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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1996
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 November 20, 1996, 17,674,787 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 $29,018,422.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1997 Annual Meeting of
Stockholders to be filed not later than January 28, 1997 are incorporated by
reference in Part III hereof.
Williams Controls, Inc.
Index to 1996 Form 10-K
Part I Page
Item 1. Business 2-5
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Item 8. Financial Statements and Supplementary Data 15-38
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
Part III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 39
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signatures 40
WILLIAMS CONTROLS, INC.
Form 10-K
Part I
Item 1. Description of Business
Williams Controls, Inc., together with its wholly owned 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.; Techwood Williams, Inc.; Premier Plastic
Technologies, Inc.; GeoFocus, 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 except GeoFocus, Inc. which is Florida corporation, 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
Techwood Williams, Inc.: Manufactures and distributes commercial wood chippers
used in landscaping and farming.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry.
GeoFocus, Inc.: Develops mobile computing, mapping and tracking software for
private industry and governmental agencies.
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, wood chippers, 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
The Company has been pursuing an acquisition strategy to diversify its
operations. The Company's acquisition philosophy is to identify and evaluate
distressed companies and then attempt to acquire the most promising companies at
or below book value. This strategy is designed to diversify the Company's
operations through the acquisition of businesses and assets with existing
product lines with industry name recognition and which complements the Company's
existing businesses. Through this growth strategy, the Company has the ability
to add product lines without the substantial initial capital requirements
necessary to start new businesses, achieve name recognition for new products and
build a reputation for quality.
Upon completion of an acquisition, the Company assembles a management team to
restructure the business with the goal of achieving operating profitability
within three to five years after the acquisition. During the rehabilitation
period, the Company generally must make additional investments in these
companies to turn them around. At least annually, the Company evaluates its
acquisitions to determine whether to invest, hold or divest. None of the
acquired businesses have been sold as of the date of this report. The Company's
acquisition strategy poses a risk for the Company and its stockholders in that
the distressed businesses ultimately may never achieve and sustain
profitability.
During 1996 the Company acquired three small businesses. In April 1996 the
Company completed two acquisitions, including the assets of the Burda Group of
3
Companies located in West Linn, Oregon, through Techwood Williams, Inc., which
manufactures and distributes commercial wood chippers used in landscaping, and
farming; and, Neumann Manufacturing and Engineering, Inc. located in Madison
Heights, Michigan, through Premier Plastic Technologies, Inc., which
manufactures plastic components for the automotive industry. In July 1996 the
Company acquired the stock of GeoFocus, Inc. located in Gainesville, Florida.
GeoFocus provides geographical information systems consulting services and
develops mobile computing, mapping and tracking software for private industry
and government agencies.
These acquisitions were accounted for as purchases and the results of operations
of these businesses have been included in the results of operations of the
Company from the acquisition dates. The purchase prices for these businesses and
the results of operations of these businesses prior to acquisition were not
material to the consolidated financial statements.
Competition
In general, the Company's products are sold in highly competitive markets to
customers who are sophisticated and demanding concerning price, performance and
quality. Products are sold in competition with other independent suppliers (some
of which have substantial financial resources and significant technological
capabilities), and many of these products are, or could be, produced by the
manufacturers to which the Company sells these products. The Company's
competitive position varies among its product lines.
Marketing and Distribution
For the years ended September 30, 1996, 1995 and 1994, Freightliner accounted
for 10%, 12% and 14%, respectively, of net sales and in 1995, Navistar and Volvo
accounted for 10% of net sales. During the years ended September 30, 1996, 1995,
and 1994, approximately 12%, 13% and 16% 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 $8,900,000 at
September 30, 1996, compared to $9,200,000 at September 30, 1995. These 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.
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.
4
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 1996, 1995 and
1994, the Company spent $2,229,000, $1,445,000 and $1,145,000 respectively, on
these activities.
Patents and Trademarks
The Company's product lines generally have strong name recognition in the
markets which they serve. The Company has a number of product patents obtained
over a period of years 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. 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. The Company does not
consider that the loss or expiration of either patent would materially adversely
affect the Company; however, competition in the electronic product line could
increase without these patents. The Company owns numerous trademarks which are
registered in many countries enabling the Company to market its products
worldwide. These trademarks include "Williams," "Kenco," "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, plastic, 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,
and appear to be willing to continue being suppliers to the Company, there is no
assurance that a disruption in a supplier's business, such as a strike, would
not disrupt the supply of a component.
Product Warranty
The Company warrants its products to the first retail purchaser and subsequent
owners against malfunctions occurring during the warranty period resulting from
defects in material or workmanship, subject to specified limitations. The
warranty 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 that 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.
5
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 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.
Item 3. Legal Proceedings
The Company and its consolidated subsidiaries are parties to various pending
judicial and administrative proceedings arising in the ordinary course of
business. The Company's management and legal counsel have reviewed the probable
outcome of these proceedings, the costs and expenses reasonably expected to be
incurred, the availability and limits of the Company's insurance coverage, and
the Company's established reserves for uninsured liabilities. While the outcome
of the pending proceedings cannot be predicted with certainty, based on its
review, management believes that any liabilities that may result are not
reasonably likely to have a material effect on the Company's liquidity,
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of its security holders during
the fourth quarter of the year ended September 30, 1996.
6
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the over-the-counter market of the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System under the symbol "WMCO."
The range of high and low bid closing quotations for the Company's common stock
for each fiscal quarter for the past two fiscal years is as follows:
1996
High Low
Quarter
October 1 - December 31 $ 3.41 $ 2.28
January 1 - March 31 3.03 2.38
April 1 - June 30 2.72 1.72
July 1 - September 30 2.72 1.44
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
The number of record holders of the Company's common stock as of December 20,
1996 was approximately 587. 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.
7
Item 6. Selected Financial Data
(Dollars in thousands - except per share amounts)
Statement of Operations Data
Year ended September 30 1996* 1995** 1994*** 1993 1992
- ----------------------- --------- -------- --------- --------- ---------
Net sales $67,542 $60,614 $41,761 $25,897 $20,072
Earnings from operations 1,241 9,491 6,615 3,750 2,028
Earnings (loss) before extraordinary item
and cumulative effect of accounting change (561) 4,512 3,641 1,956 1,012
Net earnings (loss) (561) 4,512 3,641 1,956 1,267
Earnings (loss) per common share:
Primary:
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change (.03) .26 .22 .14 .07
Net earnings (loss) (.03) .26 .22 .14 .09
Fully diluted:
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change (.03) .26 .22 .13 .07
Net earnings (loss) (.03) .26 .22 .13 .09
Cash dividends per common share - - - - -
Balance Sheet Data
September 30 1996* 1995** 1994*** 1993 1992
- ------------ --------- -------- -------- -------- --------
Current assets $31,655 $25,788 $20,874 $ 10,623 $ 6,869
Current liabilities 29,600 7,881 10,012 7,527 5,547
Working capital 2,055 17,907 10,862 3,096 1,322
Total assets 53,778 47,182 32,159 20,006 13,142
Long-term liabilities 5,455 20,244 9,699 5,690 3,863
Redeemable convertible preferred stock,
including unpaid dividends - - - 413 492
Minority interest in consolidated subsidiaries 713 764 - - -
Stockholders' equity 18,010 18,293 12,448 6,376 3,240
*1996 data includes a restructuring charge of $2,250 related to the Automotive
accessories segment. See note 13 to the Notes to Consolidated Financial
Statements for information relating to the restructuring charge. 1996 data
includes small acquisitions from Apri1 1996. Net sales, earnings from operations
and total assets related to these acquisitions were not material. See note 18 to
the Notes to Consolidated Financial Statements for information regarding these
acquisitions.
