|
UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
|
FORM 10-Q |
|
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended: March 31, 2011 |
|
o 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) |
(503) 684-8600
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act
|
|
|
|
Large accelerated filer o |
Accelerated filer o |
|
|
|
|
Non-accelerated filer o |
Smaller reporting company x |
The number of shares outstanding of the registrants common stock
as of April 30, 2011: 7,297,922
Williams Controls, Inc.
March 31, 2011
Table of Contents
PART I FINANCIAL INFORMATION
Williams Controls, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,158 |
|
$ |
3,016 |
|
Trade accounts receivable, net |
|
|
9,814 |
|
|
8,854 |
|
Other accounts receivable |
|
|
595 |
|
|
599 |
|
Inventories |
|
|
8,659 |
|
|
7,512 |
|
Deferred income taxes |
|
|
928 |
|
|
927 |
|
Prepaid expenses and other current assets |
|
|
834 |
|
|
341 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
21,988 |
|
|
21,249 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
9,551 |
|
|
9,025 |
|
Deferred income taxes |
|
|
3,521 |
|
|
3,493 |
|
Other assets, net |
|
|
351 |
|
|
438 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
35,411 |
|
$ |
34,205 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,336 |
|
$ |
4,593 |
|
Accrued expenses |
|
|
4,945 |
|
|
5,698 |
|
Dividends payable |
|
|
883 |
|
|
|
|
Revolving loan facility |
|
|
1,240 |
|
|
|
|
Current portion of employee benefit obligations |
|
|
212 |
|
|
212 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
11,616 |
|
|
10,503 |
|
|
|
|
|
|
|
|
|
Long-term Liabilities: |
|
|
|
|
|
|
|
Employee benefit obligations |
|
|
8,265 |
|
|
8,694 |
|
Other long-term liabilities |
|
|
254 |
|
|
244 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
Preferred Stock ($.01 par value, 50,000,000 authorized) Series C (No shares were issued and outstanding at March 31, 2011 and September 30, 2010) |
|
|
|
|
|
|
|
Common stock ($.01 par value, 12,500,000 authorized; 7,293,309 and 7,289,745 issued and outstanding at March 31, 2011 and September 30, 2010, respectively) |
|
|
73 |
|
|
73 |
|
Additional paid-in capital |
|
|
38,073 |
|
|
37,623 |
|
Accumulated deficit |
|
|
(12,692 |
) |
|
(12,677 |
) |
Treasury stock (332,593 shares at March 31, 2011 and September 30, 2010) |
|
|
(2,734 |
) |
|
(2,734 |
) |
Accumulated other comprehensive loss |
|
|
(7,444 |
) |
|
(7,521 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
15,276 |
|
|
14,764 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
35,411 |
|
$ |
34,205 |
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
1
Williams Controls, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
14,786 |
|
$ |
12,649 |
|
$ |
28,335 |
|
$ |
24,358 |
|
Cost of sales |
|
|
10,372 |
|
|
9,294 |
|
|
19,641 |
|
|
17,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
4,414 |
|
|
3,355 |
|
|
8,694 |
|
|
6,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,138 |
|
|
1,160 |
|
|
2,322 |
|
|
2,216 |
|
Selling |
|
|
706 |
|
|
761 |
|
|
1,376 |
|
|
1,419 |
|
Administration |
|
|
2,075 |
|
|
1,451 |
|
|
3,622 |
|
|
2,796 |
|
Class action provision |
|
|
|
|
|
775 |
|
|
|
|
|
775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
3,919 |
|
|
4,147 |
|
|
7,320 |
|
|
7,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
495 |
|
|
(792 |
) |
|
1,374 |
|
|
(264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(1 |
) |
|
(4 |
) |
|
(2 |
) |
|
(7 |
) |
Interest expense |
|
|
16 |
|
|
4 |
|
|
25 |
|
|
9 |
|
Other (income) expense, net |
|
|
3 |
|
|
(64 |
) |
|
41 |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
|
18 |
|
|
(64 |
) |
|
64 |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
477 |
|
|
(728 |
) |
|
1,310 |
|
|
(209 |
) |
Income tax expense (benefit) |
|
|
253 |
|
|
(296 |
) |
|
442 |
|
|
(172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
224 |
|
$ |
(432 |
) |
$ |
868 |
|
$ |
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic |
|
$ |
0.03 |
|
$ |
(0.06 |
) |
$ |
0.12 |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in per share calculation basic |
|
|
7,293,187 |
|
|
7,273,320 |
|
|
7,291,638 |
|
|
7,272,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share diluted |
|
$ |
0.03 |
|
$ |
(0.06 |
) |
$ |
0.12 |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in per share calculation diluted |
|
|
7,465,390 |
|
|
7,273,320 |
|
|
7,452,047 |
|
|
7,272,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
2
Williams Controls, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
||||
|
|
|
|
||||
|
|
2011 |
|
2010 |
|
||
|
|
|
|
|
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
868 |
|
$ |
(37 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,109 |
|
|
1,055 |
|
Deferred income taxes |
|
|
(26 |
) |
|
(31 |
) |
Stock-based compensation |
|
|
421 |
|
|
294 |
|
Gain from sale and disposal of property, plant and equipment |
|
|
|
|
|
(10 |
) |
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
Receivables, net |
|
|
(956 |
) |
|
(1,736 |
) |
Inventories |
|
|
(1,147 |
) |
|
(20 |
) |
Prepaid expenses and other current assets |
|
|
(493 |
) |
|
(303 |
) |
Accounts payable and accrued expenses |
|
|
(961 |
) |
|
1,956 |
|
Other |
|
|
(280 |
) |
|
116 |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(1,465 |
) |
|
1,284 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(1,662 |
) |
|
(998 |
) |
Proceeds from sale of property, plant and equipment |
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,662 |
) |
|
(981 |
) |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Borrowings on revolving loan facility |
|
|
1,240 |
|
|
|
|
Net proceeds from exercise of stock options |
|
|
29 |
|
|
12 |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,269 |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(1,858 |
) |
|
315 |
|
Cash and cash equivalents at beginning of period |
|
|
3,016 |
|
|
9,245 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
1,158 |
|
$ |
9,560 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
723 |
|
$ |
261 |
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
3
Williams Controls, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
Three and Six Months ended March 31, 2011 and 2010
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Note 1. Organization and Basis of Presentation
Williams Controls, Inc., including its wholly-owned subsidiaries as follows, are hereinafter referred to as the Company, Registrant, we, our, or us.
