XASE:WMCO Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2012

 

£ 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

(Registrant's telephone number, including area code)

 

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.

Yes S  No £

 

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 S No £

 

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 £

 

Accelerated filer £

 

 

 

 

 

Non-accelerated filer £

 

Smaller reporting company S

 

1
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes £ No S

 

The number of shares outstanding of the registrant's common stock

as of July 31, 2012: 7,379,712

 

2
 

Williams Controls, Inc.

 

June 30, 2012

 

Table of Contents

 

 

 

   
 

Page

Number

Part I.  Financial Information  
   
      Item 1. Financial Statements (unaudited)  
   

Condensed Consolidated Balance Sheets, June 30, 2012 and

September 30, 2011

4
   

Condensed Consolidated Statements of Income, three and nine months

ended June 30, 2012 and 2011

5

   

Condensed Consolidated Statements of Comprehensive Income, three and nine months

ended June 30, 2012 and 2011

6
   

Condensed Consolidated Statements of Cash Flows, nine months

ended June 30, 2012 and 2011

7
   

Notes to Unaudited Condensed Consolidated Financial Statements

8

   
      Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
   
      Item 3.  Quantitative and Qualitative Disclosures About Market Risk 21
   
      Item 4.  Controls and Procedures 21
   
Part II.  Other Information  
   
      Item 1.    Legal Proceedings 23
   
      Item 1A.  Risk Factors 23
   
      Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds 23
   
      Item 3.    Defaults Upon Senior Securities 23
   
      Item 4.    Mine Safety Disclosures 23
   
      Item 5.    Other Information 23
   
      Item 6.    Exhibits 24
   
      Signature Page 25
   

 

 

 

 

3
 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Williams Controls, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and per share information)

(Unaudited)

 

       
   June 30,
2012
  September 30,
2011
ASSETS          
Current Assets:          
  Cash and cash equivalents  $2,577   $1,339 
  Trade accounts receivable, net   10,397    10,561 
  Other accounts receivable   657    944 
  Inventories   8,940    11,334 
  Deferred income taxes   847    847 
  Prepaid expenses and other current assets   556    552 
     Total current assets   23,974    25,577 
           
Property, plant and equipment, net   8,708    9,446 
Deferred income taxes   3,061    3,181 
Other assets, net   317    337 
     Total assets  $36,060   $38,541 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current Liabilities:          
  Revolving loan facility  $908   $1,575 
  Accounts payable   4,557    5,599 
  Accrued expenses   4,798    5,536 
  Current portion of employee benefit obligations   201    201 
     Total current liabilities   10,464    12,911 
           
Long-term Liabilities:          
  Employee benefit obligations   7,287    8,069 
  Other long-term liabilities   134    126 
           
Commitments and contingencies          
           
Stockholders’ Equity:          
Preferred Stock ($.01 par value, 50,000,000 authorized) Series C
(No shares were issued and outstanding at June 30, 2012 and September 30, 2011)
   —      —   
Common stock ($.01 par value, 12,500,000 authorized; 7,341,659 and 7,302,339 issued and outstanding at June 30, 2012 and September 30, 2011, respectively)   73    73 
  Additional paid-in capital   39,019    38,521 
  Accumulated deficit   (11,024)   (11,108)
  Treasury stock (332,593 shares at June 30, 2012 and September 30, 2011)   (2,734)   (2,734)
  Accumulated other comprehensive loss   (7,159)   (7,317)
     Total stockholders’ equity   18,175    17,435 
     Total liabilities and stockholders’ equity  $36,060   $38,541 

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

4
 

Williams Controls, Inc.

Condensed Consolidated Statements of Income

(Dollars in thousands, except share and per share information)

(Unaudited)

 

   Three Months Ended
June 30,
  Nine Months Ended
June 30,
   2012   2011   2012   2011 
Net sales  $16,382   $16,767   $48,722   $45,102 
Cost of sales   11,517    11,099    33,972    30,692 
 
Gross profit
   4,865    5,668    14,750    14,410 
 
Operating expenses:
   

 

 

    

 

 

           
  Research and development   1,048    1,318    3,445    3,688 
  Selling   760    704    2,230    2,080 
  Administration   1,445    1,412    4,119    5,034 
     Total operating expenses   3,253    3,434    9,794    10,802 
 
Operating income
   1,612    2,234    4,956    3,608 
                     
Other expenses:                    
  Interest expense, net   28    23    101    47 
  Other expense, net   111    28    219    69 
     Total other expenses   139    51    320    116 
 
Income before income taxes
   1,473    2,183    4,636    3,492 
Income tax expense   628    677    1,883    1,119 
 
Net income
  $845   $1,506   $2,753   $2,373 
 
Net income per common share – basic
  $0.11   $0.20   $0.37   $0.32 
Weighted average shares used in per share
    calculation – basic
   7,338,423    7,300,277    7,321,202    7,294,519 
 
Net income per common share – diluted
  $0.11   $0.20   $0.36   $0.32 
Weighted average shares used in per share
    calculation – diluted
   7,517,291    7,503,313    7,511,933    7,469,173 
 