**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.
***1994 data includes small acquisitions from January 1994. Net sales, earnings
from operations and total assets related to these acquisitions were not
material.
8
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 principal sources of liquidity are borrowings under its credit
facilities and funds generated from operations. In December 1996, the bank
advised the Company that it was in technical default under its $30,000 credit
facility primarily due to borrowings in excess of the loan availability provided
under the credit facility. Decreased loan availability resulted from decreased
earnings from operations, the major factor in determining loan availability
under the credit facility. The banks advised the Company that they are
forbearing from exercising their rights under the loan agreement and are
continuing to provide financing under the credit facility with the understanding
that the Company will attempt to close a refinancing with new lenders by May
1997. Although the bank has not indicated that it currently intends to do so, as
a consequence of the default, the bank could demand immediate repayment of the
loan. The Consolidated Financial Statements reflect the $21,000 in borrowings
outstanding under the credit facility as a current liability until the Company
can obtain alternative financing to replace the $30,000 credit facility.
In December 1996 the Company and Ajay Sports, Inc. ("Ajay;") (collectively the
"Borrowers") received a proposal with another bank to obtain an asset-based loan
facility consisting of a revolving line of credit up to $38,000 and term loans
up to $12,000. The proposed revolving line of credit (including letters of
credit) may not exceed the lesser of $38,000 or an agreed upon percentage of
eligible accounts receivable and inventories. The revolving line of credit
expires in three years and carries an interest rate at the Company's option of
the bank's prime rate or London Interbank Offering Rate ("LIBOR") plus 1.75% to
3.00% depending upon the financial performance of the Company. The revolving
line of credit requires the borrowers to pay an initial fee of 1%, an annual
facility fee of 3/8 of 1%, an unused facility fee of 1/4 of 1% and is subject to
an early termination fee of 1%. The term loans are due in three years and carry
an interest rate, at the Company's option, of the bank's prime rate or LIBOR
plus 2.00%, and amortize over a period of five to fifteen years. The proposed
term loan facility is subject to an annual facility fee of 3/8 of 1% of the
unused balance. The asset-based loan facility is subject to the bank's audit and
due diligence which is expected to be completed in the Company's second fiscal
quarter of 1997.
The proposed asset-based loan facility will replace the Company's $30,000 credit
facility, which consists of a three-year revolving loan, with 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. At September 30, 1996, the
outstanding balance under the Company's existing credit facility was $21,000
and, due to the technical default, the Company is not able to borrow additional
funds under the credit facility. Under the terms of the proposed asset-based
loan facility, the Company would have availability of approximately $2,000.
Under the terms of the asset-based loan facility, the Borrowers will have the
option to make advances between the Company and Ajay provided the Borrowers are
in compliance with the provisions of the loan facility. At September 30, 1996,
the Company would have to advance Ajay approximately $5,000 to repay its
previous loan facility which the Company has guaranteed. The Company has pledged
substantially all of its assets as collateral for the credit facility. The
Company is required to maintain certain financial ratios, and the agreement
contains certain restrictions that limit acquisitions, investments, payment of
dividends and capital expenditures.
At September 30, 1996 the Company had working capital of $2,055 compared to
$17,907 at September 30, 1995. The current ratio on September 30, 1996 was 1.1
compared with 3.3 at September 30, 1995. The decreases in working capital and
the current ratio are due primarily to the reclassification of $21,000 of debt
as a current liability which was recorded as a long-term liability under the
previous credit facility. The Company is expected to obtain an asset-based loan
facility in the second quarter of 1997 which will improve the Company's
liquidity. In the event that the Company does not obtain the asset-based loan
facility, the Company would be required to renegotiate the existing credit
facility or find alternative financing. The Company believes that alternative
financing is available and has received other proposals for asset-based lending
and convertible subordinated debt.
9
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in thousands except per share amounts)
At September 30, 1996 accounts receivable increased to $13,103 compared to
$10,521 at September 30, 1995. Inventories increased to $15,288 compared to
$12,987 at September 30, 1995. The increase in accounts receivables and
inventories is due in part to increased sales and the acquisitions that were
made during the year.
Prior to July 1995, the Company had a loan receivable from Ajay. In October
1994, the Company exercised options to acquire 4,117,647 shares of Ajay common
stock through a reduction in the loan receivable. At September 30, 1996 the
Company owns 4,117,647 shares of Ajay common stock, which represents
approximately 18% of Ajay's outstanding common stock. Ajay manufactures and
distributes golf accessories primarily to retailers throughout the United
States. The investment in Ajay is recorded as an investment in affiliate in the
Consolidated Balance Sheets net of the Company's equity interest of $175 and
$282 in Ajay's losses for the twelve month periods ended September 30, 1996 and
1995, respectively. The Company is required to account for the investment in
Ajay on the equity method due to common ownership by the Chairman and President
of the Company who is also Chairman and President of Ajay. In addition, the
Company has guaranteed Ajay's $13,500 credit facility ($10,407 outstanding at
September 30, 1996, unaudited) and is charging Ajay a fee of 1/2% of 1% per
annum on the outstanding loan amount for providing this guaranty. Ajay is
currently in technical default under this credit facility, and the Company and
Ajay have entered into negotiations with another bank to obtain a replacement
loan facility. At September 30, 1996, the Company also has manufacturing rights
in certain Ajay facilities through 2002 under a joint venture agreement, and the
Company has vested options to acquire 11,110,873 shares of Ajay common stock at
prices ranging from $.34 to .50 per share.
The Company anticipates that cash generated from operations and borrowings will
be sufficient to satisfy working capital and capital expenditure requirements
for the foreseeable future, and provide the Company with financial flexibility
to respond to business opportunities, including opportunities for growth through
internal development, strategic joint ventures or acquisitions.
The Financial Accounting Standards Board recently issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which is effective for fiscal years beginning after December 15,
1995. Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial position or results of operations.
The FASB also recently issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 defines a fair-value-based method of accounting for
stock-based employee compensation plans and transactions in which an entity
issues its equity instruments to acquire goods or services from nonemployees.
