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 July 3, 1999
------------
/ / 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 28, 1999
- ----------------------------- -------------------------------
Common stock, par value $.10 3,110,781
1
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
Jul 3, Sept 30,
1999 1998
--------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,013,000 $ 3,439,000
Short-term investments 560,000 549,000
Accounts receivable, less allowances
of $187,000 at 7/3/99
and $197,000 at 9/30/98 7,021,000 6,091,000
Inventories:
Raw materials 1,824,000 1,702,000
Work-in-process 758,000 713,000
Finished goods 805,000 645,000
--------- ---------
3,387,000 3,060,000
--------- ---------
Total current assets 13,981,000 13,139,000
---------- ----------
Property, plant and equipment, at cost 6,840,000 6,952,000
Less: Accumulated depreciation
and amortization 3,850,000 3,742,000
--------- ---------
Net property, plant
and equipment 2,990,000 3,210,000
--------- ---------
Cost of purchased businesses in excess
of net assets acquired 1,435,000 1,435,000
---------- ----------
$18,406,000 $17,784,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
2
TECH/OPS SEVCON, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Jul 3, Sept 30,
1999 1998
-------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current liabilities:
Accounts payable 2,840,000 2,166,000
Dividend payable 560,000 559,000
Accrued expenses 2,945,000 3,126,000
Accrued taxes on income 715,000 976,000
--------- ---------
Total current liabilities 7,060,000 6,827,000
--------- ---------
Deferred taxes on income 151,000 164,000
--------- ---------
Stockholders' investment
Preferred stock - -
Common stock 311,000 311,000
Premium paid in on common stock 3,866,000 3,848,000
Retained earnings 7,911,000 6,970,000
Cumulative translation adjustment (893,000) (336,000)
---------- ----------
Total stockholders' investment $11,195,000 $10,793,000
---------- ----------
$18,406,000 $17,784,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
TECH/OPS SEVCON, INC.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
(in thousands except per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
July 3 June 27 July 3 June 27
1999 1998 1999 1998
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net sales $ 7,802 $ 8,472 $23,811 $24,146
Costs and expenses:
Cost of sales 4,568 5,151 13,961 14,662
Selling, general and
administrative 2,037 1,802 5,812 5,546
----- ----- ------ ------
6,605 6,953 19,773 20,208
----- ----- ------ ------
Operating income 1,197 1,519 4,038 3,938
Other income/(expense), net ( 25) 52 35 14
----- ----- ----- -----
Income before income taxes 1,172 1,571 4,073 3,952
Income taxes 398 569 1,410 1,415
----- --- ----- -----
Net income $ 774 $ 1,002 $2,663 $2,537
===== ===== ===== =====
Basic income per share $ .25 $ .32 $ .86 $ .82
=== === === ===
Diluted income per share $ .25 $ .32 $ .85 $ .81
=== === === ===
Cash dividends per share $ .18 $ .15 $ .54 $ .45
==== === === ===
Consolidated Statement of Comprehensive Income
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
July 3 June 27 July 3 June 27
1999 1998 1999 1998
------- ------ ------- ------
Net income $ 774 $ 1,002 $ 2,663 $ 2,537
Foreign currency
translation adjustment (138) ( 54) (557) 73
---- ---- ----- -----
Comprehensive income $ 636 $ 948 $ 2,106 $ 2,610
==== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
4
TECH/OPS SEVCON, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------
July 3, June 27,
(in thousands) 1999 1998
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income $2,663 $2,537
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 374 351
Deferred tax provision ( 13) 6
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Receivables (930) (1,277)
Inventories (327) ( 151)
Accounts payable 674 811
Accrued compensation and expenses (181) 101
Accrued and deferred taxes on income (261) 401
Other assets - 6
----- -----
Net cash generated from operating activities 1,999 2,785
Cash flow used by investing activities:
Acquisition of property, plant, and
equipment, net ( 381) ( 403)
Acquisition of short-term investments ( 11) -
------ -----
Net cash used by investing activities ( 392) ( 403)
Cash flow used by financing activities:
Payment of long-term debt - ( 513)
Exercise of stock options 22 72
Purchase of common stock ( 49) ( 71)
Dividends paid (1,679) (1,391)
----- -----
Net cash used by financing activities (1,706) (1,903)
Effect of exchange rate changes on cash ( 327) 8
----- -----
Net increase/(decrease) in cash ( 426) 487
Opening balance - cash and cash equivalents 3,439 2,361
----- -----
Ending balance - cash and cash equivalents $3,013 $2,848
===== =====
Supplemental disclosure of cash flow information
Cash paid for income taxes $1,620 $ 692
Cash paid for interest 5 4
Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 560 $ 466
==== ====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - July 3, 1999
(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 July 3, 1999
and the results of operations and cash flows for the three months and
nine months ended July 3, 1999 and June 27, 1998.
