The Company maintains two pension plans, an hourly employee plan and a salaried employee plan. The hourly plan covers certain of the Company’s union employees. The salaried plan covers certain salaried employees. Annual net periodic pension costs under the pension plans are determined on an actuarial basis. The Company’s policy is to fund these costs over 15 years and to fund obligations arising due to plan amendments over the period benefited by those plan amendments. The assets and liabilities are adjusted annually based on actuarial results. 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:
The Company expects total contributions to its pension plans for the remainder of fiscal 2010 to be $430. During the six months ended March 31, 2010, the Company contributed $142 to the pension plans.
The Company also provides health care and life insurance benefits for certain of its retired employees. These benefits are subject to deductibles, co-payment provisions and other limitations. Disclosures regarding the components of net periodic benefit cost and contributions of the Company’s post-retirement 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 three months ended March 31, 2010 and 2009.
Note 13. Stock Repurchase Program
In October 2008, the Company’s Board of Directors authorized the purchase, from time to time, of up to $5,000 of shares of the Company’s common stock. Repurchases may be made in the open market or through block trades, in compliance with Securities and Exchange Commission guidelines, subject to market conditions, applicable legal requirements and other factors. The Company has no obligation to repurchase shares under the repurchase program and the timing, actual number and price of shares to be purchased will depend on the performance of the Company’s stock price, general market conditions, and various other factors within the discretion of management. The Company purchased no shares under the share repurchase program in the first two quarters of fiscal 2010. As of March 31, 2009, the Company had repurchased 310,893 shares of common stock at a total value of $2,357.
Note 14. Income Taxes
The Company’s unrecognized tax benefits remained unchanged during the six months ended March 31, 2010. The Company believes that it is reasonably possible that unrecognized tax benefits could decrease by $12 within the 12 months of this reporting date.
The Company’s 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, 2010 and March 31, 2009 were $209 and $92, respectively. The per share effect of the tax holiday on a fully diluted basis for the same period were $0.03 and $0.01, respectively.
Note 15. 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, other than the Cuesta class action lawsuit discussed below, the Company believes that any unrecorded liability that may result is not more than likely to 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 voluntary clean-up program and established a liability of $950 for this matter. At September 30, 2007, the Company recorded an additional liability of $546 based on remaining costs estimates determined by the Company with the help of an environmental consulting firm. As of March 31, 2010, the total liability recorded is $1,001 and is recorded in accrued expenses in the accompanying condensed consolidated balance sheet. The Company asserted and settled a contractual indemnity claim against Dana Corporation (“Dana”), from which it acquired the property, and contribution claims against the other prior owner of the property as well as businesses previously located on the property (including Blount, Inc. (“Blount”) and Rosan, Inc. (“Rosan”)) under the Federal Superfund Act and the Oregon Cleanup Law. During 2008, the Company entered into a settlement agreement with Dana, Blount and Rosan under which it received total cash payments from Dana, Blount and Rosan of $735, and shares of Dana stock equal to approximately $337 at the time of settlement, and assumed the full obligation to, and risks associated with, completing the remediation.
On October 1, 2004, the Company was named as a co-defendant in a product liability case (Cuesta v. Ford, et al), brought in the Oklahoma State District Court in Bryant, Oklahoma. The complaint seeks an unspecified amount of damages on behalf of the class based on allegations that certain of our products, as incorporated into certain models of Ford motor vehicles, are in some way defective. Following a number of procedural and appellate actions, the court has certified a class action, but no trial date has yet been set. Management continues to believe the claim to be without merit; however, the Company has entered into settlement discussions between and among Ford and the plaintiff group. Based on those discussions, management reasonably believes, although cannot be certain, that a settlement in this case is probable and reasonably estimable and has recorded in the second quarter of fiscal 2010 a $775 provision for a full
9
settlement and release of all claims. Any settlement will involve settlements with both Ford and the Company, with the Company’s settlement costs estimated to be $775. Such settlement will require court approval, which the Company believes is probable.
Note 16. Share-Based Compensation
The Company currently has two qualified stock option plans. At the February 24, 2010 Annual Meeting, our stockholders approved the adoption of the 2010 Restated Stock Option Plan (the “Employee Plan”), which amends, restates and renames the Company’s 1993 Restated Stock Option Plan. The Employee Plan reserves an aggregate of 1,170,000 shares of the Company’s common stock for the issuance of stock options, which includes a 300,000 share increase in authorized shares approved by the stockholders at the 2010 Annual Meeting. These shares may be granted to employees, officers and directors of and consultants to the Company. Under the terms of the Employee Plan, the Company may grant “incentive stock options” or “non-qualified options” with an exercise price of not less than the fair market value on the date of grant. Options granted under the Employee Plan have a vesting schedule, which is typically five years, determined by the Compensation Committee of the Board of Directors and expire ten years after the date of grant. Our stockholders also approved the adoption of the 2010 Restated Formula Stock Option Plan for non-employee Directors (the “Formula Plan”), which amends, restates and renames the Company’s 1995 Formula Stock Option Plan. The Formula Plan reserves an aggregate of 106,666 shares of the Company’s common stock for the issuance of stock options, which includes a 20,000 share increase in authorized shares approved by the stockholders at the 2010 Annual Meeting. These shares may be granted to non-employee directors of the Company. Under this plan the 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, exercisable for 10 years after the date of the grant. These options are exercisable as to 25% of the shares thereby on the date of grant and as to an additional 25%, cumulatively on the first, second and third anniversaries of the date of grant.