SFAS No. 123 allows entities to measure compensation cost related to employee
stock plans by either using the fair-value-based method or continuing to use the
intrinsic-value based method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No. 25). The effective
date of the Statement is for years beginning after December 15, 1995. No
material financial statement impact from the adoption of SFAS No. 123 is
expected as the Company plans to continue to apply APB No. 25 for its employee
stock plans. The Company has not yet determined when it will adopt SFAS No. 123
10
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, 1996
Compared to September 30, 1995
Sales
Sales for the year ended September 30, 1996 increased 11% to $67,542 compared to
$60,614 for the prior year. Sales of heavy vehicle components, auto accessories,
agricultural equipment, and electrical components accounted for 54%, 24%, 16%
and 6% as a percent of total sales for the year ended September 30, 1996
compared to 58%, 26%, 11% and 5% for the prior year. Heavy vehicle sales were
$36,141 for the year ended September 30, 1996 compared to $35,105 for the prior
year, an increase of 3%. Automotive accessories sales were $16,263 for the year
ended September 30, 1996 compared to $15,863 for the prior year, an increase of
3%. Agricultural equipment sales were $11,026 for the year ended September 30,
1996 compared to $6,783 for the prior year, an increase of 63%. Sales of
electrical components were $4,112 for the year ended September 30, 1996 compared
to $2,863 for the prior year, an increase of 44%. Agricultural equipment and
electrical components sales were the result of acquisitions completed in
February 1995 and April 1995.
Heavy vehicle component sales were flat for the year as retail sales of class 8
trucks, the primary market for the Company's electronic throttle product line,
declined over 20% compared to the prior year. Historically, the Class 8 truck
market has been cyclical with annual production ranging from approximately
100,000 to 200,000 units. In 1995, Class 8 truck production was over 200,000
units which capped five years of increased annual production. In calendar 1996,
Class 8 truck production declined to an estimated 160,000 units. The decrease in
the class 8 truck market has been offset by an increase in sales to the midrange
truck market which continues to introduce electronic throttles to new truck
models as this technology becomes more acceptable to this market segment. The
Company anticipates this trend to continue for approximately 12 to 18 months.
Automotive accessories sales were flat primarily due to the unusually bad winter
weather which hampered retail sales and a change in product mix as the Company
continues to redesign its product lines in an effort to achieve more profitable
sales. In the first quarter, the Company introduced an automotive accessories
product line targeted for the traditional aftermarket (dealers, distributors and
restylers) segment to reduce its reliance on mass merchant retail sales.
Agricultural equipment and electrical component sales are the results of
acquisitions and, therefore, comparison to the prior period is not meaningful.
The agricultural equipment segment has increased sales by integrating small
product line acquisitions into its primary dealer network. Sales in the
electrical component segment were lower than expected for the year due to loss
of two primary customers.
11
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in thousands, except per share amounts)
Results of Operations
Year ended September 30, 1996 compared to September 30, 1995.
Earnings from Operations
Earnings from operations for the year ended September 30, 1996 were $1,241
compared to $9,491 for the prior year, a decrease of 87%. Earnings from
operations as a percentage of sales for the year ended September 30, 1996 were
2% compared to 16% for the prior year. The decrease in earnings from operations
is due to a combination of lower gross margins and increased operating expenses.
In addition, the Company recorded a restructuring charge of $2,250 related to
its automotive accessories operations. The restructuring plan was implemented in
conjunction with a new management team for the automotive accessories business
which initiated a cost reduction program and a plan to redesign or eliminate
certain product lines.
Gross margin as a percentage of sales for the year ended September 30, 1996 was
21% compared to 28% for the prior year. The decrease in gross margin results
from a larger percentage of the Company's operations being in business segments
with lower gross margins primarily as a result of acquisitions. The Company has
experienced decreased margins in the automotive accessories segment due to
increased competition. Margins decreased in the agricultural equipment segment
due to increased cost incurred to improve product quality and because of an
unprofitable product line which was discontinued in fiscal 1996. Operating
expenses for the year ended September 30, 1996 were $10,719 or 16% of sales
compared to $7,715 or 13 % of sales for the same period in the prior year,
excluding the one-time restructuring charge of $2,250. The increased operating
expenses are due primarily to costs associated with companies acquired in the
agricultural equipment and electrical components segments. In addition, the
automotive accessories segment operating expenses have increased as a result of
developing product lines which use new channels of distribution.
Earnings from operations of the heavy vehicle component segment decreased 22%
for the year ended September 30, 1996 compared to the prior year. The decrease
in earnings from operations in this segment is due to the shift in product mix
to products used in midrange truck applications which typically have lower
margins than heavy-duty truck applications. In addition, due to the downturn in
the Class 8 truck market segment, the Company's customers are faced with
increased price pressure to compete in this cyclical market. Therefore, the
Company is working with its customers to maintain or reduce selling prices while
absorbing the increased cost of raw materials.
The automotive accessories segment had losses from operations of $4,353 for the
year ended September 30, 1996 compared to losses from operations of $286 for the
prior year. The primary reason for the increased loss is due to a one-time
restructuring charge of $2,250 recognized during the third quarter. The Company
has implemented a plan to improve its automotive accessories operations and has
strengthened its management team to return this accessories segment to
profitability. The restructuring plan includes a cost reduction program through
redesign of products to use alternative sources of raw material and value-added
manufacturing. In addition, the Company is identifying new markets and sales
programs to increase sales.
12
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in thousands, except per share amounts)
Results of Operations
Year ended September 30, 1996 compared to the year ended September 30, 1995.
The electrical components segment had losses from operations of $659 for the
year ended September 30, 1996 compared to earnings from operations of $182 for
the prior year. The loss from operations was due primarily to the loss of two of
its major customers in the telecommunication industry. The electrical components
segment was added through an acquisition completed in April of 1995. The
electrical components segment continues to focus on product development efforts
to enhance future sales opportunities.
The agricultural equipment segment had losses from operations of $578 for the
year ended September 30, 1996 compared to earnings from operations of $857 for
the prior year. The agricultural equipment segment resulted from acquisitions in
February 1995. The agricultural equipment segment had increased overhead and
production inefficiencies and an unprofitable product line which was
discontinued in August 1996. It also had increased costs to improve its product
line to meet the quality of competition.
Other Expenses
Interest expense for the year ended September 30, 1996 was $2,063 compared to
$2,409 for the year ended September 30, 1995. The decrease in interest expense
is due primarily to lower interest rates and reduced average borrowings.
Interest income, affiliate relates to a loan provided to Ajay which was repaid
in July of 1995.
Net Earnings (Loss)
The net loss for the year ended September 30, 1996 was $561 or $.03 per share
compared to net earnings of $4,512 or $.26 per share for the prior year.