The accounting policies followed by Tech/Ops Sevcon are set
forth in Note 1 to the financial statements in the 1998 Tech/Ops
Sevcon, Inc. Annual Report on Form 10-K. The Company recognizes
revenues in its financial statements when the product is shipped to
the customer.
The results of operations for the three-month and nine-month
periods ended July 3, 1999 and June 27, 1998 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On June 4, 1999, the Company declared a quarterly dividend of
$.18 per share for the third quarter of fiscal 1999, which was paid
on July 6, 1999 to stockholders of record on June 18, 1999. The
Company has paid regular quarterly cash dividends since the first
quarter of fiscal 1990.
(3) 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
------------------ -----------------
Jul 3 Jun 27 Jul 3 Jun 27
1999 1998 1999 1998
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net income $ 774 $1,002 $2,663 $2,537
Basic income per share $ .25 $ .32 $ .86 $ .82
Average shares outstanding 3,111 3,103 3,109 3,099
Options outstanding - common stock
equivalents 24 44 29 44
Average common and common equivalent
shares outstanding 3,135 3,147 3,138 3,143
Fully diluted income per share $ .25 $ .32 $ .85 $ .81
=== === === ===
</TABLE>
6
TECH/OPS SEVCON, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three months ended July 3, 1999
Sales in the third fiscal quarter ended July 3, 1999 were
$7,802,000, compared to $8,472,000 in the same quarter of the
previous year, a decrease of $670,000, or 8%. Revenues in the US
were marginally higher than the same quarter last year. Sales in
foreign markets decreased by 12%. Approximately $225,000,, or 2 1/2%,
of the decrease in sales was due to foreign currency fluctuations;
the balance was the result of lower physical volumes. The main
reasons for this volume decrease were depressed conditions in the
European capacitor and aerial lift markets.
Gross profit was 41.5% of sales compared to 39.2% in the
third quarter of fiscal 1998. Gross profit was $87,000 lower
than last year. The improvement in gross profit percentage was
mainly due to lower material costs and better manufacturing
efficiency.
Operating expenses for the quarter of $2,037,000 were
$235,000, or 13%, higher than in 1998. In the third quarter,
following an internal review of its operations, the Company
commenced a two year plan to reorganize and refocus manufacturing
facilities on their core competencies, reduce manufacturing costs
and continue to improve quality. In addition the Company began
the expansion of its world-wide sales presence and the
augmentation of resources devoted to new product introduction and
development. In the third quarter the company incurred one-time
costs of $100,000 associated with this reorganization plan.
Research and development expenditure increased by $77,000, or
21%, mainly related to increased activity on new products.
Operating income was $1,197,000, compared to $1,519,000 in
the third quarter of last year, a decrease of $322,000, or 27%.
The principal reasons for the decrease in operating income were
lower volumes and higher operating expense in connection with the
restructuring plan. Although foreign currency fluctuations
adversely impacted sales, the effect on operating income was
neutral. Other expense of $25,000 compared to other income of
$52,000 in last year's third quarter, an adverse swing of
$77,000. This change was mainly due to foreign currency
translation losses in fiscal 1999 compared to gains in the prior
year.
Income before income taxes was $1,172,000, compared to
$1,571,000 last year, a decrease of $399,000, or 25%. Income taxes
were 34% of pre-tax income, compared to 36% last year mainly due to
lower foreign tax rates and higher foreign tax credits. Net income
was $774,000, a decrease of $228,000, or 23% compared to last year.
