. Automotive
accessory sales, which accounted for 26% of total sales increased 21% to $15,863
compared to $13,083 in the prior year. Acquisitions accounted for 16% of total
sales for the year. Landscape maintenance equipment sales were $6,783 or 11% of
total sales. Electrical component sales were $2,863 or 5% of sales.
Heavy vehicle component sales are comprised of sales of electronic throttle and
pneumatic/hydraulic controls product lines. The electronic throttle product line
sales, which accounted for 53% of heavy vehicle component sales, increased 24%
over the prior year. Electronic throttle unit sales increased during the year
due to the growth of the Class 8 truck market and the increased use of
electronic throttles in the Class 6 and 7 truck market.
Gross Margin - Gross margin as a percent of sales was 28% in 1995 and 1994.
Operating Expenses - Operating expenses for 1995 were $7,715 or 13% of sales,
compared to $5,127 or 12% of sales in the prior year.
Interest Income, Affiliate - Interest income, affiliate of $601 is from the Ajay
note receivable. This loan was repaid in July 1995.
Equity Interest in Loss of Affiliate - Equity interest in the loss of affiliates
represents the Company's 18% interest in Ajay's losses for the twelve-month
period ending September 30, 1995.
Interest Expense - Interest expense for 1995 was $2,409 compared to $1,011 for
the prior year. The increase in interest expense is due to the increased debt
incurred to finance acquisitions.
Net Earnings - Net earnings for 1995 were $4,512 compared to $3,641 for 1994, an
increase of 24%.
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in thousands - except per share amounts)
Year ended September 30, 1994
Compared to September 30, 1993
Sales - Sales for 1994 were $41,761 compared to $25,897 for 1993, an increase of
61%. Heavy vehicle component sales, which accounted for 69% of total sales,
increased 17% to $28,678 compared to $24,500 in the prior year. Automotive
accessory sales, which accounted for 31% of total sales, were $13,083 as a
result of acquisitions in August 1993 and January 1994.
Heavy vehicle component sales are comprised of sales of electronic throttles and
pneumatic/hydraulic controls product lines. The electronic throttle product line
accounted for 51% of heavy vehicle component sales.
Gross Margin - The gross margin as a percent of sales was 28% for 1994 and 1993.
Operating Expenses - Operating expenses for 1994 were $5,127 or 12% of sales,
compared to $3,495 or 13% of sales.
Interest Income, Affiliate - Interest income, affiliate of $237 is from the Ajay
note receivable which offset a portion of interest expense.
Interest Expense - Interest expense for 1994 was $1,011 compared to $619 for the
prior year. The increase in interest expense is due to increased debt incurred
to finance acquisitions, the Ajay loan and higher interest rates.
Net Earnings - Net earnings for 1994 were $3,641 compared to $1,956 for 1993, an
increase of 86%.
14
Item 8. Financial Statements and Supplementary Data
Williams Controls, Inc.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets at September 30, 1995 and 1994 16-17
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1995, 1994 and 1993 18
Consolidated Statements of Operations for the
years ended September 30, 1995, 1994 and 1993 19
Consolidated Statements of Cash Flows for the
years ended September 30, 1995, 1994 and 1993 20
Notes to Consolidated Financial Statements 21-36
Independent Auditors' Report 37
See page 38 for Index to Schedules and page 43 for Index to Exhibits.
15
Consolidated Balance Sheets
September 30
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
ASSETS 1995 1994
------- -------
Current assets:
Cash $ 1,653 $ 242
Accounts receivable, net 10,521 8,380
Inventories 12,987 6,607
Note receivable, affiliate - 4,913
Other 627 732
------- -------
Total current assets 25,788 20,874
------- -------
Investment in affiliate 1,118 1,400
Property, plant and equipment:
Land and land improvements 2,713 1,027
Buildings 9,221 4,742
Machinery and equipment 9,169 4,974
Office furniture and equipment 1,426 1,047
------- -------
22,529 11,790
Less accumulated depreciation and amortization 3,731 2,721
------- -------
18,798 9,069
------- -------
Other assets 1,478 816
------- -------
$47,182 $32,159
======= =======
The accompanying notes are an integral part of these statements.
16
Consolidated Balance Sheets
September 30
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
--------- ---------
Current liabilities:
Revolving lines of credit $ - $ 3,187
Current portion of long-term debt 301 1,886
Current portion of obligations under capital leases 161 160
Accounts payable and accrued expenses 7,419 4,779
------ ------
Total current liabilities 7,881 10,012
------ ------
Long-term debt 17,946 7,773
Long-term obligations under capital leases 166 290
Deferred tax liability 886 770
Other liabilities 1,246 866
Minority interest in consolidated subsidiaries 764 -
Commitments and contingencies - -
Stockholders' equity:
Preferred stock of $.01 par value, 50,000,000 shares authorized - -
Common stock of $.01 par value, 50,000,000 shares
authorized, 17,264,987 and 16,676,181 shares issued 173 167
Additional paid-in capital 9,023 7,066
Retained earnings 10,000 5,488
Unearned ESOP shares (630) -
Pension liability adjustment (273) (273)
------- --------
18,293 12,448
------ -------
$47,182 $32,159
====== ======
The accompanying notes are an integral part of these statements.
17
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1994, 1993 and 1992
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Number of
Shares Issued Common Additional Retained Unearned Pension
and Stock Paid-in Subscriptions Earnings ESOP Liability Stockholders'
Subscribed Amount Capital Receivable (Deficit) Shares Adjustment Equity
Balance, September 30, 1992 12,056,289 $ 120 $ 3,806 $ (398) $ (57) $ (231) $ 3,240
Dividend payable on 10%
mandatory redeemable
preferred stock - - - - (42) - - (42)
Exercise of warrants 1,500,000 15 210 - - - - 225
Payment of stock subscriptions - - - 391 - - - 391
Common stock issued in connection
with acquisitions 250,000 3 382 - - - - 385
Cancellation of stock subscription (50,000) - (7) 7 - - - -
Change in pension liability adjustment - - - - - - 221 221
Net earnings - - - - 1,956 - - 1,956
---------- --------- ------- ------- ------ -------- -------- -------
Balance, September 30, 1993 13,756,289 138 4,391 - 1,857 - (10) 6,376
Dividend payable on 10%
mandatory redeemable
preferred stock - - - - (10) - - (10)
Exercise of warrants 2,449,892 24 1,887 - - - - 1,911
Preferred stock conversion 330,000 3 410 - - - - 413
Common stock issued in connection
with acquisitions 140,000 2 378 - - - - 380
Change in pension liability adjustment - - - - - - (263) (263)
Net earnings - - - - 3,641 - - 3,641
---------- --------- ------- ------- ------ -------- ------- -------
Balance, September 30, 1994 16,676,181 167 7,066 - 5,488 - (273) 12,448
Unearned ESOP shares - - - - - (630) - (630)
Common stock issued in connection
with acquisitions 588,806 6 1,957 - - - - 1,963
Net earnings - - - - 4,512 - - 4,512
---------- --------- ------- ------- ------ -------- ------- -------
Balance, September 30, 1995 17,264,987 $ 173 $ 9,023 $ - $10,000 $ (630) $ (273) $18,293
========== ======= ====== ======= ====== ======= ====== ======
The accompanying notes are an integral part of these statements.
18
Consolidated Statements of Operations
Years ended September 30
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
1995 1994 1993
--------- ---------- ----------
Net sales $60,614 $41,761 $25,897
Cost of sales 43,408 30,019 18,652
------ ------ ------
Gross margin 17,206 11,742 7,245
------ ------ ------
Operating expenses:
Research and development 1,445 1,145 1,102
Selling 2,888 1,933 1,095
Administrative 3,382 2,049 1,298
------ ------ ------
7,715 5,127 3,495
------ ------ ------
Earnings from operations 9,491 6,615 3,750
Other (income) expenses:
Equity interest in loss of affiliate 282 - -
Interest income, affiliate (601) (237) -
Interest expense 2,409 1,011 619
------ ------ -------
Earnings before income taxes 7,401 5,841 3,131
Income taxes 2,825 2,200 1,175
------ ------ ------
Earnings before minority interest
and preferred stock dividends 4,576 3,641 1,956
Minority interest in net earnings
of consolidated subsidiaries 64 - -
-------- -------- --------
Net earnings 4,512 3,641 1,956
Preferred stock dividends - 10 42
-------- ------- --------
Net earnings applicable to common stockholders $ 4,512 $ 3,631 $ 1,914
====== ====== ======
Earnings per common share:
Primary $ .26 $ .22 $ .14
======= ======= ========
Fully diluted $ .26 $ .22 $ .13
======= ======= ========
The accompanying notes are an integral part of these statements.
19
Consolidated Statements of Cash Flows
Years ended September 30
(Dollars in thousands) Williams Controls, Inc.
1995 1994 1993
---------- ---------- ----------
Cash flows from operations:
Net earnings $ 4,512 $ 3,641 $ 1,956
Non-cash adjustments to net earnings:
Depreciation and amortization 1,638 972 633
Equity interest in loss of affiliate 282 - -
Deferred income taxes 116 9 459
Minority interest in earnings of consolidated subsidiaries 64 - -
Changes in working capital items net of the effect of acquisitions:
Receivables, net (931) (2,552) (252)
Inventorie (2,747) (2,325) (306)
Accounts payable and accrued expenses (1,068) 1,224 (1,837)
Other 319 (138) (78)
------- ------- -------
Net cash provided by operations 2,185 831 575
------- ------- -------
Cash flows from investing:
Repayments (borrowing) from affiliate 4,913 (6,313) -
Payments for acquisitions (6,766) (945) (500)
Payment for property, plant and equipment (1,683) (369) (394)
------- ------ -------
Net cash used for investing (3,536) (7,627) (894)
------- -------- -------
Cash flows from financing:
Net borrowings (repayments) under lines of credit (3,187) 5,769 1,218
Proceeds from long-term debt 15,000 - -
Payments of long-term debt (8,564) (644) (450)
Payments of capital leases (123) (104) (222)
Payments of debt issuance costs (364) - (30)
Payments of preferred stock dividends - (10) (28)
Proceeds from stock issuances - 1,911 12
Payments of notes payable, related parties - - (135)
------- ------- -------
Net cash provided by financing 2,762 6,922 365
------- ------- -------
Net increase in cash 1,411 126 46
Cash at beginning of period 242 116 70
------- ------- -------
Cash at end of period $ 1,653 $ 242 $ 116
====== ======= =======
Interest paid in 1995, 1994 and 1993 was approximately $2,400, $1,000 and $595.