Cash dividends per share
  $0.12   $0.12   $0.36   $0.12 

 

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

5
 

Williams Controls, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

 

 

   Three Months Ended
June 30,
  Nine Months Ended
June 30,
   2012   2011   2012   2011 
Net income  $845   $1,506   $2,753   $2,373 
Change in pension liability adjustment, net of tax of ($21) and ($62) for the three and nine months ended June 30, 2012, respectively   35    —      106    —   
Foreign currency translation adjustments, net of tax of ($5) and ($21) for the three and nine months ended June 30, 2012, respectively   —      98    52    175 
 
Comprehensive income
  $880   $1,604   $2,911   $2,548 

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

 

6
 

Williams Controls, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

 

 

   Nine Months Ended
June 30,
   2012  2011
Cash flows from operating activities:          
  Net income  $2,753   $2,373 
Adjustments to reconcile net income to net cash provided by
operating activities:
          
     Depreciation and amortization   1,588    1,707 
     Stock-based compensation   550    635 
  Changes in operating assets and liabilities          
     Receivables, net   451    (1,854)
     Inventories   2,394    (3,125)
     Prepaid expenses and other current assets   (4)   (346)
     Accounts payable and accrued expenses   (1,844)   1,000 
     Other   (384)   (185)
Net cash provided by operating activities   5,504    205 
 
Cash flows from investing activities:
          
  Purchases of property, plant and equipment   (958)   (2,243)
Net cash used in investing activities   (958)   (2,243)
 
Cash flows from financing activities:
          
  Borrowings on revolving loan facility   12,905    7,682 
  Payments on revolving loan facility   (13,572)   (6,800)
  Cash dividend on common stock   (2,669)   (882)
  Net proceeds from exercise of stock options   28    29 
Net cash provided by (used in) financing activities   (3,308)   29 
 
Net increase (decrease) in cash and cash equivalents
   1,238    (2,009)
Cash and cash equivalents at beginning of period   1,339    3,016 
 
Cash and cash equivalents at end of period
  $2,577   $1,007 
 
Supplemental disclosure of cash flow information:
          
  Income taxes paid  $2,200   $841 
  Interest paid  $30   $32 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

7
 

Williams Controls, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Three and Nine Months ended June 30, 2012 and 2011

(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, is hereinafter referred to as the “Company,” “we,” “our,” or “us.”

 

The following are the Company’s 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 Company’s Annual Report on Form 10-K for the year ended September 30, 2011. The results of operations for the three and nine months ended June 30, 2012 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 known 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 may 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. A reclassification of amounts reported in the prior period financial statements has been made to conform to classification used in the current period financial statements. This reclassification did not have any impact on the Company’s financial condition, overall results of operations or cash flows.

 

Note 2. Cash and Cash Equivalents

 

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. At June 30, 2012, the Company had cash and cash equivalents of $2,577 that were measured based on a Level 1 fair value basis and approximately 29% of the Company’s 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 may exceed FDIC insured limits. As of June 30, 2012, cash and cash equivalents held in the United States exceeded federally insured limits by approximately $507. 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 $143 and $204 at June 30, 2012 and September 30, 2011, respectively. Activity related to the allowance for doubtful accounts for the nine months ended June 30, 2012 and the full year ended September 30, 2011 consisted of the following:

 

8
 

 

    

June 30,

2012

    

September 30,

2011

 
Beginning balance  $204   $150 
Charges to bad debt expense   19    75 
Write-offs, recoveries and adjustments   (80)   (21)
Ending balance  $143   $204 

 

 

Note 4. Inventories

 

Inventories consist of the following:

 

    

June 30,

2012

    

September 30,

2011

 
Raw materials  $6,304   $8,549 
Work in process   50    62 
Finished goods   2,586    2,723 
   $8,940   $11,334 

 

 

Note 5. Accrued Expenses

 

Accrued expenses consist of the following:

 

    

June 30,

2012

    

September 30,

2011

 
Environmental liability  $625   $869 
Accrued product warranty   966    1,076 
Accrued compensation and benefits   2,200    2,262 
Income tax payable   380    750 
Other   627    579 
   $4,798   $5,536 

 

For further discussion related to the Company’s product warranty liability and environmental liability, refer to Notes 6 and 11, respectively.

 

Note 6. Product Warranty

 

The Company establishes a product warranty liability based on a percentage of product sales. The liability is further adjusted to reflect historical product return rates, as well as additional amounts relating to 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 quarter to quarter and 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 Company’s warranty liability for the nine months ended June 30, 2012 and the year ended September 30, 2011.

 

  

June 30,

2012

   September 30,
2011
 
 
Beginning balance
  $1,076   $1,578 
  Payments   (561)   (1,215)
  Additional accruals   451    713 
Ending balance  $966   $1,076 

 

9
 

The difference in warranty payments between fiscal 2012 and 2011 primarily relates to a full year of payments for September 30, 2011 compared to nine months of payments for June 30, 2012 and to a lesser degree the timing of payments of warranty claims related to one customer in fiscal 2011, which were accrued during fiscal 2010.

