UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number 1-9789
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TECH/OPS SEVCON, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2985631
- ------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Beacon Street, Boston, Massachusetts, 02108
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(Address of principal executive offices and zip code)
(617) 523-2030
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(Registrant's telephone number, including area code:)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 25, 1997
- ----------------------------- -------------------------------
Common stock, par value $.10 3,093,232
1
<PAGE>
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
(in thousands)
<TABLE>
<CAPTION>
June 28, Sept 30,
1997 1996
--------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,509 $ 2,886
Accounts receivable, less allowances
of $157 at 6/28/97
and $150 at 9/30/96 5,547 5,386
Inventories:
Raw materials 1,735 1,706
Work-in-process 1,015 1,060
Finished goods 658 862
----- -----
3,408 3,628
----- -----
Total current assets 11,464 11,900
----- ------
Property, plant and equipment, at cost 5,996 4,154
Less: Accumulated depreciation
and amortization 3,303 2,861
----- -----
Net property, plant
and equipment 2,693 1,293
----- -----
Cost of purchased businesses in excess
of net assets acquired 1,435 1,435
Other assets 5 17
----- - ------
$15,597 $14,645
====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
TECH/OPS SEVCON, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(in thousands)
<TABLE>
<CAPTION>
June 28, Sept 30,
1997 1996
-------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 237 $ -
Accounts payable 2,226 1,821
Dividend payable 463 463
Accrued expenses 2,418 2,288
Accrued taxes on income 647 801
----- -----
Total current liabilities 5,991 5,373
----- -----
Long-term debt, less current portion 347 -
Deferred taxes on income 174 161
----- -----
Stockholders' investment (Note 2)
Preferred stock - -
Common stock 310 310
Treasury stock, at cost ( 85) (122)
Premium paid in on common stock 3,713 3,716
Retained earnings 5,651 5,787
Cumulative translation adjustment (504) (580)
------ ------
Total stockholders' investment $ 9,085 $ 9,111
------ ------
$15,597 $14,645
====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
TECH/OPS SEVCON, INC.
Consolidated Statement of Income
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
June 28 June 30 June 28 June 30
1997 1996 1997 1996
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net sales $ 6,842 $ 7,692 $20,172 $20,971
Costs and expenses:
Cost of sales 4,830 4,579 13,193 12,450
Selling, general and
administrative 1,661 1,677 4,935 4,753
----- ----- ------ ------
6,491 6,256 18,128 17,203
----- ----- ------ ------
Operating income 351 1,436 2,044 3,768
Other income/(expense), net ( 34) ( 19) ( 64) ( 19)
---- ----- ----- -----
Income before income taxes 317 1,417 1,980 3,749
Income taxes 112 469 689 1,241
--- --- ----- -----
Net income $ 205 $ 948 $1,291 $2,508
=== === ===== =====
Net income per share $ .07 $ .30 $ .42 $ .80
=== === === ===
Average common and common
equivalent shares outstanding 3,090 3,145 3,090 3,143
===== ===== ===== =====
Cash dividends per share $ .15 $ .125 $ .45 $ .375
=== === === ===
</TABLE>
The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
TECH/OPS SEVCON, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
Jun 30, Jun 30,
(in thousands) 1997 1996
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income $1,291 $2,508
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 311 241
Deferred tax provision 13 ( 3)
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Receivables ( 161) (2,071)
Inventories 220 ( 923)
Accounts payable 405 520
Accrued compensation and expenses 130 419
Accrued and deferred taxes on income ( 154) 688
Other assets 12 15
----- ---
Net cash generated from
operating activities 2,067 1,394
Cash flow used by investing activities:
Acquisition of property, plant, and
equipment, net (1,659) (188)
----- ---
Cash flow used by financing activities:
Long-term debt incurred on purchase of building 584 -
Exercise of stock options 27 245
Purchase of common stock ( 31) ( 962)
Dividends paid (1,390) (1,149)
----- -----
Net cash used by financing activities ( 810) (1,866)
Effect of exchange rate changes on cash 25 ( 296)
----- -----
Net (decrease) in cash ( 377) ( 956)
Opening balance - cash and cash equivalents 2,886 2,692
----- -----
Ending balance - cash and cash equivalents $2,509 $1,736
===== =====
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 876 $ 527
--- ---
Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 463 $ 384
=== ===
</TABLE>
The accompanying notes are an integral part of these financial
statements. 5
<PAGE>
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - June 28, 1997
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(consisting of only normally recurring accruals) necessary to present
fairly the financial position of Tech/Ops Sevcon as of June 28, 1997
and the results of operations and cash flows for the three months and
nine months ended June 28, 1997 and June 30, 1996.
The accounting policies followed by Tech/Ops Sevcon are set
forth in Note 1 to the financial statements in the 1996 Tech/Ops
Sevcon, Inc. Annual Report on Form 10-K.
The results of operations for the three-month and nine-month
periods June 28, 1997 and June 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On June 5, 1997, the Company declared a quarterly dividend of
$.15 per share for the third quarter of fiscal 1997, which was paid
on July 3, 1997 to stockholders of record on June 20, 1997. The
Company has paid regular quarterly cash dividends since the first
quarter of fiscal 1990.
6
<PAGE>
TECH/OPS SEVCON, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three months ended June 28
Sales in the third fiscal quarter ended June 28, 1997 were
$6,842,000, compared to $7,692,000 in the same quarter of the
previous year, a decrease of 11%. Currency fluctuations caused a 2%
increase in reported sales. Revenues in the US declined by 23% mainly
due to slow conditions in the aerial lift and airport ground support
markets. Sales volume in foreign markets decreased slightly.