13
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Dollars in thousands except per share amounts)
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, were $15,863 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 53% of heavy vehicle component sales.
Gross Margin - The gross margin as a percent of sales was 28% for 1995 and 1994.
Operating Expenses - Operating expenses for 1995 were $7,715 or 13% of sales,
compared to $5,127 or 12% of sales.
Interest Income, Affiliate - Interest income, affiliate of $601 is from the Ajay
note receivable which offset a portion of interest expense.
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 increased debt
incurred to finance acquisitions, the Ajay loan and higher interest rates.
Net Earnings - Net earnings for 1995 were $4,512 compared to $3,641 for 1994, an
increase of 24%.
14
Item 8. Financial Statements and Supplementary Data
Williams Controls, Inc.
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets at September 30, 1996 and 1995 16-17
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1996, 1995 and 1994 18
Consolidated Statements of Operations for the
years ended September 30, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows for the
years ended September 30, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 21-36
Independent Auditors' Report 38
See page 41 for Index to Schedules and page 44 for Index to Exhibits.
15
Williams Controls Inc.
Consolidated Balance Sheets
September 30
(Dollars in thousands, except per share amounts)
ASSETS 1996 1995
------- -------
Current assets:
Cash $ 1,379 $ 1,653
Accounts receivable, net 13,103 10,521
Inventories 15,288 12,987
Other 1,885 627
------- -------
Total current assets 31,655 25,788
------- -------
Investment in affiliate 943 1,118
Property, plant and equipment:
Land and land improvements 2,742 2,713
Buildings 9,407 9,221
Machinery and equipment 10,872 9,169
Office furniture and equipment 1,934 1,426
------- -------
24,955 22,529
Less accumulated depreciation and amortization 5,154 3,731
------- -------
19,801 18,798
------- -------
Other assets 1,379 1,478
------- -------
$53,778 $47,182
======= =======
The accompanying notes are an integral part of these statements.
16
Williams Controls Inc.
Consolidated Balance Sheets
September 30
(Dollars in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------- --------
Current liabilities:
Current portion of revolving line of credit $ 21,000 $ --
Current portion of long-term debt 212 301
Accounts payable and accrued expenses 8,388 7,580
-------- --------
Total current liabilities 29,600 7,881
-------- --------
Long-term debt 2,782 18,112
Deferred tax liability 1,219 886
Other liabilities 1,454 1,246
Minority interest in consolidated subsidiaries 713 764
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, 17,869,987 and 17,264,987 shares issued 179 173
Additional paid-in capital 9,671 9,023
Retained earnings 9,439 10,000
Unearned ESOP shares (511) (630)
Treasury shares (195,200 shares at cost) (540) --
Pension liability adjustment (228) (273)
-------- --------
18,010 18,293
-------- --------
$ 53,778 $ 47,182
======== ========
The accompanying notes are an integral part of these statements.
17
Williams Controls, Inc.
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
Number of
Shares Issued Common Additional Unearned Pension
and Stock Paid-in Retained ESOP Liability Treasury Stockholders'
Subscribed Amount Capital Earnings Shares Adjustment Shares Equity
-------------- ------- ---------- -------- --------- ---------- ---------- ------------
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
Cancellation of stock subscription - - - - - - - -
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
Cost of treasury shares acquired
(195,200 shares) - - - - - - (540) (540)
Reduction of unallocated ESOP shares - - 129 - 119 - - 248
Issuance of shares upon exercise
of stock options and warrants 455,000 4 231 - - - - 235
Common stock issued in connection
with acquisitions 150,000 2 288 - - - - 290
Change in pension liability
adjustment - - - - - 45 - 45
Net loss - - - (561) - - - (561)
---------- ------- ------- ------- ------- ------- ------- --------
Balance, September 30, 1996 17,869,987 $ 179 $ 9,671 $ 9,439 $ (511) $ (228) $ (540) $ 18,010
========== ======= ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements.
18
Williams Controls, Inc.
Consolidated Statements of Operations
Years ended September 30
(Dollars in thousands, except per share amounts)
1996 1995 1994
------- ------- -------
Net sales $67,542 $60,614 $41,761
Cost of sales 53,332 43,408 30,019
------ ------ ------
Gross margin 14,210 17,206 11,742
------ ------ -------
Operating expenses:
Research and development 2,229 1,445 1,145
Selling 3,158 2,888 1,933
Administrative 5,332 3,382 2,049
Restructuring charge 2,250 - -
------- ------ ------
12,969 7,715 5,127
------- ------ ------
Earnings from operations 1,241 9,491 6,615
Other (income) expenses:
Equity interest in loss of affiliate 175 282 -
Interest income, affiliate - (601) (237)
Interest expense 2,063 2,409 1,011
------- ------ ------
Earnings (loss) before income taxes (997) 7,401 5,841
Income taxes (benefit) (380) 2,825 2,200
------- ------ ------
Earnings (loss) before minority interest
and preferred stock dividends (617) 4,576 3,641
Minority interest in net earnings (loss)
of consolidated subsidiaries (56) 64 -
------- ------ ------
Net earnings (loss) (561) 4,512 3,641
Preferred stock dividends - - 10
------- ------ ------
Net earnings (loss) applicable to common stockholders $ (561) $ 4,512 $ 3,631
======= ====== ======
Earnings (loss) per common share $ (.03) $ .26 $ .22
======= ====== ======
The accompanying notes are an integral part of these statements.
19
Williams Controls, Inc.
Consolidated Statements of Cash Flows
Years ended September 30
(Dollars in thousands)
1996 1995 1994
-------- -------- --------
Cash flows from operations:
Net earnings (loss) $ (561) $ 4,512 $ 3,631
Non-cash adjustments to net earnings (loss):
Depreciation and amortization 2,156 1,638 972
Restructuring charge 2,250 - -
Equity interest in loss of affiliate 175 282 -
Deferred income taxes 333 116 9
Minority interest in earnings (loss) of consolidated subsidiaries (56) 64 -
Changes in working capital items net of the effect of acquisitions:
Receivables, net (1,970) (931) (2,552)
Inventories (2,401) (2,747) (2,325)
Accounts payable and accrued expenses (1,610) (1,068) 1,224
Other (1,058) 319 (138)
------ ------ ------
Net cash provided by (used for) operations (2,742) 2,185 831
------ ------ ------
Cash flows from investing:
Repayments from (borrowing) by affiliate - 4,913 (6,313)
Payments for acquisitions (1,220) (6,766) (945)
Payment for property, plant and equipment (1,595) (1,683) (369)
------ ------ ------
Net cash used for investing (2,815) (3,536) (7,627)
------ ------ ------
Cash flows from financing:
Net borrowings (repayments) under lines of credit - (3,187) 5,769
Proceeds from debt 6,000 15,000 -
Payments of long-term debt (301) (8,564) (644)
Payments of capital leases (111) (123) (104)
Payments of debt issuance costs - (364) -
Payments of preferred stock dividends - - (10)
Proceeds from stock issuances 235 - 1,911
Repurchase of common stock (540) - -
------ ------ ------
Net cash provided by financing 5,283 2,762 6,922
------ ------ ------
Net increase (decrease) in cash (274) 1,411 126
Cash at beginning of period 1,653 242 116
------ ------ ------
Cash at end of period $ 1,379 $ 1,653 $ 242
====== ====== ======
Interest paid in 1996, 1995 and 1994 was approximately $1,800, $2,400 and
$1,000. Income taxes paid in 1996, 1995 and 1994 were approximately $1,200,
$2,600 and $1,685. Non-cash activity included entering into capital lease
obligations in 1994 of $122. The non-cash activity related to the Company's
investing activity is described in note 6, and non-cash activity related to the
Company's acquisitions is described in note 18.