 

Note 7. Debt

 

In June 2012, the Company amended its revolving loan facility with U.S. Bank, which now matures on June 30, 2014. The amended revolving loan facility provides for $15,000 in borrowing capacity and is secured by substantially all the assets of the Company. The interest rate under the new agreement is 1.75% plus the 1,2,3,6 or 12 month LIBOR rate. The minimum LIBOR advance amount is $100. The Company is subject to a quarterly and annual financial covenant under the revolving loan facility. At June 30, 2012, the Company was in compliance with its financial covenant.

 

As of June 30, 2012, the Company does not have a balance outstanding on the U.S. revolving loan facility. In January 2011, the Company became a guarantor for its subsidiary in India for a line of credit of up to $1,299, of which $908 was outstanding as of June 30, 2012. The line of credit of the Company’s India subsidiary has also been amended, with a new expiration date on June 30, 2013. The full guarantee of $1,299 reduces the Company’s borrowing capacity under the revolving loan with U.S. Bank by the same amount.

 

Note 8. Earnings Per Share

 

Basic earnings per share (“EPS”) is computed by dividing net earnings available to common stockholders by the weighted-average number of common shares outstanding, which has been modified to include the effects of all outstanding participating securities (unvested restricted stock awards with a right to receive dividends) as prescribed by the two-class method, during the period. Diluted EPS is computed similarly, but reflects the potential dilution that would occur if dilutive options were exercised and restricted stock awards were vested.

 

Following is a reconciliation of basic EPS and diluted EPS:

 

   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012  2011  2012  2011
Basic EPS:                    
  Net income  $845   $1,506   $2,753   $2,373 
Less: Dividends paid and income attributable to participating securities   (10)   (12)   (36)   (14)
  Net income available to common stockholders  $835   $1,494   $2,717   $2,359 
  Basic weighted average shares outstanding   7,338,423    7,300,277    7,321,202    7,294,519 
  Basic earnings per share  $0.11   $0.20   $0.37   $0.32 
                     
Diluted EPS:                    
  Net income available to common stockholders  $835   $1,494   $2,717   $2,359 
  Basic weighted average shares outstanding   7,338,423    7,300,277    7,321,202    7,294,519 
     Effect of dilutive securities   178,868    203,036    190,731    174,654 
  Diluted weighted average shares outstanding   7,517,291    7,503,313    7,511,933    7,469,173 
  Diluted earnings per share  $0.11   $0.20   $0.36   $0.32 

 

 

For the three and nine months ended June 30, 2012 and 2011, the Company had stock options covering 192,668 and 188,956 shares, respectively, which were not considered in the diluted EPS calculation since they would have been antidilutive.

 

10
 

Note 9. Employee Benefit Plans

 

Pension Plans

 

Disclosures regarding the components of net periodic benefit cost and contributions of pension plans are included below:

 

Components of Net Periodic Benefit Cost:            
   Salaried Employees Plan
   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012   2011   2012   2011 
Interest cost  $66   $66   $198   $198 
Expected return on plan assets   (45)   (51)   (135)   (153)
Amortization of loss   35    34    105    102 
Net periodic benefit cost  $56   $49   $168   $147 

 

 

   Hourly Employees Plan
   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012   2011   2012   2011 
Service cost  $12   $13   $36   $39 
Interest cost   119    120    357    360 
Expected return on plan assets   (90)   (81)   (270)   (243)
Amortization of prior service cost   1    3    3    9 
Amortization of loss   49    50    147    150 
Net periodic benefit cost  $91   $105   $273   $315 

 

During the nine months ended June 30, 2012 and 2011, the Company contributed $887 and $828, respectively, to the pension plans. The Company expects total contributions to its pension plans for the remainder of fiscal 2012 to be $253.

 

Post Retirement Medical Plan

 

Interim financial statement disclosures regarding the components of net periodic benefit cost and contributions of the Company’s post-retirement medical plan are included below. The Company did not make any contributions to the post-retirement plan during the nine months ended June 30, 2012 and 2011.

 

Components of Net Periodic Benefit Cost:         
   Post-Retirement Plan
   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012   2011   2012   2011 
Interest cost  $28   $31   $84   $93 
Amortization   (29)   (27)   (87)   (81)
Net periodic benefit cost  $(1)  $4   $(3)  $12 

 

 

Note 10. Income Taxes

 

As of June 30, 2012, the Company had no unrecognized tax benefits, interest or penalties.

 

The Company’s subsidiary in China was 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 was eligible for and did receive, reduced enterprise income tax rates of 10%, 11% and 12% for the calendar years 2009, 2010 and 2011, respectively. The income tax benefits of the tax holiday for the nine months ended June 30, 2012 and June 30, 2011 were $45 and $221, 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. The tax holiday for the Company's China subsidiary expired at the end of calendar 2011 and reverted to the full statutory tax rate of 25% beginning in calendar 2012. During the second quarter of fiscal 2012, the Company determined it would not indefinitely reinvest all of its earnings in China and therefore began recording in the second quarter of fiscal 2012 additional U.S. tax expense associated with those earnings.