Income taxes paid in 1995, 1994 and 1993 were approximately $2,600, $1,685 and
$1,500. Non-cash activity included entering into capital lease obligations in
1994 and 1993 of $122 and $331. The non-cash activity related to the Company's
investing activity is described in notes 6 and 7, and non-cash activity related
to the Company's acquisitions is described in note 18.
The accompanying notes are an integral part ofthese statements.
20
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 1. Organization
The Company includes its wholly-owned subsidiaries, Williams Controls
Industries, Inc. ("Williams"); Kenco Williams, Inc. ("Kenco"); NESC Williams,
Inc. ("NESC"); Williams Technologies, Inc. ("WTI"); Williams World Trade, Inc.
("WWT"); Williams Automotive, Inc.; Aptek Williams, Inc. ("AWI"); Agrotec
Williams, Inc. ("AGWI") and its 80% owned subsidiaries Hardee Williams, Inc.
("HWI") and Waccamaw Wheel Williams, Inc. ("WWWI"). The subsidiaries are
detailed as follows:
Heavy Vehicle Components
Williams Controls Industries, Inc.: Manufactures heavy vehicle components which
are sold in the heavy vehicle manufacturing industry to original equipment
manufacturers and independent distributors located primarily in the United
States and Canada.
Automotive Accessories
Kenco Williams, Inc.: Manufactures, assembles, packages and distributes truck
and auto accessories for the aftermarket parts industries.
NESC Williams, Inc.: Manufactures conversion kits to allow vehicles to use
compressed natural gas and gas metering and regulating products.
Automotive accessory products are sold primarily to mass merchants and auto
supply stores in the United States.
Electrical Components
Aptek Williams, Inc.: Develops and produces microcircuits, cable assemblies and
other electronic products for a wide array of applications including the
transportation industry. These products are sold primarily to manufacturers and
distributors in the United States.
Landscape Maintenance Equipment
Agrotec Williams, Inc.: Manufactures spraying equipment for the professional
lawn care, nursery and pest control industries.
Hardee Williams, Inc.: Manufactures and markets products used in highway and
park maintenance, landscaping and farming. These products include sprayers,
rotary cutters, discs, harrows and trailers.
Waccamaw Wheel Williams, Inc.: Produces solid rubber tail wheels and other
rubber products, used primarily on rotary cutters manufactured by Hardee
Williams, from recycled truck and bus tires.
Landscape maintenance equipment products are sold to independent equipment
dealers located primarily in the southeastern United States.
21
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
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, Williams World
Trade manages foreign sourcing for all subsidiaries of the Company. At September
30, 1995 Williams World Trade had no significant operations.
Williams Automotive, Inc.: Markets the Company's products to the automotive
industry.
Note 2. Significant Accounting Policies
Principles of Consolidation - The Consolidated Financial Statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
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, machinery and equipment 3 to 12 years, and office furniture 10 years.
Capitalized leases are amortized using the same method over the shorter of the
estimated useful lives or the lease term.
Cost in Excess of Net Assets of Businesses Acquired - 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 Credit 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. 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.
Deferred Debt Issuance Costs - Costs incurred in the acquisition of debt
financing are amortized over the term of the debt agreement.
22
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Product Warranty - The Company provides a warranty covering defects arising from
products sold. The warranty is limited to a specified time period, mileage or
hours of use, and varies by product and application. The Company has provided a
reserve, which in the opinion of management, is adequate to cover such warranty
costs.
Research and Development Costs - Research and development costs are expensed as
incurred.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statement of operations in the period that includes the enactment
date.
Post Retirement Benefits - Effective October 1, 1993 the Company adopted
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Post Retirement Benefits Other than Pensions. Statement 106 requires the Company
to accrue retiree insurance benefits over the period in which employees become
eligible for such benefits. The Company implemented Statement 106 by amortizing
the transition obligation over twenty years.
Earnings per Share - Primary and fully diluted 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. The primary earnings per share calculation uses the weighted
average share price for the period. Fully diluted earnings per share uses the
period-end share price when higher than the weighted average share price for the
period. The average number of shares (in thousands) outstanding was:
1995 1994 1993
---- ---- ----
Primary 17,600 16,800 14,000
Fully diluted 17,600 16,800 15,300
Reclassifications - Certain amounts previously reported in the 1993 and 1994
financial statements have been reclassified to conform to classifications in the
1995 financial statements.
Recent FASB Pronouncements - The Financial Accounting Standards Board has
recently issued SFAS No. 107, Disclosures about Fair Value of Financial
Instruments; No. 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments; and SFAS No. 121, Accounting for Impairment of
Long-lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 107 and
No. 119 are effective for the Company for fiscal years ending after December 15,
1995, and SFAS No. 121 is effective for fiscal years beginning after December
15, 1995. Adoption of SFAS No. 107, No. 119 and No. 121 are not expected to have
a material impact on the Company's financial position or results of operations.
23
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 3. 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 period.
Management makes these estimates using the best information available at the
time the estimates are made; however, actual results could differ from these
estimates.
Note 4. Accounts Receivable
1995 1994
------ ------
Accounts receivable, trade, net of
allowances of $325 and $125 $ 9,928 $7,414
Other receivables 593 966
------ -----
$10,521 $8,380
====== =====
At September 30, 1995 and 1994, no one customer accounted for more than 10% of
trade accounts receivable.
Note 5. Inventories
1995 1994
------ ------
Raw material $6,401 $2,138
Work in process 1,031 414
Finished goods 5,555 4,055
------ -----
$12,987 $6,607
====== =====
Finished goods include component parts and finished product ready for shipment.
24
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 6. Note Receivable, Affiliate
During 1994 the Company provided a $7,000 revolving loan facility to Ajay
Sports, Inc. ("Ajay") for Ajay's operating subsidiary. Ajay manufactures and
distributes golf and billiard accessories primarily to retailers throughout the
United States. The loan to Ajay was recorded as a note receivable, affiliate in
the Consolidated Balance Sheets. In July 1995 Ajay obtained an $8,500 credit
facility which was used to pay off the revolving loan provided by the Company.
The Company has guaranteed Ajay's $8,500 credit facility and is charging Ajay a
fee of 1/2 of 1% per annum of the outstanding loan amount for providing this
guaranty. The Chairman and President of the Company is also Chairman and
President of Ajay, and has guaranteed Ajay's obligation to the Company under the
loan guaranty.
In exchange for the Company providing interim financing, the Company received an
option to purchase up to 15,228,520 shares of Ajay common stock (which would
represent approximately 45% of Ajay's then outstanding common stock) and
received manufacturing rights in certain Ajay facilities through 2002, under a
joint venture agreement. At September 30, 1995 the Company has vested options to
acquire 11,110,873 shares of Ajay common stock at prices ranging from $.34 to
$.50 per share.
In October 1995 Ajay increased its bank line from $8,500 to $13,500 and the
Company increased its guaranty of this loan from $8,500 to $13,500. The Chairman
and President of the Company, who also is Chairman and President of Ajay,
correspondingly increased his guaranty to the Company from $8,500 to $13,500.
The increase allowed Ajay to complete two acquisitions. All other terms of the
agreement between the Company and Ajay remained as described above.
Note 7. Investment in Affiliate
In October 1994 the Company exercised options to acquire 4,117,647 shares of
Ajay common stock through a reduction in the note receivable in the amount of
$1,400, resulting in the Company owning approximately 18% of Ajay's then
outstanding common stock. The investment in Ajay is recorded as an investment in
affiliate in the Consolidated Balance Sheets net of the Company's equity
interest of $282 in Ajay's loss for the twelve-month period ended September 30,
1995. The Company is required to account for the investment in Ajay on the
equity method due to common ownership by the Chairman and President of the
Company who is also Chairman and President of Ajay. If valued at the September
30, 1995 quoted closing price of publicly traded Ajay shares, the calculated
value of the Company's investment in Ajay would be approximately $2,574.
25
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Following is a summary of condensed unaudited financial information of Ajay as
of and for the twelve months ended September 30, 1995:
1995
----------
(unaudited)
Current assets $ 9,405
Other assets 1,577
-------
$ 10,982
=======
Current liabilities $ 2,870
Other liabilities 3,600
Stockholders' equity 4,512
-------
$ 10,982
=======
Net sales $ 15,645
=======
Gross margin $ 2,083
=======
Net Loss $(1,565)
=======
At September 30, 1995 Ajay has approximately $4,403 of outstanding preferred
stock that is convertible to approximately 5,800,000 shares of Ajay common stock
and outstanding options and warrants (in addition to the Company's options) to
purchase approximately 3,900,000 of Ajay common stock at prices ranging from
$.34 to $1.00 per share (unaudited).
Note 8. Capital Leases
The Company leases equipment accounted for as capital leases. Taxes, insurance
and maintenance expenses related to the leased property are paid by the Company.
Future minimum lease payments at September 30, 1995 are as follows:
Total future minimum lease payments $ 386
Less amount representing interest 59
----
Present value of net minimum lease payments 327
Less current installments of
obligations under capital leases 161
----
Long-term obligations under capital leases $ 166
====
Future minimum lease payments by year through 1999 are as follows: $161, $148,
$56 and $21.
