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

John Nobile – Taglich Brothers Michael Taglich – Taglich Brothers

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 the 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.

Thank you, Dennis. Good afternoon everyone and welcome to our third quarter conference call.

This morning we released our financial results for the third quarter. I will make a few comments on the quarter and then discuss what we are seeing as we enter the second half of the calendar year.

Sales in the third quarter were $8.4 million, down 7% from the second quarter of fiscal 2009. As a direct result of lower sales we incurred a net loss of $333,000 or $0.05 per diluted share.

The net loss in our fiscal third quarter was $867,000 less than the net loss we incurred in the second quarter on higher sales of $9.1 million. This was a result of fully implemented cost reductions taken in the first and second quarters.

Year-to-date through the first nine months of our fiscal year sales are down $20.3 million or 42% to $28.2 million from $48.6 million in the same period in fiscal 2008. The net loss for this period in fiscal 2009 is $2.3 million compared to a net income of $5.83 million in fiscal 2008.

Sales in our third quarter were the weakest we have seen in this economic downturn. For the first nine months of our fiscal year, sales were down in every region, market and product segment compared to the same period a year ago.

Sales in Europe led the downturn partly due to over production in 2008, weakness in the Eastern European market for used trucks and a rapidly weakening economy. When compared to the second quarter of this year, sales were down in all segments except Asia where sales in China and India were improved from the second quarter.

In the North American market, the calendar year-to-date production through June for classes 6 and 7 was down 46.6% at 33,400 units while the total class 8 build rate year-over-year was down 60.3% at 52,000 trucks. June production for Class 6 and 7 was 6,000 units and Class 8 was almost 10,000 units.

Many have called this the worst industry downturn in history. By the end of 2009, truck builds will be off over 65% from the peak in 2006.

Large historical declines in the truck market in the past are in the 50% range so this is indicative of the severity of the decline we have experienced. From what we are seeing at Williams, we think the truck market is near the bottom of the cycle.

In the recent past, much of the volatility in the truck market has been driven by changes in technology. After the emissions change in 2010 and with no other major emission hurdles on the horizon, we expect to see less volatility in truck production going forward.

As you may recall from our last conference call we began taking action last October to reduce operating costs. At this point we have reduced our annualized operating costs by approximately $3.5 million.

We are also carefully controlling our capital expenditures and we expect to be approximately $2 million this year. While we are reducing costs, we have done it selectively and in some cases temporarily.

My priority is to continue to invest in market and product development even during this downturn. From a market development standpoint we see the Chinese and Indian markets as strategically important for Williams’ future growth.

Combined China and India represent almost half the world’s global truck production today and with the pending emissions changes in both countries the use of electronic trowels will increase dramatically in the future. As you know, we developed a state of the art manufacturing facility in Suzhou, China in 2005.

This has quality approval by many of the largest OEM truck and off-road customers. We currently produce approximately 25% of our throttle pedals in the Suzhou location along with the majority of our sensors.

In addition, our sales team in China over the last several years has been successful in obtaining a leading share of that market. Importantly, last month we were the recipient of a key supplier quality award from the largest heavy truck manufacturer in China where we are sole sourced.

Through our customer relationships in India we have also had similar success on several important new programs in the last several months. One new program, Tata Motors’ new flagship heavy truck program referred to as “The World Truck Program” was one of the programs we won.

Pilot production has begun and volume production begins in 2010. As a result we are committed to investing in a manufacturing plant in Pune, India.

Our current schedule is to be producing products in this facility by mid-2010. We have obtained our business license and have identified several potential sites.

I plan to be in India again in September. In our first fiscal quarter Williams will be introducing a new product line of industrial joy sticks for the off-road and construction equipment markets.

Production will begin mid next year. This product has been under development at Williams for over a year and is a result of requests from our customers.

We see ourselves as the interface between the man, or the operator, and the machine. Our joysticks will be designed and built with the same high quality standards as our pedals.

We will use our proven high mix, low volume, lean manufacturing capabilities. As a supplier of electronic pedals to many of the largest off-road OEM’s we understand the longevity and robustness that has to go into these products to be successful.

As a result of the sales of Williams Automotive operation in 2002, we were prohibited by the agreement until last fall from competing in the truck market under 5 tons. Last fall with the expiration of this agreement we have been designing and developing a very competitive light commercial vehicle pedal.