As of March 31, 2010, there was $1,857 of total unrecognized compensation costs related to nonvested stock options. That cost is expected to be recognized over a weighted average period of 3.6 years.
The Company’s share-based compensation expenses were recorded in the following expense categories for the three and six months ended March 31, 2010 and 2009:
| | Three Months
Ended March 31, | | | Six Months
Ended March 31, | |
| | 2010 | | | | 2009 | | | 2010 | | | | 2009 | |
Cost of sales | | $ | 29 | | | | $ | 39 | | | $ | 57 | | | | $ | 75 | |
Research and development | | | 26 | | | | | 19 | | | | 50 | | | | | 40 | |
Selling | | | 17 | | | | | 23 | | | | 33 | | | | | 45 | |
Administration | | | 85 | | | | | 109 | | | | 154 | | | | | 214 | |
Total share-based compensation expense | | $ | 157 | | | | $ | 190 | | | $ | 294 | | | | $ | 374 | |
Total share-based compensation expense (net of tax) | | $ | 139 | | | | $ | 162 | | | $ | 265 | | | | $ | 319 | |
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, 2010 and 2009:
| | Three Months Ended
March 31, | | | Six Months Ended
March 31, | |
| | 2010 | | | | 2009 | | | 2010 | | | | 2009 | |
Expected term | | | 6.4 years | | | | | 5.8 years | | | | 6.5 years | | | | | 5.8 years | |
Expected volatility | | | 45% | | | | | 46% | | | | 46% | | | | | 46% | |
Risk-free interest rate | | | 2.93% | | | | | 2.03% | | | | 2.86% | | | | | 2.03% | |
Expected dividend yield | | | 0% | | | | | 0% | | | | 0% | | | | | 0% | |
Estimated average fair value per option granted | | | $ 3.87 | | | | | $ 2.32 | | | | $ 4.10 | | | | | $ 2.32 | |
10
The following table summarizes stock options outstanding as of March 31, 2010 as well as activity during the six months then ended.
| |
Shares
| | | Weighted
Average
Exercise Price | |
| | | | | | | |
Outstanding at September 30, 2009 | | 598,769 | | | $ | 9.40 | |
Granted | | 211,996 | | | | 8.30 | |
Exercised | | (2,500 | ) | | | 4.68 | |
Forfeited | | (2,333 | ) | | | 12.24 | |
Outstanding at March 31, 2010 | | 805,932 | | | $ | 9.12 | |
Exercisable at March 31, 2010 | | 473,351 | | | $ | 8.03 | |
At March 31, 2010, the weighted average remaining contractual term of options outstanding and options exercisable was 6.5 years and 4.8 years, respectively.
The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2010 was $865 and $835, respectively (the intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option). The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2009 was $125. 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 intrinsic value of all stock options exercised during the three and six months ended March 31, 2009 was $138. Cash received from the exercise of stock options for the three and six months ended March 31, 2009 was $165.
Note 17. Geographic Information
During the three and six months ended March 31, 2010 and 2009, the Company operated in two geographic reportable regions as shown in the table below.
| | Three Months
Ended March 31, | | | Six Months
Ended March 31, | |
| | 2010 | | | | 2009 | | | 2010 | | | | 2009 | |
Revenue – External Customers: | | | | | | | | | | | | | | | | | | |
United States | | $ | 11,888 | | | | $ | 8,715 | | | $ | 23,033 | | | | $ | 19,063 | |
China | | | 761 | | | | | 416 | | | | 1,325 | | | | | 759 | |
| | $ | 12,649 | | | | $ | 9,131 | | | $ | 24,358 | | | | $ | 19,822 | |
Revenue – Intersegments: | | | | | | | | | | | | | | | | | | |
United States | | $ | 268 | | | | $ | 121 | | | $ | 506 | | | | $ | 225 | |
China | | | 2,683 | | | | | 1,210 | | | | 5,300 | | | | | 3,615 | |
Other | | | 207 | | | | | 169 | | | | 397 | | | | | 304 | |
Eliminations | | | (3,158 | ) | | | | (1,500 | ) | | | (6,203 | ) | | | | (4,144 | ) |
| | $ | — | | | | $ | — | | | $ | — | | | | $ | — | |
Loss before income taxes: | | | | | | | | | | | | | | | | | | |
United States | | $ | (1,127 | ) | | | $ | (2,104 | ) | | $ | (765 | ) | | | $ | (3,601 | ) |
China | | | 401 | | | | | 228 | | | | 549 | | | | | 418 | |
Other | | | (2 | ) | | | | (7 | ) | | | 7 | | | | | (5 | ) |
| | $ | (728 | ) | | | $ | (1,883 | ) | | $ | (209 | ) | | | $ | (3,188 | ) |
11
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. 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 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, 2009.