The following are the Companys active wholly-owned subsidiaries: Williams Controls Industries, Inc.; Williams (Suzhou) Controls Co. Ltd.; Williams Controls Europe GmbH; and Williams Controls India Private Limited.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended September 30, 2010. The results of operations for the three and six months ended March 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions, based upon all know facts and circumstances, that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of issuance of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from these estimates. Estimates are used in accounting for, among other things, allowance for doubtful accounts, excess and obsolete inventory, useful lives for depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, pension and post-retirement medical benefit obligations, product warranty, share-based compensation expense, income taxes and commitments and contingencies.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Note 2. Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less. At March 31, 2011, approximately 14% of the Companys cash and cash equivalents were held with one major financial institution in the United States with the remainder held in foreign banks or foreign currency denominated accounts. The Company maintains cash balances in bank accounts that normally exceed FDIC insured limits. As of March 31, 2011, cash and cash equivalents held in the United States did not exceed federally insured limits. The Company has not experienced any losses related to its cash concentration.
Note 3. Trade Accounts Receivable
Trade accounts receivable are presented net of an allowance for doubtful accounts of $173 and $150 at March 31, 2011 and September 30, 2010, respectively. Activity related to the allowance for doubtful accounts for the six months ended March 31, 2011 and the full year ended September 30, 2010 consisted of the following:
4
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
|
||
|
|
|
|
|
|
||
Beginning balance |
|
$ |
150 |
|
$ |
246 |
|
Charges to bad debt expense |
|
|
38 |
|
|
69 |
|
Write-offs, recoveries and adjustments |
|
|
(15 |
) |
|
(165 |
) |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
173 |
|
$ |
150 |
|
|
|
|
|
|
|
|
|
Note 4. Inventories
Inventories, net of reserves, consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
|
||
|
|
|
|
|
|
||
Raw materials |
|
$ |
6,494 |
|
$ |
5,767 |
|
Work in process |
|
|
60 |
|
|
55 |
|
Finished goods |
|
|
2,105 |
|
|
1,690 |
|
|
|
|
|
|
|
|
|
|
|
$ |
8,659 |
|
$ |
7,512 |
|
|
|
|
|
|
|
|
|
Note 5. Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
|
||
|
|
|
|
|
|
||
Environmental liability |
|
$ |
873 |
|
$ |
900 |
|
Accrued product warranty |
|
|
1,139 |
|
|
1,578 |
|
Accrued compensation and benefits |
|
|
1,759 |
|
|
1,962 |
|
Income tax payable |
|
|
268 |
|
|
522 |
|
Other |
|
|
906 |
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
$ |
4,945 |
|
$ |
5,698 |
|
|
|
|
|
|
|
|
|
For further discussion related to the Companys environmental liability and product warranty liability, refer to Notes 13 and 6, respectively.
Note 6. Product Warranties
The Company establishes a product warranty liability based on a percentage of product sales. The liability is based on historical return rates of products and amounts for significant and specific warranty issues, and is included in accrued expenses in the accompanying condensed consolidated balance sheets. Warranty is limited to a specified time period, mileage or hours of use, and varies by product, application and customer. The Company has recorded a liability, which in the opinion of management, is adequate to cover such warranty costs. Warranty payments can vary significantly from year to year depending on the timing of the settlement of warranty claims with various customers. Following is a reconciliation of the changes in the Companys warranty liability for the six months ended March 31, 2011 and the year ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
|
||
|
|
|
|
|
|
||
Beginning balance |
|
$ |
1,578 |
|
$ |
751 |
|
|
|
|
|
|
|
|
|
Payments |
|
|
(787 |
) |
|
(557 |
) |
Additional accruals |
|
|
348 |
|
|
1,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
1,139 |
|
$ |
1,578 |
|
|
|
|
|
|
|
|
|
The increase in payments during the six months ended March 31, 2011 primarily relates to warranty claim payments related to one customer, which were accrued during fiscal 2010.
5
Note 7. Debt
In June 2010, the Company entered into a revolving loan facility with U.S. Bank, which matures on June 30, 2012. As of March 31, 2011, our balance on the revolving loan facility is $1,000. In January 2011, the Company became a guarantor for its subsidiary in India for a one year line of credit of up to $584, of which $240 was outstanding as of March 31, 2011. This guarantee reduces the Companys borrowing capacity under the revolving loan with U.S. Bank by the same amount.
The revolving loan facility provides for $8,000 in borrowing capacity and is secured by substantially all the assets of the Company. Borrowings under the revolving loan facility are subject to a borrowing base equal to 75% of eligible accounts receivables and 50% of eligible inventories. Interest rates under the new agreement are based on the election of the Company of either a LIBOR rate or at Prime rate. Under the LIBOR rate option, the revolving loan facility will bear interest at the LIBOR rate plus 2.25% per annum for borrowings under the revolving loan facility. Fees under the loan agreement include an unused line fee of 0.15% per annum on the unused portion of the revolving loan facility. The Company is subject to a specific quarterly financial covenant under the revolving loan facility and as of March 31, 2011, the Company was in compliance with such covenant.
The Company had available under its revolving credit facility $5,298 at March 31, 2011.
Note 8. Comprehensive Income (Loss)
The following table summarizes the components of comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
224 |
|
$ |
(432 |
) |
$ |
868 |
|
$ |
(37 |
) |
Translation adjustment |
|
|
34 |
|
|
|
|
|
77 |
|
|
|
|
Change in unrealized gain |
|
|
|
|
|
30 |
|
|
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
258 |
|
$ |
(402 |
) |
$ |
945 |
|
$ |
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. Earnings Per Share
Basic EPS is based on the weighted-average number of common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares outstanding and the dilutive impact of common equivalent shares outstanding.
Following is a reconciliation of basic EPS and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
Income |
|
Shares |
|
Per Share Amount |
|
Loss |
|
Shares |
|
Per Share Amount |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|||||||||||||||||||
Basic EPS |
|
$ |
224 |
|
|
7,293,187 |
|
$ |
0.03 |
|
$ |
(432 |
) |
|
7,273,320 |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options & restricted stock |
|
|
|
|
|
172,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Diluted EPS |
|
$ |
224 |
|
|
7,465,390 |
|
$ |
0.03 |
|
$ |
(432 |
) |
|
7,273,320 |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
Six Months |
|
||||||||||||
|
|
|
|
|
|
||||||||||||
|
|
Income |
|
Shares |
|
Per Share |
|
Loss |
|
Shares |
|
Per Share |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
868 |
|
7,291,638 |
|
$ |
0.12 |
|
$ |
(37 |
) |
7,272,180 |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities Stock options & restricted stock |
|
|
|
|
160,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
868 |
|
7,452,047 |
|
$ |
0.12 |
|
$ |
(37 |
) |
7,272,180 |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended March 31, 2011, the Company had options and restricted stock covering 242,318 and 272,518 shares that were not considered in the dilutive EPS calculation since they would have been antidilutive. For the three and six months ended March 31, 2010, the Company had options covering 805,392 shares not considered in the dilutive EPS calculation since they would have been antidilutive.
Note 10. Fair Value Measurement
Financial assets and liabilities recorded at fair value in the consolidated balance sheet are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:
|
|
|
|
Level 1 |
observable inputs such as quoted prices in active markets for identical assets or liabilities; |
|
|
|
|
Level 2 |
inputs, other than the quoted market prices in active markets, which are observable, either directly or indirectly; and |
|
|
|
|
Level 3 |
unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions. |
As of March 31, 2011, the Company had cash and cash equivalents of $1,158 that were measured based on a level 1 fair value basis. There were no assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2011.