We have leveraged our sensor technology to produce this pedal at a very competitive price and we have some very promising opportunities for these pedals. Light commercial vehicle pedals typically are lower in cost and performance than the pedals we supply for heavy commercial vehicles and are more in line with automotive type pedals.

We are going to aggressively pursue applications in the light truck markets for these products. One positive sign in the last quarter was business for the military.

While we supply the majority of electronics for auto pedals for U.S. military applications, we were proud to be able to support Oshkosh’s successful bid for the MATV program.

This is a mine resistant vehicle especially designed for the rigors of fighting in Afghanistan. While we continue to see temporary weak off road markets, we continue to invest in this market developing new products at this time for several manufacturers.

Our focus and hard work in this market was recently recognized when we received the prestigious Supplier Quality Award from one of the world’s largest construction equipment manufacturers. While our visibility into the future is poor, we have seen sales for July and August improve to the $3.5 million a month range.

While it is too early to tell if this is sustainable it is a positive sign for our business. While this year has been difficult, our organization and management team has been up to the challenge and we fully expect to increase our market share and product offerings in this downturn.

I will now turn the call over to Dennis for his comments on the important financial aspects of the quarter.

Thank you Pat. Third quarter sales of $8.4 million were 7% lower than the second quarter 2009 sales but that rate of decline is only about half of the prior quarter-to-quarter sales decline, the first time this year the rate of decline has slowed.

Quarterly comparisons to last year are still dramatic with sales down 51%. In the current business environment, examining quarterly trends to get some indication of when markets may recover has become more important than comparing with the prior year’s quarters.

In my comments today, as in the press release, we are comparing more to the prior quarter than the prior year’s quarter. We will save the year-over-year comparisons to our year-to-date comments.

For the first nine months of this year sales were $28.3 million or 42% lower than the first nine months of last year. These sales declines are solely the result of our customers’ order rates.

Market share and pricing remain stable. The current quarter’s sales decline included most geographical and product lines although there were a couple of bright spots.

Third quarter sales to Asian customers were up 31% from this year’s second quarter with China up 71%. NAFTA Bus sales showed some small strength being up 16%.

Sales to India were also up but from a smaller base. Unfortunately, third quarter sales were down in our key NAFTA and European markets.

Sales to NAFTA truck OEM’s were down 8% quarter-to-quarter and European truck OEMs were down 16%. For the first nine months of fiscal 2009, sales were down in all major geographic areas and across all product lines.

European truck OEM sales were down 71%. NAFTA OEM truck was down 44%.

Asia was down 49% and the worldwide off road sales were down 39%. Although we reported a loss in the third quarter, results improved significantly over the second quarter.

The third quarter loss was $333,000 or $0.05 per share compared to the 2009 second quarter net loss of $1.2 million or $0.17 per share. This improvement is more dramatic as it was on $700,000 lower sales.

In the first half of the year we took measured and appropriate steps to reduce our operating costs in light of the difficult economic environment and resulting sales declines. We instituted these measures in the first half of fiscal 2009 and this was the first quarter that all of the cost savings initiatives were fully in effect.

These include temporary wage reductions and/or reduced work schedules for essentially all of our employee base, some selected layoffs, reductions in Board fees and careful management of other costs. The quarter-over-quarter comparison was impacted by the fact that the second quarter we had approximately $500,000 of higher costs related to asset reserves and legal settlements which depressed the second quarter results.

For the first nine months of fiscal 2009 the net loss was $2.4 million or $0.32 per share compared to net income of $5.8 million or $0.75 per share in the first nine months of last year. There is a net of about $1.3 million in one-time net, after-tax costs in 2009 and one-time gains in 2008 that narrow that gap a bit but overall the change in income illustrates the dramatic impact the decline in worldwide truck and off-road markets has had on our business.

For the current quarter both the basic and fully diluted EPS share count was 7,268,741 and for the nine months was 7,330,347. For the nine months was 7,270,820 shares outstanding.

Third quarter gross profits improved to $1.9 million on $8.4 million of sales for a 22.6% gross margin compared to the second quarter 2009 gross profit of $1.2 million on $9.1 million of sales. The second quarter gross margin was 13.4%.