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 hand controls, and we have begun selling 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 1980’s. As a result of the continuing implementation of more stringent emissions standards in many countries around the world, demand for electronically controlled engines and electronic throttle control systems is expanding both geographically and into lower horsepower engines. China, India and Russia are in the process of implementing more stringent emissions standards for heavy trucks and transit busses. Additionally, worldwide emissions regulations have been enacted that continue to increase the use of electronic throttle controls in off-road equipment. We also produce pneumatic controls and electronic hand controls, which are sold to the same customer base as our electronic throttle controls. These products are used for vehicle control system applications such as power take-off’s 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 busses and off-road equipment.
As we move forward in fiscal 2010 and beyond, we will 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
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. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our condensed consolidated financial statements.
Revenue Recognition
Revenue is recognized at the time of product shipment, which is when title and risk of loss transfers to customers, and when all of the following have occurred: a firm sales agreement is in place, pricing is fixed or determinable, and collection is reasonably assured. Revenues are reported net of estimated returns, rebates and customer discounts. Discounts and rebates are recorded during the period they are earned by the customer.
Product Warranty
We provide a warranty covering defects arising from products sold. The product warranty liability is based on historical return rates of products and amounts for significant and specific warranty issues. The 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 warranty liability, which in the opinion of management, is adequate to cover such costs. While we believe our estimates are reasonable, they are subject to change and such change could be material.
Legal
We are involved in various claims, lawsuits and other proceedings from time to time. Such litigation involves uncertainty as to possible losses we may ultimately realize when one or more future events occur or fail to occur. In connection with such claims and lawsuits, we estimate the probability of losses based on advice of legal counsel, the outcomes of similar litigation, legislative development and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties. We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates significantly. We expense legal expenses related to claims in the period incurred. A significant change in our estimates, or a result that materially differs from our estimates, could have a significant impact on our financial position, results of operations and cash flows.
Environmental Costs
We estimate the costs of investigation and remediation for certain soil and groundwater contaminants at our Portland, Oregon facility. The ultimate costs to the Company for the investigation, remediation and monitoring of this site cannot be predicted with certainty due to the often unknown magnitude of the pollution or the necessary cleanup, the varying costs of alternative cleanup methods, the amount of time necessary to accomplish such cleanups and the evolving nature of cleanup technologies and governmental regulations. The Company has recognized a liability for environmental remediation costs for this site in an amount that management believes is probable and reasonably estimable. When the estimate of a probable loss is within a range, the minimum amount in the range is accrued when no estimate within the range is better than another. In making these judgments and assumptions, the Company considers, among other things, the activity to-date at the site and information obtained through consultation with applicable regulatory authorities and third party consultants and contractors. The Company regularly monitors its exposure to environmental loss contingencies. As additional information becomes known, it is at least reasonably possible that a change in the estimated liability accrual will occur in the near future.
13
Pensions and Post-Retirement Benefit Obligations
Pension and post-retirement benefit obligations and net period benefit cost are calculated using actuarial models. The most important assumptions that affect these computations are the discount rate, expected long-term rate of return on plan assets, and healthcare cost trend rates. We evaluate these assumptions at least annually. Other assumptions involve demographic factors such as retirement, mortality and turnover. These assumptions are evaluated at least annually and are updated to reflect our experience. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
Our discount rate assumption is intended to reflect the rate at which retirement benefits could be effectively settled based upon the assumed timing of the benefit payments. To determine our discount rate, we discount the expected benefit payments using the Citigroup Pension Discount Liability Index yield curve. The equivalent level interest rate that produces the same present value of benefits is then determined. Our assumed rate does not differ significantly from this benchmark rate. To determine the expected long-term rate of return on pension plan assets, we consider the current asset allocations and the historical and expected returns on various categories of plan assets obtained from our investment portfolio manager. Our post-retirement plan does not contain any plan assets.
Share Based Compensation Expense
We measure compensation cost for all outstanding unvested share-based awards, and awards we grant, modify, repurchase or cancel in the future, at fair value and recognize compensation over the requisite service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results differ from our estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when calculating fair value including estimated stock price volatility, expected term and expected forfeitures. Factors considered in estimating forfeitures include the types of awards, employee class, and historical experience. Actual results may differ substantially from these estimates.
Income Taxes
For each jurisdiction that we operate in, we are required to estimate our annual effective tax rate together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income and unless we believe that recovery is more likely than not, a valuation allowance is established. Our income tax provision on the consolidated statement of operations would be impacted by changes in the valuation allowance. This process is complex and involves significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowances recorded against our net deferred tax assets.