Note 11. Employee Benefit Plans
Pension Plans
Disclosures regarding the components of net periodic benefit cost and contributions of pension plans are required for interim financial statement purposes and are included below:
Components of Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaried Employees Plan |
|
||||||||||
|
|
|
|
||||||||||
|
|
Three
Months |
|
Six Months |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest cost |
|
$ |
66 |
|
$ |
70 |
|
$ |
132 |
|
$ |
140 |
|
Expected return on plan assets |
|
|
(51 |
) |
|
(55 |
) |
|
(102 |
) |
|
(110 |
) |
Amortization of loss |
|
|
34 |
|
|
33 |
|
|
68 |
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
49 |
|
$ |
48 |
|
$ |
98 |
|
$ |
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hourly Employees Plan |
|
||||||||||
|
|
|
|
||||||||||
|
|
Three
Months |
|
Six Months |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
13 |
|
$ |
12 |
|
$ |
26 |
|
$ |
24 |
|
Interest cost |
|
|
120 |
|
|
122 |
|
|
240 |
|
|
244 |
|
Expected return on plan assets |
|
|
(81 |
) |
|
(87 |
) |
|
(162 |
) |
|
(174 |
) |
Amortization of prior service cost |
|
|
3 |
|
|
3 |
|
|
6 |
|
|
6 |
|
Amortization of loss |
|
|
50 |
|
|
45 |
|
|
100 |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
105 |
|
$ |
95 |
|
$ |
210 |
|
$ |
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended March 31, 2011 and 2010, the Company contributed $614 and $142, respectively, to the pension plans. The Company expects total contributions to its pension plans for the remainder of fiscal 2011 to be $429.
Post Retirement Medical Plan
Disclosures regarding the components of net periodic benefit cost and contributions of the Companys post-retirement medical plan are required for interim financial statements and are included below. The Company did not make any contributions to the post-retirement plan for the six months ended March 31, 2011 and 2010.
Components of Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Plan |
|
||||||||||
|
|
|
|
||||||||||
|
|
Three
Months |
|
Six Months |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest cost |
|
$ |
31 |
|
$ |
37 |
|
$ |
62 |
|
$ |
74 |
|
Amortization |
|
|
(27 |
) |
|
(25 |
) |
|
(54 |
) |
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
4 |
|
$ |
12 |
|
$ |
8 |
|
$ |
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Income Taxes
The Companys unrecognized tax benefits remained unchanged during the six months ended March 31, 2011. The Company believes that it is reasonably possible that unrecognized tax benefits could decrease by $69 within the 12 months of this reporting date.
The Companys subsidiary in China is entitled to a five-year tax holiday, pursuant to which it was exempted from paying the enterprise income tax for calendar year 2007, the year in which it first had positive earnings, and calendar year 2008. Additionally, the Company is eligible for reduced enterprise income tax rates of 10%, 11% and 12% for the calendar years 2009, 2010 and 2011, respectively. The income tax benefit of the tax holiday for the six months ended March 31, 2011 and March 31, 2010 were $98 and $209, respectively. The per share effect of the tax holiday on a fully diluted basis for the same periods were $0.01 and $0.03, respectively.
Note 13. Commitments and Contingencies
The Company and its subsidiaries are parties to various pending judicial and administrative proceedings arising in the ordinary course of business. The Companys 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 Companys insurance coverage, and the Companys established liabilities. While the outcome of the pending proceedings cannot be predicted with certainty, based on its review, the Company believes that any unrecorded liability that may result is not more than likely to have a material effect on the Companys liquidity, financial condition or results of operations.
The soil and groundwater at the Companys Portland, Oregon facility contains certain contaminants, which were deposited from approximately 1968 through 1995. Some of this contamination has migrated offsite to neighboring properties. The Company has retained an environmental consulting firm to investigate the extent of the contamination and to determine what remediation will be required and the associated costs. During fiscal 2004, the Company entered into the Oregon Department of Environmental Qualitys voluntary clean-up program. As of March 31, 2011, the total
8
liability recorded is $873 and is recorded in accrued expenses in the accompanying condensed consolidated balance sheet.
During the second quarter of fiscal 2011, the Company entered into a complete and final settlement agreement regarding a lawsuit brought by a former Chief Executive Officer of the Company. The total cost of the settlement was $250 and consisted of a cash payment of $200 and issuance of 4,613 shares of common stock. The stock was issued and payment was made during the third quarter of fiscal 2011. The impact of this settlement on the fiscal 2011 condensed consolidated statement of operations is approximately $100.
Note 14. Share Based Compensation
The Company currently has two qualified stock plans: the 2010 Restated Stock Option Plan (the Employee Plan) and the 2010 Restated Formula Stock Option Plan for non-employee Directors (the Formula Plan). Under the terms of the Employee Plan, the Company may grant incentive stock options, non-qualified options, both of which must have an exercise price of not less than the fair market value on the date of grant, or restricted stock. Under the terms of the Formula plan, non-employee directors are each automatically granted 1,666 options at a price equal to the market value on the date of grant, which is the date of the Annual Meeting of Stockholders each year.
Stock Options
Information regarding outstanding stock options as of March 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Weighted |
|
Weighted
Average |
|
Aggregate |
||
|
|
|
|
|
|
|
|
|
||
Outstanding at September 30, 2010 |
|
874,777 |
|
$ |
9.17 |
|
6.5 years |
|
$ |
1,342 |
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
9,996 |
|
|
11.11 |
|
|
|
|
|
Exercised |
|
(3,564 |
) |
|
8.00 |
|
|
|
|
|
Cancelled/Forfeited |
|
(21,176 |
) |
|
12.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
860,033 |
|
$ |
9.13 |
|
6.0 years |
|
$ |
2,586 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011 |
|
595,350 |
|
$ |
8.68 |
|
4.9 years |
|
$ |
2,067 |
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents pre-tax intrinsic value that would have been realized if all options had been exercised on the last business day of the period indicated, based on the Companys closing stock price on that day. The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2010 was $865 and $835, respectively. The intrinsic value of all stock options exercised during the three and six months ended March 31, 2011 was $9 and the cash received from these exercises was $29. The intrinsic value of all stock options exercised during the three and six months ended March 31, 2010 was $8 and the cash received from these exercises was $12.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants issued during the three and six months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||
|
|
|
|
|
|
||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Expected term |
|
7.4 years |
|
6.4 years |
|
7.4 years |
|
6.5 years |
|
Expected volatility |
|
45 |
% |
45 |
% |
45 |
% |
46 |
% |
Risk-free interest rate |
|
2.91 |
% |
2.93 |
% |
2.91 |
% |
2.86 |
% |
Expected dividend yield |
|
4.32 |
% |
0 |
% |
4.32 |
% |
0 |
% |
Estimated average fair value per option granted |
|
$3.48 |
|
$3.87 |
|
$3.48 |
|
$4.10 |
|
9
Restricted Stock
Information regarding outstanding restricted stock awards as of March 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
Shares |
|
Weighted |
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
|
$ |
|
|
Granted |
|
58,400 |
|
|
11.08 |
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
58,400 |
|
$ |
11.08 |
|
|
|
|
|
|
|
|
Vested at March 31, 2011 |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
During the six months ended March 31, 2011, the Company issued 58,400 restricted shares to employees under the Employee Plan. These restricted shares vest over a four year period from the date of grant. No restricted stock was issued during the six months ended March 31, 2010.