For the first nine months gross profits were $5.7 million on $28.3 million of sales for a 20.1% gross margin compared to compared to $16.7 million on $48.6 million of sales in last year’s first nine months. The gross profit margin for the first nine months of 2008 was 34.3%.

Operating expenses, which include engineering, selling and administrative, were down $563,000 in the third quarter compared to the second quarter of 2009 and were down $469,000 from last year’s third quarter. In addition to the impact of our cost management efforts, we are not required this year to have our auditors conduct an audit of our internal controls under SOX as we did not meet the minimum capitalization requirement which will help us drive down our costs.

Unless the SEC elects to delay implementation of SOX for smaller companies, we will be required to have auditor assessment of SOX for fiscal 2010 which will increase our costs over $100,000 in that year. If you look at the 2009 nine month operating expenses you will note they were essentially unchanged from 2008 levels.

Although 2009 costs were reduced by the wage and other cost reductions, costs were higher earlier in the year for termination severance costs, bad debt reserves, a $275,000 non-cash expense related to our deferred compensation programs and higher product development costs. Now turning to the balance sheet and cash flow, cash increased $1.2 million in the quarter to $8.0 million.

This year one goal has been to maintain a positive cash flow while not sacrificing new product development or sales activity. To that end, during the quarter EBITDA, which is net income less depreciation and amortization and the non-cash charge for stock option expense, was $20,000 on our $8.4 million of sales.

We further reduced inventories in the quarter by $1.3 million which helped our cash position. So far this year we have reduced inventories by $2.3 million or 28%.

Depreciation and amortization for the quarter was $500,000 and non-cash stock option expense for the quarter was $155,000. CapEx slowed to $261,000 for the quarter and for the first nine months was $1.6 million.

We limited our capital spending in the quarter to new product development and safety items and will continue to do so for the remainder of the fiscal year. I expect our capital spending will be no more than $2 million for the entire year.

We are fortunate that we have a very solid financial structure which allows us to continue to focus on developing new products and markets. In addition to our $8 million in cash, we continue to be free of short or long-term debt.

Our cash balance is down from $9 million at the end of last fiscal year. That is due solely to executing on our share repurchase program.

To date we have spent $2.4 million to purchase 310,893 shares mostly in the first quarter. This represents approximately 4% of our outstanding shares.

Without the share repurchase program, we would have increased cash over $1.3 million this year in light of the 42% lower sales. Net trade receivables are down $5.1 million from the beginning of the fiscal year on lower sales volumes.

In some cases it has been difficult to collect receivables from some smaller OEM customers and distributors and we continue to have a number of our smaller customers on credit watch and credit hold. With our net loss position, we have generated a $1.3 million U.S.

income tax receivable which is reflected in other accounts receivable. We will be able to claim a net operating loss carry back when we file our 2009 taxes in 2010 and recoup this cash.

Shortly after the end of the quarter we voluntarily terminated our revolving loan agreement with GE Capital. We have had discussions with another bank that we believe may result in a new loan agreement as our business improves, but more importantly we feel comfortable with our current cost structure and strong cash balance.

We have more than adequate financial resources for the current economic climate. This concludes our formal comments.

We would now like to turn the conference over to questions.

At the conference in May you mentioned that the fleet age is at a record level of over six years old. Typical truck lasts approximately 8 years.

Do you believe pent up demand could result in record revenues in the next couple of years?

It is hard to say. One of the things that is going on too is this has been more than discussed in the industry.

The issue is that while the trucks are at a record age at this point many of those trucks have very low mileage on them. What you are seeing is reflected in some of the used truck pricing.

It has deteriorated substantially over the last six months. I think comments I made here I think there is going to be a time to work off some of this over capacity.

We have got to see the freight tonnage come back up which there have been signs that is happening. Those trucks at some point are going to be old but they have a useful life based on their mileage and I think they are going to have to be used to the point that they want to retire them or second tier those trucks.

I’m curious, you have plans for Q4. With the improvement in orders, at least the press release alluded to improved orders and shipments as compared to Q2, what do you believe we can expect in Q4 sales?

I don’t think we said that in our financial release. I made the comment in my remarks we are seeing improved schedules by our customers both last month in July and this month.

It is a little bit early in my view, and maybe I am too conservative, but in my view it is a little bit early to get that things are going back to normal. We are seeing improved order patterns by our OEMs and I think that is the good news.