14
Results of Operations
Financial Summary
(Dollars in Thousands)
| | Three Months
Ended March 31, | | | Six Months
Ended March 31, | |
| |
2010
| | | |
2009
| | | |
Percent
Change
| | |
2010
| | | |
2009
| | | |
Percent
Change
| |
Net sales | | $ | 12,649 | | | | $ | 9,131 | | | | 38.5 | % | | $ | 24,358 | | | | $ | 19,822 | | | | 22.9 | % |
Cost of sales | | | 9,294 | | | | | 7,908 | | | | 17.5 | % | | | 17,416 | | | | | 16,045 | | | | 8.5 | % |
Gross profit
| | |
3,355
| | | | |
1,223
| | | |
174.3
| % | | |
6,942
| | | | |
3,777
| | | |
83.8
| % |
Research and development
| | |
1,160
| | | | |
1,010
| | | |
14.9
| % | | |
2,216
| | | | |
2,156
| | | |
2.8
| % |
Selling | | | 761 | | | | | 630 | | | | 20.8 | % | | | 1,419 | | | | | 1,281 | | | | 10.8 | % |
Administration | | | 1,451 | | | | | 1,464 | | | | (0.9 | )% | | | 2,796 | | | | | 3,130 | | | | (10.7 | )% |
Class action provision | | | 775 | | | | | — | | | | NM | | | | 775 | | | | | — | | | | NM | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating loss | | $ | (792 | ) | | | $ | (1,881 | ) | | | (57.9 | )% | | $ | (264 | ) | | | $ | (2,790 | ) | | | (90.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
As a percentage of net sales: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 73.5 | % | | | | 86.6 | % | | | | | | | 71.5 | % | | | | 80.9 | % | | | | |
Gross margin | | | 26.5 | % | | | | 13.4 | % | | | | | | | 28.5 | % | | | | 19.1 | % | | | | |
Research and development | | | 9.2 | % | | | | 11.1 | % | | | | | | | 9.1 | % | | | | 10.9 | % | | | | |
Selling | | | 6.0 | % | | | | 6.9 | % | | | | | | | 5.8 | % | | | | 6.5 | % | | | | �� |
Administration | | | 11.5 | % | | | | 16.0 | % | | | | | | | 11.5 | % | | | | 15.8 | % | | | | |
Class action provision | | | 6.1 | % | | | | — | | | | | | | | 3.2 | % | | | | — | | | | | |
Operating loss | | | (6.3 | )% | | | | (20.6 | )% | | | | | | | (1.1 | )% | | | | (14.1 | )% | | | | |
Net sales increased to $12,649 for the second quarter of fiscal 2010, up 8% compared to the first quarter of fiscal 2010. The low point of the economic cycle relevant to our operations appears to have occurred during our third fiscal quarter of 2009 and sales have steadily increased since that time with second quarter 2010 sales being 20% higher than the fourth quarter of fiscal 2009 and 50% higher than the third quarter of fiscal 2009. Although we have seen improvement from our low point in fiscal 2009, the heavy truck industry is still significantly below levels prior to the economic downturn with our second quarter sales run rate being approximately 23% 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. Additionally, if a settlement is ultimately reached in the Cuesta class action lawsuit, it is likely the Company will incur a financial obligation and has accrued $775 for that potential obligation. Although no assurances can be given, management believes that it is likely that our $9,560 in cash will be adequate to sustain the Company through the foreseeable future.
Comparative – Three months ended March 31, 2010 and 2009
NM = Not Meaningful
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Net sales | | | | $ | 12,649 | | | $ | 9,131 | | | 38.5 | % |
| | | | | | | | | | | | | |
Net sales increased $3,518 in the second quarter of fiscal 2010 compared to the second quarter of fiscal 2009. The increase in sales results from volume increases in all markets worldwide. Asian truck sales increased 68% over the prior year quarter primarily due to increased sales volumes of heavy trucks in Korea and heavy trucks and off-road vehicles in China. Increases in off-road volumes in China primarily results from adoption of more stringent emissions standards in China which require the types of products sold by the Company. European truck sales were up 53% over the same period in fiscal 2009 due to our European customers increasing their heavy truck build rates. In the second quarter of fiscal 2009, most of our large truck OEM customers in Europe began to reduce their build rates due to the slowing economy resulting in higher than normal inventory levels. Most of the Company’s large OEM customers took extensive down-time to balance supply and demand. NAFTA truck sales were up 23% when compared to the second
15
quarter of fiscal 2009 due to improvements in the economic environment and the continued pre-buy related to the new emissions standards enacted in North America in calendar 2010. We expect that NAFTA truck sales will decline slightly over the next few quarters due to fewer heavy truck sales because of the higher truck costs of complying with the new emission standard. In addition, worldwide off-road sales were up 66% for the quarter ended March 31, 2010. The largest contributor to this increase in off-road sales was attributable to the NAFTA market, where off-road sales were up 48% primarily due to a large increase in sales related to United States military vehicle applications.