Expense Information
The Companys share-based compensation expenses were recorded in the following expense categories for the three and six months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months |
|
Six Months |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales |
|
$ |
100 |
|
$ |
29 |
|
$ |
134 |
|
$ |
57 |
|
Research and development |
|
|
29 |
|
|
26 |
|
|
62 |
|
|
50 |
|
Selling |
|
|
23 |
|
|
17 |
|
|
44 |
|
|
33 |
|
Administration |
|
|
100 |
|
|
85 |
|
|
181 |
|
|
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
252 |
|
$ |
157 |
|
$ |
421 |
|
$ |
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense (net of tax) |
|
$ |
224 |
|
$ |
139 |
|
$ |
372 |
|
$ |
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, there was $1,208 of total unrecognized compensation costs related to non-vested stock options and $551 related to non-vested restricted stock. The unrecognized compensation costs are expected to be recognized over a weighted average period of 2.7 years for non-vested stock options and 3.8 years for non-vested restricted stock.
Note 15. Enterprise-wide Information
During the three and six months ended March 31, 2011 and 2010, the Company operated in two geographic reportable regions as shown in the table below.
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months |
|
Six Months |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue External Customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
14,100 |
|
$ |
11,888 |
|
$ |
26,795 |
|
$ |
23,033 |
|
China |
|
|
686 |
|
|
761 |
|
|
1,540 |
|
|
1,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,786 |
|
$ |
12,649 |
|
$ |
28,335 |
|
$ |
24,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Intersegments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
250 |
|
$ |
268 |
|
$ |
440 |
|
$ |
506 |
|
China |
|
|
3,628 |
|
|
2,683 |
|
|
7,472 |
|
|
5,300 |
|
Other |
|
|
131 |
|
|
207 |
|
|
261 |
|
|
397 |
|
Eliminations |
|
|
(4,009 |
) |
|
(3,158 |
) |
|
(8,173 |
) |
|
(6,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
237 |
|
$ |
(1,127 |
) |
$ |
524 |
|
$ |
(765 |
) |
China |
|
|
440 |
|
|
401 |
|
|
1,105 |
|
|
549 |
|
Other |
|
|
(200 |
) |
|
(2 |
) |
|
(319 |
) |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
477 |
|
$ |
(728 |
) |
$ |
1,310 |
|
$ |
(209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16. Subsequent Events
On February 24, 2011, the Company announced that its Board of Directors had initiated a cash dividend policy and authorized a dividend of $0.12 per outstanding share of the Companys common stock payable on May 12, 2011 to stockholders of record as of May 2, 2011. The total dividend payment is $883 and has been recorded as a liability in the accompanying condensed consolidation balance sheet as of March 31, 2011.
11
Williams Controls, Inc.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations |
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include all statements other than those that expressly connote an assertion of historical fact. Among others, this report includes forward looking statements that describe our plans and intentions regarding future courses of action and the possible outcomes of those intentions, and that set forth our expectations regarding our prospective financial condition, results of operations, and cash flows. Forward-looking statements can sometimes be identified by the use of forward-looking terminology, such as may, will, should, expect, anticipate, estimate, continue, plans, and intends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are subject to risks and uncertainties that could cause us to deviate from our current plans, and could cause our actual results to differ materially from those indicated by the forward-looking statements. Some of the known factors that could cause us to deviate from current plans or could cause our results to fall short of expectations include: our ability to maintain positive relationships with key customers; the concentration of our sales revenues among a limited number of large customers; our status as a component manufacturer and the resulting impact on our revenues of demand for vehicles and equipment in which our products are installed; the effect of products liability lawsuits that directly affect us and that indirectly impact us because of their effect on the automotive and equipment industries generally; the impact of foreign currency exchange rates on our gross income; the impact of federal monetary and trade policies that impact the market for our products; and the status of our relationships with our employees and organized labor force. These risks and uncertainties are beyond our control and, in many cases; we cannot predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. Some of the factors that may cause our actual results in future periods to differ materially from those currently expected or desired because of a number of risks and uncertainties include, but are not limited to, those risks discussed in the section entitled Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.
The forward-looking statements are made as of the date hereof, and, except as otherwise required by law, we cannot undertake to update or revise these statements.
Overview
We design, manufacture and sell electronic throttle controls, pneumatic controls and electronic sensors for heavy trucks, transit busses and off-road equipment. Electronic throttle controls send a signal proportional to throttle position to adjust the speed of electronically controlled engines. The use of electronically controlled engines is influenced primarily by emissions regulations, because these engines generally produce lower emissions. The original applications of electronic engines and electronic throttle controls were in heavy trucks and transit busses in the United States and Europe in the late 1980s. As a result of the continuing implementation of more stringent emissions standards worldwide, demand for electronically controlled engines and electronic throttle control systems is expanding both geographically and into lower horsepower engines. China, India and Russia are implementing more stringent emissions standards for heavy trucks and transit busses, which we believe will increase the penetration of electronic throttle controls worldwide. Additionally, countries around the world have adopted emissions regulations that we expect will continue to increase the use of electronic throttle controls in off-road equipment. We also produce pneumatic controls and electronic hand controls, which are generally sold to the same customer base as our electronic throttle controls. These pneumatic products are used for vehicle control system applications such as power take-offs, or PTOs, and air-control applications. We believe that the demand for our products will be driven primarily by emissions legislation and treaties, and by the economic cycles for heavy trucks, transit busses and off-road equipment.
As we move forward in fiscal 2011 and beyond, we plan to continue to work closely with our existing and potential customers to design and develop new products and adapt existing products to new applications, and to improve the performance, reliability and cost-effectiveness of our products.
12
Critical Accounting Policies and Estimates
Managements discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales, cost of sales and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the Companys significant accounting policies as described in the Companys Annual Report on Form 10-K for the year ended September 30, 2010.
There have been no recent accounting pronouncements expected to have a material impact on the Companys financial condition, results of operations or cash flows.