 

11
 

Note 11. 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 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 liabilities. While the outcome of the pending proceedings cannot be predicted with certainty, based on its review, management believes that any unrecorded liability that may result will not have a material effect on the Company’s liquidity, financial condition or results of operations.

 

The soil and groundwater at the Company’s 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 Quality’s (“DEQ”) voluntary clean-up program. In November 2011, the DEQ adjusted its Risk Based Concentration (“RBC”) levels. The Company performed an evaluation of the effect of the adjusted RBC levels and recorded a $225 reduction to its environmental liability during the first quarter of fiscal 2012. As of June 30, 2012, the total liability recorded is $625 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 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 first nine months fiscal 2011 condensed consolidated statement of operations was approximately $100.

 

Note 12. 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 June 30, 2012 is as follows:

 

   Number of
Shares
  Weighted
Average
Exercise Price
  Weighted Average
Remaining
Contractual Term
  Aggregate
Intrinsic Value
                       
  Outstanding at September 30, 2011       834,080     $ 9.05       5.4 years     $ 2,467  
 Granted    8,330    11.10           
 Exercised    (55,713)   5.62           
 Cancelled/Forfeited    (39,785)    9.92               
 Outstanding at June 30, 2012    746,912   $9.28    4.8 years   $2,756 
                       
 Exercisable at June 30, 2012    595,324   $9.23    4.1 years   $2,298 

 

 

12
 

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 Company’s closing stock price on that day. The intrinsic value of all stock options exercised during the three and nine months ended June 30, 2012 was $47 and $311 respectively. Cash received from these exercises was $28 as shares were surrendered to cover the exercise price in majority of the exercises. The intrinsic value of all stock options exercised during the nine months ended June 30, 2011 was $32 and the cash received from these exercises was $29.

 

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 nine months ended June 30, 2012 and 2011:

 

   2012   2011 
Expected term   7.6 years    7.4 years 
Expected volatility     40 %     45 %
Risk-free interest rate   1.59%   2.91%
Expected dividend yield   4.32%   4.32%
Estimated average fair value per option granted  $2.87   $3.48 

 

Restricted Stock

 

Information regarding outstanding restricted stock awards as of June 30, 2012 is as follows:

 

   Shares  Weighted
Average Grant
Date Fair Value
             
  Nonvested at September 30, 2011       106,800     $ 10.92  
 Granted    3,500    10.95 
 Vested    (14,900)   11.10 
 Cancelled/Forfeited    (7,100)   10.73 
 Nonvested at June 30, 2012    88,300   $10.91 

 

The restricted stock in the above table was granted to employees under the Employee Plan and vest over a four-year period from the date of grant.

 

Expense Information

 

The Company’s share-based compensation expenses were recorded in the following expense categories for the three and nine months ended June 30, 2012 and 2011:

 

   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012   2011   2012   2011 
Cost of sales  $33   $29   $100   $163 
Research and development   (42)   29    21    91 
Selling   26    27    78    71 
Administration    125    129    351    310 
Total share-based compensation expense  $142   $214   $550   $635 
                     
Total share-based compensation expense (net of tax)  $109   $184   $437   $557 

 

 

As of June 30, 2012, there was $500 of total unrecognized compensation costs related to non-vested stock options and $746 related to non-vested restricted stock. The unrecognized compensation costs are expected to be recognized over a weighted average period of 2.0 years for non-vested stock options and 3.0 years for non-vested restricted stock.

 

13
 

Note 13. Enterprise-wide Information

 

During the three and nine months ended June 30, 2012 and 2011, the Company operated in three geographic reportable regions. The following table summarizes income statement activities for each geographic reportable region.

 

   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012   2011   2012   2011 
Revenue – External Customers:                    
    United States  $15,416   $15,523   $45,817   $42,318 
    China   731    1,135    2,135    2,675 
    India   235    109    770    109 
   $16,382   $16,767   $48,722   $45,102 
Revenue – Intersegments:                    
    United States  $155   $285   $351   $726 
    China   4,369    4,529    11,940    12,001 
    Other   297    118    717    379 
    Eliminations   (4,821)   (4,932)   (13,008)   (13,106)
   $—     $—     $—     $—   
Income before income taxes:                    
    United States  $1,329   $1,611   $3,995   $2,134 
    China   488    777    1,481    1,882 
    India   (340)   (214)    (850)   (552)
    Other   (4)   9    10    28 
   $1,473   $2,183   $4,636   $3,492 

 

14
 

Williams Controls, Inc.

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except share and per share amounts)

 

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 (the “Exchange Act”). 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; our ability to comply with U.S. and foreign laws applicable to our overseas operations; 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, 2011.