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Cost of sales | | | | $ | 9,294 | | | $ | 7,908 | | | 17.5 | % |
| | | | | | | | | | | | | |
The types of expenses included in cost of sales include raw materials consumption; freight and duty; 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. Additionally, the second quarter of fiscal 2009 included settlement of outstanding labor issues and severance costs totaling $275 and a $116 write-down to our capitalized license fee related to adjustable pedal technology due to the significant decline in business in the recreational vehicle industry. Repairs and maintenance costs and pension costs decreased $110 and $29, respectively, quarter over quarter. Warranty costs were up slightly quarter over quarter as the Company increased its warranty accrual related to warranty claims with one customer.
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Gross profit | | | | $ | 3,355 | | | $ | 1,223 | | | 174.3 | % |
| | | | | | | | | | | | | |
Gross profit was $3,355, or 26.5% of net sales in the second quarter of fiscal 2010, an increase of $2,132 compared to the gross profit of $1,223, or 13.4% of net sales, in the comparable fiscal 2009 period.
The increase in gross profit in the second quarter of fiscal 2010 is primarily driven by the 39% net increase in sales of electronic throttle systems to our heavy truck and off-road customers. When comparing the second quarter of fiscal 2010 with the comparable period in fiscal 2009, manufacturing overhead costs in the three months ended March 31, 2010 were 13% lower as a percent of sales than the second quarter of fiscal 2009, primarily due to the factors described above under cost of sales.
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Research and development | | | | $ | 1,160 | | | $ | 1,010 | | | 14.9 | % |
| | | | | | | | | | | | | |
Research and development expenses increased $150 for the second quarter of fiscal 2010 compared to the comparable period in fiscal 2009. 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. Overall, we expect research and development expenses to increase slightly over fiscal 2009 levels due to continued efforts related to additional new product design projects.
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Selling | | | | $ | 761 | | | $ | 630 | | | 20.8 | % |
| | | | | | | | | | | | | |
Selling expenses increased $131 when compared with the same period in fiscal 2009. The increase in selling expenses is primarily driven by an increase in sales commissions in relation with the 39% increase in net sales worldwide and an overall increase in travel costs.
16
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Administration | | | | $ | 1,451 | | | $ | 1,464 | | | (0.9 | )% |
| | | | | | | | | | | | | |
Administration expenses were essentially unchanged when compared with the three month period ended March 31, 2009. On a quarter over quarter basis, legal fees were up approximately $128 and this increase primarily related to legal fees associated with the Cuesta class action lawsuit. Offsetting this increase in legal fees was a $147 decrease in bad debt expenses.
| | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Class action provision | | | | $ | 775 | | | $ | — | | | NM | |
| | | | | | | | | | | | | |
During the second quarter of fiscal 2010, the Company recorded a $775 liability which represents the Company’s best estimate of the ultimate liability related to the Cuesta class action lawsuit discussed in Note 15 to our unaudited condensed consolidated financial statements. Management continues to believe the claim to be without merit, however has entered into settlement discussions between and among Ford and the plaintiff group. Based on those discussions, we reasonably believe, although cannot be certain, that a settlement in this case is probable and recorded in the second fiscal quarter of 2010 a $775 provision for full settlement and release of all claims.
| | | | | | | | | | | Percent Change | |
For the Three Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Other income | | | | $ | (64 | ) | | $ | — | | | NM | |
| | | | | | | | | | | | | |
Other income was $64 in the second quarter of fiscal 2010 and 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: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Income tax benefit | | | | $ | (296 | ) | | $ | (683 | ) | | (56.7 | )% |
| | | | | | | | | | | | | |
Income tax benefit reflects an effective tax rate of 40.7% for the quarter ended March 31, 2010 compared to an effective tax rate of 36.3% for the quarter ended March 31, 2009. 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 2009 to 2010 is also due to a discrete tax benefit recognized during the three months ended March 31, 2010 associated with the class action lawsuit and due to additional tax expense recognized during the three months ended March 31, 2009 as the result of the de-recognition of a specific deferred tax asset that the Company determined did not meet the more-likely-than-not recognition threshold.
The income tax benefit was increased by $124 and $20 as a result of a tax holiday in the People’s Republic of China during the three months ended March 31, 2010 and March 31, 2009, respectively.
Comparative – Six months ended March 31, 2010 and 2009
NM = Not Meaningful
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Net sales | | | | $ | 24,358 | | | $ | 19,822 | | | 22.9 | % |
| | | | | | | | | | | | | |
Net sales increased $4,536 in the first six months of fiscal 2010 compared to the first six months of fiscal 2009. As was the case in the second quarter of fiscal 2010, the overall increase in sales in 2010 was due to volume increases in essentially all of the Company’s principal markets. In fiscal 2009, we saw significant reductions in the number of units of trucks, busses and off-road vehicles built world-wide due to the significant recessionary pressures in the United States and many parts of the rest of the world and as a result, a number of our large truck OEM customers had
17
reductions in build rates and took extensive down-time throughout the year. As the economic climate has improved worldwide in fiscal 2010 and as our truck OEM customers have increased build rates, the result has been an overall increase in sales volumes in all worldwide markets.