Results
of Operations
Financial Summary
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months |
|
Six Months |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
2011 |
|
2010 |
|
Percent |
|
2011 |
|
2010 |
|
Percent |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales |
|
$ |
14,786 |
|
$ |
12,649 |
|
|
16.9 |
% |
$ |
28,335 |
|
$ |
24,358 |
|
|
16.3 |
% |
Cost of sales |
|
|
10,372 |
|
|
9,294 |
|
|
11.6 |
% |
|
19,641 |
|
|
17,416 |
|
|
12.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
4,414 |
|
|
3,355 |
|
|
31.6 |
% |
|
8,694 |
|
|
6,942 |
|
|
25.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,138 |
|
|
1,160 |
|
|
(1.9 |
)% |
|
2,322 |
|
|
2,216 |
|
|
4.8 |
% |
Selling |
|
|
706 |
|
|
761 |
|
|
(7.2 |
)% |
|
1,376 |
|
|
1,419 |
|
|
(3.0 |
)% |
Administration |
|
|
2,075 |
|
|
1,451 |
|
|
43.0 |
% |
|
3,622 |
|
|
2,796 |
|
|
29.5 |
% |
Class action provision |
|
|
|
|
|
775 |
|
|
NM |
|
|
|
|
|
775 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
495 |
|
$ |
(792 |
) |
|
162.5 |
% |
$ |
1,374 |
|
$ |
(264 |
) |
|
620.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
70.1 |
% |
|
73.5 |
% |
|
|
|
|
69.3 |
% |
|
71.5 |
% |
|
|
|
Gross margin |
|
|
29.9 |
% |
|
26.5 |
% |
|
|
|
|
30.7 |
% |
|
28.5 |
% |
|
|
|
Research and development |
|
|
7.7 |
% |
|
9.2 |
% |
|
|
|
|
8.2 |
% |
|
9.1 |
% |
|
|
|
Selling |
|
|
4.8 |
% |
|
6.0 |
% |
|
|
|
|
4.9 |
% |
|
5.8 |
% |
|
|
|
Administration |
|
|
14.0 |
% |
|
11.5 |
% |
|
|
|
|
12.8 |
% |
|
11.5 |
% |
|
|
|
Class action provision |
|
|
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
3.2 |
% |
|
|
|
Operating income (loss) |
|
|
3.3 |
% |
|
(6.3 |
)% |
|
|
|
|
4.8 |
% |
|
(1.1 |
)% |
|
|
|
NM = Not Meaningful
Net sales increased to $14,786 for the second quarter of fiscal 2011, up 16.9% compared to the second quarter of fiscal 2010 and up 9.1% compared to the first quarter of fiscal 2011. Although we have continued to see improvement from our low point in the third fiscal quarter of 2009, the heavy truck industry is still significantly below levels prior to the economic downturn, and as a result, our first six months annualized sales run rate was approximately 14% below fiscal 2008 sales levels. While we continue to closely monitor all of our costs, we remain committed to spending on new product development and technology for existing and new customers. Although no assurances can be given, management believes that it is likely that our $1,158 in cash plus available borrowing of $5,298 under our revolving loan facility will be adequate to sustain the Company throughout the fiscal year.
13
|
Comparative Three months ended March 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
14,786 |
|
$ |
12,649 |
|
|
16.9% |
|
Net sales increased $2,137 in the second quarter of fiscal 2011 compared to the second quarter of fiscal 2010. The increase in sales results from volume increases primarily in the European and NAFTA truck markets. European truck sales increased 107% over the prior year second quarter primarily due to our European customers continuing to increase their heavy truck and off-road build rates. In addition, European sales were low during the second quarter of fiscal 2010 as these customers were working through high inventory levels from fiscal 2009. NAFTA truck sales increased 37% when compared to the second quarter of fiscal 2010 due to continued improvements in the economic environment. Asian truck sales were down 6% primarily due to timing of customer orders, whereas sales to Asian off-road customers increased 41% when compared to the second quarter of fiscal 2010. Worldwide off-road sales increased 9% for the quarter ended March 31, 2011; however, sales related to specific military applications declined approximately 50% during the second quarter of fiscal 2011 as compared to the prior year second quarter as two prominent military programs have been completed and one replacement program has yet to be started.
We expect that electronic throttle control sales generally will continue to vary directly with future changes in the overall economy and the demand for heavy trucks, transit buses and off-road vehicles in particular. These variations are largely dependent upon, and are expected to vary directly with, production volumes in the various geographic markets in which we serve. Additionally, competitive pricing may reduce margins and gross sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Cost of sales |
|
$ |
10,372 |
|
$ |
9,294 |
|
|
11.6% |
|
The types of expenses included in cost of sales include raw materials, freight and duties, warranty, wages and benefits, depreciation and amortization, production utilities, shipping and production supplies, repairs and maintenance, production facility property insurance, and other production overhead. As a percent of sales, cost of sales decreased primarily due to higher sales volumes to distribute fixed overhead costs. Although sales volumes increased, freight and duty costs decreased slightly on a quarter over quarter basis. Purchased component costs were lower for certain components in the second quarter of fiscal 2011 as production volumes continue to increase for recently introduced new products. Warranty costs decreased $308 quarter over quarter as the second quarter of fiscal 2010 included higher warranty costs related to warranty claims with one customer. As sales volumes continue to improve from the lows experienced in fiscal 2009, we are selectively adding to our manufacturing support staff to accommodate the higher volumes. This decision resulted in overhead wage expenses increasing $113 in the second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010. In addition, the second quarter of fiscal 2011 included higher stock option expense of $71 and costs associated with our India manufacturing facility which was opened during the third quarter of fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Gross profit |
|
$ |
4,414 |
|
$ |
3,355 |
|
|
31.6% |
|
Gross profit was $4,414, or 29.9% of net sales in the second quarter of fiscal 2011, an increase of $1,059 compared to the gross profit of $3,355, or 26.5% of net sales, in the comparable fiscal 2010 period.