 

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 primarily design, manufacture and sell electronic throttle controls, pneumatic controls and electronic sensors for heavy trucks, transit buses and off-road equipment. We recently introduced a line of electronic joysticks and are marketing those primarily to the worldwide off-road market. 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 buses 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 buses, 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 worldwide emissions legislation and the economic cycles for heavy trucks, transit buses and off-road equipment.

 

As we move forward in fiscal 2012 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.

 

15
 

Critical Accounting Policies and Estimates

 

Management's 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. Our critical accounting policies, as described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, relate to revenue recognition, product warranty, legal, environmental costs, pension and post-retirement benefit obligations, share based compensation expense and income taxes. There have been no material changes to our critical accounting policies since September 30, 2011, except for a change in tax treatment to assume we will no longer indefinitely reinvest the foreign earnings of our Chinese subsidiary, which resulted in recording additional U.S. tax expenses in the second quarter of fiscal 2012 associated with earnings to be repatriated back to the United States.

 

Results of Operations

 

Financial Summary

(Dollars in Thousands)

 

   Three Months
Ended June 30,
  Nine Months
Ended June 30,
   2012   2011   Percent Change   2012   2011   Percent Change 
Net sales  $16,382   $16,767    (2.3)%  $48,722   $45,102    8.0%
Cost of sales   11,517    11,099    3.8%   33,972    30,692    10.7%
 
Gross profit
   4,865    5,668    (14.2)%   14,750    14,410    2.4%
 
Research and development
   1,048    1,318    (20.5)%   3,445    3,688    (6.6)%
Selling   760    704    8.0%   2,230    2,080    7.2%
Administration   1,445    1,412     2.3%   4,119    5,034     (18.2)%
                               
Operating income  $1,612   $2,234    (27.8)%  $4,956   $3,608    37.4%
                               
As a percentage of net sales:                              
    Cost of sales   70.3%   66.2%        69.7%   68.1%     
    Gross margin   29.7%   33.8%        30.3%   31.9%     
    Research and development   6.4%   7.9%        7.1%   8.2%     
    Selling   4.6%   4.2%        4.6%   4.6%     
    Administration   8.8%   8.4%        8.5%   11.2%     
    Operating income   9.8%   13.3%        10.2%   8.0%     

 

Net sales were $16,382 for the third quarter of fiscal 2012, down 2.3% compared to the third quarter of fiscal 2011 and down 2.7% compared to the second quarter of fiscal 2012. The sales decrease is primarily due to declines in sales volumes to truck customers in Europe and off-road customers in Asia as the global economic environment continues to remain unstable. In addition, our gross profit margins have been impacted negatively by relatively higher component costs, as well as by start-up costs associated with our India operations. We expect that these costs will remain elevated for the remainder of fiscal 2012. 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.

 

16
 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2012   2011   % Change   2012   2011   % Change
Net sales   $ 16,382     $ 16,767       (2.3 )%   $ 48,722     $ 45,102       8.0 %

 

Net sales decreased $385 in the third quarter of fiscal 2012 when compared to the third quarter of fiscal 2011. Sales to NAFTA truck customers increased 13% when compared to the third quarter of fiscal 2011, due principally to ongoing improvements in the economic environment and freight hauling industry, however, sales to NAFTA truck customers in the third quarter of fiscal 2012 were essentially unchanged from the second quarter of fiscal 2012 as uncertainty in the domestic economy has negatively impacted truck sales. European truck sales declined 21% in the third quarter of fiscal 2012 from the third quarter of fiscal 2011, primarily due to continued instability in the European economies. Sales to Asian customers in the third quarter of fiscal 2012 were down 21% from the prior year third quarter, primarily due to decreases in sales to Chinese off-road customers and Korean truck customers; however, on a smaller base, sales to Indian customers were up 43% over the third quarter of fiscal 2011, but were down 34% from the second quarter of fiscal 2012. Worldwide off-road sales decreased 6% for the quarter ended June 30, 2012 when compared to the prior year third quarter. Sales to Asian off-road customers declined 49% primarily due to economic weakness in the Chinese market. Partially offsetting that decline was an increase of 8% in the NAFTA off-road market, as we continue to introduce new products to serve this market.

 

Net sales increased $3,620 in the first nine months of fiscal 2012 compared to the first nine months of fiscal 2011. The increase in sales primarily results from volume increases in the NAFTA truck and NAFTA and European off-road markets. The European and Asian truck markets and the Asian off-road market all experienced reductions in sales volumes when compared to the prior year period.

 

NAFTA truck sales volumes were up 36% when compared to the first nine months of fiscal 2011, due to ongoing improvements in the economic environment and freight hauling industry. Sales to European truck customers declined by 16% in comparison to the first nine months of fiscal 2011 primarily due to the continuing economic uncertainties affecting Europe as well as to a lesser degree timing of shipments to one European customer in the first quarter of fiscal 2012. Sales to Asian customers were also down, decreasing 10% from the prior year first nine months, primarily due to timing of orders with one customer in Korea and a small decrease in volumes to Chinese customers as the economic environment in China continues to indicate some weakness. Sales to customers in India and Japan increased 42% and 80%, respectively, when compared to the nine month period of fiscal 2011. Worldwide off-road sales increased 15% for the nine months ended June 30, 2012. Sales to NAFTA and European off-road customers were up 23% whereas Asian off-road sales were down 17%, primarily due to reductions in volumes in China. Recent new product introductions in addition to improving economic conditions, primarily in NAFTA, contributed to the increased off-road sales volumes.