26
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 9. Debt
In July 1995 the Company obtained a $30,000 credit facility to replace its
previous financing package comprised of term loans of $8,600 and a revolving
loan of $10,000. The $30,000 credit facility is a 3 year revolving loan which
carries an interest rate at either the bank's prime rate or the Interbank
Offering Rate (IBOR) plus 2% to 3% depending upon certain financial ratios. The
Company has the option to borrow at the bank's prime rate or the IBOR plus rate.
The Company has borrowed approximately $15,000 under the new credit facility
with interest at 7.9% which is IBOR plus 2%. The weighted average interest rates
on the Company's revolving lines of credit for the years ended September 30,
1995, 1994 and 1993 were 9.0%, 8.9% and 8.3%, respectively.
The Company has pledged substantially all of its assets as collateral for the
credit facility. The Company is required to maintain a minimum net worth and
maintain certain financial ratios. The loan agreement also contains certain
restrictions that limit acquisitions, investments, payment of dividends, and
capital expenditures.
1995 1994
------ ------
Bank:
Revolving line of credit, due in 1998 -
variable interest rate (7.9% at September 30, 1995),
interest only payments $15,000 $ -
Mortgage loan, due in 2005 - variable interest rate
(10.8% at September 30, 1995), payable in monthly
installments of $8 plus interest 975 -
Mortgage loan - variable interest rate, payable in
monthly installments of $20 plus interest - 2,390
Term loan - variable interest rate, payable in
monthly installments of $44 plus interest - 2,625
Term loan - variable interest rate, payable in
monthly installments of $83 plus interest - 3,000
Other:
8.8% mortgage loan, due in 2003, payable in monthly
installments of $21 including interest 1,454 1,576
Unsecured subordinated note payable, due in 2005,
interest only at prime (8.75% at September 30, 1995) 750 -
Other 68 68
------ -----
18,247 9,659
Less current portion 301 1,886
------ -----
$17,946 $7,773
====== =====
27
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Maturities of long-term debt are as follows:
1996 $ 301
1997 245
1998 15,259
1999 273
2000 289
Thereafter 1,880
------
$ 18,247
======
Note 10. Accounts Payable and Accrued Expenses
1995 1994
---- ------
Accounts payable $4,357 $2,946
Accrued wages and
employee benefits 1,613 1,304
Other 1,356 350
Income taxes payable 93 179
------ ------
$7,419 $4,779
===== =====
Note 11. Pension Plans
The Company maintains two pension plans; one plan covers the salaried employees
and the other plan covers the 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 benefitted.
The assets and liabilities are adjusted annually based on actuarial results.
Net pension cost is computed as follows:
1995 1994 1993
----- ----- -----
Service cost $ 169 $ 133 $ 138
Interest cost 388 327 299
Actual return on plan assets (360) (354) (314)
Other components 29 16 12
------ ------ -----
$ 226 $ 122 $ 135
===== ===== =====
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 8.0% and 5.0% in
1995, and 8.5% and 5.0% in 1994 and 1993.
28
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Statement of Financial Accounting Standards 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. The minimum liability for the Company's
underfunded plan of $551 has been recorded as a long-term liability with a
partially offsetting intangible asset of $278 recorded in other assets and a
reduction of stockholders' equity of $273.
The funded status as of September 30 is as follows:
Assets exceed Accumulated
accumulated benefits
1995 benefits exceed assets
---- ------------- -------------
Actuarial present value of vested benefits $ 2,024 $ 2,371
Actuarial present value of non-vested benefits 92 411
-------- -------
Accumulated benefits obligation 2,116 2,782
======= =======
Actuarial present value of projected benefits obligation (2,587) (2,782)
Plan assets at fair market value 2,468 2,175
------- -------
Funded status (119) (607)
======== =======
Unrecognized net gains (losses) (64) (272)
Prior service costs (57) (279)
Prepaid (accrued) pension cost 2 (56)
-------- -------
Funded status $ (119) $ (607)
======== =======
Assets exceed Accumulated
accumulated benefits
1994 benefits exceed assets
---- ------------- -------------
Actuarial present value of vested benefits $ 1,801 $ 2,054
Actuarial present value of non-vested benefits 67 333
-------- -------
Accumulated benefits obligation 1,868 2,387
======= =======
Actuarial present value of projected benefits obligation (2,268) (2,387)
Plan assets at fair market value 2,206 1,800
------- -------
Funded status (62) (587)
======= =======
Unrecognized net gains (losses) (94) (273)
Prior service costs (49) (243)
Prepaid (accrued) pension cost 81 (71)
------- -------
Funded status $ (62) $ (587)
======= =======
29
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 12. Income Taxes
The provision for income taxes is as follows:
1995 1994 1993
------- ------- ------
Current:
Federal $2,200 $1,821 $ 590
State 415 370 126
----- ----- ----
2,615 2,191 716
Deferred:
Federal 173 18 380
State 37 (9) 79
------ ------ ------
$2,825 $2,200 $1,175
===== ===== =====
The reconciliation between the effective tax rate and the statutory federal rate
as a percent is as follows:
1995 1994 1993
------ ------- ------
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
Other .2 (.3) (.5)
----- ----- ------
38.2 37.7 37.5
===== ===== ======
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1995
and 1994 are as follows:
1995 1994
------ ------
Deferred tax assets:
Inventories, due to obsolescence reserve and additional
costs inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 $ 58 $ 150
Compensated absences, principally due to accrual
for financial reporting purposes 355 250
Other reserves, principally due to accrual for
financial reporting purposes 103 210
---- ----
Total gross deferred tax assets 516 610
Less valuation allowance - -
----- -----
Net deferred tax assets 516 610
---- ----
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and amortization 886 770
---- ----
Net deferred income taxes $ 370 $ 160
==== ====
30
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 13. Common Stock
The Company has issued stock options at exercise prices ranging from $.34 to
$.41 per share, the market value at the date of issue. These options' expiration
dates are in 1996 and 1997.
Average
Number Price
------ -------
Outstanding at September 30, 1992 500,000 $ .34
Granted 700,000 .41
Exercised - -
Canceled (200,000) .41
--------- -----
Outstanding at September 30, 1993 1,000,000 .38
Granted - -
Exercised - -
Canceled (300,000) -
--------- -----
Outstanding at September 30, 1994 700,000 .38
Granted - -
Exercised - -
Canceled - -
--------- -----
Outstanding at September 30, 1995 700,000 $ .38
========= =====
The 1993 Stock Option Plan ("Plan") reserves an aggregate of 1,500,000 shares of
the Company's common stock for issuance pursuant to the exercise of stock
options which may be granted to employees, officers and directors of and
consultants to the Company. Under the terms of the 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 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. The Company has granted 468,000 options under the Plan at
option prices ranging from $1.63 to $3.23 per share. Stock options exercisable
were 236,000, and shares reserved but unissued under the stock option plan were
1,032,000 at September 30, 1995.
During 1995 the shareholders 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 plan provides for automatic granting of 10,000 options at
prices equal to the market value at the date of grant which is the date of the
annual shareholders meeting. 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. During 1995
options were granted to purchase 30,000 shares at $3.66. At September 30, 1995
there were 30,000 options outstanding at $3.66 per share and 170,000 were
available for future grant under the plan.
31
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 14. Business Segment Information
1995 1994 1993
------ ------ ------
Net sales by classes of similar products
Heavy vehicle components $35,105 $28,678 $24,500
Automotive accessories (1) 15,863 13,083 1,397
Landscape maintenance equipment (2) 6,783 - -
Electrical components (3) 2,863 - -
------ ------ ------
60,614 41,761 25,897
====== ====== ======
Earnings (loss) from operations
Heavy vehicle components 8,738 6,095 3,727
Automotive accessories (1) (286) 520 23
Landscape maintenance equipment (2) 857 - -
Electrical components (3) 182 - -
------ ------ ------
9,491 6,615 3,750
====== ====== ======
Identifiable assets
Heavy vehicle components 18,624 20,795 13,170
Automotive accessories (1) 12,486 11,364 6,836
Landscape maintenance equipment (2) 8,528 - -
Electrical components (3) 7,544 - -
------ ------ ------
Total assets 47,182 32,159 20,006
====== ====== ======
Capital expenditures
Heavy vehicle components 852 130 377
Automotive accessories (1) 535 239 17
Landscape maintenance equipment (2) 220 - -
Electrical components (3) 76 - -
------ ------ ------
1,683 369 394
====== ====== ======
Depreciation and amortization
Heavy vehicle components 1,142 807 613
Automotive accessories (1) 257 165 20
Landscape maintenance equipment (2) 121 - -
Electrical components (3) 118 - -
------ ------ ------
$ 1,638 $ 972 $ 633
====== ====== ======
(1) Acquired August 1993
(2) Acquired February 1995
(3) Acquired April 1995
32
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 15. Net Sales - Export
1995 1994 1993
-------- --------- ---------
Canada $ 5,326 $ 4,248 $ 3,721
Other 2,754 2,472 1,377
------ ------ ------
Net sales-export 8,080 6,720 5,098
United States 52,534 35,041 20,799
------ ------ ------
Net sales $ 60,614 $ 41,761 $ 25,897
====== ====== ======
In 1995 the Company had one customer who accounted for approximately 12% of net
sales. In 1994 one customer accounted for approximately 14%, and two customers
who each accounted for 10% of net sales. In 1993 two customers accounted for
approximately 19% and 14% of net sales. These sales were made by the Company's
heavy vehicle components segment. The Company grants credit generally without
collateral to its customers. The Company's customers are not concentrated in any
geographic region.