The accompanying notes are an integral part of these statements.
20
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
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"); Techwood Williams, Inc. (TWI); Premier Plastic
Technologies, Inc. (PPT); GeoFocus, Inc. (GI) and its 80% owned subsidiaries
Hardee Williams, Inc. ("HWI") and Waccamaw Wheel Williams, Inc. ("WWWI"). The
subsidiaries are detailed as follows:
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.
NESC Williams, Inc.: Manufactures conversion kits to allow vehicles to use
compressed natural gas and gas metering and regulating products, which are sold
primarily to lift truck manufacturers.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry which are sold to auto manufacturers.
Automotive Accessories
Kenco/Williams, Inc.: Manufactures, assembles, packages and distributes truck
and auto accessories for the aftermarket parts industries. 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.
GeoFocus, Inc.: Develops mobile computing, mapping and tracking software for
private industry and governmental agencies.
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.
21
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Techwood Williams, Inc.: Manufactures and distributes commercial wood chippers
used in landscaping and farming. Landscape maintenance equipment products are
sold to independent equipment dealers located primarily in the southeastern
United States.
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.
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 issuance of debt
financing are amortized over the term of the debt agreement.
22
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Product Warranty - The Company provides a warranty covering defects arising from
products sold. The warranty is limited to a specified time period, mileage or
hours of use, and varies by product and application. The Company has provided a
reserve, which in the opinion of management, is adequate to cover such warranty
costs.
Research and Development Costs - Research and development costs are expensed as
incurred.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statement of operations in the period that includes the enactment
date.
Post Retirement Benefits - Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Post Retirement Benefits Other than Pensions requires
the Company to accrue retiree insurance benefits over the period in which
employees become eligible for such benefits. The Company implemented Statement
106 by amortizing the transition obligation over twenty years.
Earnings per Share - Earnings per share are computed on the basis of the
weighted average number of shares outstanding plus the common stock equivalents
which would arise from the exercise of stock options and warrants. Primary and
fully diluted earnings per share are the same for 1996, 1995 and 1994. The
average number of shares outstanding was 17,800,000, 17,600,000 and 16,800,000
for 1996, 1995 and 1994.
Reclassifications - Certain amounts previously reported in the 1994 and 1995
financial statements have been reclassified to conform to classifications in the
1996 financial statements.
Recent FASB Pronouncements - The Financial Accounting Standards Board (FASB)
recently issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, which is effective for fiscal years
beginning after December 15, 1995. Adoption of SFAS No. 121 is not expected to
have a material impact on the Company's financial position or results of
operations.
The FASB also recently issued SFAS No. 123 Accounting for Stock-Based
Compensation. SFAS No. 123 defines a fair-value-based method of accounting for
stock-based employee compensation plans and transactions in which an entity
issues its equity instruments to acquire goods or services from nonemployees.
SFAS No. 123 allows entities to measure compensation cost related to employee
stock plans by either using a fair-value-based method or continuing to use the
intrinsic-value-based method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). The effective
date of the Statement is for years beginning after December 15, 1995. The
Company plans to continue to apply APB No. 25. No material financial statement
impact from the adoption of SFAS No. 123 is expected, as the Company plans to
continue to apply APB No. 25 for its employee stock plans. The Company has not
yet determined when it will adopt SFAS No. 123.
Fair Value of Financial Instruments - In 1996, the Company adopted the
provisions of SFAS No. 107, Disclosures About Fair Values of Financial
Instruments, which requires the Company to disclosure estimated fair values of
its financial instruments, for which it is practical to estimate fair values.
The carrying values of the Company's current assets and liabilities approximate
fair values primarily because of the short maturity of these instruments. The
fair values of the Company's long-term debt approximated its carrying values
based on borrowing rates currently available to the Company for loans with
similar terms.
23
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
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 periods.
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
1996 1995
------ ------
Accounts receivable, trade, net of
allowances of $1,250 and $325 $ 11,865 $ 9,928
Other receivables 1,238 593
------- --------
$13,103 $10,521
====== ======
At September 30, 1996 and 1995, no one customer accounted for more than 10% of
trade accounts receivable.
Note 5. Inventories
1996 1995
------ ------
Raw material $7,243 $6,401
Work in process 1,349 1,031
Finished goods 6,696 5,555
------ -------
$15,288 $12,987
====== ======
Finished goods include component parts and finished product ready for shipment.
24
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 6. Investment in Affiliate
Prior to July 1995, the Company had a loan receivable from Ajay Sports,
Inc. and subsidiaries ("Ajay"). In October 1994, the Company exercised options
to acquire 4,117,647 shares of Ajay common stock through a reduction in the loan
receivable. At September 30, 1996, the Company owns 4,117,647 shares of Ajay
common stock, which represents approximately 18% of Ajay's outstanding common
stock. Ajay manufactures and distributes golf accessories primarily to retailers
throughout the United States. The investment in Ajay is recorded as an
investment in affiliate in the Consolidated Balance Sheets net of the Company's
equity interest of $175 and $282 in Ajay's losses for the twelve month periods
ended September 30, 1996 and 1995, respectively. The Company is required to
account for the investment in Ajay on the equity method due to common ownership
by the Chairman and President of the Company who is also Chairman and President
of Ajay. In addition, the Company has guaranteed Ajay's $13,500 credit facility
($10,407 outstanding at September 30, 1996, unaudited) and is charging Ajay a
fee of 1/2 of 1% per annum on the outstanding loan amount for providing this
guaranty. Ajay currently is in technical default under this credit facility, and
the Company and Ajay have entered into negotiations with another bank to obtain
an asset-based replacement loan facility. At September 30, 1996, the Company
also has manufacturing rights in certain Ajay facilities through 2002, under a
joint venture agreement, and the Company has vested options to acquire
11,110,873 shares of Ajay common stock at prices ranging from $.34 to .50 per
share.
