Dec 15, 2010
Executives
Dennis Bunday - CFO Pat Cavanagh - CEO
Analysts
John Nobile - Taglich Brothers Inc. Michael Taglich - Taglich Bros, Inc.
Operator
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.
Dennis Bunday
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.
Pat Cavanagh
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 with you some relevant comparisons and market projections. In the fiscal year we won new incremental business that will contribute almost $8 million annually in full production.
In addition, approximately 4 million of our sales increase in fiscal 2010 came from new products and programs. Our established market saw a recovery almost across the board.
The European truck market was up 80% for the year. Sales in Korea showed 60% improvement this year and our off-road sales increased 57% over fiscal 2009 to a record off-road sales for Williams Controls.
Also in the fourth quarter we awarded a new pedal program from a leading agricultural OEM and we signed an LOI with the major Indian truck manufacturer for our new light commercial vehicle pedal. Our NAFTA truck OEM sales also showed solid results with the 21% recovery from fiscal 2009, with rising freight volumes, improved trucker profitability and the average age of class A trucks approaching seven years.
The consensus points to a continued recovery of NAFTA truck bills in 2011. Although, the estimates as to the magnitude of this recovery very widely, current industry projections for calendar year 2011 are between 180 to 230 class A trucks, up from approximately 150,000 units this year.
Projections for calendar year '12 and '13 are over 300,000 class A trucks, basically double of what we saw this year. We also believe calendar year '12 and '13 will show increased penetration in the emerging markets of China and India, where we are well positioned.
Our sales in India in fiscal year 2010 almost doubled over the previous year. We saw this dynamic coming some time ago, and Dennis and I will be traveling to India in January, along with one of our board members to commemorate the opening of our new Pune factory, as we begin production for some of the industries leading OEMs.
We also plan to use our Indian facility to leverage our worldwide engineering and software capability. In fact one of our first hires in engineering is spending time in Portland this week, familiarizing himself with our capabilities.
This facility will be key to our continued growth in the Indian market. We have been successful in obtaining volumes with the major OEMs in India.
The local support that we can now provide will solidify our position with these key customers and lead to other opportunities that we expect to continue, as the emission regulations tighten and drives increased demand for our products. I'll now turn the call over to Dennis, to provide some detail on our financial results.
Dennis?
Dennis Bunday
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 full pretax amount of $775,000 was paid to the plaintiffs in the fourth fiscal quarter of this year and this case is now finally closed and behind us. At the operating income level, excluding the Cuesta class action lawsuit settlement, full year 2010 operating income was up $5.3 million, an increase in sales of $13.5 million and reflects the leverage value, higher sales volumes can have on our financial results.
For the current quarter the basic EPS share count was 7,286,151 and the fully diluted share count was 7,412,625. For the full year the basic EPS share count was 7,276,544 and the fully diluted EPS share count was 7,387,939.
At year-end we had 7,289,745 shares outstanding. Gross profits for the quarter were $3.8 million or 27.1% of sales, compared to $3 million or 28% of sales from last year's fourth quarter.
For the full year, gross profits were $14.8 million or 28.4% of sales, compared to $8.6 million or 22.3% of sales in fiscal 2009. The 2010 gross margin improvement for the year is more significant considering that fiscal 2009's gross margins were helped by several factors that did not continue into 2010.
As you may recall, all salaried employees took pay cuts ranging from 5% to 20% of base pay during the latter half of fiscal 2009, due to difficult business environment. We reinstated full salaries in January of this year.
Freight costs, particularly container pricing between the U.S. and China also declined significantly in 2009, due to overcapacity in the system.
As the worldwide economy has been improving that overcapacity is being absorbed and container pricing in the fourth quarter of this year has increased back to the levels in 2008, before the economic downturn. Freight and warranty costs negatively impacted fiscal 2010 fourth quarter and full year gross profit margins.
