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 27, 1998
/ / 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 August 7, 1998
- ----------------------------- -------------------------------
Common stock, par value $.10 3,105,373
1
<PAGE>
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
(in thousands)
<TABLE>
<CAPTION>
June 27, Sept 30,
1998 1997
--------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,848 $ 2,361
Accounts receivable, less allowances
of $158 at 6/27/98
and $150 at 9/30/97 6,914 5,637
Inventories:
Raw materials 2,006 1,532
Work-in-process 745 903
Finished goods 526 691
----- -----
3,277 3,126
------ ------
Total current assets 13,039 11,124
----- ------
Property, plant and equipment, at cost 6,372 5,869
Less: Accumulated depreciation
and amortization 3,634 3,249
----- -----
Net property, plant
and equipment 2,738 2,620
----- -----
Cost of purchased businesses in excess
of net assets acquired 1,435 1,435
Other assets 0 6
----- ------
$17,212 $15,185
====== ======
</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 27, Sept 30,
1998 1997
-------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ - $ 235
Accounts payable 2,581 1,770
Dividend payable 466 463
Accrued expenses 2,830 2,694
Accrued taxes on income 848 482
----- -----
Total current liabilities 6,725 5,644
----- -----
Long-term debt, less current portion - 278
Deferred taxes on income 162 156
----- -----
Stockholders' investment (Note 2)
Preferred stock - -
Common stock 311 310
Treasury stock, at cost - ( 85)
Premium paid in on common stock 3,743 3,730
Retained earnings 6,832 5,786
Cumulative translation adjustment (561) (634)
------ ------
Total stockholders' investment $10,325 $ 9,107
------ ------
$17,212 $15,185
====== ======
</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 27 June 28 June 27 June 28
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net sales $ 8,472 $ 6,842 $24,146 $20,172
Costs and expenses:
Cost of sales 5,151 4,830 14,662 13,193
Selling, general and
administrative 1,802 1,661 5,546 4,935
----- ----- ------ ------
6,953 6,491 20,208 18,128
----- ----- ------ ------
Operating income 1,519 351 3,938 2,044
Other income/(expense), net 52 ( 34) 14 ( 64)
----- ----- ----- -----
Income before income taxes 1,571 317 3,952 1,980
Income taxes 569 112 1,415 689
----- --- ----- -----
Net income $ 1,002 $ 205 $2,537 $1,291
===== === ===== =====
Basic income per share $ .32 $ .07 $ .82 $ .42
=== === === ===
Diluted income per share $ .32 $ .07 $ .81 $ .41
=== === === ===
Cash dividends per share $ .15 $ .15 $ .45 $ .45
==== === === ===
</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
-------------------
June 27, June 28,
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income $2,537 $1,291
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 351 311
Deferred tax provision 6 13
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Receivables (1,277) ( 161)
Inventories (151) 220
Accounts payable 811 405
Accrued compensation and expenses 101 130
Accrued and deferred taxes on income 401 ( 154)
Other assets 6 12
----- -----
Net cash generated from operating activities 2,785 2,067
Cash flow used by investing activities:
Acquisition of property, plant, and
equipment, net ( 403) (1,659)
----- -----
Cash flow used by financing activities:
Long-term debt incurred on purchase of building - 704
Payment of long-term debt ( 513) ( 120)
Exercise of stock options 72 27
Purchase of common stock ( 71) ( 31)
Dividends paid (1,391) (1,390)
----- -----
Net cash used by financing activities (1,903) ( 810)
Effect of exchange rate changes on cash 8 25
----- -----
Net increase/(decrease) in cash 487 ( 377)
Opening balance - cash and cash equivalents 2,361 2,886
----- -----
Ending balance - cash and cash equivalents $2,848 $2,509
===== =====
Supplemental disclosure of cash flow information
Cash paid for income taxes $1,051 $ 876
Cash paid for interest 38 21
--- ---
Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 466 $ 463
=== ===
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - June 27, 1998
(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 27, 1998
and the results of operations and cash flows for the three months and
nine months ended June 27, 1998 and June 28, 1997.
The accounting policies followed by Tech/Ops Sevcon are set
forth in Note 1 to the financial statements in the 1997 Tech/Ops
Sevcon, Inc. Annual Report on Form 10-K.
In June 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.133, Accounting for
Derivative Financial Instruments and Hedging Activities. The
statement establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that the company must
formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June
15, 1999. A company may also implement the Statement as of the
beginning of any fiscal quarter after issuance. Statement 133 cannot
be applied retroactively.
The Company does not hold any derivative instruments or engage
in hedging activities and therefore the impact of adopting Statement
133 is expected to be immaterial. The Company plans to adopt
Statement 133 on October 1, 1998, the start of the next fiscal year.
The results of operations for the three-month and nine-month
periods ended June 27, 1998 and June 28, 1997 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On June 5, 1998, the Company declared a quarterly dividend of
$.15 per share for the third quarter of fiscal 1998, which was paid
on July 2, 1998 to stockholders of record on June 18, 1998. 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 27, 1998
Sales in the third fiscal quarter ended June 27, 1998 were
$8,472,000, compared to $6,842,000 in the same quarter of the
previous year, an increase of $1,630,000, or 24%. Revenues in the US
increased by 20%, mainly due to increased demand across all main
market segments. Sales in foreign markets increased by 26%. The sales
growth in foreign markets was to both fork lift truck and aerial lift
markets.