Net sales to customers in Asia increased 95% over the prior year period primarily due to increased sales volumes of heavy trucks in Korea and heavy trucks and off-road vehicles in China. Increases in off-road volumes in China primarily results from adoption of more stringent emissions standards in China, which mandate the inclusion of electronic throttle controls on new vehicles, thus allowing us to expand our customer base in this market. Korean sales have increased due to improvements in the economic climate in Korea and an increase in the number of truck sales. European truck sales were up 56% over the same period in fiscal 2009 due to our European customers increasing their heavy truck build rates and working through the build up of inventory levels experienced in fiscal 2009. NAFTA truck sales were up 4% when compared to the first six months of fiscal 2009 due to improvements in the economic environment and the continued pre-buy related to the new emissions standards enacted in North America in calendar 2010. It is anticipated that the NAFTA truck market will see a slight decline over the next few quarters due to fewer heavy truck sales because of the higher truck costs of complying with the new emission standard. Lastly, worldwide off-road sales were up 42% for the first six months ended March 31, 2010. The largest impact of this increase in off-road sales was seen in the NAFTA market, where off-road sales were up 30% which was primarily due to a large increase in sales related to military vehicle applications.
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Cost of sales | | | | $ | 17,416 | | | $ | 16,045 | | | 8.5 | % |
| | | | | | | | | | | | | |
The types of expenses included in cost of sales include raw materials consumption; freight and duty; 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. Additionally, the first six months of fiscal 2009 included settlement of outstanding labor issues and severance costs totaling $320 and a $116 write-down to our capitalized license fee related to adjustable pedal technology due to the significant decline in business in the recreational vehicle industry. Repairs and maintenance costs and pension costs decreased $125 and $58, respectively, in first six months of fiscal 2010 from the comparable period in fiscal 2009. Slightly offsetting some of these decreases was an increase in warranty costs of $145 during the first six months of fiscal 2010 when compared to the same period in fiscal 2009 and primarily relates to warranty claims with one customer.
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Gross profit | | | | $ | 6,942 | | | $ | 3,777 | | | 83.8 | % |
| | | | | | | | | | | | | |
Gross profit was $6,942, or 28.5% of net sales in the first six months of 2010, an increase of $3,165 compared to gross profit of $3,777, or 19.1% of net sales, in the comparable fiscal 2009 period.
The increase in gross profit in the first six months of fiscal 2010 is primarily driven by the 23% 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 2010 with the comparable period in fiscal 2009, manufacturing overhead costs were 9% lower as a percent of sales than the first six months of fiscal 2009, primarily due to the factors described above under cost of sales.
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Research and development | | | | $ | 2,216 | | | $ | 2,156 | | | 2.8 | % |
| | | | | | | | | | | | | |
Research and development expenses increased $60 during the first six months of fiscal 2010 when compared to the first six months of fiscal 2009. The Company’s 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. Overall, we expect research and development expenses to increase slightly over fiscal 2009 levels due to additional new product design projects.
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| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Selling | | | | $ | 1,419 | | | $ | 1,281 | | | 10.8 | % |
| | | | | | | | | | | | | |
Selling expenses increased $138 during the six months ended March 31, 2010 as compared with the six months ended March 31, 2009 mainly due to an increase in sales commissions and travel expenses.
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Administration | | | | $ | 2,796 | | | $ | 3,130 | | | (10.7 | )% |
| | | | | | | | | | | | | |
Administration expenses for the first six months of fiscal 2010 decreased $334 when compared with the same period in fiscal 2009. The decrease in administration expenses is primarily due to the a $275 non-cash compensation expense recognized in conjunction with the Company’s unfunded deferred compensation plan during the first quarter of fiscal 2009, a decrease of $167 in bad debt expenses, reduced stock option expense of $59 and a decrease in professional and consulting costs of $73. Offsetting some of these decreases was a $280 increase in legal fees primarily associated with the Cuesta class action lawsuit.
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Class action provision | | | | $ | 775 | | | $ | — | | | NM | |
| | | | | | | | | | | | | |
During the second quarter of fiscal 2010, the Company recorded a $775 liability which represents the Company’s best estimate of the ultimate liability related to the Cuesta class action lawsuit discussed in Note 15 to our unaudited condensed consolidated financial statements. Management continues to believe the claim to be without merit, however has entered into settlement discussions between and among Ford and the plaintiff group. Based on those discussions, we reasonably believe, although cannot be certain, that a settlement in this case is probable and recorded in the second fiscal quarter of 2010 a $775 provision for full settlement and release of all claims.
| | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Loss on impairment of investments | | | | $ | — | | | $ | 317 | | | NM | |
| | | | | | | | | | | | | |
Loss on impairment of investments is a non-cash, other-than-temporary impairment charge relating to the Company’s investment in Dana Holding CP (“Dana”) during the first quarter of fiscal 2009. The impairment charge assumes no income tax benefit given the uncertainty of the Company’s ability to generate future taxable investment gains required to utilize these investment losses. Prior to the Company recording the impairment charge, the decline in market value was carried net of tax in other comprehensive loss.
| | | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Other (income) expense | | | | $ | (57 | ) | | $ | 87 | | | (165.5 | )% |
| | | | | | | | | | | | | |
Other (income) expense was income of $57 in the first six months of fiscal 2010 compared to expense of $87 in the first six months of fiscal 2009. 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, whereas other expense in the first six months of fiscal 2009 primarily consisted of losses related to the disposal of certain fixed assets.
| | | | | | | | | | | Percent Change | |
For the Six Months Ended March 31: | | | | 2010 | | | 2009 | | | 2009 to 2010 | |
Income tax benefit | | | | $ | (172 | ) | | $ | (1,147 | ) | | (85.0 | )% |
Tax benefit reflects an effective tax rate of 82.3% for the first six months of fiscal 2010 compared to an effective tax rate of 36.0% for the comparable period in fiscal 2009. 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
19
foreign jurisdictions. The increase in the tax rate from 2009 to 2010 is also due to a discrete tax benefit recognized during the six months ended March 31, 2010 associated with the class action lawsuit and due to additional tax expense recognized during the six months ended March 31, 2009 as the result of the de-recognition of a specific deferred tax asset that the Company determined did not meet the more-likely-than-not recognition threshold.
The income tax benefit was increased by $209 and $92 as a result of a tax holiday in the People’s Republic of China during the six months ended March 31, 2010 and March 31, 2009, respectively.
Financial Condition, Liquidity and Capital Resources
At March 31, 2010, we had cash and cash equivalents of $9,560. During fiscal 2009 we cancelled our revolving loan facility with GE Capital. We believe our cash on hand will be sufficient to meet our working capital needs on a short-term and longer-term basis without the necessity of establishing a new revolving credit facility.
Cash generated by operating activities was $1,284 for the first six months of fiscal 2010, a decrease of $14 from the cash generated by operating activities of $1,298 during the first six months of fiscal 2009. Net loss plus non-cash charges for depreciation and stock based compensation contributed $1,312 in the first six months of fiscal 2010 compared to a charge of $684 in the first six months of fiscal 2009.
Changes in working capital items generated cash of $13 in the first six months of fiscal 2010 compared to generating cash of $1,595 in the first six months of fiscal 2009. Changes in receivables for the first six months of fiscal 2010 was a use of cash of $1,736 compared to a $3,732 generation of cash in the first six months of fiscal 2009. The significant cash generation from the collection of receivables in the first six months of fiscal 2009 was due to the reduction in sales and accounts receivable due to the deterioration of the general economy during that quarter. The increase in receivables in fiscal 2010 is the result of higher sales levels. Inventories remain essentially unchanged in the first six months of fiscal 2010 compared to a decrease of $973 in the first six months of fiscal 2009. Accounts payable and accrued expenses increased in the first six months of fiscal 2010 primarily due to increases in purchases of inventory and supplies to remain in line with the significant increase in sales volumes and the accrual of the Cuesta legal settlement, whereas the decrease in accounts payable and accrued expenses in 2009 was primarily due to the lower sales and inventory purchases. Cash flows from operations for the six months ended March 31, 2010 included payments to our pension plans of $142. We were not required to make any contributions for the six months ended March 31, 2009. We believe it is likely we will continue to generate positive cash from operations, however, depending on changes in the world-wide economic market, we could experience periods of negative cash flow from operations.
Cash used in investing activities was $981 for the six months ended March 31, 2010 and $1,331 for the six months ended March 31, 2009 and was comprised primarily of purchases of equipment for both periods. We expect our cash use for investing activities to increase throughout the fiscal year as we continue to make purchases of capital equipment. We anticipate spending no more that $3,500 in fiscal 2010 related to the purchase of capital equipment.
Cash generated in financing activities was $12 for the six months ended March 31, 2010, compared to cash used in financing activities of $2,192 for the six months ended March 31, 2009. Cash generated for financing activities for the first six months of fiscal 2010 relates to proceeds from the exercise of stock options. In October 2008, the Company announced a share repurchase plan whereby the Company can, but is under no obligation to, repurchase up to $5,000 of the Company’s common stock. Repurchases may be made in the open market or through block trades, in compliance with Securities and Exchange Commission guidelines, subject to market conditions, applicable legal requirements and other factors. During the first six months of fiscal 2009, the Company purchased 310,893 shares of common stock at a total value of $2,357 and did not make any repurchases during the first six months of fiscal 2010. In addition, the first six months of fiscal 2009 included cash generation of $165 related to proceeds from the exercise of stock options.