Following is a summary of condensed unaudited financial information of Ajay as
of and for the twelve months ended September 30, 1996 and 1995:
1996 1995
------ ------
(unaudited) (unaudited)
Current assets $13,951 $ 9,405
Other assets 4,101 1,577
------- -------
$18,052 $10,982
====== ======
Current liabilities $14,207 $ 2,870
Other liabilities 17 3,600
Stockholders' equity 3,828 4,512
------- ------
$18,052 $10,982
====== ======
Net sales $24,669 $15,645
====== ======
Gross margin $ 4,412 $ 2,083
====== ======
Net loss $ (985) $(1,565)
====== ======
If valued at the September 30, 1996 quoted closing price of publicly traded Ajay
shares, the value of the Company's investment in Ajay would be approximately
$1,500. At September 30, 1996 Ajay has approximately $4,212 of outstanding
preferred stock that is convertible to approximately 8,000,000 shares of Ajay
common stock and outstanding options and warrants (in addition to the Company's
options) to purchase approximately 4,200,000 of Ajay common stock at prices
ranging from $.34 to $1.00 per share (unaudited).
25
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 7. Debt
In December 1996, the bank advised the Company that it was in technical default
under its $30,000 credit facility primarily due to borrowings in excess of the
loan availability provided under the credit facility. Decreased loan
availability resulted from decreased earnings from operations, the major factor
in determining loan availability under the credit facility. The banks advised
the Company that they are forbearing from exercising their rights under the loan
agreement and are continuing to provide financing under the credit facility with
the understanding that the Company will attempt to close a refinancing with new
lenders by May 1997. Although the bank has not indicated that it currently
intends to do so, as a consequence of the default, the bank could demand
immediate repayment of the loan. The Consolidated Financial Statements reflect
the $21,000 in borrowings outstanding under the credit facility as a current
liability until the Company can obtain alternative financing to replace the
$30,000 credit facility.
In December 1996 the Company and Ajay ("Borrowers") received a proposal with a
bank to obtain an asset-based loan facility consisting of a revolving line of
credit up to $38,000 and term loans up to $12,000. The proposed revolving line
of credit (including letters of credit) may not exceed the lessor of $38,000 or
an agreed upon percentage of eligible accounts receivable and inventories. The
revolving line of credit expires in three years and carries an interest rate at
the Company's option of the bank's prime rate or London Interbank Offering Rate
(LIBOR) plus 1.75% to 3.00% depending upon the financial performance of the
Company. The revolving line of credit requires the borrowers to pay a initial
fee of 1%, an annual facility fee of 3/8 of 1%, an unused facility fee of 1/4 of
1% and is subject to an early termination fee of 1%. The term loans are due in
three years and carries an interest rate at the Company's option of the bank's
prime rate or LIBOR plus 2.00% and amortize over a period of five to fifteen
years. The term loan facility is subject to an annual facility fee of 3/8 of 1%
of the proposed unused balance. The asset-based loan facility is subject to the
bank's audit and due diligence which is expected to be completed in the second
quarter of 1997.
The proposed asset-based loan facility will replace the Company's $30,000 credit
facility, which consists of a three-year revolving loan, with 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. At September 30, 1996, the
outstanding balance of the credit facility was $21,000 with interest at 7.9%,
which is IBOR plus 2.5%. The weighted average interest rates on the Company's
revolving lines of credit for the years ended September 30, 1996, 1995 and 1994
were 8.1%, 9.0% and 8.9%, respectively. Due to the technical default, the
Company is not able to borrow additional funds under the credit facility. Under
the terms of the proposed asset-based loan facility, the Company would have
availability of approximately $2,000. Under the terms of the asset-based loan
facility, the borrowers have the option to make advances between the two
companies provided the borrowers are in compliance with the provisions of the
loan facility. At September 30, 1996, the Company would have to advance Ajay
approximately $5,000 to repay their previous loan facility, which the Company
has guaranteed to the bank. The Company has pledged substantially all of its
assets as collateral for the credit facility. The Company is required to
maintain certain financial ratios, and the agreement contains certain
restrictions that limit acquisitions, investments, payment of dividends and
capital expenditures.
26
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
The Company's long-term debt consists of the following:
Bank: 1996 1995
---- ----
Revolving line of credit,
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,
1996), payable in monthly
installments of $8 plus interest 875 975
Other:
8.8% mortgage loan, due in 2003, payable in monthly
installments of $21 including interest 1,321 1,454
Unsecured subordinated note payable, due in 2005,
interest only at prime (8.25% at September 30, 1996) 750 750
Other 48 234
------ ------
2,994 18,413
Less current portion 212 301
------ ------
$ 2,782 $18,112
====== ======
Maturities of long-term debt are as follows:
1997 $ 212
1998 258
1999 273
2000 289
2001 306
Thereafter 1,656
------
$2,994
=====
27
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 8. Accounts Payable and Accrued Expenses
1996 1995
------ ------
Accounts payable $5,895 $4,357
Accrued wages and
employee benefits 1,364 1,613
Other 1,129 1,356
Income taxes payable - 254
------ ------
$8,388 $7,580
====== ======
Note 9. 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 benefited.
The assets and liabilities are adjusted annually based on actuarial results.
Net pension cost is computed as follows:
1996 1995 1994
----- ----- -----
Service cost $ 226 $ 169 $ 133
Interest cost 450 388 327
Actual return on plan assets (477) (360) (354)
Other components 21 29 16
----- ----- -----
$ 220 $ 226 $ 122
===== ===== =====
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
1996 and 1995, and 8.5% and 5.0% in 1994. Plan assets consist substantially of
equity and fixed income securities.
28
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
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 $544 has been recorded as a long-term liability with a
partially offsetting intangible asset of $316 recorded in other assets and a
reduction of stockholders' equity of $228.