 

We expect that sales of our products generally will continue to vary with future changes in the overall economy, the demand for heavy trucks, transit buses and off-road vehicles in particular as well as introductions of new products. Additionally, competitive pricing may reduce margins and gross sales.

 

   Three Months Ended  Nine Months Ended
   June 30,  June 30,
   2012  2011  % Change  2012  2011  % Change
Cost of sales   $ 11,517     $ 11,099       3.8 %   $ 33,972     $ 30,692       10.7 %
Gross profit  $4,865   $5,668    (14.2)%  $14,750   $14,410    2.4%

 

Cost of sales includes 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 increased between quarters. As anticipated, material costs were higher in the third quarter of fiscal 2012 due to several components increasing pricing over the prior year quarter, including die cast components and rare earth magnets. As a percent of sales, cost of sales were higher in India than any of the Company’s other regions as that operation continues in its start-up phase, which negatively impacted margins. We are moving aggressively toward our planned localization of the supply base in India, which we believe will improve the operating performance in that region within the next six months. Additionally, the sales mix between quarters resulted in higher material costs in the third quarter of fiscal 2012 as compared to the same period in fiscal 2011. Slightly offsetting these increases in component pricing were reductions in freight and duty costs, warranty costs and scrap costs. Manufacturing overhead costs remained relatively flat between periods.

 

17
 

As a percent of sales, cost of sales increased from 68% in the first nine months of fiscal 2011 to 70% in the first nine months of fiscal 2012. Similar to the third quarter of fiscal 2012, material costs were higher in the first nine months of fiscal 2012 due to several components increasing pricing over the comparable period in the prior year. It is likely that component pricing for several components will remain higher throughout fiscal 2012 as compared to fiscal 2011. As a percent of sales, cost of sales were also higher in India as that operation continues in its start-up phase. Additionally, freight and duty costs were up between periods generally in line with sales volumes. Slightly offsetting these increases in component pricing were reductions in warranty costs and scrap costs between the first nine months of fiscal 2012 and 2011. Manufacturing overhead costs were lower as a percentage of sales between the first nine months of fiscal 2012 and 2011, but were up in actual dollar value.

 

Gross profit was $4,865, or 29.7% of net sales in the third quarter of fiscal 2012, a decrease of $803 when compared to gross profit of $5,668, or 33.8% of net sales, in the comparable fiscal 2011 period. The decrease in gross profits in the third quarter of fiscal 2012 was driven by the 2.3% net decrease in sales of electronic throttle controls to our heavy truck, bus and off-road customers as well as increases in components cost when comparing quarters.

 

Gross profit was $14,750, or 30.3% of net sales in the first nine months of 2012, an increase of $340 when compared to gross profit of $14,410, or 31.9% of net sales, in the comparable fiscal 2011 period. The increase in gross profits in the first nine months of fiscal 2012 was primarily driven by the 8.0% net increase in sales. The gross profit percentage decreased in the first nine months of fiscal 2012 primarily due to increases in components costs throughout the period.

 

    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2012   2011   % Change   2012   2011   % Change
Research & development   $ 1,048     $ 1,318       (20.5 )%   $ 3,445     $ 3,688       (6.6 )%

 

Research and development expenses decreased $270 when compared to the comparable period in fiscal 2011. The Company’s 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 sales cycles. The decrease in research and development expenses was primarily due to reductions in project development expenses, stock option expense, travel costs, depreciation expenses and a temporary reduction in wage related expenses.

 

Research and development expenses decreased $243 during the first nine months of fiscal 2012 when compared to the first nine months of fiscal 2011. Similar to the reductions in the third quarter of fiscal 2012, research and development expenses decreased in the first nine months of fiscal 2012 due to decreases in project development expenses, stock option expense, travel costs and depreciation expenses. Overall, we expect research and development expenses to decrease slightly from fiscal 2011 levels.

 

    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2012   2011   % Change   2012   2011   % Change
Selling   $ 760     $ 704       8.0 %   $ 2,230     $ 2,080       7.2 %

 

Selling expenses increased $56 when compared with the same period in fiscal 2011. The increase is primarily driven by additions to our European sales team in late fiscal 2011.

 

Selling expenses increased $150 during the nine months ended June 30, 2012 as compared with the nine months ended June 30, 2011 mainly due to additions to our European sales team in late fiscal 2011 that were not in place during the first nine months of fiscal 2011, offset slightly by reductions in sales commission expenses.

