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 December 31, 1998
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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
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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
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(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
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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 February 1, 1999
- ----------------------------- -------------------------------
Common stock, par value $.10 3,107,873
1
<PAGE>
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
Dec 31, Sept 30,
1998 1998
--------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,688,000 $ 3,439,000
Sort-term investments 549,000 549,000
Accounts receivable, less allowances
of $189,000 at 12/31/98
and $197,000 at 9/30/98 6,631,000 6,091,000
Inventories:
Raw materials 1,942,000 1,702,000
Work-in-process 707,000 713,000
Finished goods 456,000 645,000
--------- ---------
3,105,000 3,060,000
--------- ---------
Total current assets 13,973,000 13,139,000
--------- ----------
Property, plant and equipment, at cost 6,873,000 6,952,000
Less: Accumulated depreciation
and amortization 3,798,000 3,742,000
--------- ---------
Net property, plant
and equipment 3,075,000 3,210,000
--------- ---------
Cost of purchased businesses in excess
of net assets acquired 1,435,000 1,435,000
---------- ----------
$18,483,000 $17,784,000
========== ==========
</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
<TABLE>
<CAPTION>
Dec 31, Sept 30,
1998 1998
-------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current liabilities:
Accounts payable $2,799,000 $2,166,000
Dividend payable 559,000 559,000
Accrued expenses 2,815,000 3,126,000
Accrued taxes on income 1,107,000 976,000
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Total current liabilities 7,280,000 6,827,000
--------- ---------
Deferred taxes on income 160,000 164,000
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Stockholders' investment
Preferred stock - -
Common stock 311,000 311,000
Premium paid in on common stock 3,848,000 3,848,000
Retained earnings 7,342,000 6,970,000
Cumulative translation adjustment (458,000) (336,000)
---------- ----------
Total stockholders' investment $11,043,000 $10,793,000
---------- ----------
$18,483,000 $17,784,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
TECH/OPS SEVCON, INC.
Consolidated Statement of Income
(Unaudited)
<TABLE>
Three Months Ended
---------------------
Dec 31, Dec 27,
1998 1997
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<S> <C> <C>
Net sales $ 8,004,000 $ 7,049,000
Costs and expenses:
Cost of sales 4,740,000 4,262,000
Selling, general and
administrative 1,889,000 1,828,000
--------- ---------
6,629,000 6,090,000
--------- ---------
Operating income 1,375,000 959,000
Other income (expense), net 55,000 ( 21,000)
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Income before income taxes 1,430,000 938,000
Income taxes 500,000 333,000
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Net income $ 930,000 $ 605,000
======= =======
Basic income per share $ .30 $ .20
=== ===
Fully diluted income per share $ .30 $ .19
=== ===
Consolidated Statement of Comprehensive Income
(Unaudited)
Three Months Ended
---------------------
Dec 31, Dec 27,
1998 1997
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Net income $ 930,000 $ 605,000
Foreign currency translation adjustment (122,000) 124,000
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Comprehensive income $ 808,000 $ 729,000
======= =======
</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>
Three Months Ended
---------------------
Dec 31, Dec 27,
1998 1997
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income $ 930,000 $ 605,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 135,000 117,000
Deferred tax provision ( 4,000) 7,000
Increase (decrease) in cash resulting from
changes in operating assets & liabilities:
Receivables (540,000) (627,000)
Inventories ( 45,000) (673,000)
Accounts payable 633,000 892,000
Accrued compensation and expenses (311,000) (200,000)
Accrued and deferred taxes on income 131,000 49,000
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Net cash generated from
operating activities 929,000 176,000
Cash flow used by investing activities:
Acquisition of property, plant, and
equipment, net ( 69,000) (126,000)
Cash flow from (used by) financing activities:
Purchase of common stock - ( 9,000)
Exercise of stock options - 5,000
Repayment of long-term debt - ( 42,000)
Dividends paid (559,000) (464,000)
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Net cash used by financing activities (559,000) (510,000)
Effect of exchange rate changes on cash ( 52,000) 42,000
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Net increase (decrease) in cash 249,000 (418,000)
Opening balance - cash and cash equivalents 3,439,000 2,361,000
--------- ---------
Ending balance - cash and cash equivalents $3,688,000 $1,943,000
========= =========
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 351,000 $ 325,000
Cash paid for interest - 14,000
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Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 559,000 $ 464,000
======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - December 31, 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 December 31,
1998 and the results of operations and cash flows for the three
months ended December 31, 1998 and December 27, 1997.