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Contractual Obligations as of March 31, 2010
At March 31, 2010, 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, 2010. Maturities of these contractual obligations consist of the following:
| | Payments due by period | |
| | Total | | | | Less than 1
year | | | | 1 – 3
years | | | | 3 – 5
years | |
Operating lease obligations | | $ | 1,369 | | | | $ | 584 | | | | $ | 785 | | | | $ | — | |
MMT license - minimum royalties | | | 272 | | | | | 72 | | | | | 150 | | | | | 50 | |
| | $ | 1,641 | | | | $ | 656 | | | | $ | 935 | | | | $ | 50 | |
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, 2010 related to our pension plans and post-retirement medical plan of $5,846 and $2,714, respectively. We funded $142 to our pension plans during the first six months of fiscal 2010. We were not required to make any contribution during the first six months of fiscal 2009. We expect to make payments to our pension plans of $430 throughout the rest of fiscal 2010.
| 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. The Company’s primary market risk results from fluctuations in exchange rates of the Chinese RMB.
Interest Rate Risk
As of March 31, 2010, there are no balances outstanding on any loan or revolving loan. The Company cancelled its prior revolving loan agreement during the fourth quarter of fiscal 2009.
Foreign Currency Risk:
We sell our products to customers in the heavy truck, transit bus and off-road equipment industries. For the six months ended March 31, 2010 and 2009, the Company had foreign sales of approximately 39% and 35% of net sales, respectively. All worldwide sales in the first six months of fiscal 2010 and 2009, with the exception of $1,325 and $759, respectively, were denominated in U.S. dollars. During fiscal 2005, we established a manufacturing facility in Suzhou, China and we opened 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, short-term investments, accounts receivable, accounts payable and long-term obligations. The Company’s cash and cash equivalents, short-term investments, 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 Securities Exchange Act of 1934 (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
21
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 Company’s 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.
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PART II – OTHER INFORMATION
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, other than the Cuesta class action lawsuit discussed below, 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.
On October 1, 2004, the Company was named as a co-defendant in a product liability case (Cuesta v. Ford, et al), brought in the Oklahoma State District Court in Bryant, Oklahoma. The complaint seeks an unspecified amount of damages on behalf of the class based on allegations that certain of our products, as incorporated into certain models of Ford motor vehicles, are in some way defective. Following a number of procedural and appellate actions, the court has certified a class action, but no trial date has yet been set. Management continues to believe the claim to be without merit, however has entered into settlement discussions between and among Ford and the plaintiff group. Based on those discussions, the Company reasonably believes, although cannot be certain, that a settlement in this case is probable and recorded in the second quarter of fiscal 2010 a $775 provision for a full settlement and release of all claims. Any settlement will involve settlements with both Ford and the Company, with the Company’s settlement costs estimated to be $775. Such settlement will require court approval, which the Company believes is probable.
There have been no significant changes in risk factors for the quarter ended March 31, 2010. 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, 2009.
Item 3. | Defaults Upon Senior Securities |
Item 4. | Submission of Matters to a Vote of Security Holders |
On February 24, 2010, the Company held its annual stockholders’ meeting. The following matters were submitted to a vote of stockholders, with the results as follows:
1. The following individuals were elected to the Company’s Board of Directors to hold office for a one year term and to serve until the next annual stockholders’ meeting:
Nominee | | Votes For | | Withheld | |
Patrick W. Cavanagh | | 5,125,730 | | 23,351 | |
R. Eugene Goodson | | 5,125,159 | | 23,922 | |
H. Samuel Greenawalt | | 5,120,108 | | 28,973 | |
Douglas E. Hailey | | 5,125,634 | | 23,447 | |
Carlos P. Salas | | 5,106,176 | | 42,905 | |
Peter E. Salas | | 5,125,713 | | 23,368 | |
Donn J. Viola | | 5,125,833 | | 23,248 | |
2. Approval of an amendment to restate and rename the Company’s 1995 Stock Option Plan for Non-Employee Directors to the 2010 Restated Formula Stock Option Plan for Non-Employee Directors. The stockholders also adopted, by the votes indicated below, an amendment so as to increase the number of shares authorized under this plan from 86,666 shares to 106,666 shares. This approval required the affirmative vote of a majority of the shares represented at the annual meeting.
Votes For | Against | Abstentions | Broker Non-Votes |
4,359,267 | 612,831 | 176,983 | — |
3. Approval of an amendment to restate and rename the Company’s Restated 1993 Stock Option Plan to the 2010 Restated Stock Option Plan. The stockholders also adopted, by the votes indicated below, an amendment to increase the number of shares authorized under this plan from 870,000 shares to 1,170,000 shares. This approval required the affirmative vote of a majority of the shares represented at the annual meeting.
Votes For | Against | Abstentions | Broker Non-Votes |
4,348,166 | 625,798 | 175,117 | — |
None
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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) |
| | |
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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: May 11, 2010 | /s/ PATRICK W. CAVANAGH |
| | Patrick W. Cavanagh |
| | President and Chief Executive Officer |
Date: May 11, 2010 | /s/ DENNIS E. BUNDAY |
| | Dennis E. Bunday |
| | Chief Financial Officer |
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