 

18
 
    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2012   2011   % Change   2012   2011   % Change
Administration   $ 1,445     $ 1,412       2.3 %   $ 4,119     $ 5,034       (18.2 )%

 

Administration expenses increased $33 in the third quarter of fiscal 2012 when compared to the third quarter of fiscal 2011. Increases in administration expenses in the third quarter of fiscal 2012 were primarily due to increases in legal and professional costs, which included fees associated with using an investment banking firm to investigate possible acquisition targets. Offsetting most of this increase was reductions in information technology maintenance costs, bad debt expenses and various employee related expenses.

 

Administration expenses for the first nine months of fiscal 2012 decreased $915 when compared with the same period in fiscal 2011. Included in administration expenses in the first nine months of fiscal 2012 was a reduction of $225 related to our environmental liability. In November 2011, the State of Oregon Department of Environmental Quality adjusted its Risk Based Concentration (“RBC”) levels and based on these revised RBC levels, we performed an evaluation of the effect on our environmental clean-up project, which resulted in a reduction of our liability. For further information regarding our environmental liability, refer to Note 11 to the condensed consolidated financial statements. Administration expenses in the first nine months of fiscal 2011 included $230 in legal fees associated with settlement of an old outstanding claim against the Company by a former employee and also included $349 of expenses associated with special projects. In addition, information technology maintenance costs, bad debt expenses and employee recruitment expenses decreased in the first nine months of fiscal 2012 when compared to the same period in fiscal 2011,however, these reductions were mostly offset by increases in legal and professional costs associated with using an investment banking firm to investigate possible acquisition targets and increases in taxes and filing in China related to new government construction and education taxes.

 

    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2012   2011   % Change   2012   2011   % Change
Other expense   $ 111     $ 28       296.4 %   $ 219     $ 69       217.4 %

 

Other expense in the third quarters and first nine months of both fiscal 2012 and 2011 primarily consisted of foreign currency transaction losses.

 

    Three Months Ended   Nine Months Ended
    June 30,   June 30,
    2012   2011   % Change   2012   2011   % Change
Income tax expense   $ 628     $ 677       (7.2 )%   $ 1,883     $ 1,119       68.3 %

 

Income tax expense reflects an effective tax rate of 42.6% for the quarter ended June 30, 2012 compared to an effective tax rate of 31.0% for the quarter ended June 30, 2011.  Tax expense reflects an effective tax rate of 40.6% for the first nine months of fiscal 2012 compared to an effective tax rate of 32.0% for the comparable period in fiscal 2011. The effective tax rate fluctuations are primarily due to the jurisdictions in which pretax income is being earned, income tax rate differences between the domestic and foreign jurisdictions and valuation allowances placed on certain jurisdictions deferred tax assets.

 

The tax rate was higher in the third quarter and first nine months of fiscal 2012 due to the continued recognition of a valuation allowance against the Company’s Indian subsidiary’s deferred tax assets. The third quarter and first nine months of fiscal 2012 tax rates also included higher rates in China due to the scheduled end of the tax holiday in China on December 31, 2011 and the recognition of additional U.S. tax expense associated with foreign earnings no longer intended to be indefinitely reinvested in China.

 

The third quarter of fiscal 2011 income tax expense was positively affected by $122 as a result of the tax holiday in the People’s Republic of China during the three months ended June 30, 2011. The tax holiday positively affected income tax expense by $45 and $221 during the nine months ended June 30, 2012 and June 30, 2011, respectively.

 

19
 

Liquidity and Capital Resources

 

Cash and cash equivalents at June 30, 2012 were $2,577. During the first nine months of fiscal 2012, we paid quarterly cash dividends of $2,669 under our quarterly dividend program. That program was initiated during the third quarter of fiscal 2011; therefore there were $882 in dividend payments under this program during the first nine months of fiscal 2011. We had $13,701 available under our amended revolving loan facility as of June 30, 2012. Although no assurances can be given, we believe that our $2,577 in cash plus available borrowings under our revolving loan facility will be adequate to sustain the Company throughout the remainder of the fiscal year.

 

During the first nine months of fiscal 2012, operating activities generated cash of $5,504, compared to a generation of cash of $205 in the first nine months of fiscal 2011. Net income plus non-cash charges for depreciation and stock based compensation contributed $4,891 in the first nine months of fiscal 2012 compared to $4,715 in the first nine months of fiscal 2011.

 