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 filed on Form 10-K.
The results of operations for the three-month periods ended
December 31, 1998 and December 27, 1997 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On December 11, 1998, the Company declared a quarterly dividend
of $.18 per share for the first quarter of fiscal 1999, which was
paid on January 7, 1999 to stockholders of record on December 28,
1998. 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
Basic and fully diluted earnings per share were calculated as
follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
------------------
Dec 31 Dec 27
1998 1997
------- ------
<S> <C> <C>
Net income $ 930 $ 605
Basic income per share $ .30 $ .20
Average shares outstanding 3,108 3,093
Options outstanding - common stock
equivalents 29 45
Average common and common equivalent
shares outstanding 3,137 3,138
Fully diluted income per share $ .30 $ .19
=== ===
</TABLE>
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 December 31, 1998
Sales in the first fiscal quarter ended December 31, 1998 were
$8,004,000, compared to $7,049,000 in the same quarter of the
previous year, an increase of $955,000, or 14%. Revenues in the
U. S. increased by 9% mainly due to increased demand in the fork lift
truck market. Sales in foreign markets increased by 16%. All
controller operations reported revenue increases compared to the same
period last year. ICW Limited sales were 17% lower than last year
due to difficult conditions in the European capacitor market.
Gross profit was 40.8% of sales compared to 39.5% in the first
quarter of fiscal 1998, and was $477,000 higher than last year. The
increase in gross profit was mainly attributable to higher physical
volume, lower material costs, and improved manufacturing efficiency.
Selling, general and administrative expenses for the quarter were
$61,000, or 3%, higher than fiscal 1998.
Operating income was $1,375,000, an increase of $416,000, or
43%, compared to the first quarter of last year. The principal
reason for the increase in operating income was higher physical
volume and improvements in material costs and manufacturing
efficiency.
Income before income taxes was $1,430,000, compared to $938,000
last year, an increase of $$492,000, or 53%. Other income was
$55,000 compared to an expense of $21,000 in fiscal 1998, an
improvement of $76,000 principally due to foreign currency
translation gains in the current year compared to losses last year.
Income taxes were 35% of pre-tax income compared to 35.5% last year,
mainly due to lower foreign tax rates. Primarily due to higher sales
and improved gross profit, net income increased by $325,000, or 54%
to $930,000. Basic income per share increased by 50%, from $.20 in
the first quarter of fiscal 1998 to $.30 in the current year. Fully
diluted income per share increased by 58% to $.30 this year compared
to $.19 in 1998.
Year 2000 Issues
The Company is in the process of conducting an ongoing review of
both its state of readiness with respect to Year 2000 issues and 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.
7
<PAGE>
Preliminary conclusions from this ongoing 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 plans in place to resolve each of these issues
and anticipates full resolution by March 31, 1999 at a cost of
approximately $50,000, of which $26,000 has already been spent. The
Company's circularization of vendors and customers indicates that
while the majority of respondents are not currently compliant that
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.
Financial Condition
The Company has, since January 1990, maintained a program of
regular cash dividends, which, for the most recent quarter, amounted
to $559,000. 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.
(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: February 8, 1999 By: /s/ Paul A. McPartlin
---------------------
Paul A. McPartlin
Vice President Finance
Principal Financial Officer
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 3,688
<SECURITIES> 549
<RECEIVABLES> 6,820
<ALLOWANCES> (189)
<INVENTORY> 3,105
<CURRENT-ASSETS> 13,973
<PP&E> 6,873
<DEPRECIATION> (3,798)
<TOTAL-ASSETS> 18,483
<CURRENT-LIABILITIES> 7,280
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 10,732
<TOTAL-LIABILITY-AND-EQUITY> 18,483
<SALES> 8,004
<TOTAL-REVENUES> 8,004
<CGS> 4,740
<TOTAL-COSTS> 4,740
<OTHER-EXPENSES> 1,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,430
<INCOME-TAX> (500)
<INCOME-CONTINUING> 930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 930
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