How long it is going to last or how big it is going to be, I don’t know.

Compared to what you just reported, the third quarter results to Q4 if things continue the way they are should be better than Q3?

Yes.

The current level of SG&A. Is this a level we should expect going forward?

When you say going forward, I would say in the short-term.

At the low level of sales.

At the low level of sales, pretty close. There are some things we may have been a little bit…we were burning off some things.

Our repair and maintenance was very low, for example. We were redoing some of our shipping stock so some of those costs were much lower in the quarter than what normally would happen.

So the third quarter might be a little bit better than what you might see in the fourth quarter. Materially yes.

Same direction.

You had mentioned you are looking to start building light truck pedals, I believe that was under 5 ton capacity. I’m curious if you could shed some light on the competition.

How competitive this market might be compared to the heavy truck market.

It is probably more competitive and the volumes are higher and probably the margins are lower if you are looking at the model. Typically these are high volume small trucks.

A lot are produced in Asia. Typically we would be competing with automotive based suppliers.

Many of the programs are new programs so we are going head to head with these guys. Our experience has been we understand this market pretty well and we knew where we had to be to be successful in this market from a price point.

That is how we designed this product and leveraging our substantial sensor capability at this time gave us a real leg up on doing that. So we expect to be fully competitive.

Is it going to be more competitive? Yes.

Does that scare us? No.

From our standpoint we feel our manufacturing capability in China for these kinds of lower cost items is up to the task and we have designed it to be that way. Just one more comment on that, we have the flexibility of doing this in lower volumes than our automotive competitors.

We think where we shine and where we differentiate ourselves is because of our high mix, lower volume capability to produce products like this at a lower cost in slower volumes which sometimes gives the automotive guys a real headache.

So this is the worst quarter you are going to see in the rest of your career?

That depends on how long the career is. You never know.

That could be a shorter career potentially. That was a half a joke.

You think this is behind you now right?

It is hard to say with what is going to happen with the economy. What we have said is we think we are in a bottoming process.

We think the truck market has come close to that bottom or is bouncing along the bottom. When it starts up again that is anybody’s guess.

We are seeing improved schedules for July and August and hopefully that will continue to improve.

Following through on the smaller truck pedal, how big is the market on this thing? Do you want to give us an order of magnitude of where you think you are going to take that business over the next five years?

What percentage of the market you hope you will get?

You never know. It is obviously from a volume standpoint the market is much bigger.

We are going to be very selective in the applications or opportunities we take advantage of. We think our competitive advantage is in a certain area and we are going to exploit that to its fullest.

Is it in the millions of dollars? Probably.

It is going to depend on how successful we are and how many new programs come online. Our opportunity really in this market is really with new opportunities or new programs or new trucks.

It is very difficult to replace an existing supplier in this market. So you really look for opportunities on new platforms.

That is what we are doing. So it is going to be a gradual ramp up but it is a substantial market.

My comments are the margins will probably be lower. The volumes will probably be higher.

The price point is a lower price point than what we are seeing right now. Obviously we think it is worth our pursuit and we think it will contribute to the growth of the company.

In the markets you are chasing after, what are the unit levels? If I remember correctly it was awhile back but those are relatively small compared to class 8 unit markets right?

No, in the LCV market these are opportunities that are typically well over 100,000 units of platform a year.

In those markets. Worldwide right?

We are seeing single platform opportunities at one manufacturer well over 100,000 per year. It depends on how many of those we can capture.

That is a higher volume than what we are seeing in the heavy truck market.

At a much lower price. Right?

Yes. Substantially lower price.

More in the automotive pedal line. Kind of where automotive pedals are.

Like I said earlier, with our strength in sensor capability here we were able to leverage that to really be competitive in this market. We did a lot of market research to see where the automotive guys are in this market and then we want to selectively take opportunities that fit our capability the best.

You are looking worldwide?

What I want to say really is I don’t want to load up our production capability with a bunch of low market business. I want to take business that is at a premium margin and sometimes that is the lower those volumes typically the price is a bit higher.

We have the flexibility to do that very easily.

Is this worldwide as far as looking at this market or are you looking at North America?

Absolutely looking globally. No question about it.

In fact, the major opportunities particularly now are in Asia with some of these small delivery vehicles and such.