Changes in working capital items generated cash of $613 in the first nine months of fiscal 2012 compared to a use of cash of $4,510 in the first nine months of fiscal 2011. Changes in receivables for the first nine months of fiscal 2012 generated cash of $451 compared to a use of cash of $1,854 for the first nine months of fiscal 2011. Changes in receivables between periods are primarily impacted by changes in sales volumes from period to period and to a lesser degree, timing of collections. Inventories decreased $2,394 in the first nine months of fiscal 2012 from the fourth fiscal quarter in 2011 compared to an increase of $3,125 in the first nine months of fiscal 2011 from the fourth fiscal quarter in 2010. Inventories increased in fiscal 2011 due to the start-up of our Indian facility, safety stock and increasing inventory to meet customers’ rapidly escalating delivery schedules. The inventory reduction in the first nine months of fiscal 2012 related to reducing some safety stock and more closely balancing inventory requirements with sales mix. Accounts payable and accrued expenses decreased in the first nine months of fiscal 2012 from the fourth quarter of fiscal 2011 primarily due to timing of payments on accounts payable and increased seasonal payments of amounts accrued as of the prior year-end. Accounts payable and accrued expenses increased in the first nine months of fiscal 2011 from the fourth quarter of fiscal 2010 primarily due to timing of payments on accounts payable and increases in purchases of inventory and supplies and were partially offset by increased seasonal payments of amounts accrued as of the prior year-end. Cash flows from operations for the nine months of fiscal 2012 included payments to our pension plans of $887 compared to $828 for the first nine months of fiscal 2011. We believe it is likely we will continue to generate positive cash from operations, 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 $958 for the first nine months of fiscal 2012 and $2,243 for the nine months ended June 30, 2011 and was comprised solely of purchases of equipment for both periods. We expect our cash use for investing activities to increase throughout the remainder of fiscal year 2012 as we continue to make purchases of capital equipment. We currently anticipate spending approximately $1,500 in capital expenditures for fiscal 2012. The decline in capital spending between periods is mostly due to timing of expenditures.

 

Cash used in financing activities was $3,308 for the first nine months of fiscal 2012 compared to cash generated from financing activities of $29 for the first nine months of fiscal 2011. Cash used in financing activities for the first nine months of fiscal 2012 primarily relates to payment of dividends of $2,669 related to quarterly cash dividends of $0.12 per share and $667 in net payments on our revolving loan facility. Financing activities in the first nine months of fiscal 2012 also included $28 in proceeds from the exercise of stock options. Cash generated for financing activities for the first nine months of fiscal 2011 primarily relates to net borrowings on our revolving loan facility of $882 and proceeds from the exercise of stock options of $29 substantially offset by payment of dividends of $882 related to quarterly cash dividends of $0.12 per share. Borrowings and payments on our revolving loan facility are shown separately on the statement of cash flows due to the revolving loan facility having a maturity date of more than three months. The large balances for borrowings and payments represent the optimization of cash to reduce interest payments and are due to timing of when payments are made compared to when cash collections are received in a given period.

 

Contractual Obligations as of June 30, 2012

 

At June 30, 2012, our contractual obligations consisted of operating lease obligations, a license agreement and a revolving loan facility. We did not have any material letters of credit, or debt guarantees outstanding at June 30, 2012 except as noted in Note 7 to the condensed consolidated financial statements. Maturities of these contractual obligations consist of the following:

 

20
 

 

   Payments due by period
  

 

Total

   Less than
1 year
  

1 – 3

years

  

3 – 5

years

 
Operating lease obligations  $2,422   $738   $1,619   $65 
MMT license – minimum
   royalties
   182    82    100    —   
Revolving loan facility   908    908    —      —   
   $3,512   $1,728   $ 1,719   $65 

 

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 June 30, 2012 related to our pension plans and post-retirement medical plan of $5,238 and $2,250, respectively. We funded $887 to our pension plans during the first nine months of fiscal 2012 and $828 during the first nine months of fiscal 2011. We expect to make payments to our pension plans of $253 throughout the rest of fiscal 2012.

 

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 amended its revolving loan facilities with U.S. Bank and an Indian bank in June 2012.

 

As of June 30, 2012, there was an outstanding balance of $908 on the revolving loans. 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 nine months of fiscal 2012 and 2011, the Company had foreign sales of approximately 40% and 45% of net sales, respectively. All worldwide sales in the first nine months of fiscal 2012 and 2011, with the exception of $2,905 and $2,784, respectively, were denominated in U.S. dollars. We have a manufacturing facility in Suzhou, China and Pune, India and sales offices in Shanghai, China and Munich, Germany. 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 Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term obligations. The Company’s 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.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s 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 Exchange Act. Based on that evaluation, the Company’s 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.

 

21
 

Changes in Internal Controls

 

There has been no change in the Company’s internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control 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.

 

22
 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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.

 

Item 1A. Risk Factors

 

There have been no material changes in risk factors for the quarter ended June 30, 2012. 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, 2011.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

None

23
 

Item 6. Exhibits

 

Exhibit

Number

 

 

Description

     
3.01(a)   Certificate of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.01 (a) to the Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant's 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)

 

24
 

SIGNATURES

 

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: August 13, 2012

 

/s/ PATRICK W. CAVANAGH

 
   

Patrick W. Cavanagh

 
   

President and Chief Executive Officer

 
       

Date: August 13, 2012

 

/s/ DENNIS E. BUNDAY

 
   

Dennis E. Bunday

 
   

Chief Financial Officer

 

 

25

XASE:WMCO Quarterly Report 10-Q Filling

XASE:WMCO Stock - Get Quarterly Report SEC Filing of XASE:WMCO stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XASE:WMCO Quarterly Report 10-Q Filing - 6/30/2012
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