Patrick Cavanagh – President and CEO Dennis Bunday – EVP and CFO

John Nobile – Taglich Brothers Chris Stanton

Good afternoon, my name is Jackie and I will be your conference operator today. At this time, I would like to welcome everyone to the Williams Controls second quarter 2009 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there would be a question-and-answer session. (Operator instructions). Thank you. Mr. Bunday, you may begin your conference.

Good afternoon everyone and welcome to our second quarter fiscal 2009 conference call. Before we begin, you should note that the following discussions and responses to questions reflect management’s views as of today, April 28th, 2009, and may include forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Information concerning risk factors and other factors that could cause actual results to differ materially is included in our filings with the SEC, including our 2008 annual report on Form 10-K, our fiscal 2009 quarterly reports on Form 10-Q, and our fiscal 2009 current reports on Form 8-K. Specific factors that may cause such a difference include, but are not limited to availability of adequate working capital, domestic and international competitive pressures, increased governmental regulation, increased cost of materials and labor and general economic conditions in the United States and abroad. I will now turn the call over to our CEO Patrick Cavanagh for his comments on the quarter. Pat?

Thank you, Dennis. Good morning and welcome to our fiscal second quarter conference call. This morning we released our financial results for the second fiscal quarter. I’d like to begin my making a few comments on the quarter and then on how we are dealing with a very tough business environment that we are facing. Sales in the second quarter were $9.1 million, down 44.6% from the second quarter of fiscal 2008. As a result of the lower sales and some one-time charges, we incurred a net loss of $1.2 million or $0.17 a share. Together, the one-time charges had a total impact on net income of $500,000 or $0.07 per share for the quarter and Dennis will comment on these charges later in the call. Sales in our second quarter were the weakest that we’ve seen in many years. Sales were down in every geographic region and product segment. Sales to the European truck customers were hardest hit with quarter-over-quarter sales declines of 77%. For the first six months, these sales were down 68% as many of our truck customers shut down and their – shut down their production lines to match production with lower demand. While this decline is dramatic, it was caused in part by the strong European market in 2008, which we feel accounts for a portion of the dramatic year-over-year decline. Asian sales were down 43% for the quarter and 45% year-over-year. The decline in off-road sales was not nearly as dramatic as some of the other segments. NAFTA off-road sales were off 19% quarter-over-quarter and 18% for the first six months of fiscal 2009. Worldwide, off-road sales declined 34% quarter-over-quarter and 29% year-over-year, mostly as a result of lower spending on construction equipment. The NAFTA OEM truck market fared better than the European truck…

Thank you, Pat. Second quarter sales of $9.1 million represents a 44.6% decline from last year’s second quarter sales of $16. 5 million and 15% below the first quarter sales of $10.7 million. The weakness that was evident in all market regions including NAFTA, Europe, and Asia and across essentially all product lines in the first quarter continued into the second quarter and in most cases, accelerated. Comparing the second quarter of 2009 to the first quarter, sales were 15% lower in this quarter than last due to further weakness in the NAFTA and European OEM truck markets. One bright spot on the quarter-over-quarter comparison was Asia where sales in that region were up 56% from the first quarter, with some of that increase due to market timing. Although our volumes are down significantly, our market share and pricing remain consistent. Second quarter net loss was $1.2 million or $0.17 per diluted share and the loss for the first six months of 2009 was $2 million or $0.28 per diluted share. In addition to the low sales levels caused by the difficult worldwide truck and off-road market, there were also several one-time items and adjustments recorded in the quarter. In the second quarter, we increased our reserves for bad debts, increased our warranty reserve, recorded an asset impairment charge, settled an outstanding labor issue, and recorded severance costs for some terminations made during the quarter, which in total increased the quarterly after-tax loss by approximately $500,000 or $0.07 per share. In addition to these items, included in the first six months’ results was a write-down of marketable securities, which increased our net loss by $317,000 or $0.04 per diluted share. The quarterly loss compares to net income of $2.5 million or $0.32 per diluted share for the second fiscal quarter…

(Operator instructions). We’ll pause for just a moment to compile the Q&A roster. Your first question comes from John Nobile. John Nobile – Taglich Brothers: Good afternoon. I’d like know in January –?

Hi, John. How are you? John Nobile – Taglich Brothers: Good. Thank you. In January you mentioned that you went through four-day work weeks in manufacturing. And what level of revenues do you believe it would take to go back to a five-day work week?