Note 16. Other Benefit Plans
The Company maintains an Employee Stock Ownership Plan (ESOP) for non-union
employees. The ESOP may buy shares 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 institution to finance the purchase of the Company's common stock. At
September 30, 1995 the outstanding balance of the loan was approximately $630
which has been used to finance the purchase of approximately 530,000 shares of
common stock. The Company is required to make contributions to the ESOP to repay
the loan including interest.
The Company sponsors a 401(k) plan in which eligible salaried employees may
elect to contribute a portion of their compensation. The Company contributed
approximately $85 and $43 in the form of matching contributions in 1995 and
1994.
Note 17. Post Retirement Benefits other than Pensions
The Company provides health care and life insurance benefits for many of its
retired employees. These benefits are subject to deductibles, co-payment
provisions and other limitations. The Company may amend or change the plan
periodically. The cost of these benefits is expensed as claims are paid.
Effective October 1, 1993 the Company adopted Financial Accounting Standards
Standard 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.
33
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
The following table provides information on the Plan status at September 30,
1995:
Accumulated Post Retirement Benefit Obligation
Retirees $ 1,207
Fully eligible active participants 484
Other active Plan participants 732
-------
2,423
Plan assets -
-------
Accumulated post retirement benefit
obligation in excess of Plan assets 2,423
Unrecognized gain (loss) 180
Prior service cost (36)
Unrecognized transition obligation (2,064)
-------
Accrued post retirement benefit cost
in the balance sheet $ 503
=======
Post retirement benefits expense for 1995 included the follow components:
Service cost $ 49
Interest cost 203
Amortization of unrecognized net obligation at transition 121
-------
Post retirement benefits expense $ 373
=======
The assumed health care cost trend rate used in measuring the Accumulated Post
Retirement Benefit Obligation (APBO) ranged between 3%-5% in the first year,
declining to 0% after four years. The discount rate used in determining the APBO
was 8.0%.
If the assumed medical costs trends were increased by 1%, the APBO as of
September 30, 1995 would increase by $8, and the aggregate of the services and
interest cost components of the net annual post retirement benefit cost would be
increased by $1.
34
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 18. Acquisitions
In January 1994 the Company acquired the assets of Michiana Performance Group,
Inc. for $65 in cash and 100,000 shares of common stock. The number of shares
issued in conjunction with the transaction can increase at the end of two years
by up to an additional 25,000 shares as part of a price protection provision.
The Michiana assets acquired include light-truck and sport-utility vehicle
accessories. In January 1994 the Company acquired substantially all of the
assets of National Energy Service Company of Zanesville, Ohio for $880 in cash
and 40,000 shares of the Company's common stock. The assets acquired include a
product line of conversion kits to allow vehicles to use compressed natural gas
and gas metering and regulating products. Management does not consider the 1994
acquisitions to be significant.
In February 1995 the Company acquired substantially all the assets valued at
approximately $5,400 of Hardee Manufacturing Company, Inc. and the Waccamaw
Wheel division of Red Bluff Grain and Farm Supply, Inc., of Loris, South
Carolina. The acquisition was financed through a combination of the assumption
of liabilities, debt, cash and 45,000 shares of the Company's common stock.
Hardee is a manufacturer of equipment used in highway and park maintenance,
landscaping and farming. Its product line includes sprayers, rotary cutters,
discs, harrows and highway trailers. Waccamaw Wheel manufactures solid rubber
tail wheels from recycled truck and bus tires that are sold to Hardee and other
rotary cutter manufacturers. Hardee's and Waccamaw Wheel's products are sold
primarily in the southeastern United States. The Company completed the
acquisitions through two newly formed subsidiaries each owned 80% by the Company
and 20% by the seller.
In April 1995 the Company completed the acquisition of the business assets of
Aptek Technologies, Inc. of Deerfield Beach, Florida, for $1,400. In June 1995
the Company acquired the land and building comprising the Aptek operating
facilities for $4,600. The $6,000 purchase price was a combination of cash of
$4,200 and Company common stock valued at $1,800 (543,806 shares). Aptek designs
and produces microcircuits, cable assemblies and other electronic products used
in transportation, telecommunication, computer and medical industries.
In August 1995 the Company acquired substantially all the assets of Agrotec,
Inc. of Pendleton, North Carolina, for approximately $500 and the assumption of
certain liabilities.
The acquisitions have been accounted for as purchases; and accordingly, the
results of operations have been included in the Consolidated Statements of
Operations from their purchase dates. The unaudited results of operations on a
pro forma basis as though the acquisitions had occurred as of October 1, 1994
and 1993 are as follows:
1995 1994
------- -------
Sales $64,645 $53,582
Net earnings 4,105 3,123
Earnings per common share .23 .18
35
Notes to Consolidated Financial Statements
Years ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts) Williams Controls, Inc.
Note 19. Quarterly Data (unaudited)
First Second Third Fourth
1995 Quarter Quarter (1) Quarter (1) Quarter (1) Annual
-------- ---------- ---------- ----------- ---------- -----------
Net sales $ 11,576 $ 15,238 $ 18,088 $ 15,712 $ 60,614
Gross margin 3,334 4,443 5,209 4,220 17,206
Operating expenses 1,291 1,862 2,387 2,175 7,715
----------- ---------- ----------- ------------ ------------
Earnings from operations 2,043 2,581 2,822 2,045 9,491
=========== ========== =========== ============ ============
Net earnings 988 1,432 1,446 710 4,576
=========== ========== =========== ============ ============
Minority interest in earnings of consolidated
subsidiaries - 17 25 22 64
----------- ---------- ----------- ------------ ------------
Net earnings applicable to common shareholders $ 988 $ 1,415 $ 1,421 $ 688 $ 4,512
=========== ========== =========== ============ ============
Primary earnings per common share $ .06 $ .08 $ .08 $ .04 $ .26
=========== ========== =========== ============ ============
Fully diluted earnings per common share $ .06 $ .08 $ .08 $ .04 $ .26
=========== ========== =========== ============ ============
Weighted average shares outstanding 17,500,000 17,500,000 18,000,000 18,000,000 17,600,000
=========== ========== =========== ============ ============
First Second Third Fourth
1994 Quarter Quarter (2) Quarter (2) Quarter (2) Annual
------ ----------- ---------- ---------- ---------- ----------
Net sales $ 8,007 $ 11,076 $ 11,340 $ 11,338 $ 41,761
Gross margin 2,276 3,085 3,222 3,159 11,742
Operating expenses 1,096 1,296 1,383 1,352 5,127
----------- ---------- ---------- ---------- ----------
Earnings from operations 1,180 1,789 1,839 1,807 6,615
=========== ========== =========== ========== ==========
Net earnings 604 985 996 1,056 3,641
=========== ========== =========== ========== ==========
Preferred stock dividends 10 - - - 10
----------- ---------- ---------- ---------- ----------
Net earnings applicable to common shareholders $ 594 $ 985 $ 996 $ 1,056 $ 3,631
=========== ========== =========== ============ ============
Primary earnings per common share $ .04 $ .06 $ .06 $ .06 $ .22
=========== ========== =========== ============ ============
Fully diluted earnings per common share $ .04 $ .06 $ .06 $ .06 $ .22
=========== ========== =========== ============ ============
Weighted average shares outstanding 15,600,000 17,300,000 17,300,000 17,400,000 16,800,000
=========== ========== =========== ============ ============
(1) The second, third and fourth quarters of 1995 include the operations of
acquisitions from the date of purchase made in February, April and
August. Net sales and earnings from operations from these acquisitions
were $1,658, $3,915 and $4,093 and $165, $521 and $353 in the second,
third and fourth quarters.
(2) The second, third and fourth quarters of 1994 include the operations of
acquisitions from date of purchase in January 1994. The results of
operations of these acquisitions are not material.
36
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, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1995.
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, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 15, 1995
37
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 1996 Proxy Statement.
Item 11.Executive Compensation
Incorporated by reference from the Company's 1996 Proxy Statement.
Item 12.Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the Company's 1996 Proxy Statement.
Item 13.Certain Relationships and Related Transactions
Incorporated by reference from the Company's 1996 Proxy Statement.
Part IV
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. See Exhibit Index on page 43 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 40 of this Form 10-K.
4. Reports on Form 8-K.
A. Report on Form 8-K dated September 11, 1995 amending Form 8-K
dated June 29, 1995 reported the following: Item 2. Acquisition or
Disposition of Assets and included unaudited consolidated pro
forma financial statements for the nine months ended June 30, 1995
and the year ended September 30, 1995.
38
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 15, 1995 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 15, 1995 By /s/ Thomas W. Itin
------------------- -------------------------------------------
Thomas W. Itin, Chairman, President and CEO
Date: December 15, 1995 By /s/ Dale J. Nelson
------------------- -------------------------------------------
Dale J. Nelson, Controller and
Chief Financial Officer
Date: December 15, 1995 By /s/ Stanley V. Intihar
------------------- -------------------------------------------
Stanley V. Intihar, Director
Date: December 15, 1995 By /s/ R. William Caldwell
------------------- -------------------------------------------
R. William Caldwell, Director
Date: December 15, 1995 By /s/ H. Samuel Greenawalt
------------------- -------------------------------------------
H. Samuel Greenawalt, Director
Date: December 15, 1995 By /s/ Timothy Itin
------------------- -------------------------------------------
Timothy Itin, Director
39
Williams Controls, Inc.
Index to Schedules
Page
Independent Auditors' Report 41
Schedule II Valuation and Qualifying Accounts 42
All other schedules are omitted because they are not required, not applicable or
the required information is given in the Consolidated Financial Statements.
40
INDEPENDENT AUDITORS' REPORT
Board of Directors
Williams Controls, Inc.
Portland, Oregon
We have audited the 1995, 1994 and 1993 consolidated financial statements of
Williams Controls, Inc. and subsidiaries, referred to in our report dated
December 15, 1995, which is included under Item 8 in this Form 10K. In
connection with our audit of these financial statements, we audited the 1995,
1994 and 1993 financial statement schedules, listed under Item 14 of this Form
10K. In our opinion, these financial statement schedules present fairly, in all
material respects, the information stated therein, when considered in relation
to the financial statements taken as a whole.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 15, 1995
41
Williams Controls, Inc.