The increase in gross profit in the second quarter of fiscal 2011 is primarily driven by the 17% net increase in sales of electronic throttle systems to our heavy truck, bus and off-road customers. When comparing the second quarter of fiscal 2011 with the comparable period in fiscal 2010, manufacturing overhead costs increased in actual dollar value; however, were improved as a percent of sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
1,138 |
|
$ |
1,160 |
|
|
(1.9)% |
|
Research and development expenses were essentially unchanged when compared to the comparable period in fiscal 2010. The Companys research and development expenditures generally will fluctuate based on the programs and products under development at any given point in time and that fluctuation often does not necessarily coincide with
14
sales cycles. Overall, we expect research and development expenses to increase slightly over fiscal 2010 levels due to continued efforts to design new products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Selling |
|
$ |
706 |
|
$ |
761 |
|
|
(7.2)% |
|
Selling expenses decreased $55 when compared with the same period in fiscal 2010. The decrease in selling expenses is primarily driven by a reduction in wage expenses in our European sales office.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Administration |
|
$ |
2,075 |
|
$ |
1,451 |
|
|
43.0% |
|
Administration expenses increased $624 for the second quarter of fiscal 2011 when compared to the second quarter of fiscal 2010. Administration expenses in the second quarter of fiscal 2011 include $204 in legal fees associated with settlement of an old outstanding claim against the Company by a former employee, whereas the second quarter of fiscal 2010 includes $136 in legal fees associated with the Cuesta class action lawsuit, which was settled in the fourth quarter of fiscal 2010. In the current quarter, administration expenses included $248 related to a potential acquisition that the Company considered but ultimately terminated during due diligence in the second quarter of fiscal 2011, as well as costs associated with our India facility which was opened during the third quarter of fiscal 2010. As sales volumes continue to improve, we are filling positions left vacant during the economic downturn experienced in late 2009 through 2010 resulting in administration wage expenses increasing $53 in the second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Class action provision |
|
$ |
|
|
$ |
775 |
|
|
NM |
|
During the second quarter of fiscal 2010, the Company recorded a $775 liability which represented the Companys best estimate at that time of the ultimate liability related to the Cuesta class action lawsuit discussed in Note 13 to our unaudited condensed consolidated financial statements. During the fourth quarter of fiscal 2010, the $775 was paid for full settlement and release of any future obligations related to this lawsuit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Other (income) expense |
|
$ |
3 |
|
$ |
(64 |
) |
|
NM |
|
Other expense was $3 in the second quarter of fiscal 2011, compared to other income of $64 in the second quarter of fiscal 2010, which solely consisted of a gain from the extinguishment of old outstanding accounts payable balances of various insolvent subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Income tax (benefit) expense |
|
$ |
253 |
|
$ |
(296 |
) |
|
185.5% |
|
Income tax (benefit) expense reflects an effective tax rate of 53.0% for the quarter ended March 31, 2011 compared to an effective tax rate of 40.7% for the quarter ended March 31, 2010. The effective tax rate fluctuations are primarily due to the jurisdictions in which pretax income (loss) is being earned and income tax rate differences between the domestic and foreign jurisdictions. The increase in the tax rate from 2010 to 2011 is also due to the recognition of a valuation allowance against the Companys Indian subsidiarys deferred tax assets during the quarter ended March 31, 2011, that the Company determined did not meet the more-likely-than-not recognition threshold.
The income tax (benefit) expense was positively affected by $52 and $124 as a result of a tax holiday in the Peoples Republic of China during the three months ended March 31, 2011 and March 31, 2010, respectively.
15
|
|
Comparative Six months ended March 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
28,335 |
|
$ |
24,358 |
|
|
16.3% |
|
Net sales increased $3,977 in the first six months of fiscal 2011 compared to the first six months of fiscal 2010. The increase in sales results from volume increases in essentially all of the Companys principal markets. Each market benefitted from the general increase in the condition of the global economy.
Overall net sales to customers in Asia increased 23% over the prior year period primarily due to increased sales volumes of heavy trucks and off-road vehicles. European truck sales were up 79% over the same period in fiscal 2010 due to our European customers increasing their heavy truck build rates. In addition, European truck sales were low during the first six months of fiscal 2010 as these customers were working through the build up of inventory levels experienced in fiscal 2009. NAFTA truck sales were up 24% when compared to the first six months of fiscal 2010 due to general improvements in the economic environment. Various industry forecasts indicate that truck sales volumes in NAFTA may continue to increase due to the economic recovery and the overall advanced age of the NAFTA truck fleet. Lastly, worldwide off-road sales were up 12% for the first six months ended March 31, 2011. The largest impact of this increase in off-road sales was seen in the Asian and European markets, whereas in the NAFTA off-road market, sales related to specific military applications decreased approximately 50% as two prominent military programs have been completed and one replacement program has yet to be started.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Cost of sales |
|
$ |
19,641 |
|
$ |
17,416 |
|
|
12.8% |
|
The types of expenses included in cost of sales include raw materials, freight and duties, warranty, wages and benefits, depreciation and amortization, production utilities, shipping and production supplies, repairs and maintenance, production facility property insurance, and other production overhead. As a percent of sales, cost of sales decreased primarily due to higher sales volumes to distribute fixed overhead costs. Although sales volumes increased, freight and duty costs decreased slightly between periods. Purchase component costs were lower for certain components in the first six months of fiscal 2011 and production volumes continue to increase for recently introduced new products. Warranty costs decreased $375 when comparing the first six months of fiscal 2011 and 2010, as the first six months of fiscal 2010 included higher warranty costs related to warranty claims with one customer. As sales volumes continue to improve from the lows experienced in fiscal 2009, we are selectively adding to our manufacturing support staff to accommodate the higher volumes resulting in overhead wage and benefit expenses increasing $249 in the first six months of fiscal 2011 as compared to the first six months of fiscal 2010. In addition, the first six months of fiscal 2011 included higher stock option expense of $76 and costs associated with our India manufacturing facility which was opened during the third quarter of fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Gross profit |
|
$ |
8,694 |
|
$ |
6,942 |
|
|
25.2% |
|
Gross profit was $8,694, or 30.7% of net sales in the first six months of 2011, an increase of $1,752 compared to gross profit of $6,942, or 28.5% of net sales, in the comparable fiscal 2010 period.
