At this time, I would like to welcome everyone to the Williams Controls fourth quarter and year end fiscal 2010 conference call. (Operator instructions) I will now turn the call over to Mr. Dennis Bunday, Chief Financial Officer.

Good morning, everyone, and welcome to our fiscal 2010 fourth quarter and year-end conference call. Before we begin, you should note that the following discussions and responses to questions reflect management's views as of today, December 15, 2010, 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 2009 annual report on Form 10-K, our fiscal 2010 quarterly reports on Form 10-Q, and our fiscal 2010 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 costs of materials and labor, general economic conditions in the United States and abroad. I will now turn the call over to our CEO, Pat Cavanagh, for his comments on the quarter.

Thank you, Dennis. Good morning, everyone, and welcome to our fiscal year-end 2010 conference call. This morning we released our financial results for the fourth quarter and our complete results for fiscal 2010. We enjoyed the fifth consecutive quarter of increased sales. From our low point in the third quarter of fiscal 2009, we've seen a recovery of our worldwide markets, the results of increased penetration in the off-road market and improvement in the emerging markets. In our fourth quarter, our sales were $14.1 million, an increase of 34% over last year's fourth quarter sales of $10.5 million and up 3% from the year's third quarter. Net income for the fourth quarter was $0.07 per diluted share. For the fiscal year our sales were up 35%, as we ended the year at $52.3 million, higher than last year's $38.8 million. For the fiscal year, our earnings were $0.19 per diluted share compared to $0.27 per diluted share loss last year. During the fiscal year, our earnings were negatively impacted by the development cost for a record number of new customer programs that will reach production in the next several years, an accelerated startup of our Indian facility, high premium freight charges as a result of a rampant production ramp up by our customers combined with supplier capacity issues and a settlement of a warranty and legal issue. Dennis will go into detail on these items later in the call. We continue to enjoy positive sales trends that were established earlier in the year. These include significant sales improvements from new products and new program introductions for the off-road and military applications. Stand-alone sensors, electronic hand controls and continued increases in penetration of electronic controls in India and China. While we don't breakout revenues in individual markets, I want to share…

Thank you, Pat. Net income for the fourth quarter was $510,000 or $0.07 per diluted share, compared to $365,000 or $0.05 per diluted share in last year's fourth quarter. However, last year's net income included $233,000 or $0.03 per share tax benefit, due to changes in state and federal tax laws and recognition of Chinese tax credit, including that benefit last year's fourth quarter earnings would have been $0.02 per share. On a pretax basis, income for the quarter improved from $132,000 last year to $553,000 this year. Looking at the full results, for the full year net income recovered modestly after the dismal markets in 2009 drove revenues and earnings down significantly. For the year net income was $1.4 million or $0.19 per share compared to a loss of $2 million or $0.27 per share last year. There were some unusual expense items in each year, which essentially offset each other in year-to-year comparisons. In 2009, we recognized an expense of $317,000 for the write-down to market value of stock we received in settlement of an environmental claim in fiscal 2009. In fiscal 2010, we recorded a net expense of $334,000, consisting of $441,000 gain on the sale of that same stock, offset by $775,000 expense for settling Cuesta class action suit. You may recall the Cuesta class action was brought against Ford and Williams in Oklahoma over five years ago, relating to pedals produced by our automotive group in Florida, which was sold in 2004. Although, we always felt this case was without merit, this is a very good outcome, based on the potential exposure to the company and we are very glad that we have been able to remove this significant uncertainly. We paid approximately 15% of the total settlement cost, with Ford paying the remainder. The…

(Operator Instructions) Our first question comes from the line of John Nobile.

I have my first question in regard to gross margins. I know you had mentioned that they were impacted by $175,000 in the quarter, yet the extra freight charges and the India startup costs were approximately $145,000 in the quarter. 145 was from the 190 for the full year, so a bulk of it was in that quarter. However, just seemed low to me for the quarter being that the priort quarter also on less revenue you had a higher gross margin, and that did include the expedited freight charges in that quarter also. So I was just trying to get a handle on the quarter. We did have that charge in the third quarter and this quarter too. So I am just trying to get a better handle on why this quarter's gross margins were lower than the prior three quarters? Dennis Bunday Let me take a shot at that, John. If you look at Q3 '10 to Q4 '10, the warranty costs were a couple of hundred thousand dollars to begin with. That obviously is in the gross margins. Our India startup costs are in the gross margins. We also had a few things today I didn't mention, but it's one of these things that sometimes you have pluses and minuses. But in this quarter, it was mostly in minuses, none of which were really huge. We took some inventory reserves, which is a normal part of the yearend closing. We had a small adjustment on our insurance. Our insurance expense was a little higher than we thought it was going to be. We had some higher payroll costs in there. And so there is nothing real big in there. It's just a lot of little things, and they are mostly one-time type things. That's not really a trend I would say

And we got to the India startup cost for the year, actually the bulk of the cost for the year were in the fourth quarter. What can we expect going forward maybe in Q1 or Q2 as far as the startup costs are concerned, or is that out of the way at this point?