Well, I’m thinking about $4 million to $4.5 million a month, John. John Nobile – Taglich Brothers: Okay. So, we may not see something like that maybe till calendar ’04 if industry projections are correct with the build rates increasing. Well, hopefully we’ll see. But anyway, in February you instituted the significant reduction in operating expenses, which obviously are taking place in the March quarter, but assuming that the current rate is where you are going to be going forward, what would you say your annual operating expenses would be on a typical year from what you are right now?

Give us just a second, John.

Yes. John Nobile – Taglich Brothers: Yes. I know you had mentioned you reduced your operating cost by $3.5 million annually.

Yes, on an annualized rate and – John Nobile – Taglich Brothers: Is that from fiscal – if I could say fiscal ’08 or from like a quarter that I could take this as a basis?

Let’s see. John, what I think would probably be best is if I can get back to you on that. John Nobile – Taglich Brothers: Okay, later on in this call maybe.

Yes, let’s see if we can – depending on how long it lasts. John Nobile – Taglich Brothers: I just wanted to get an idea because that’s a huge reduction, $3.5 million. But just to see the basis of – you are looking at it on fiscal ’08 or you are looking at it from what you currently were in Q2, just trying to get an understating on that one.

I think probably, John, the best way to look at that is that if you take a look at our fourth quarter run rates for R&D, selling, and admin. I mean that’s – the – obviously the four-day work weeks, some of that comes out of cost of sales for the direct labor, some of the indirect labor, plant support and those types of things come out also, but a lot of it comes out of R&D, selling, and admin. John Nobile – Taglich Brothers: Okay.

And so, I would take like your fourth quarter. What you are seeing in the fourth quarter, that was relatively clean. John Nobile – Taglich Brothers: Annualize that and then –?

And then annualize and then back off on that, yes. John Nobile – Taglich Brothers: And basically expect that in this current environment, obviously, if things pick up I’m sure it will change. And I know you throughout the industry forecast for basically run rates thing or build rates thing at the level that they have been in the last quarter or two and not picking up till Q4 calendar. I was curious with the 2010 emission regulations if you feel that a pickup might occur even in your fourth calendar – fourth fiscal quarter.

Yes, there might be something there, John, but – John Nobile – Taglich Brothers: But you are not seeing that yet?

I’m not really planning on it. With the amount of used trucks that are out there right now and the price of the new trucks, I think one of our customers announced that the new 2010 trucks are going to be about $10,000 more expensive. John Nobile – Taglich Brothers: I heard $12,000.

Yes, this depends on – and if you look back, I mean there was a $7,000 or $8,000 increase on trucks that were produced in the year 2007. So, the end users are – the fleets are looking at a $17,000 increase over 2006 trucks. Pretty significant, and they don’t get a dime more to haul the freight with those trucks as opposed to the older trucks. So, until – even though the older trucks are at kind of record age levels, they still have pretty low mileage on them. John Nobile – Taglich Brothers: Okay.

Their life gets burnt till they burn some of those off. There is a bit of inventory out there that needs to be used up and there is not the freight – with the freight levels that where they are at, I mean the volumes are down. It’s a difficult environment for our customers and so, they are struggling with some of that. So – and we are struggling as a result of it. John Nobile – Taglich Brothers: Okay. No, I understand that. Just two quick questions. Your sales to China in the second quarter, how do they compare to last year?

Let’s take a look. John Nobile – Taglich Brothers: I just – I wanted to know if they were growing and if they are, by what rate.

I’m sorry. Compared to when John? John Nobile – Taglich Brothers: Well, this year’s – your fiscal second quarter compared to last year’s.

They were up – okay, yes, we were – it looks like we were down in China about 13% for the second quarter of 2009 versus 2008. John Nobile – Taglich Brothers: Okay, second quarter of 2008. Okay, down.

And then on a quarter – although on a year-to-date basis, for the first six months versus first six months, we were up 5.7%. John Nobile – Taglich Brothers: Okay. And how does business look in that area going forward? I saw a report that said that heavy truck sales will be improving in China. So, I’m not sure if you are seeing that yet, if it’s something to look forward to?

Yes, generally we are – they are still working through a number of the emission issues in China and we sell our product on what they call Euro 3 version trucks that are the most emission compliant, but there are still kind of Euro 2 style trucks out there. And so, until this market gets completely switched over to Euro 3, sales are going to remain – and we get segment of the sales and not all of it. John Nobile – Taglich Brothers: Okay.