Valuation and Qualifying Accounts
Schedule II
(Dollars in thousands)
Beginning Charged to
Description balance expenses
----------- --------- ----------
For Year Ended
September 30, 1995
Total reserves for doubtful accounts
and obsolete inventory $ 575 $1,125
===== =====
For Year Ended
September 30, 1994
Total reserves for doubtful accounts
and obsolete inventory $ 405 $ 575
===== =====
For Year Ended
September 30, 1993
Total reserves for doubtful accounts
and obsolete inventory $ 360 $ 110
===== =====
NOTE: Valuation and qualifying accounts were not individually significant;
and, therefore, additions and deductions information has not been
provided in this schedule.
42
Williams Controls, Inc.
Exhibit Index
Exhibit
Number Description
2.1 Agreement and Plan of Reorganization dated February 1, 1994
between the Registrant and Williams Controls Industries, Inc.
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31,
1994 (the "March 1994 Form 10-Q"))
3.1 Certificate of Incorporation of the Registrant as amended.
FILED HEREWITH
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 "Registration Statement"))
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 Registration Statement)
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 Stanley V. Intihar, Dale
J. Nelson, Bradley R. Petersen, 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) Loan Agreement dated July 25, 1995 between Registrant and
United States National Bank of Oregon ("the US Bank
Agreement"). (Incorporated by reference to Exhibit 10.1(a) to
the Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1995 (the "June 1995 Form 10-Q"))
10.2(b) Revolving Loan Note under the US Bank Agreement. (Incorporated
by reference to Exhibit 10.1(b) to the Registrant's June 1995
Form 10-Q)
10.2(c) Form of Guaranty under the US Bank Agreement, entered into by
each of Aptek Williams, Inc.; Hardee Williams, Inc.; Kenco
Williams, Inc.; NESC Williams, Inc.; Waccamaw Wheel Williams,
Inc. and Williams Controls Industries, Inc. (Incorporated by
reference to Exhibit 10.1(c) to the Registrant's June 1995
Form 10-Q)
10.2(d) Form of Security Agreement of Registrant under the US Bank
Agreement. (Incorporated by reference to Exhibit 10.1(d) to
the Registrant's June 1995 Form 10-Q)
43
Exhibit
Number Description
10.2(e) Form of Subsidiary Security Agreement under the US Bank
Agreement, entered into by each Aptek Williams, Inc.; Hardee
Williams, Inc.; Kenco Williams, Inc.; NESC Williams, Inc.;
Waccamaw Wheel Williams, Inc. and Williams Controls
Industries, Inc. (Incorporated by reference to Exhibit 10.1(e)
to the Registrant's June 1995 Form 10-Q)
10.2(f) Line of Credit Trust Deed, Assignment of Rents, Security
Agreement, and Fixture Filing given by Williams Controls
Industries, Inc. under the US Bank Agreement. (Incorporated by
reference to Exhibit 10.1(f) to the June 1995 Form 10-Q)
10.2(g) Contribution and Indemnity Agreement under US Bank Agreement,
given by Registrant and Aptek Williams, Inc.; Hardee Williams,
Inc.; Kenco Williams, Inc.; NESC Williams, Inc.; Waccamaw
Wheel Williams, Inc. and Williams Controls Industries, Inc.
(Incorporated by reference to Exhibit 10.1(g) to the
Registrant's June 1995 Form 10-Q)
10.3(a) Guaranty of the Registrant of the obligations of Ajay Sports,
Inc. under its $8,500,000 line of credit with United States
National Bank of Oregon (the "Ajay Bank Line"). (Incorporated
by reference to Exhibit 10.2 to the Registrant's June 1995
Form 10-Q)
10.3(b) Supplement to Guaranty, dated October 2, 1995, by the
Registrant of the Ajay Bank Line. FILED HEREWITH
10.4 The Company's 1995 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1995 (the "March 1995 Form 10-Q"))
10.5 Amended and Restated Loan and Security Agreement, dated as of
March 27, 1995, between Williams Controls Industries, Inc. and
Ajay Leisure Products, Inc. (Incorporated by reference to
Exhibit 10.3 to the Registrant's June 1995 Form 10-Q)
10.6 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)
10.7(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)
10.7(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)
10.7(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
Registration Statement (the "Post-Effective Amendment"))
44
Exhibit
Number Description
10.7(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 March 1994 Form
10-Q)
10.9 Guaranty dated as of October 2, 1995 by Thomas W. Itin to the
Registrant. FILED HEREWITH
10.10 Guaranty, dated as of October 2, 1995, by Joseph C. Giuffre to
the Registrant. FILED HEREWITH
10.11 Asset Purchase Agreement by and among Hardee Williams, Inc.;
Waccamaw Wheel Williams, Inc.; Hardee Manufacturing Company,
Inc.; Red Bluff Grain and Farm Supply, Inc. and Eldred V.
Hardee, and exhibit agreements. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q
for the period ended December 31, 1994 (the "December 1994
Form 10-Q"))
10.12 Asset Purchase Agreement, dated April 12, 1995, by and among
the Registrant; Aptek Williams, Inc.; Aptek Technologies,
Inc.; Hillsboro Realty Associates and David H. Rush.
(Incorporated by reference to Exhibit 2.1(a) to the
Registrant's March 1995 Form 10-Q)
21.1 List of Subsidiaries. See Item 1 in this report.
27 Financial Data Schedule. FILED HEREWITH
45
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
WILLIAMS CONTROLS, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY THAT:
FIRST: That at a meeting of the Board of Directors of WILLIAMS
CONTROLS, INC., resolutions were duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable, and to present said amendment at the annual meeting
of the stockholders of said corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the present Article SEVENTH of the Corporation's
Certificate of Incorporation shall be replaced in its entirety by the
following:
"SEVENTH: The business and affairs of this corporation shall
be managed by or under the direction of the Board of Directors. The
Board of Directors shall consist of one or more members which may from
time to time be increased or decreased in such manner as shall be
provided by the Bylaws of this corporation. Election of directors or
their appointment need not be by written ballot unless required by the
Bylaws. The requisite quorum for the transaction of business at a
meeting of the Board of Directors shall consist of one-third of the
total number of directors.
At the annual meeting of stockholders at which this Article is
adopted, the directors shall be divided into three classes, designated
Class I, Class II, and Class III, each director to serve for a
three-year term and each class to be as nearly equal in number as
possible. The initial term of office of the Class III directors shall
expire at the corporation's first subsequent annual meeting following
adoption of this Article, the initial term of office of the Class II
directors shall expire at the corporation's second subsequent annual
meeting following adoption of this Amendment, and the initial term of
office of the Class I directors shall expire at the corporation's third
subsequent annual meeting following adoption of this Article. Upon
expiration of these initial terms, directors elected to succeed to
those directors whose terms have expired shall be elected for
three-year terms of office.
If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain or
attain, if possible, the equality of the number of directors in each
class. If such equality is not possible, the increase or decrease shall
be apportioned among the classes in
such a way that the difference in the number of directors in any two
classes shall not exceed one. In no case will a decrease in the number
of directors shorten the term of any incumbent director.
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
A. To manage and govern the corporation by majority vote of
members present at any regular or special meeting at which a quorum
shall be present unless the act of a greater number is required by the
laws of Delaware, the Certificate of Incorporation or the Bylaws of
this corporation.
B. To determine from time to time whether, to what extent, at
what times and places and under what conditions and regulations the
accounts, books and papers of the corporation, or any of them, shall be
open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account, book or document of the
corporation, except as and to the extent expressly provided by law with
reference to the right of stockholders to examine the original or
duplicate stock ledger, or otherwise expressly provided by law, or
except as expressly authorized by resolution of the Board of Directors.
C. Except to the extent prohibited by law, the Board of
Directors shall have the right (which, to the extent exercised, shall
be exclusive) to establish the rights, powers, duties, rules and
procedures that from time to time shall govern the Board of Directors
and each of its members including without limitation the vote required
for any action by the Board of Directors, and that from time to time
shall affect the directors' power to manage the business and affairs of
the corporation; and no Bylaw shall be adopted by stockholders which
shall impair or impede the implementation of the foregoing.
D. To adopt, amend, or repeal the Bylaws of the corporation.
SECOND: That at the annual meeting of the stockholders of said
corporation duly called and held on February 22, 1995, the proposed amendment
was presented to the stockholders for their approval, and the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
2
IN WITNESS WHEREOF, WILLIAMS CONTROLS, INC. has caused this certificate
to be signed by Thomas W. Itin, its President, and Robert R. Hebard, one of its
Assistant Secretaries, this 27th day of February, 1995.
WILLIAMS CONTROLS, INC.
ATTEST:
By /s/ Robert R. Hebard By /s/ Thomas W. Itin
-------------------------- --------------------------
Robert R. Hebard Thomas W. Itin, President
Assistant Secretary
3
CERTIFICATE OF THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS
OF THE 10% MANDATORY CONVERTIBLE PREFERRED STOCK
OF
WILLIAMS CONTROLS, INC.
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF DELAWARE
The following resolution was duly adopted by the Board of Directors of
Williams Controls, Inc. (the "Corporation") at a meeting of the Board of
Directors of the Corporation held on November 22, 1988:
RESOLVED, that the Board of Directors, pursuant to the authority vested
in it by the provisions of the Corporation's Certificate of
Incorporation, hereby establishes a series of preferred stock,
consisting of 2,000 shares, which shall be called the 10% Mandatory
Redeemable Convertible Preferred Stock, for which a copy of the powers,
designations, preferences and relative, participating, optional and
other special rights was presented to and adopted by this meeting and
is attached as Exhibit A.