Right now, obviously we're in startup. And so although we have some sales, those sales will start to ramp up to support the additional plant and people we have there and these type of things. But it's probably going to continue about at this level for the first couple of quarters of the year and then our sales will start to kick in, in second fiscal quarter, and we will start to generate some gross margins on those sales. Quite honestly, that will offset the plant cost and the people cost and these type of things. So there were a few things in getting the facility ready in this quarter that we won't have going forward, but it's not going to be a big change for the first fiscal quarter of 2011.

The supply issues, obviously they affected gross margins. But did that actually have a negative effect on the revenue on the quarter?

No, not really, John. And one of the things that we do is, based on our position in the market is we are very, very cognizant of supporting our customers and making sure that they are able to deliver products. So we turn heaven and earth upside down to make sure they have product to be able to deliver. And that's what happens. So our overdues are actually at this point in time quite low. So we think that much of this is behind us at this point.

And the India plant, I am just curious when this would be fully operational and how would these affect sales in the region on a dollar or a percentage basis - going forward obviously. I think you had mentioned before, by Q1 or Q2 you should be really producing from that plant.

Well, we are going to be up in production in February in that plant. And that's what I mentioned in my comments that Dennis and I and one of our Board members are going to be there at the plant for the grand opening and launch of production. And we are working very hard at doing that. We expect that by mid-year next year all of our cells that are in that plant will be in production. And we have indications in regard to this that based on our support and our location and our localization we expect to win additional business over there. So we are quite excited about the opportunity that we have got.

I was hoping if you could give a ballpark figure in dollar terms what you expect the business to be from that plant for this coming year?

We really don't give that kind of detail, John for competitive reasons and others.

Okay, but in regard to the India plant could you enumerate the quantity of sales that you had in the fourth quarter? I believe the new emission standards were scheduled for October. I assume they took place in October, which usually results in pre-buying. So I am not sure if that did have an affect on the quarter or not.

John, we had $277,000 in the last quarter; about $600,000 for the year, and that's a doubling from last year. And of course I think I'd mentioned earlier that we won a new program over there that will be very high volume which will be launched in February. So we expect the sales to grow from the base this year.

Okay, obviously you can't put a percentage on it; 600 for the year, I am just thinking, you anticipate at least a doubling? I mean being that you have the capacity, and obviously your plant is right in that area.

I give you that, John. It will more than double.

Is there anything to report regarding the light truck pedal programs? I think you had mentioned something.

Well, that's one of the programs in India that we are launching in February. And we are working very hard at introducing that pedal in several other emerging markets.

Which I believe in a previous call you had mentioned that that market should be bigger than the heavy truck pedal market.

Yes, absolutely. I wouldn't get too carried away with it though John. I mean, its modestly bigger and we just moving into that market.

Okay, understood. The effective tax rate was 19.7 for the year, I know you had mentioned that there were certain items obviously to cause it to be be at that rate, but could you give us what you project in 2011, the effective tax rate might be? Would we go back to maybe 34%?

Yes, I would say that a 34% rate is a reasonable rate. And that bounces around on our relative taxable income in different countries and these type of things. But in general, 34% is a good target rate to use.

Obviously, it could change depending on reasons that happened in 2010.

Correct.

One or two more questions and then I'll get in the queue here. CapEx for the coming year, I know what you said it was for the year, but this coming fiscal year what is your projected CapEx?

John, if I had to guess right now I'd say somewhere in the $3.5 million, $4 million range, quite a bit more than we had spent in the last couple of years. Again this is just a timing issue. We are building the production cells for our light commercial vehicle pedals. We are going to be spending those early in the year. We have several new programs. We are going to be launching tooling. We are spending a fair amount, and this is one-time things on IT. We are going to be upgrading our IT systems, and so we are going to be spending some money there. We are going to upgrade our testing and lab facility capabilities this year. And so all things considered, its going to be a heavier year in CapEx than I think you have seen in prior years. It's maybe what I would tend to call more of a bleak year in CapEx.