But we expect that as they move to Euro 3, we are going to sell more pedals and until that happens it’s still going to remain a little bit muted and obviously there has been a slowdown in the economy there too. John Nobile – Taglich Brothers: No, I understand that. I just saw a report that said it was improving. But anyway, I just wanted one quick comment on the Q2 gross margins. Without one-time charges, you had rounded off a number earlier, if you could just repeat that? I know they were 13.4% on a GAAP basis, but without the non-recurring charges, what were the gross margins for the second quarter?

For the second quarter it would be about 20%. John Nobile – Taglich Brothers: About 20%?

Right. John Nobile – Taglich Brothers: Okay. Thank you very much.

All right.

Thanks, John.

Okay, thanks John.

(Operator instructions). There are no more questions.

If there are no further questions, this concludes our second quarter conference call. Wait, wait just a second. It looks like maybe we have one more call here real quick.

We have a question from Chris Stanton [ph].

Hi guys, how are you?

Hi Chris. Boy, you got this one in just under the wire.

I thought there might have been someone else asking questions. So, I waited to see and yes, you are right, I got in just under the wire. Thanks for taking my question and I guess – can you give us some sense, at least anecdotally, on what you are hearing from your customers? I know you gave – it sounded like loose guidance for the next couple of quarters that you expect revenues to be in around a $3 million range per quarter. So, it sounds like you have some sense for what their demands are going to be. Can you give us anymore color on those conversations?

Well, it – from our standpoint, kind of it looks something like – yes, we saw a little bit of an improvement in March and I heard that when seasonal factors were applied to it, it really wasn’t an increase, but we are actually seeing – we saw a slight increase in volume on the March orders for new Class 8 trucks. And we are seeing – I hate to say that we’ve reached the bottom because it could always be worse, but there is a little bit of an improvement that we’ve seen in the orders that we are looking at, but depending on the time of the year and the market, we are looking at kind of trying to operate at this $3 million to $3.5 million level over the next couple of quarters and our customers seem to believe that that’s pretty close. But one of the things – the problem is the guidance at this point from anybody is really poor. Nobody just really has a good feel or any decent visibility to what’s really going to happen and you find a lot of open – our customers have a lot of open spots in their builds schedules and they are trying to fill those very, very quickly when they get orders, which causes some scrambling on our part to be able to fill those because it is certainly difficult. But it seems to be getting – I hate to say better, but it seems to be a little calmer at this point and not quite as crazy as it was towards the end of last year and early in this – last quarter and the second quarter.

Okay. So, the rate of decline is – or hopefully kind of they will be plateaued.

Yes. So far we saw the weakest months as – well, our sales in March were down, we’ve seen – if you look at the figures and we look at orders primarily that our customers are seeing and when we look at those orders, their orders improved in March and they were the weakest in February and January. They’ve improved in March and so, that usually comes to us four to six weeks later.

Okay. So, potentially there is some seasonality, but maybe there is some glimmer –?

:

And operating at that $3 million level, can you give us some sense for what you expect the cash burn to be for the balance of the year?

Well, our plan – well, on a month-by-month basis, we think that with the three of the cuts that we’ve made in our expenses that – management of our capital expenditures, we are going to be able to kind of be break-even on a cash basis month by month. So, it’s kind of where we are at.

That will be great. Last question, with respect to the new trucks –?

I wouldn’t qualify that by saying – sometimes it depends on the mix of products that we are selling too because they have different margins, but that’s our intention with the cuts that we’ve made.

Great. And I guess that (inaudible) to this question, which is the 2010 trucks that I guess you are designing pedals for or you may have already designed, are there – how would you characterize the margin opportunities with those pedals for the new trucks? Are they the same pedals or are they slightly different and is there an opportunity there for Williams?

Well, some of them are virtually the same, some are not. Some of them may have different sensor requirements. But I think our intention is that – and hopefully the margins will stay relatively similar. There has been several changes in market share, obviously the people – the Caterpillar has withdrawn from the truck market and that has an impact on margin and mix, but in general, we are hoping to stay in the kind of the same range. We face a dilemma every year, I mean our costs generally go down on long-term agreements with our customers and we have to fight with commodity prices and other – reducing other costs to maintain that margin. So, it’s always a tough environment.

Right. Okay, great. Thank you very much.

(Operator instructions). There are no more questions in queue.

Thank you very much. This concludes our second quarter conference call and I would like to thank everybody for attending today. Good-bye now.

This concludes today’s conference call. You may now disconnect.