WE, the undersigned, being the President and Secretary of the
Corporation, do make this Certificate, hereby declaring and certifying that this
is the act and deed of the Corporation and that the facts stated herein are
true, and accordingly have hereunto set our hands this 1st of December, 1988.
/s/ John C. Miller
-------------------------
John C. Miller, President
ATTEST:
/s/ Joseph W. Hovorka
- ---------------------------------
Joseph W. Hovorka, Secretary
[SEAL]
4
EXHIBIT A
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS
OF THE 10% MANDATORY CONVERTIBLE PREFERRED STOCK
OF
WILLIAMS CONTROLS, INC.
Section 1. Designation and Amount. The shares of this series shall be
designated as "10% Mandatory Redeemable Convertible Preferred Stock" (the "10%
Preferred Stock") of Williams Controls, Inc., a Delaware corporation (the
"Corporation") and the number of shares constituting this series shall be 2,000.
Section 2. Dividend Rights. The holders of the 10% Preferred Stock
shall be entitled to receive, out of any funds legally available therefor,
dividends, payable in preference and priority to any payment of any dividend on
shares of the Corporation's common stock, $.01 par value (the "Common Stock")
and in an amount per share of up to $100 annually, payable monthly if, as, and
when dividends are declared by the Board of Directors. Such dividends shall
accumulate, without interest, to the extent that dividends are not paid on a
monthly basis.
Section 3. Liquidation Rights. In the event of a liquidation or winding
up of the Corporation, the holder of each share of 10% Preferred Stock shall be
entitled to receive a preferential amount equal to $1,000 per share plus
accumulated, unpaid dividends before any amount shall be paid to the holders of
shares of the Corporation's Common Stock. In the event that the assets of the
Corporation are insufficient to permit full payment to the holders of 10%
Preferred Stock as herein provided, then such assets shall be distributed
ratably among the outstanding 10% Preferred Stock. After the payment or the
setting apart of payment to the holders of 10% Preferred Stock of the
preferential amounts so payable to them, the holders of 10% Preferred Stock
shall be entitled to no further distribution.
For purposes of this Section 3, a liquidation shall not be deemed to be
occasioned by, or to include, the Corporation's sale of all or substantially all
of its assets of its assets or the acquisition of the Corporation by another
entity by way of merger or consolidation resulting in the exchange of the
outstanding shares of the Corporation for securities or consideration issued, or
caused to be issued, by the acquiring Corporation or its subsidiary.
The per share liquidation preferences to be paid to the holders of 10%
Preferred Stock hereunder shall be subject to equitable adjustment by a
resolution of the Board of Directors to reflect any stock splits, stock
combinations, or stock subdivisions.
5
Section 4. Redemption Rights.
(A) Mandatory Redemption. In the event the Corporation completes a
public offering raising at least $3,000,000 in net proceeds (the "Public
Offering") and provided further the Corporation has available Sufficient Cash
Flow from Operations the Corporation shall redeem shares of the 10% Preferred
Stock on a pro rata basis which have a liquidation value of not more than
$1,000,000 (not including accrued but unpaid dividends) during the four or more
months immediately following the month in which the Public Offering is
completed. To the extent the Public Offering raises net proceeds in excess of
$3,000,000, the Corporation shall redeem additional shares of the 10% Preferred
Stock on a dollar-for-dollar basis based on the liquidation value (not including
accrued but unpaid dividends) of the shares of 10% Preferred Stock, provided
that the Corporation has available Sufficient Cash Flow from Operations. Only
whole shares of 10% Preferred Stock shall be redeemed. For the purposes of this
Subsection 4(A), the term "Sufficient Cash Flow From Operations" means during
any accounting period (which may be monthly, quarterly, or yearly): (i) the
excess of the Corporation's net income from operations calculated in accordance
with generally accepted accounting principles (ii) over the amount the
Corporation reasonably believes necessary to sustain operations over the
subsequent such period. The Corporation's belief may be based on financial
statements prepared by the Corporation in the ordinary course of its business,
and such financial statements need not be audited.
(B) Redemption Price. The shares of the 10% Preferred Stock shall be
redeemed at a price of $1,000 per share plus a sum equal to all accrued and
unpaid dividends on such shares to the date set for redemption (the "Redemption
Date").
(C) Procedure for Redemption. Notice of redemption of the 10% Preferred
Stock shall be mailed to each holder of record of the shares to be redeemed, at
the stockholder's address of record, not less than 15 days prior to the
Redemption Date. Redemption shall be pro rata among all holders of the 10%
Preferred Stock. The notice of redemption shall specify the date, time and place
of redemption, the redemption price, the date when the shares of 10% Preferred
Stock cease to be convertible, and the number of shares thereof which are to be
redeemed. As described more fully below, holders of the 10% Preferred Stock
shall have the right to convert shares of the 10% Preferred Stock into shares of
Common Stock any time prior to the Redemption Date.
Unless default shall be made in the payment in full of the
redemption price and any accrued and unpaid dividends, dividends on the shares
called for redemption shall cease to accrue on the Redemption Date, and all
rights of the holders of those shares as stockholders of the Corporation by
reason of the ownership of those shares shall cease on the Redemption Date,
except the right to convert to Common Stock any shares theretofore tendered for
Conversion and except the right to receive the amount payable upon redemption of
the shares on presentation and surrender of the respective certificates
representing the shares, and the shares shall not after the
6
Redemption Date be deemed to be outstanding. In case fewer than all the shares
represented by any such certificates are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
Any shares of the 10% Preferred Stock which shall at any time
have been redeemed, or which shall have been converted pursuant to Section 5
below, shall, after such redemption or conversion, have the status of authorized
but unissued shares of Preferred Stock, without designation, and may be
redesignated and reissued.
Section 5. Conversion Rights. The holders of the shares of the 10%
Preferred Stock shall have the right, at their option, to convert shares of the
10% Preferred Stock into shares of Common Stock of the Corporation at any time
before the Redemption Date, upon the following terms:
(A) The shares of the 10% Preferred Stock shall be convertible
at the office of the Corporation and at such other office or offices, if any, as
the Board of Directors may designate, into fully paid and nonassessable shares
of Common Stock of the Corporation. Each share of the 10% Preferred Stock shall
be convertible into shares of the Corporation's Common Stock at a conversion
price of $1.25 per share of Common Stock or 800 shares of Common Stock per share
of 10% Preferred Stock (the "Conversion"), plus the amount of any accrued and
unpaid dividends and subject to adjustment from time to time in certain
instances as hereinafter provided.
(B) In order to convert shares of the 10% Preferred Stock into
shares of Common Stock, the holder thereof shall surrender at the office of the
Corporation, or at such other office or offices as the Board of Directors may
designate, the certificate of certificates therefor, duly endorsed to the
Corporation or in blank, and give written notice to the Corporation at said
office that the holder elects to convert the shares and the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. Shares of the 10% Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day the notice and the
certificate or certificates representing shares surrendered for conversion are
received in accordance with the foregoing provisions, and after such time the
person or persons entitled to receive the Common Stock issuable upon the
Conversion shall be treated for all purposes as the record holder or holders of
such Common Stock (the "Conversion Date"). As promptly as practicable after the
receipt of the notice and the surrendered shares as aforesaid, the Corporation
shall issue and deliver at said office a certificate or certificates for the
number of full shares of Common Stock issued upon the Conversion, together with
a cash payment in lieu of any fractional share as hereinafter provided to the
person or persons entitled to receive the same.
(C) No fractional shares of Common Stock will be issued upon
Conversion, but any such fractions will be adjusted in cash on the basis of the
then current market value of the Common Stock, which shall be deemed to be the
average of
7
the reported last closing bid and asked prices of the Common Stock on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or similar organization if NASDAQ is no longer reporting such
information, or (2) if the Common Stock is listed or admitted to trading on a
United States securities exchange registered under the Securities Exchange Act
of 1934, the reported last sale price regular way or, in case no such reported
sale takes place on any day, the average of the reported closing bid and asked
prices regular way, in either case on the Composite Tape, or, if the Common
Stock is not quoted on the Composite Tape, on the principal such securities
exchange registered on which the Common Stock is listed or admitted to trading.
If on any such date the Common Stock is not quoted by any such organization, the
fair value of such Common Stock on such, as determined by the Board of Directors
shall be used.
(D) Adjustments for stock dividends, stock splits, mergers or
reorganizations, etc.
(1) In case prior to the Conversion Date as to any shares of
10% Preferred Stock (the "Converted Shares") the Corporation shall fix a record
date or otherwise establish a date (the "Record Date") for the determination of
holders of Common Stock entitled to receive a stock dividend or other
distribution payable in shares of Common Stock: (a) and such dividend or other
distribution is paid prior to the Conversion Date, then upon conversion, holders
of the Converted Shares shall receive such additional number of shares of Common
Stock as they would have been entitled to receive had they converted the 10%
Preferred Stock prior to the Record Date; or (b) and such dividend or other
distribution is paid following the Conversion Date, then the Corporation shall
pay additional shares of Common Stock to the holders of the Converted Shares as
they would have been entitled to receive had they converted the 10% Preferred
Stock prior to the Record Date.
(2) In case prior to the Conversion Date as to any shares of
10% Preferred Stock the Corporation shall fix a record date or establish a date
for the determination of holders of Common Stock entitled to receive shares of
stock or other securities or property in connection with the merger or
consolidation of the Corporation with or into another Corporation or the
conveyance of all or substantially all of the assets of the Corporation to
another Corporation, and such shares of stock or other securities or property
shall not have been delivered to the holders of Common Stock on or prior to the
Conversion Date, then, in any such event, the holders of the shares of Common
Stock issued or issuable on Conversion of the 10% Preferred Stock shall be
entitled to receive on the date of delivery of such stock or other securities or
property, that pro rata portion of such stock or other securities or property to
which such holder of 10% Preferred Stock would have been entitled if such
delivery had been prior to the Conversion Date.