Gross profit was 39.2% of sales compared to 29.4% in the third
quarter of fiscal 1997. In the third quarter of last year the
company recorded a charge of $600,000 to reflect the costs of product
improvement and changes in the organization. Over 95% of this charge
was reflected in cost of sales. Prior to this charge, the gross
profit percentage in last year's third quarter was 38%. The increase
in gross profit percentage, after adjusting for the charge, was
mainly attributable to higher volumes, and to lower material costs.
Operating expenses for the quarter were $141,000, or 8%, higher than
in 1997.
Operating income was $1,519,000, an increase of $1,168,000
compared to the third quarter of last year. A significant portion of
this increase was due to the $600,000 charge for product improvement
and changes in the organization recorded last year. The remaining
increase of $568,000, or 60%, was mainly due to higher volumes and
lower material costs. This was an all-time record for quarterly
operating income. Other income was $52,000, compared to other
expense of $34,000 last year, this improvement was mainly due to
foreign currency translation gains.
Income before income taxes was $1,571,000, compared to $317,000
last year, an increase of $654,000, or 71%, after adjusting for the
$600,000 charge last year. Income taxes were 36.2% of pre-tax income,
compared to 35.3% last year, mainly due to higher foreign tax rates.
Net income for the quarter was an all-time record at $1,002,000, or
$.32 per share. On a comparable basis, after adjusting for the pre-
tax charge in 1997 of $.13 per share, both basic and fully diluted
net income per share increased by $.12 per share, or 60%.
7
<PAGE>
TECH/OPS SEVCON, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued):
Results of Operations (continued):
Nine months ended June 27, 1998
Sales in the first nine months of fiscal 1998 were $24,146,000,
compared to $20,172,000 in the same period last year, an increase of
$3,974,000, or 20%. Revenues in the US increased by $1,116,000,or
16%, mainly due to increased demand in the fork lift truck and aerial
lift markets. Sales in foreign markets increased by $2,858,000, or
22%, with higher sales to both fork lift truck and aerial lift
markets, but lower sales of capacitors.
Gross profit was 39.3% of sales compared to 34.6% in 1997, or
37.5% after adjusting for the impact of the $600,000 charge recorded
in the third quarter of fiscal 1997. The improvement in gross profit
percentage was mainly attributable to increased volumes, and lower
material costs. Operating expenses for the six month period were
$5,546,000, an increase of $611,000, or 12%, compared to last year.
Operating income for the first nine months was $3,938,000,
compared to $2,044,000 last year, an increase of $1,294,000, or 49%,
after adjusting for the $600,000 charge last year. An increase in
sales volumes of 20% and reduced material costs were the main reasons
for this increase in operating income.
Income before income taxes was $3,952,000, compared to
$1,980,000 last year, an increase of $1,372,000, or 53% after
adjusting for the impact of the $600,000 charge on last year's
results. Income taxes were 35.8% of pre-tax income, compared to 34.8%
last year, mainly due to higher foreign tax rates.
Net income was $2,537,000, an increase of $1,246,000, or 97%,
compared to the same period last year. Basic income per share was 95%
higher than last year at $.82 per share compared to $.42 per share in
1997. Fully diluted net income was $.81 per share, an increase of
96% compared to 1997. After adjusting for the impact of the charge
for product improvement and changes in the organization in 1997 of
$.13 per share, basic net income increased by $.27 per share, or 49%.
Financial Condition
The Company has, since January 1990, maintained a program of
regular cash dividends, which, for the most recent quarter, amounted
to $466,000. 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: August 10, 1998 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 27 Jun 28 Jun 27 Jun 28
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net income $1,002 $ 205 $2,537 $1,291
Basic income per share $ .32 $ .07 $ .82 $ .42
Average shares outstanding 3,103 3,090 3,099 3,090
Options outstanding - common stock
equivalents 44 48 44 47
Average common and common equivalent
shares outstanding 3,147 3,138 3,143 3,137
Diluted income per share $ .32 $ .07 $ .81 $ .41
=== === === ===
</TABLE>
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-27-1998
<CASH> 2,848
<SECURITIES> 0
<RECEIVABLES> 6,756
<ALLOWANCES> (158)
<INVENTORY> 3,277
<CURRENT-ASSETS> 13,039
<PP&E> 6,372
<DEPRECIATION> (3,634)
<TOTAL-ASSETS> 17,212
<CURRENT-LIABILITIES> 6,725
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,212
<SALES> 24,146
<TOTAL-REVENUES> 24,146
<CGS> 14,662
<TOTAL-COSTS> 14,662
<OTHER-EXPENSES> 5,546
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,952
<INCOME-TAX> 1,415
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,537
<EPS-PRIMARY> .82
<EPS-DILUTED> .81
</TABLE>