Although, improving from earlier in the year, we continue to manage through some very challenging scheduling and supply chain issues, including some as a result of our suppliers having difficulty meeting the significant increases in volumes. To meet our customers delivery schedules in light of these problems, we incurred approximately $175,000 of additional freight cost during the quarter and for the full year the additional freight cost is approximately $500,000.
We are aggressively addressing this situation, but it will take into next year to resolve. In the fourth quarter we came to resolution on a difficult customer warranty issue and incurred $250,000 in the quarter and $700,000 during the full year on this issue.
We also incurred approximately $200,000 of overhead expense in 2010 to open our India facility. Fourth quarter operating expenses, which include engineering, selling and administrative cost were $3.3 million, a $460,000 increase over last year's fourth quarter operating expenses of $2.8 million.
A significant portion of the increase was to support engineering in sale where we have more new clean sheet designs in process than in any time in our history, and includes joysticks, our light commercial vehicle pedal and several new programs in process with existing customers. Operating expenses for the full year were $12.8 million, up $893,000 or 7.5% from 2009's operating expenses of $11.9 million.
As was the case in the fourth quarter, the record number of new clean sheet designs and a significant number of projects for existing customers, drove higher engineering and sales activity and costs. Full year administrative costs were essentially unchanged from 2009.
Although, 2009 cost were reduced by the wage and other cost reductions, cost were higher earlier in that year for termination, severance and other employment related cost and some bad debt reserves. Without these termination, severance, employment related costs and bad debt reserves, 2009's administrative costs would have been lower than 2010.
In the fourth quarter, our blended tax rate was 7.8%. And for the full year, our tax rate was 19.7%.
Our tax rate can vary rather significantly from the statutory rate due to several factors, including the inter-relationships of federal, state and international taxable income and tax rates. Now turning to the balance sheet and cash flow; in the fourth quarter of this year, the company paid a $1 per share cash dividend, our first in the company's history, to shareholders of record on July 14.
In this modest recovery year, even after payment of the $7.3 million dividend and the $775,000 Cuesta settlement, we were able to fund our significant new product development, open our Indian facility, fund normal capital spending and still generate net cash of approximately $1.8 million and have $3 million in cash reserves at yearend. We also entered into an $8 million two-year revolving bank debt agreement which is supported by receivables and inventory.
Currently, we have borrowing capacity of approximately $6.2 million based on those asset balances. We have not borrowed on the revolver as of our fiscal yearend and are confident that the combination of our cash reserves plus bank line is adequate for our current needs.
Depreciation and amortization for the fourth quarter was $549,000 and non-cash stock option expense was $363,000. For the full year, depreciation and amortization was $2.1 million and non-cash stock option expense was $907,000.
CapEx was $675,000 in the quarter and for the full year was $2.2 million. Of the full year CapEx, $532,000 was to open our India facility.
This concludes our formal comments. We would now like to turn the meeting over to questions.
Operator
(Operator Instructions) Our first question comes from the line of John Nobile.
John Nobile - Taglich Brothers Inc.
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
John Nobile - Taglich Brothers Inc.
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?
Pat Cavanagh
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.
John Nobile - Taglich Brothers Inc.
The supply issues, obviously they affected gross margins. But did that actually have a negative effect on the revenue on the quarter?
Dennis Bunday
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.
John Nobile - Taglich Brothers Inc.
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.
Pat Cavanagh
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.
John Nobile - Taglich Brothers Inc.
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?
Pat Cavanagh
We really don't give that kind of detail, John for competitive reasons and others.
John Nobile - Taglich Brothers Inc.
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.
Pat Cavanagh
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.
John Nobile - Taglich Brothers Inc.
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.
Pat Cavanagh
I give you that, John. It will more than double.
John Nobile - Taglich Brothers Inc.
Is there anything to report regarding the light truck pedal programs? I think you had mentioned something.
Pat Cavanagh
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.
John Nobile - Taglich Brothers Inc.
Which I believe in a previous call you had mentioned that that market should be bigger than the heavy truck pedal market.
Pat Cavanagh
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.
John Nobile - Taglich Brothers Inc.
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%?
Dennis Bunday
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.