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued):
Results of Operations (continued):
Basic and fully diluted income per share was $.25 compared to
$.32 in the third quarter of fiscal 1998.
Nine months July April 3, 1999
Sales in the first nine months of fiscal 1999 were $23,811,000,
compared to $24,146,000 in the same period last year, a decrease of
$335,000, or 1%. Revenues in the US increased by $504,000,or 6%,
mainly due to increased demand in the fork lift truck and mining
markets. Sales in foreign markets decreased by $839,000, or 5%.
Foreign currency fluctuations accounted for $210,000, or 1%, of this
decrease, the remaining decrease was mainly due to depressed
conditions in the European aerial lift and capacitor markets.
Gross profit was 41.4% of sales compared to 39.3% in 1998.
Gross profit increased by $366,000 compared to the first nine months
of last year, despite lower sales. The higher gross profit
percentage was mainly attributable to lower material costs and
improved manufacturing efficiency. Operating expenses for the nine
month period were $5,812,000 compared to $5,546,000 last year, an
increase of 5%.
Operating income for the first nine months was $4,038,000,
an increase of $100,000, or 3%, compared to last year. Lower
material costs, improved manufacturing efficiency despite lower
sales volumes were the main reasons for the increase in operating
income.
Income before income taxes was $4,073,000, compared to
$3,952,000 last year, an increase of $121,000, or 3%. Income
taxes were 34.6% of pre-tax income, compared to 35.8% last year,
mainly due to lower foreign tax rates and higher foreign tax
credits. Net income was $2,663,000, an increase of $126,000, or
5%, compared to the same period last year. Basic income per
share was 5% higher than last year at $.86 per share compared to
$.82 per share in 1998. Fully diluted net income was $.85 per
share, an increase of 5% compared to 1998.
Financial Condition
The Company has, since January 1990, maintained a program of
regular cash dividends, which, for the most recent quarter, amounted
to $560,000. 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
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued):
Year 2000 Issues
The Company has completed the review of its state of readiness
with respect to Year 2000 issues and is in the process of conducting
an ongoing review of that of its key suppliers and customers. This
review indicates that the Company's products do not include date-
sensitive technology and therefore do not present a Year 2000
exposure.
The review of the Company's internal systems, including
Information Technology (IT) and non IT systems, indicated certain
issues related to Year 2000. The Company currently has resolved
each of these issues at a total cost of approximately $35,000. The
Company's circularization of vendors and customers indicates that
while some of respondents are not currently compliant, all
respondents have plans in place to become compliant.
The Company's contingency planning to date has focused on cash
availability and both raw material and finished goods inventory
planning to ensure that the critical elements of the Company's
operations will not be impacted by any potential short-term
disruption which may occur in January 2000.
Due to the nature of the Company's business, and based on the
results of the review performed to date, management does not believe
that Year 2000 issues will have a material effect on its results of
operations, liquidity or financial condition.
This discussion of Year 2000 issues is based upon management's
best estimates of future events and conditions, and actual results
could differ materially from those currently projected. Specific
factors that could adversely affect the Company include failure by
significant customers and suppliers to achieve Year 2000 compliance
and external forces that might generally affect business, such as
utility or transportation company Year 2000 compliance failures.
9
TECH/OPS SEVCON, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
(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 3, 1999 By:/s/ Paul A. McPartlin
---------------------
Paul A. McPartlin
Chief Financial and Accounting
Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUL-03-1999
<CASH> 3,013
<SECURITIES> 560
<RECEIVABLES> 7,208
<ALLOWANCES> (187)
<INVENTORY> 3,387
<CURRENT-ASSETS> 13,981
<PP&E> 6,840
<DEPRECIATION> (3,850)
<TOTAL-ASSETS> 18,406
<CURRENT-LIABILITIES> 7,060
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 10,884
<TOTAL-LIABILITY-AND-EQUITY> 18,406
<SALES> 23,811
<TOTAL-REVENUES> 23,811
<CGS> 13,961
<TOTAL-COSTS> 13,961
<OTHER-EXPENSES> 5,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,073
<INCOME-TAX> (1,410)
<INCOME-CONTINUING> 2,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,663
<EPS-BASIC> .86
<EPS-DILUTED> .85
</TABLE>