(E) The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger,
8
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the 10% Preferred Stock against
impairment.
Section 6. Voting Rights. Except as otherwise provided in the General
Corporation Law of Delaware, the holders of 10% Preferred Stock shall not be
entitled to vote on any matter but shall be entitled to notice of any
stockholders' meetings.
9
CERTIFICATE OF INCORPORATION
OF
WILLIAMS CONTROLS, INC.
FIRST: The name of the corporation is Williams Controls,
Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is 229 South State Street, City of Dover, County of Kent,
State of Delaware 19901. The name of the corporation's registered agent at that
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which a corporation may be organized
under the Delaware General Corporation Law ("DGCL").
FOURTH:
A. The total number of shares of capital stock which the corporation
shall have authority to issue is 100,000,000 shares, consisting of 50,000,000
shares of common stock, $.01 par value (the "Common Stock"), and 50,000,000
shares of preferred stock, $.01 par value (the "Preferred Stock").
B. Shares of Preferred Stock may be issued from time to time in one or
more classes or series as may be determined from time to time by the board of
directors of the corporation (the "Board of Directors"), each such class or
series to be distinctly designated. Except in respect of the particulars fixed
by the Board of Directors for classes or series provided for by the Board of
Directors as permitted hereby, all shares of Preferred Stock shall be of equal
rank and shall be identical. All shares of any one series of Preferred Stock so
designated by the Board of Directors shall be alike in every particular, except
that shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative. The voting rights, if
any, of each such class or series and the preferences and relative,
participating, optional and other special rights of each such class or series
and the qualifications, limitations and restrictions thereof, if any, may differ
from those of any and all other classes or series at any time outstanding; and
the Board of Directors of the corporation is hereby expressly granted authority
to fix, by resolutions duly adopted prior to the issuance of any shares of a
particular class or series of Preferred Stock so designated by the Board of
Directors, the voting powers of stock of such class or series, if any, and the
designations, preferences and relative, participating, optional and other
special rights and the
-10-
qualifications, limitations and restrictions of such class or series, including,
but without limiting the generality of the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute, such class or series, and such number
may be increased (except where otherwise provided by the Board of Directors) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by action of the Board of Directors;
(2) The rate and time at which, and the terms and conditions
upon which, dividends, if any, on shares of Preferred Stock of such class or
series shall be paid, the extent of the preference or relation, if any, of such
dividends or the dividends payable on any other class or classes or of any
series of the same or any other class or classes of stock and whether such
dividends shall be cumulative or non-cumulative;
(3) The right, if any, of the holders of shares of Preferred
Stock of such class or series to convert the same into, or exchange the same
for, shares of any other class or classes or of any series of the same or any
other class or classes of stock and the terms and conditions of such conversion
or exchange;
(4) Whether or not shares of Preferred Stock of such class or
series shall be subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions upon which, shares of
Preferred Stock of such class or series may be redeemed;
(5) The rights, if any, of the holders of shares of Preferred
Stock of such class or series upon the voluntary or involuntary liquidation of
the corporation;
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the shares of Preferred Stock of such class
or series; and
(7) The voting powers, if any, of the holders of shares of
such class or series of Preferred Stock.
FIFTH: The name and mailing address of the Sole Incorporator are as
follows:
Barbara E. Pavel
Name Mailing Address
Barabara E. Pavel 1400 Glenarm Place
Third Floor
Denver, Colorado 80202
SIXTH: The name and mailing address of the person who is to serve as a
director until the first annual meeting of
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stockholders or until his successor is elected and qualified are as follows:
Name Mailing Address
Gerald Raskin 1400 Glenarm Place
Third Floor
Denver, Colorado 80202
SEVENTH: The business and affairs of this corporation shall be managed
by or under the direction of the Board of Directors. The Board of Directors
shall consist of one or more members which may from time to time be increased or
decreased in such manner as shall be provided by the Bylaws of this corporation.
Election of directors or their appointment need not be by written ballot unless
required by the Bylaws. The requisite quorum for the transaction of business at
a meeting of the Board of Directors shall consist of a majority of the total
number of directors.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
A. To manage and govern the corporation by majority vote of members
present at any regular or special meeting at which a quorum shall be present
unless the act of a greater number is required by the laws of Delaware, the
Certificate of Incorporation or the Bylaws of this corporation.
B. To determine from time to time whether, to what extent, at what
times and places and under what conditions and regulations the accounts, books
and papers of the corporation, or any of them, shall be open to the inspection
of the stockholders, and no stockholder shall have any right to inspect any
account, book or document of the corporation, except as and to the extent
expressly provided by law with reference to the right of stockholders to examine
the original or duplicate stock ledger, or otherwise expressly provided by law,
or except as expressly authorized by resolution of the Board of Directors.
C. Except to the extent prohibited by law, the Board of Directors shall
have the right (which, to the extent exercised, shall be exclusive) to establish
the rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including without
limitation the vote required for any action by the Board of Directors, and that
from time to time shall affect the directors' power to manage the business and
affairs of the corporation; and no Bylaw shall be adopted by stockholders which
shall impair or impede the implementation of the foregoing.
To adopt, amend, or repeal the Bylaws of the corporation.
-12-
EIGHTH: A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the DGCL is amended after approval by the stockholders of this Article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
NINTH: The corporation has the right and/or duty to indemnify any
person who is or was a director to the fullest extent provided by law.
The corporation has the right and/or duty to indemnify any person who
is or was an officer, employee or agent of the corporation who is not a director
to the fullest extent provided by law, or to a greater extent if consistent with
law and if provided by resolution of the corporation's stockholders or
directors, or in a contract.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, fiduciary or agent of the
corporation and who while a director, officer, employee, fiduciary or agent of
the corporation, is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary or agent of any other
foreign or domestic corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan against any liability asserted against or
incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under provisions of the DGCL.
TENTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of the DGCL or on
-13-
the application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of Section 279 of the DGCL,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
ELEVENTH: Subject to the provisions of this Certificate of
Incorporation, the corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or thereafter prescribed by statute, an all rights conferred upon
stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the incorporator herebefore named, for the
purpose of forming a corporation pursuant to the DGCL, do make this Certificate,
hereby declaring and certifying that this is my act and deed and the facts
stated herein are true, and accordingly have hereunto set my hand this 2nd of
November, 1988.
/s/ Barbara E. Pavel
----------------------
Barbara E. Pavel, Sole
Incorporator
SUPPLEMENT TO GUARANTY
The undersigned agrees that the principal amount guaranteed
under its guaranty dated July 25, 1995 (the "Guaranty"), shall be increased from
$8,500,000 to $13,500,000, so as to take into account the increase in the
Revolving Loan Commitment and the Bulge Loan Commitment made pursuant to a First
Amendment to Revolving Loan Agreement of even date between Ajay Sports, Inc.,
and United States National Bank of Oregon (the "Amendment").
In addition, the following paragraph shall be added as
paragraph (i) of Section 10 of the Guaranty:
"(i) If Guarantor pays any amounts to Bank to satisfy the
Indebtedness or any portion thereof, upon payment in full of all
Indebtedness, Bank shall, at Guarantor's request, assign to Guarantor
all of Bank's rights in any security interests granted to Bank pursuant
to the Loan Agreement and in any documents filed to perfect such
security interests."
Except as herein modified, the terms and conditions of the
Guaranty are reaffirmed and ratified as though fully set forth herein. Undefined
terms used herein that are defined in the Amendment shall have the meaning set
forth in the Amendment.
Dated: October 2, 1995
GUARANTOR:
WILLIAMS CONTROLS,INC.
By /s/ Thomas W. Itin
------------------------
Name: Thomas W. Itin
Title: President and Chief
Executive Officer
APPROVED:
UNITED STATES NATIONAL BANK OF OREGON
By /s/ Diane M. Sellers
-------------------------------
Name: Diane M. Sellers
Title: Vice President
GUARANTY
THIS GUARANTY is entered into effective as of October 2, 1995, by and
between Thomas W. Itin ("Itin") and Williams Controls, Inc., a Delaware
corporation, and its successors and assigns ("Williams").
A. For its own benefit and that of its operating subsidiaries, Ajay
Sports, Inc. ("Ajay") has obtained financing of up to $13.5 million under a
revolving loan agreement dated as of July 25, 1995 between Ajay and United
States National Bank of Oregon ("US Bank"), as amended by a First Amendment
dated as of October 2, 1995 (as amended, the "Loan Agreement"). The Ajay Loan
Agreement is guaranteed by each of Ajay's operating subsidiaries. Further, the
Ajay Loan Agreement is secured by the inventory and accounts now existing or
after acquired.
B. Williams has guaranteed repayment of the obligations of Ajay to US
Bank under the Loan Agreement (the "Williams Guaranty").
C. Itin previously delivered to Williams his guaranty in connection
with Williams' exercise of stock options to purchase 4,111,647 shares (the
"Shares") of Ajay common stock for an aggregate purchase price of $1,400,000,
which guaranty is being continued as provided herein.
D. This Guaranty, when delivered, shall supersede, in all respects the
previous guaranty of Itin to Williams and Williams Controls Industries, Inc.
dated as of October 4, 1994.
NOW, THEREFORE, in consideration of Williams' guaranty of Ajay's
obligations under the Ajay Loan Agreement and other good and valuable
consideration, the adequacy and receipt of which hereby is acknowledged, and
intending to be legally bound, the parties hereby covenant and agree as follows:
1. The Guaranty. Itin hereby absolutely and unconditionally guarantees
to Williams repayment of any amounts Williams is required to pay to US Bank upon
performance under the Williams Guaranty, including, without limitation,
principal, interest and reasonable collection costs, and the Market Value (as
hereinafter defined) of the Shares at not less than $1,400,000 on the date, if
any, that Itin first becomes obligated to perform under this Guaranty, all of
the foregoing being hereinafter referred to as the "Guaranteed Obligations." For
purposes of this Guaranty, "Market Value" shall mean the average closing bid
price per share of the Ajay common stock as reported on the NASDAQ SmallCap
Market or the
3329_2
-1-
OTC Bulletin Board, or if none, the National Quotation Bureau's "Pink Sheets."