John Nobile - Taglich Brothers Inc.
Obviously, it could change depending on reasons that happened in 2010.
Dennis Bunday
Correct.
John Nobile - Taglich Brothers Inc.
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?
Pat Cavanagh
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.
John Nobile - Taglich Brothers Inc.
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.
Dennis Bunday
I don't know that we have given any guidance on the quarter in the past, John.
John Nobile
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.
Dennis Bunday
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.
Operator
Your next question comes from the line of Michael Taglich.
Michael Taglich - Taglich Bros, Inc.
The warranty claim's behind us in last fiscal year or are they going to continue?
Pat Cavanagh
Well, Mike, there is always some level of warranty. We had kind of an exceptional item last year that we settled.
Dennis Bunday
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.
Michael Taglich - Taglich Bros, Inc.
How do you feel about the truck forecasts?
Pat Cavanagh
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.
Michael Taglich - Taglich Bros, Inc.
And from a supply chain standpoint, where are you? Do you lead the way, or in the middle way or you lag the market?
Pat Cavanagh
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.
Michael Taglich - Taglich Bros, Inc.
How do you think this truck demand's going to lag out quarter-by-quarter?
Pat Cavanagh
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.
Operator
Your next question comes from the line of (Paul Johnson).
Unidentified Analyst
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.
Pat Cavanagh
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.
Unidentified Analyst
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.
Pat Cavanagh
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.
Unidentified Analyst
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.
Pat Cavanagh
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.
Unidentified Analyst
So you're now making my argument back to me?
Pat Cavanagh
Yes, without giving you an answer.
Unidentified Analyst
We have a significantly broader product portfolio you've ever had in the company's history.
Pat Cavanagh
That's for sure.
Unidentified Analyst
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.
Pat Cavanagh
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.
Unidentified Analyst
If I look at a Class 8 pedal from you manufactured in China, manufactured in India, are some quality and functionalities very similar?
Pat Cavanagh
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.
Unidentified Analyst
I assumed that the product is essentially worldwide, although there is certain advantages to manufacturing in specific locations.
Pat Cavanagh
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.
Unidentified Analyst
But the key is the different functionality or different customization is customer-driven, not geography-driven.
Pat Cavanagh
Correct.
Unidentified Analyst
And there's lot of overlap in design and all of that, but it's what the customer wants.
Pat Cavanagh
Right.
Unidentified Analyst
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.
Pat Cavanagh
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.
Dennis Bunday
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.
Unidentified Analyst
But it's fair to call it an additional expense?
Dennis Bunday
Absolutely, yes.
Unidentified Analyst
If the suppliers had had the capacity in place you wouldn't have had to pay for it?
Pat Cavanagh
Exactly. We have more freight costs in that and this is the freight cost that we track as avoidable if you will.
Unidentified Analyst
Right, exactly. Even the supply chain is all working like it should be.
Dennis Bunday
Right, yes.
Unidentified Analyst
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?
Dennis Bunday
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.
Pat Cavanagh
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.
Unidentified Analyst
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.
Pat Cavanagh
Right, correct.
Unidentified Analyst
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.
Pat Cavanagh
Exactly. That's right.
Unidentified Analyst
I think this is my last question. Cuesta, you guys paid 750?
Pat Cavanagh
775.
Unidentified Analyst
775. How much of that was reserved already, and how much of it flowed through the P&L?
Pat Cavanagh
Everything went through the P&L this year.
Unidentified Analyst
Where we do see that, in Administrative?
Pat Cavanagh
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.
Unidentified Analyst
And that was obviously a cash drain this year.
Pat Cavanagh
Yes, it was.
Unidentified Analyst
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.
Pat Cavanagh
Exactly. You got it.
Operator
(Operator Instructions) There are no further questions at this time. I'll turn the call back over to the presenters.
Pat Cavanagh
Well, this concludes our fourth quarter and year-end conference call. And I would like to thank everybody for attending today.
Operator
This now concludes today's conference call. You may now disconnect.