But obviously, you are setting yourselves up for good growth in the years to come. One final question. I think you usually provide us guidance, at least on a quarterly basis. For the first quarter, what are you projecting, either for the quarter or on a company basis being that we are well into the first quarter.

I don't know that we have given any guidance on the quarter in the past, John.

I think you might have mentioned what you had projected like a monthly rate what you anticipate for the quarter. I mean you are into this quarter now - it's almost a quarter. Taglich Brothers Inc.: I think you might have mentioned what you had projected like a monthly rate what you anticipate for the quarter. I mean you are into this quarter now - it's almost a quarter.

Yes, we are almost done with the quarter. But we don't give guidance, John as you know. But I would say, the market, if you look at the truck market, there has been a lot of headlines about what's happened in the Class 8 truck market. But most of what you're seeing there right now are orders that the OEM's are taking in for delivery end of the new year. I would guess that our customers are probably going to see a fourth calendar year quarter in production. That's because of the holidays and stuff. It's probably slightly lower than the third calendar quarter.

Your next question comes from the line of Michael Taglich.

The warranty claim's behind us in last fiscal year or are they going to continue?

Well, Mike, there is always some level of warranty. We had kind of an exceptional item last year that we settled.

I think the question Mike is that the $700,000 I referred to this year, that was a one-off deal and we certainly hope that's not going to continue. We don't expect it to.

How do you feel about the truck forecasts?

Well, there is a wide range, Mike. We were talking about it today, earlier. And when you look at next year and you see some people projecting in the 180 range and others projecting in the 230 range, that's a pretty wide band. To be honest with you we are planning at about 220 right now. That's our internal planning. And so we think that's a pretty good number, but we've got capacity employees to go to 250 easily if we need to. So we are hoping its going to be higher, but we think that a good number from our standpoint is around 220.

And from a supply chain standpoint, where are you? Do you lead the way, or in the middle way or you lag the market?

Well, we are delivering right to the production lines. So we are seeing what's really happening on our customers' production lines. So, I mean, there is not a whole lot of lag from our standpoint. We're JIT for a lot of customers, and we pride ourselves on-time delivery, all the time, every time. So we have to keep up with it. And we are good at doing that.

How do you think this truck demand's going to lag out quarter-by-quarter?

Well I don't have it on my finger tips, Mike. But I would guess, calendar second and third quarter, the biggest part of next year is going to be in those two quarters. I think that's what the OEMs are planning. And what I said in my comments I think is really important. As you look forward to 2012 and 2013 based on what's happening in the market with the age of the trucks and the increased freight and the profitability of some of these truck fleets that's improving, I think you are going to see real growth in '12 or '13. It's my personal opinion. And most of the industry experts if you will are projecting over 300,000. And I think that's true. And that's a doubling from this year.

Your next question comes from the line of (Paul Johnson).

I just wanted to run through a couple of things. In light of the fact that you have so many new products that you didn't have two years ago and in light of the geographic expansion both in Asia and India. We had just come off a discussion of Class 8 trucks in North America. It seems to me, although that sounds like a fantastic opportunity over the next 2 years, it's less important almost by definition than it was in prior years.

That might be a good analysis. One of the things that happened this last year for us is that our sales into the off-road area hit a record level for the company in a kind of a depressed market because of new products and penetration. And in fact one of the things that happened for us that is pretty significant is that we never thought that the off-road market in China would grow at the rate that it's grown, and we are basically surprised by our sales into the off-road segment in China, because they are moving as quickly as the truck guys and sometimes faster into emission-compliant engines so that they can export construction equipment. And that's helped their business a lot this last year with a couple of the major Chinese original equipment manufactures.

I'm not trying to put numbers to this, but just being conceptual. If you believe the forecast for NAFTA Class 8, I've got a doubling over the next two, three years.

We're looking at over 300,000 Class 8 trucks in 2012 and 2013. That's what the industry guys are saying at this moment.

I understand. Nobody has a crystal ball, but that's the best guess. I've got India coming on starting in February. Certainly the whole plans will be basically open by summer, brand new market. I've got China Class 8, China off-road. I've got joystick. I've got light vehicle. It sounds like your private portfolio has tripled or quadrupled.

Well, you're missing one thing. We've invested a significant amount of money in sensors, and we are beginning to see more and more sensors sold from a relatively small base, but we're seeing more and more standalone sensors sold for applications outside of pedals. That's another piece of our private portfolio, which we think has some legs.

So you're now making my argument back to me?

Yes, without giving you an answer.

We have a significantly broader product portfolio you've ever had in the company's history.