The funded status as of September 30 is as follows:
Salaried Hourly
Employees Employees
1996 Plan Plan
--------- ---------
Actuarial present value of vested benefits $ 2,173 $ 2,558
Actuarial present value of non-vested benefits 80 457
------- -------
Accumulated benefits obligation 2,253 3,015
======= =======
Actuarial present value of projected benefits obligation (2,667) (3,053)
Plan assets at fair market value 2,634 2,669
------- -------
Funded status (33) (384)
======= =======
Unrecognized net losses (89) (228)
Prior service costs 150 (316)
Prepaid (accrued) pension cost (94) 160
------- -------
Funded status $ (33) $ (384)
======= =======
Salaried Hourly
Employees Employees
1995 Plan Plan
--------- ---------
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 losses (64) (272)
Prior service costs (57) (279)
Prepaid (accrued) pension cost 2 (56)
------- -------
Funded status $ (119) $ (607)
======= =======
29
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 10. Income Taxes (benefit)
The provision for income taxes (benefit) is as follows:
1996 1995 1994
------- ------- ------
Current:
Federal $ 280 $2,200 $1,821
State 240 415 370
----- ----- -----
520 2,615 2,191
Deferred:
Federal (576) 173 18
State (324) 37 (9)
----- ----- -----
$(380) $2,825 $2,200
===== ===== =====
The reconciliation between the effective tax rate and the statutory federal rate
as a percent is as follows:
1996 1995 1994
------ ------ ------
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 (.1) .2 (.3)
------ ------ ------
(38.1) 38.2 37.7
====== ===== ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1996 and 1995 are as follows:
1996 1995
------ ------
Deferred tax assets:
Inventories, due to obsolescence reserve and additional
costs inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 $ 385 $ 58
Compensated absences, principally due to accrual
for financial reporting purposes 108 110
Retiree medical benefits, principally due to accrual
for financial reporting purposes 345 245
Accounts receivable reserves, accrued for financial
reporting purposes 389 -
Other reserves, principally due to accrual for
financial reporting purposes 312 103
State net operating loss carry forward 480 -
------ ------
Total gross deferred tax assets 2,019 516
Less valuation allowance 270 -
------ ------
Net deferred tax assets 1,749 516
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and amortization 1,219 886
------ ------
Net deferred income tax (asset) liability $ (530) $ 370
====== ======
At September 30, 1996, the Company has approximately $7,000 of state net
operating loss carryforwards, which are available to the Company in certain
state tax jurisdictions and expire in 2006 through 2011.
30
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 11. Common Stock
The Company has issued stock options and warrants at exercise prices ranging
from $.34 to $3.63 per share, the market value at the date of issuance. These
options and warrants expire between 1997 and 2000.
Average
Number Price
------ --------
Outstanding at September 30, 1993 1,050,000 $ .42
Granted - -
Exercised - -
Canceled (300,000) -
--------- ------
Outstanding at September 30, 1994 750,000 .46
Granted 40,000 3.63
Exercised - -
Canceled - -
--------- ------
Outstanding at September 30, 1995 790,000 .62
Granted - -
Exercised (450,000) .49
Canceled - -
--------- ------
Outstanding at September 30, 1996 340,000 $ .79
========= ======
In addition to the options and warrants above, 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. At September 30,
1996, the Company had outstanding options to purchase 400,000 shares at prices
between $1.63 and $3.23 per share, 1,100,000 shares available for future grants
and 5,000 shares had been issued upon exercise of options granted under the
Plan.
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 to each
non-employee director of the Company at a price equal to the market value on the
date of grant which is the date of the annual shareholders meeting each year,
exercisable for 10 years after the date of the grant. These options are
exercisable as to 25% of the shares thereby on the date of grant and as to an
additional 25%, cumulatively on the first, second and third anniversaries of the
date of grant. During 1996 options were granted to purchase 30,000 shares at
$3.63. At September 30, 1996 there were 60,000 options outstanding at $3.63 to
$3.66 per share and 140,000 were available for future grant under the Plan.
31
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 12. Stock Repurchase Program
In January 1996 the Company initiated a stock repurchase program of up to
1,000,000 shares of its common stock. Under this program the Company has
acquired approximately 195,200 shares at an average price of $2.77 per share,
which include 100,000 shares of common stock at $2.75 per share representing the
market price on the date purchased from Enercorp, Inc., a publicly-held business
development company which beneficially owns approximately 11% of the Company's
stock. The Chairman and President of the Company is a significant shareholder of
Enercorp.
Note 13. Restructuring Charge
In July 1996, the Company adopted a plan for restructuring its automotive
accessories business. This plan was developed by the Company's management and
approved by the Company's Board of Directors and its objectives are to return
the automotive accessories business to profitability, primarily through
implementation of product line changes, as well as a new management team and
cost reduction program.
The Company implemented the plan of restructuring during the third quarter, and
as a results the Company recorded a restructuring charge of $2,250. The
restructuring provision primarily represents non-cash, asset write-offs related
to product line restructuring.
32
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 14. Business Segment Information
1996 1995 1994
------ ------ ------
Net sales by classes of similar products
Heavy vehicle components $36,141 $35,105 $28,678
Automotive accessories 16,263 15,863 13,083
Landscape maintenance equipment (1) 11,026 6,783 -
Electrical components (2) 4,112 2,863 -
------- ------- -------
67,542 60,614 41,761
======= ======= =======
Earnings (loss) from operations
Heavy vehicle components 6,831 8,738 6,095
Automotive accessories* (4,353) (286) 520
Landscape maintenance equipment (1) (578) 857 -
Electrical components (2) (659) 182 -
------- ------- -------
1,241 9,491 6,615
======= ======= =======
Identifiable assets
Heavy vehicle components 20,732 18,624 20,795
Automotive accessories 13,698 12,486 11,364
Landscape maintenance equipment (1) 11,806 8,528 -
Electrical components (2) 7,542 7,544 -
------- ------- -------
Total assets 53,778 47,182 32,159
======= ======= =======
Capital expenditures
Heavy vehicle components 532 852 130
Automotive accessories 358 535 239
Landscape maintenance equipment (1) 487 220 -
Electrical components (2) 218 76 -
------- ------- -------
1,595 1,683 369
====== ======= =======
Depreciation and amortization
Heavy vehicle components 1,372 1,142 807
Automotive accessories 257 257 165
Landscape maintenance equipment (1) 288 121 -
Electrical components (2) 239 118 -
------- ------- -------
$ 2,156 $ 1,638 $ 972
======= ======= =======
(1) Acquired February 1995
(2) Acquired April 1995
* Includes restructuring charge of $2,250 in 1996.
33
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 15. Net Sales - Export
1996 1995 1994
------- ------- -------
Canada $ 4,570 $ 5,326 $ 4,248
Other 3,261 2,754 2,472
------ ------ ------
Net sales-export 7,831 8,080 6,720
United States 59,711 52,534 35,041
------ ------ ------
Net sales $ 67,542 $ 60,614 $ 41,761
====== ====== ======
In 1996 and 1995 the Company had one customer who accounted for approximately
10% and 12% of net sales. In 1994 one customer accounted for approximately 14%,
and two customers who each accounted for 10% 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, 1996 the outstanding balance of the loan was approximately $511
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 $87 and $85 in the form of matching contributions in 1996 and
1995.
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.
34
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
The following table provides information on the Plan status at September 30,
1996:
Accumulated Post Retirement Benefit Obligation
Retirees $ 1,364
Fully eligible active participants 619
Other active Plan participants 837
-------
2,820
Plan assets -
-------
Accumulated post retirement benefit
obligation in excess of Plan assets 2,820
Unrecognized gain 155
Prior service cost (287)
Unrecognized transition obligation (1,950)
-------
Accrued post retirement benefit cost
in the balance sheet $ 738
=======
Post retirement benefits expense for 1996 included the follow components:
Service cost $ 65
Interest cost 219
Amortization of unrecognized net obligation at transition 139
-------
Post retirement benefits expense $ 423
=======
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, 1996 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.