The increase in gross profit in the first six months of fiscal 2010 is primarily driven by the 16% net increase in sales of electronic throttle systems to our heavy truck, bus and off-road customers. When comparing the first six months of fiscal 2011 with the comparable period in fiscal 2010, manufacturing overhead costs increased in actual dollar value; however, were improved as a percent of sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
2,322 |
|
$ |
2,216 |
|
|
4.8% |
|
16
Research and development expenses increased $106 during the first six months of fiscal 2011 when compared to the first six months of fiscal 2010. The Companys research and development expenditures will fluctuate based on the products under development at any given point in time and that fluctuation often does not necessarily coincide with sales cycles. Research and development expenses have increased as we continue to have a record number of engineering projects under development and to meet the higher demand; we have added three additional engineers who are working on customer specific projects. Overall, we expect research and development expenses to increase slightly over fiscal 2010 levels due to additional new product design projects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|||
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Selling |
|
$ |
1,376 |
|
$ |
1,419 |
|
|
(3.0)% |
|
Selling expenses decreased $43 during the six months ended March 31, 2011 as compared with the six months ended March 31, 2010 mainly due to reduction in wage expenses in our European sales office.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|||
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Administration |
|
$ |
3,622 |
|
$ |
2,796 |
|
|
29.5% |
|
Administration expenses for the first six months of fiscal 2011 increased $826 when compared with the same period in fiscal 2010. Administration expenses in the first six months of fiscal 2011 include $219 in legal fees associated with settlement of an old outstanding claim against the Company by a former employee, whereas the first six months of fiscal 2010 includes $380 in legal fees associated with the Cuesta class action lawsuit, which was settled in the fourth quarter of fiscal 2010. In the first six months of fiscal 2011, administration expenses included $409 related to a potential acquisition that the Company considered but ultimately decided to terminate during due diligence, as well as costs associated with our India facility which was opened during the third quarter of fiscal 2010. As sales volumes continue to improve, we are filling positions left vacant during the economic downturn experienced in late 2009 through 2010 resulting in administration wage expenses increasing $134 in the first six months of fiscal 2011 as compared to the same period in fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|||
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Class action provision |
|
$ |
|
|
$ |
775 |
|
|
NM |
|
During the second quarter of fiscal 2010, the Company recorded a $775 liability which represents the Companys best estimate of the ultimate liability related to the Cuesta class action lawsuit discussed in Note 13 to our unaudited condensed consolidated financial statements. During the fourth quarter of fiscal 2010, the $775 was paid for full settlement and release of any future obligations related to this lawsuit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|||
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Other (income) expense |
|
$ |
41 |
|
$ |
(57 |
) |
|
171.9% |
|
Other expense was $41 in the first six months of fiscal 2011, compared to other income of $57 in the first six months of fiscal 2010. Other income in the first six months of fiscal 2010 consisted of a $64 gain from the extinguishment of old outstanding accounts payable balances of various insolvent subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|||
For the Six Months Ended March 31: |
|
2011 |
|
2010 |
|
2010 to 2011 |
|
|||
|
|
|
|
|
|
|
|
|||
Income tax (benefit) expense |
|
$ |
442 |
|
$ |
(172 |
) |
|
357.0% |
|
Tax (benefit) expense reflects an effective tax rate of 33.7% for the first six months of fiscal 2011 compared to an effective tax rate of 82.3% for the comparable period in fiscal 2010. The effective tax rate fluctuations are primarily due to the jurisdictions in which pretax income (loss) is being earned and income tax rate differences between the domestic and foreign jurisdictions. The decrease in the tax rate from 2010 to 2011 is also due to a discrete tax benefit recognized during the six months ended March 31, 2010 associated with the class action lawsuit, partially offset by the
17
recognition of a valuation allowance against the Companys Indian subsidiarys deferred tax assets during the six months ended March 31, 2011, that the Company determined did not meet the more-likely-than-not recognition threshold.
The income tax (benefit) expense was positively affected by $98 and $209 as a result of a tax holiday in the Peoples Republic of China during the six months ended March 31, 2011 and March 31, 2010, respectively.
Financial Condition, Liquidity and Capital Resources
At March 31, 2011, we had cash and cash equivalents of $1,158. During the third quarter of fiscal 2010 we entered into a revolving loan facility with U.S. Bank and as of March 31, 2011 we had $5,298 available under such revolving loan facility. Although no assurances can be given, we believe that our $1,158 in cash plus available borrowings of $5,298 under our revolving loan facility will be adequate to sustain the Company throughout the fiscal year.
The first six months of fiscal 2011 operating activities used cash of $1,465, whereas the first six months of fiscal 2010 generated cash from operating activities of $1,284. Net income plus non cash charges for depreciation and stock based compensation contributed $2,398 in the first six months of fiscal 2011 compared to $1,312 in the first six months of fiscal 2010.
Changes in working capital items used cash of $3,837 in the first six months of fiscal 2011 compared to a generation of cash of $13 in the first six months of fiscal 2010. Changes in receivables for the first six months of fiscal 2011 was a use of cash of $956 compared to a use of cash of $1,736 for the first six months of fiscal 2010. Changes in receivables between periods are primarily impacted by changes in sales volumes from period to period and timing of collections. Inventories increased $1,147 in the first six months of fiscal 2011 from the fourth fiscal quarter in 2010 compared to inventories remaining relatively flat in the first six months of fiscal 2010 when compared to the fourth fiscal quarter in 2009. The fiscal 2011 increase primarily relates to increasing inventory levels in line with anticipated sales volumes increases throughout fiscal 2011 as compared to fiscal 2010 and building inventories at our India facility ahead of the start of production at that facility. Accounts payable and accrued expenses decreased in the first six months of fiscal 2011 from the fourth quarter of fiscal 2010, primarily due to timing of payments on accounts payable, increased seasonal payments over the fourth fiscal quarter of 2010 and a reduction in our warranty provision of $392 related to payments to one customer for prior warranty claims. Accounts payable and accrued expenses increased in the first six months of fiscal 2010 from the fourth quarter of fiscal 2009, primarily due to increases in purchases of inventory in line with increased sales levels over those in the fourth quarter of fiscal 2009, increases in our warranty provision related to claims with one customer and the accrual of the Cuesta legal settlement, which was paid during the fourth quarter of fiscal 2010. These increases in accounts payable and accrued expenses were partially offset by reductions due to increased seasonal payments over the fourth fiscal quarter of 2009. Cash flows from operations for the six months of fiscal 2011 included payments to our pension plans of $614 compared to $142 for the first six months of fiscal 2010. We believe it is likely we will continue to generate positive cash from operations during fiscal 2011, however, depending on the continued uncertainty in the world-wide economic market, we could experience periods of negative cash flow from operations.
Cash used in investing activities was $1,662 for the first six months of fiscal 2011 and $981 for the six months ended March 31, 2010 and was comprised primarily of purchases of equipment for both periods. We expect our cash use for investing activities to increase throughout fiscal year 2011 as we continue to make purchases of capital equipment. We currently anticipate spending approximately $4,000 in capital expenditures in fiscal 2011. This is a higher capital spending level than what we experienced last year as we have a number of new projects and we are expanding our test and development facilities to handle the increased activity. In addition, with the opening of our Pune, India manufacturing facility, we will incur higher than normal capital expenditures during the year.
Cash generated from financing activities was $1,269 for the first six months of fiscal 2011 and $12 for the first six months of fiscal 2010. Cash generated for financing activities for the first six months of fiscal 2011 primarily relates to net borrowings on our revolving loan facility of $1,240 and proceeds from the exercise of stock options of $29. Cash generated from financing activities for the first six months of fiscal 2010 relates to proceeds from the exercise of stock options of $12. In the second quarter of fiscal 2011, the Company announced a quarterly dividend policy. The first dividend of $0.12 per common share under this new policy was declared in the second quarter and is payable on May 12, 2011 to stockholders of record on May 2, 2011. This policy is subject to review and adjustment by the Board of Directors and may be modified or cancelled at any time.
18
Contractual Obligations as of March 31, 2011
At March 31, 2011, our contractual obligations consisted of operating lease obligations and a license agreement. We did not have any material letters of credit, or debt guarantees outstanding at March 31, 2011. Maturities of these contractual obligations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
||||||||||
|
|
|
|
||||||||||
|
|
Total |
|
Less than
1 |
|
1 3 |
|
3 5 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating lease obligations |
|
$ |
1,256 |
|
$ |
666 |
|
$ |
590 |
|
$ |
|
|
MMT license - minimum |
|
|
|
|
|
|
|
|
|
|
|
|
|
royalties |
|
|
235 |
|
|
85 |
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,491 |
|
$ |
751 |
|
$ |
740 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain liabilities, including those related to our pension and post-retirement benefit plans, are reported in the accompanying condensed consolidated balance sheets but are not reflected in the table above due to the absence of stated maturities. We have net obligations at March 31, 2011 related to our pension plans and post-retirement medical plan of $5,969 and $2,508, respectively. We funded $614 to our pension plans during the first six months of fiscal 2011 and $142 during the first six months of fiscal 2010. We expect to make payments to our pension plans of $429 throughout the rest of fiscal 2011.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments.