That's for sure.

Now as you've just entered a new geography or one new market, you will enter multiple new products, multiple new markets, multiple new geography.

Right. And we'll be introducing our new joystick this year, and we're clearly quite proud of that. We just had a Board meeting yesterday, and we gave full report to our Board on our progress with the joysticks and we're quite pleased with that.

If I look at a Class 8 pedal from you manufactured in China, manufactured in India, are some quality and functionalities very similar?

It is the same cellular lean manufacturing techniques, the same tools, the same fork yorks, the same JIT. If I took a picture of the same cell in China, in our plant here in Portland and in India, you couldn't tell them apart.

I assumed that the product is essentially worldwide, although there is certain advantages to manufacturing in specific locations.

Right. We pride ourselves on being low volume high mix. And a lot of our products are proprietary to the specific customers. So we may have, let's say, a floor pedal that we built in China, which has many of the same components as the one we build here, but it may be configured slightly differently. It may have a different sensor. It may have a different cover. It may have a different mounting plan for particular Chinese truck versus an Indian truck. So we try and localize the production as much as possible. For the most part, our start-up in India is going to be specifically for Indian manufacturers. So the products that are configured for the Indian truck manufacturers will be manufactured in our plant in India.

But the key is the different functionality or different customization is customer-driven, not geography-driven.

Correct.

And there's lot of overlap in design and all of that, but it's what the customer wants.

Right.

Back to sort of more numbers things. The freight charge in the quarter you said was 175,000 additional. But it sounds like it's going to continue for the next couple of quarters.

We are hoping to make it (inaudible) and I think we are. And we track freight by types of freight, reasons for the freight and everything like this obviously very closely. And we have been seeing this problem freight area come down a little bit. But it's still an issue. I can't say we've resolved all of it. But I don't think it's going to be the same level as we saw in the fourth quarter.

I don't think so either. And as we bring capacity up with some of our suppliers, a lot of them kind of toned themselves down; they added capacity or brought capacity back on. Once they bring it to back on, it is a little bit easier to deal with. I think some of the things we saw last year was that we were trying to bring these guys up faster as our customers were coming up fast. And they were trying to increase their (life speed) and this puts a big strain on some of the suppliers that we had.

But it's fair to call it an additional expense?

Absolutely, yes.

If the suppliers had had the capacity in place you wouldn't have had to pay for it?

Exactly. We have more freight costs in that and this is the freight cost that we track as avoidable if you will.

Right, exactly. Even the supply chain is all working like it should be.

Right, yes.

And again, you guys at least in the few years I followed, you don't forecast. So I'm not asking for a forecast, but what should gross margin be?

Well, I think if you go back into 2006, 2007, in those ranges you are looking at mid-30's ranges. But that's the reason I kind of made that comment that this year we saw about $5.3 million of additional operating income from $13.5 million sales increase. To kind of give you a little bit of a flavor, once we have our overhead and our operating expenses fairly well established those incremental sales drop to the bottom pretty quickly.

One of the things that I think you have seen Paul, is that when things were really tough we had a very supportive Board of Directors. And instead of cutting, we had the cash instead of cutting this business back dramatically - as we could have. We decided to invest in the business and the markets and we have continued to do that. And we think that a lot of the product wins we got were a result of that. And that's added some additional expense both from an engineering standpoint, and we have continued to drive our production efficiencies and we think we will benefit from all that in the future as business increases.

You are adding to your operating expenses in the sense that you are bringing on India and you are bringing on some cells related to light truck.

Right, correct.

Not huge amounts but you are adding to that. So the leverage will be there as you grow, but you are also using the cash flow to continue to invest in the business.

Exactly. That's right.

I think this is my last question. Cuesta, you guys paid 750?

775.

775. How much of that was reserved already, and how much of it flowed through the P&L?

Everything went through the P&L this year.

Where we do see that, in Administrative?

It's a separate line item. If you look at our press release, you will see gross profits and then R&D selling, admin expenses. There is a separate line item called class action settlement. That's Cuesta and that actually happened in the second quarter. And you'll see that 775 in our year-to-date numbers. And if you go back to our second quarter you'll see it there too.

And that was obviously a cash drain this year.

Yes, it was.

So despite paying that and doing all the other things, paying the dividend that's what you talk about ending the year with a very healthy cash balance.

Exactly. You got it.

(Operator Instructions) There are no further questions at this time. I'll turn the call back over to the presenters.

Well, this concludes our fourth quarter and year-end conference call. And I would like to thank everybody for attending today.