35
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 18. Acquisitions
In April 1996, the Company acquired the assets of the Burda Group of Companies
located in West Linn, Oregon, a distributor of a commercial chipper line, for
$20. This company is being operated as Techwood Williams, Inc.
In April 1996, the Company also acquired the assets of Neumann Manufacturing and
Engineering, Inc. located in Madison Heights, Michigan, a manufacturer of
plastic components for the automotive industry, for $1,200. This company is
being operated as Premier Plastics Technologies, Inc.
In July 1996, the Company completed the acquisition of GeoFocus, Inc. located in
Gainesville, Florida for 150,000 shares of the Company's common stock valued at
$290. GeoFocus provides geographical information systems and consulting services
and develops mobile computing, mapping and tracking software for private
industry and government agencies.
These acquisitions were accounted for as purchases and the results of operations
of these businesses have been included in the consolidated results of operations
of the Company from the acquisition dates. The proforma results of operations
for 1996 and 1995, as if the acquisitions had occurred on October 1, 1995 and
1994, would not be materially different from the historical results.
36
Notes to Consolidated Financial Statements
Years ended September 30, 1996, 1995, 1994
(Dollars in thousands, except per share amounts)
Note 19. Quarterly Data (unaudited)
First Second Third Fourth
1996 Quarter Quarter Quarter (1) Quarter (2) Annual
---- ----------- ----------- ----------- ----------- -----------
Net sales $ 16,428 $ 16,135 $ 17,475 $ 17,504 $ 67,542
Gross margin 4,404 3,704 3,807 2,295 14,210
Operating expenses 2,261 2,333 4,974 3,401 12,969
Earnings (loss) from operations 2,143 1,371 (1,167) (1,106) 1,241
=========== =========== =========== =========== ===========
Net earnings (loss) 1,001 543 (1,044) (1,117) (617)
=========== =========== =========== =========== ===========
Minority interest in earnings (loss) of consolidated
subsidiaries 11 29 50 (146) (56)
----------- ----------- ----------- ----------- -----------
Net earnings (loss) applicable to common shareholders $ 990 $ 514 $ (1,094) $ (971) $ (561)
=========== =========== =========== =========== ===========
Primary earnings (loss) per common share $ .06 $ .03 $ (.06) $ (.06) $ (.03)
=========== =========== =========== =========== ===========
Fully diluted earnings (loss) per common share$ $ .06 $ .03 $ (.06) $ (.06) $ (.03)
=========== =========== =========== =========== ===========
Weighted average shares outstanding 17,900,000 17,600,000 17,600,000 17,800,000 17,800,000
=========== =========== =========== =========== ===========
First Second Third Fourth
1995 Quarter Quarter Quarter (1) Quarter (2) 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
=========== =========== =========== =========== ===========
(1) The third quarter of 1996 includes a restructuring charge of $2,250.
(2) The fourth quarter of 1996 includes the operation of acquisitions from date
of purchase. The results of operations of these acquisitions are not material.
The fourth quarter of 1996 includes a $1,000 write down due to an unfavorable
inventory adjustment resulting from increased overhead and production
inefficiencies and an unprofitable product line which was discontinued in August
1996 and an additional inventory and account receivable reserves of
approximately $700.
(3) 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.
37
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, 1996 and
1995, 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, 1996. 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, 1996 and
1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended September 30, 1996, in
conformity with generally accepted accounting principles.
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 6, 1996, except for Note 7, as
to which the date is December 20, 1996
38
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 1997 Proxy Statement.
Item 11. Executive Compensation
Incorporated by reference from the Company's 1997 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the Company's 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the Company's 1997 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.
None.
39
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
Date: January 13, 1997 By /s/ Thomas W. Itin
----------------- -------------------------------------------
Thomas W. Itin, Chairman, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: January 13, 1997 By /s/ Thomas W. Itin
----------------- -------------------------------------------
Thomas W. Itin, Chairman, President and CEO
Date: January 13, 1997 By /s/ Dale J. Nelson
----------------- -------------------------------------------
Dale J. Nelson, Controller and
Chief Financial Officer
Date: January 13, 1997 By /s/ R. William Caldwell
----------------- -------------------------------------------
R. William Caldwell, Director
Date: January 13, 1997 By /s/ H. Samuel Greenawalt
----------------- -------------------------------------------
H. Samuel Greenawalt, Director
Date: January 13, 1997 By /s/ Timothy Itin
----------------- -------------------------------------------
Timothy Itin, Director
40
Williams Controls, Inc.
Index to Schedules
Page
Independent Auditors' Report 42
Schedule II Valuation and Qualifying Accounts 43
All other schedules are omitted because they are not required, not applicable or
the required information is given in the Consolidated Financial Statements.
41
INDEPENDENT AUDITORS' REPORT
Board of Directors
Williams Controls, Inc.
Portland, Oregon
We have audited the 1996, 1995 and 1994 consolidated financial statements of
Williams Controls, Inc. and subsidiaries, referred to in our report dated
December 6, 1996, except for Note 7, as to which the date is December 20, 1996
which is included under Item 8 in this Form 10K. In connection with our audit of
these financial statements, we audited the 1996, 1995 and 1994 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.
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 6, 1996 except for Note 7,
as to which the date is December 20, 1996
42
Williams Controls, Inc.
Valuation and Qualifying Accounts
Schedule II
(Dollars in thousands)
Beginning Charged to
Description balance expenses
For Year Ended
September 30, 1996
Total reserves for doubtful accounts
and obsolete inventory $2,959 $1,691
===== =====
For Year Ended
September 30, 1995
Total reserves for doubtful accounts
and obsolete inventory $ 575 $ 1,125
===== =======
For Year Ended
September 30, 1994
Total reserves for doubtful accounts
and obsolete inventory $ 405 $ 575
===== =====
NOTE: Valuation and qualifying accounts were not individually significant;
and, therefore, additions and deductions information has not been
provided in this schedule.
43
Williams Controls, Inc.
Exhibit Index
Exhibit
Number Description
3.1 Certificate of Incorporation of the Registrant as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrants'
annual report on form 10-K for the fiscal year ended September
30, 1995 (the "1995 form 10-K"))
3.2 By-Laws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form
S-18, Registration No. 33-30601-S, as filed with the
Commission on August 18, 1989 (the "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)
44
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. (Incorporated by reference
to Exhibit 10.3(b) to the Registrant's 1995 form 10-K)
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"))
45
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 Quarterly Report
on Form 10-Q for the period ended March 31, 1994)
10.9 Guaranty dated as of October 2, 1995 by Thomas W. Itin to the
Registrant. (Incorporated by reference to Exhibit 10.9 to the
Registrant's 1995 form 10-K)
10.10 Guaranty, dated as of October 2, 1995, by Joseph C. Giuffre to
the Registrant. (Incorporated by reference to Exhibit 10.10 to
the Registrant's 1995 form 10-K)
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
46