Under the direction of its new Chief Operating Officer, Matt
Boyle, the Company has made a thorough review of its commitment to
quality, and in the third quarter the company recorded a charge of
$600,000, equal to $.13 per share, to reflect the costs of product
improvement and changes in the organization. Over 95% of this charge
was reflected in cost of sales in the third quarter, with the
remainder being charged to operating expense. The $600,000 charge
principally involves product modification costs and associated
warranty expense. In addition, provision has been made for
management changes in the manufacturing and quality control areas.
The gross profit percentage was substantially lower than last
year (29.4% compared to 40.5%) principally due to the charge to cost of
sales of $588,000. Prior to this charge, the gross profit percentage
was 38.0%, a 2.5% decrease compared to last year, mainly due to the
negative impact of currency fluctuations on margins, adverse sales
mix and lower volumes. Gross profit before the charge decreased by
$513,000, or 16%. Operating expenses for the quarter were 1% higher
than 1996.
Income before income taxes was $317,000, compared to $1,417,000
last year, an decrease of $1,100,000, or 78%. Lower sales accounted
for one third of this decrease and the $600,000 charge accounted for
a further 55%. The remaining 12% decrease was mainly due to currency
fluctuations and adverse sales mix. Income taxes were 35% of pre-tax
income in 1997 compared to 33% in 1996 mainly due to lower foreign
tax credits. Primarily due to lower sales and the $600,000 charge,
net income decreased by $743,000, or 78%, to $205,000. Income per
share was $.07 compared to $.30 in the third quarter of fiscal 1996.
The $600,000 charge resulted in a decrease of $.13 in net income
for the quarter.
7
<PAGE>
TECH/OPS SEVCON, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Nine months ended June 28
For the first nine months of fiscal 1997, sales were $20,172,000
compared to $20,971,000 last year, a decrease of $799,000, or 4%.
Currency fluctuations caused a 2% increase in reported sales,
therefore physical volume was 6% lower than last year. Revenues in
the US declined by 18% mainly due to slow conditions in the aerial
lift and airport ground support markets, volumes in foreign markets
increased by 3%.
The gross profit percentage was 6% lower than last year (34.6%
compared to 40.6%), and gross profit was $1,542,000 lower than last
year. The charge discussed above resulted in a 2.9% decrease in
gross profit percentage. Foreign currency fluctuations accounted for
1.8% of the decrease in the gross profit percentage. This was mainly
because most of the Company's products are manufactured in the UK and
the UK pound has strengthened against the other currencies in which
the Company's products are sold. Adverse sales mix also had a
negative impact on gross profit.
Operating expenses were 4% lower than last year mainly due to
reductions in compensation expense.
Operating income for the nine month period was $2,044,000, a
decrease of 46% compared to the same period last year. The decrease
in operating income was mainly due to the $600,000 charge in the
third quarter and to lower gross profit. Other expense (net), mainly
currency translation losses, was $64,000 compared to $19,000 in 1996.
Income before income taxes was $1,980,000 compared to
$3,749,000 in the same period last year, a decrease of 47%. Income
taxes were 35% of pre-tax income, an increase of 2% compared to last
year, mainly due to lower foreign tax credits. Principally as a
result of the charge of $600,000 before tax and lower gross profit,
net income was $1,291,000, compared to $2,508,000 last year, a
decrease of 49%. Income per share was $.42 compared to $.80 last
year.
Financial Condition
The Company has, since January 1990, maintained a program of
regular cash dividends, which, for the most recent quarter, amounted
to $463,000. Tech/Ops Sevcon's resources, in the opinion of
management, are adequate for projected operations and capital
spending programs, as well as continuation of the cash dividend.
8
<PAGE>
TECH/OPS SEVCON, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
(11) Calculation of Earnings Per Share
(27) Financial Data Schedule (EDGAR Filing only)
(b) Reports on Form 8-K - There were no reports on Form 8-K
during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TECH/OPS SEVCON, INC.
Date: July 28, 1997 By: /s/ Paul A. McPartlin
---------------------
Paul A. McPartlin
Chief Financial and Accounting
Officer
9
<PAGE>
EXHIBIT 11
TECH/OPS SEVCON, INC.
Calculation of Earnings Per Share and Weighted Average Shares
Outstanding
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Jun 28 Jun 30 Jun 28 Jun 30
Primary 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Average shares outstanding 3,090 3,145 3,090 3,143
Net income $ 205 $ 948 $1,291 $2,508
Net income per share $ .07 $ .30 $ .42 $ .80
</TABLE>
A calculation of fully diluted shares outstanding for the three month
and nine months ended June 28, 1997 and June 30, 1996 indicates an
immaterial difference.
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-28-1997
<CASH> 2,509
<SECURITIES> 0
<RECEIVABLES> 5,704
<ALLOWANCES> (157)
<INVENTORY> 3,408
<CURRENT-ASSETS> 11,464
<PP&E> 5,996
<DEPRECIATION> (3,303)
<TOTAL-ASSETS> 15,597
<CURRENT-LIABILITIES> 5,991
<BONDS> 0
0
0
<COMMON> 310
<OTHER-SE> 8,775
<TOTAL-LIABILITY-AND-EQUITY> 15,597
<SALES> 20,172
<TOTAL-REVENUES> 20,172
<CGS> 13,193
<TOTAL-COSTS> 13,193
<OTHER-EXPENSES> 4,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,980
<INCOME-TAX> (689)
<INCOME-CONTINUING> 1,291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,291
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