2. Application of Payments. Any payment made by Itin under this
Guaranty shall be effective to reduce or discharge the liability of Itin
hereunder without further notice of any kind.
3. Continuing Guaranty. Except as otherwise provided herein, this
Guaranty shall continue to be in force and be binding upon Itin until terminated
in accordance with the provisions of Section 4 below. If Williams is required to
perform under the Williams Guaranty, Williams shall give Itin written notice of
its performance thereunder and proceed to enforce this Guaranty.
4. Termination. This Guaranty shall terminate (a) if Williams, without
Itin's consent, amends, modifies or extends the Williams Guaranty, or (b) when
all of the Guaranteed Obligations are paid in full and 95 days has elapsed since
the date of full payment and no bankruptcy, insolvency or similar filing has
occurred with respect to Ajay or Itin. Upon the occurrence of any such events,
Williams will furnish Itin written cancellation of this Guaranty and will return
the original of this Guaranty to Itin.
5. General Provisions.
(a) No delay on the part of Williams in the exercise of any
power or right shall operate as a waiver thereof, nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right.
(b) This Guaranty may not be assigned.
(c) This Guaranty is made under and shall be governed by
the laws of the State of Oregon.
(d) Notwithstanding any provision herein to the contrary, if
Williams is required to perform under the Williams Guaranty, it first will
proceed against Ajay and its assets to satisfy the amounts paid to US Bank by
Williams under the Williams Guaranty.
(e) It is the intention of Williams that Itin will be called
upon to satisfy this Guaranty only as a last resort after Williams has exhausted
all other remedies available to it.
(f) Upon performance of Williams under the Williams Guaranty,
and the assignment to Williams by US Bank of US Bank's rights in any security
interests granted by Ajay and/or its
3329_2
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subsidiaries under the Ajay Loan Agreement and documents filed to perfect such
security interests, Williams shall assign to Itin a proportionate interest in
the same to the extent Itin pays amounts to Williams to satisfy the Guaranteed
Obligations.
6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given only if and when (a) personally
delivered, or (b) three business days after mailing, postage prepaid, by
certified mail, or (c) when delivered (and receipted for) by an overnight
delivery service, addressed in each case as follows:
(i) If to Williams to:
Dale J. Nelson, Chief Financial Officer
Williams Controls, Inc.
14100 SW 72nd Avenue
Portland, OR 97224
FAX NO (503) 684-9675
with a copy to:
Mary M. Maikoetter, Esq.
Friedlob Sanderson Raskin
Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, CO 80202
FAX NO. (303) 595-3970
(ii) If to Itin, to:
Thomas W. Itin
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322-3608
FAX NO. (810) 851-5651
with a copy to:
Thomas K. Ziegler, Esq.
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322-3608
FAX NO. (810) 851-5651
Persons entitled to notice hereunder may change the address for the giving of
notices and communications to it or him, and/or copies thereof, by written
notice to the other parties in conformity with the foregoing.
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IN WITNESS WHEREOF, Itin has caused this Guaranty to be executed as of
the date first above written.
"ITIN"
/s/ Thomas W. Itin
---------------------------------
Thomas W. Itin, Individually
WILLIAMS CONTROLS, INC.
By /s/ Dale J. Nelson
---------------------------------
Dale J. Nelson, Chief
Financial Officer
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GUARANTY
THIS GUARANTY is dated and delivered effective as of October 6, 1995,
by Joseph C. Giuffre ("Giuffre"), for the benefit of Ajay Sports, Inc. ("Ajay"),
a Delaware corporation, Palm Springs Golf, Inc. ("PSG"), a Colorado corporation
wholly owned by Ajay, Williams Controls, Inc. ("Williams"), a Delaware
corporation, and their respective successors and assigns. Ajay and PSG and their
successors and assigns are collectively referred to herein as the "Company."
A. For its own benefit and that of its operating subsidiaries, Ajay has
obtained financing of up to $13.5 million under a revolving loan agreement dated
as of July 25, 1995 between Ajay and United States National Bank of Oregon ("US
Bank"), as amended by a First Amendment dated as of October 2, 1995 (as amended,
the "Loan Agreement"). The Ajay Loan Agreement is guaranteed by each of Ajay's
operating subsidiaries, including PSG. Further, the Ajay Loan Agreement is
secured by the inventory and accounts now existing or after acquired.
B. Williams has guaranteed repayment of the obligations of Ajay to US
Bank under the Loan Agreement (the "Williams/US Bank Guaranty").
C. Thomas W. Itin, Chairman of the Board, Chief Executive Officer and
President of Ajay, has personally unconditionally guaranteed to Williams full
repayment by Ajay of up to $13.5 million to Williams if Williams is required to
perform under its Guaranty of the Ajay Loan Agreement.
D. PSG has entered into an Asset Purchase Agreement (the "Asset
Agreement") with Palm Springs Golf Company, Inc. ("Palm Springs"), a California
corporation, under which PSG has purchased certain assets, subject to certain
related liabilities, of Palm Springs.
E. In connection with the Closing held under the Asset Agreement, the
Company has repaid all of Palm Springs outstanding obligations under its credit
facility with Bank IV Kansas, N.A. (the "Palm Springs Credit Facility"), of
approximately $3.1 million.
F. Giuffre had personally guaranteed repayment by Palm Springs for
amounts owed under the Palm Springs Credit Facility.
G. Upon the payoff of the Palm Springs Credit Facility, Giuffre was
released from his obligations as a guarantor under the Palm Springs Credit
Facility.
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H. As partial consideration for the payoff and resulting release of
Giuffre under his guaranty to Bank IV, Giuffre has agreed to deliver this
Guaranty in connection with the Closing under the Asset Agreement.
NOW, THEREFORE, in consideration of Giuffre's release from his
obligations under a guaranty of the Palm Springs Credit Facility, the extension
of credit by Ajay, either under its Loan Agreement or otherwise, to PSG for its
operations and expansion of the business, the Williams/US Bank Garanty, and for
other good and valuable consideration the adequacy and receipt of which hereby
is acknowledged, and intending to be legally bound, Giuffre hereby covenants and
agrees as follows:
1. The Guaranty. Except as otherwise provided in paragraph 2 below,
Giuffre hereby absolutely and unconditionally guarantees to Williams repayment
of any amounts Williams is required to pay to to US Bank upon performance under
the Williams/US Bank Guaranty, including, without limitation, principal,
interest and reasonable collection costs (the "Guaranteed Obligations").
2. Limitation of Guaranty. The maximum amount of the Guaranteed
Obligations for which Giuffre shall be liable under this Guaranty shall not
exceed $2,000,000 in the aggregate.
3. Application of Payments. Any payment made by Giuffre under this
Guaranty shall be effective to reduce or discharge the liability of Giuffre
hereunder without further notice of any kind.
4. Continuing Guaranty. Except as otherwise provided herein, this
Guaranty shall continue to be in force and be binding upon Giuffre until
terminated in accordance with the provisions of Section 5 below. If Williams is
required to perform under the Williams/US Bank Guaranty, Williams shall give
Giuffre written notice of its performance thereunder and proceed to enforce this
Guaranty.
5. Termination. This Guaranty shall terminate on the earlier of (a)
January 1, 1998, or (b) when all of the Guaranteed Obligations are paid in full
and 95 days has elapsed since the date of full payment and no bankruptcy,
insolvency or similar filing has occurred with respect to Williams, Ajay or
Giuffre. Upon the occurrence of any such events, Williams will furnish Giuffre
written cancellation of this Guaranty and will return the original of this
Guaranty to Giuffre.
6. General Provisions.
(a) No delay on the part of Williams in the exercise of any
power or right shall operate as a waiver thereof, nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right.
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(b) This Guaranty may not be assigned.
(c) This Guaranty is made under and shall be governed by
the laws of the State of Oregon.
7. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given only if and when (a) personally
delivered, or (b) three business days after mailing, postage prepaid, by
certified mail, or (c) when delivered (and receipted for) by an overnight
delivery service, addressed in each case as follows:
(i) If to Ajay or PSG to:
Thomas W. Itin
Ajay Sports, Inc.
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322-3608
FAX NO (810) 851-9080
with a copy to:
Mary M. Maikoetter, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott
1400 Glenarm Place, Suite 300
Denver, CO 80202
FAX NO. (303) 595-3970
(ii) If to Williams, to:
Dale J. Nelson
Chief Financial Officer
Williams Controls, Inc.
14100 S.W. 72nd Avenue
Portland, OR 97224
FAX NO (503) 684-8675
with a copy to:
Mary M. Maikoetter, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott
1400 Glenarm Place, Suite 300
Denver, CO 80202
FAX NO. (303) 595-3970
(ii) If to Giuffre, to:
Joseph C. Giuffre
74-824 Lennon Place
Palm Desert, CA 92260
FAX NO. (619) 341-9563
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with a copy to:
Dick Roemer, Esq.
Roemer and Harnik
45025 Manitou Dr.
Indian Wells, CA 92210
FAX NO. (619) 360-1211
Persons entitled to notice hereunder may change the address for the giving of
notices and communications to it or him, and/or copies thereof, by written
notice to the other parties in conformity with the foregoing.
IN WITNESS WHEREOF, Giuffre has caused this Guaranty to be executed as
of the date first above written.
"GIUFFRE"
/s/ Joseph C. Giuffre
--------------------------------
Joseph C. Giuffre, Individually
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