Interest Rate Risk
The Company has a revolving loan facility with U.S. Bank, which expires on June 30, 2012.
As of March 31, 2011, there was an outstanding balance of $1,240 on the revolving loan. The Company does not believe a hypothetical 10% change in end of period interest rates or changes in future interest rates on these variable rate obligations would have a material effect on its financial position, results of operations, or cash flows. The Company has not hedged its exposure to interest rate fluctuations.
Foreign Currency Risk:
We sell our products to customers in the heavy truck, transit bus and off-road equipment industries. For the first six months of fiscal 2011 and 2010, the Company had foreign sales of approximately 46% and 39% of net sales, respectively. All worldwide sales in the first six months of fiscal 2011 and 2010, with the exception of $1,540 and $1,325, respectively, were denominated in U.S. dollars. We have a manufacturing facility in Suzhou, China and sales offices in Shanghai, China and Munich, Germany and during fiscal 2010; we established a manufacturing facility in Pune, India. We purchase components internationally for use in both our products whose sales are denominated in U.S. dollars and other currencies. Although the Company is expanding its international exposure, it does not believe that changes in future exchange rates would have a material effect on its financial position, results of operations, or cash flows at this time. As a result, the Company has not entered into forward exchange or option contracts for transactions to hedge against foreign currency risk. The Company will continue to assess its foreign currency risk as its international operations, international purchases and sales increase.
Investment Risk:
The Company does not use derivative financial or commodity instruments. The Companys financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term obligations. The Companys cash and cash equivalents, accounts receivable and accounts payable balances are short-term in nature, and, thus, the Company believes they are not exposed to material investment risk.
19
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There has been no change in the Companys internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
20
We are a party to various pending judicial and administrative proceedings arising in the ordinary course of business. Our management and legal counsel have reviewed the probable outcome of these proceedings, the costs and expenses reasonably expected to be incurred, the availability and limits of our insurance coverage, and our established liabilities. While the outcome of the pending proceedings cannot be predicted with certainty, based on our review, we believe that any unrecorded liability that may result is not likely to have a material effect on our liquidity, financial condition or results of operations.
During the second quarter of fiscal 2011, we entered into a complete and final settlement agreement regarding a lawsuit brought by a former Chief Executive Officer of the Company. The total cost of the settlement was $250 and consisted of a cash payment of $200 and issuance of 4,613 shares of common stock. The stock was issued and payment was made during the third quarter of fiscal 2011.
There have been no significant changes in risk factors for the quarter ended March 31, 2011. See the information set forth in the section entitled Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
None
21
|
|
|
Exhibit |
|
Description |
|
|
|
|
|
|
3.01(a) |
|
Certificate of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.01 (a) to the Registrants quarterly report on Form 10-Q for the quarter ended December 31, 2006) |
|
|
|
3.01(b) |
|
Certificate of Amendment to Certificate of Incorporation of the Registrant, dated February 27, 1995 (Incorporated by reference to Exhibit 3.01 (b) to the Registrants quarterly report on Form 10-Q for the quarter ended December 31, 2006) |
|
|
|
3.01(c) |
|
Certificate of Amendment to Certificate of Incorporation of the Registrant, dated October 28, 2004 (Incorporated by reference to Exhibit 3.01 (c) to the Registrants quarterly report on Form 10-Q for the quarter ended December 31, 2006) |
|
|
|
3.01(d) |
|
Certificate of Amendment to Certificate of Incorporation of the Registrant, dated February 22, 2005 (Incorporated by reference to Exhibit 3.01 (d) to the Registrants quarterly report on Form 10-Q for the quarter ended December 31, 2006) |
|
|
|
3.01(e) |
|
Certificate of Amendment to Certificate of Incorporation of the Registrant, dated March 2, 2006 (Incorporated by reference to Exhibit 3.01 (e) to the Registrants quarterly report on Form 10-Q for the quarter ended December 31, 2006) |
|
|
|
3.02 |
|
Restated By-Laws of the Registrant as amended July 1, 2002 (Incorporated by reference to Exhibit 3.6 to the Registrants quarterly report on Form 10-Q, Commission File No. 000-18083, for the quarter ended June 30, 2002) |
|
|
|
31.01 |
|
Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) (Filed herewith) |
|
|
|
31.02 |
|
Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) (Filed herewith) |
|
|
|
32.01 |
|
Certification of Patrick W. Cavanagh Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith) |
|
|
|
|
|
|
32.02 |
|
Certification of Dennis E. Bunday Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith) |
22
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
WILLIAMS CONTROLS, INC. |
|
|
|
|
|
Date: |
May 12, 2011 |
/s/ PATRICK W. CAVANAGH |
|
|
|
|
|
|
|
Patrick W. Cavanagh |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
Date: |
May 12, 2011 |
/s/ DENNIS E. BUNDAY |
|
|
|
|
|
|
|
Dennis E. Bunday |
|
|
|
Chief Financial Officer |
23
Exhibit 31.01
CERTIFICATION
I, Patrick W. Cavanagh, certify that:
1. I have reviewed this report on Form 10-Q of Williams Controls Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
|
|
|
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
|
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
|
|
Date: May 12, 2011 |
/s/ PATRICK W. CAVANAGH |
|
|
|
Patrick W. Cavanagh |
|
Chief Executive Officer |
Exhibit 31.02
CERTIFICATION
I, Dennis E. Bunday, certify that:
1. I have reviewed this report on Form 10-Q of Williams Controls Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
|
|
|
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|
|
|
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
|
|
Date: May 12, 2011 |
/s/ DENNIS E. BUNDAY |
|
|
|
Dennis E. Bunday |
|
Chief Financial Officer |
Exhibit 32.01
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
REQUIRED BY RULE 13a-14(b) or RULE 15d-14(b)
AND SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Williams Controls, Inc (the Company) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Patrick W. Cavanagh, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
|
|
|
|
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
|
|
/s/ PATRICK W. CAVANAGH |
|
|
|
Patrick W. Cavanagh |
|
Chief Executive Officer |
|
Williams Controls, Inc. |
|
May 12, 2011 |
Exhibit 32.02
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
REQUIRED BY RULE 13a-14(b) or RULE 15d-14(b)
AND SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002, 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Williams Controls, Inc (the Company) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dennis E. Bunday, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
|
|
|
|
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
|
|
/s/ DENNIS E. BUNDAY |
|
|
|
Dennis E. Bunday |
|
Chief Financial Officer |
|
Williams Controls, Inc. |
|
May 12, 2011 |