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 April 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
------
TECH/OPS SEVCON, INC.
------------------------------------------------------
(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
----------------------------------------------------
(Address of principal executive offices and zip code)
(617) 523-2030
---------------------------------------------------
(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 May 5, 1999
- ----------------------------- -------------------------------
Common stock, par value $.10 3,110,781
1
<PAGE>
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
Apr 3, Sept 30,
1999 1998
--------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,305,000 $ 3,439,000
Short-term investments - 549,000
Accounts receivable, less allowances
of $185,000 at 4/3/99
and $197,000 at 9/30/98 6,941,000 6,091,000
Inventories:
Raw materials 1,872,000 1,702,000
Work-in-process 757,000 713,000
Finished goods 895,000 645,000
--------- ---------
3,524,000 3,060,000
--------- ---------
Total current assets 13,770,000 13,139,000
--------- ----------
Property, plant and equipment, at cost 6,793,000 6,952,000
Less: Accumulated depreciation
and amortization 3,774,000 3,742,000
--------- ---------
Net property, plant
and equipment 3,019,000 3,210,000
--------- ---------
Cost of purchased businesses in excess
of net assets acquired 1,435,000 1,435,000
---------- ----------
$18,224,000 $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>
Apr 3, Sept 30,
1999 1998
-------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current liabilities:
Accounts payable $2,202,000 $2,166,000
Dividend payable 560,000 559,000
Accrued expenses 2,952,000 3,126,000
Accrued taxes on income 1,238,000 976,000
--------- ---------
Total current liabilities 6,952,000 6,827,000
--------- ---------
Deferred taxes on income 153,000 164,000
--------- ---------
Stockholders' investment
Preferred stock - -
Common stock 311,000 311,000
Premium paid in on common stock 3,866,000 3,848,000
Retained earnings 7,697,000 6,970,000
Cumulative translation adjustment (755,000) (336,000)
---------- ----------
Total stockholders' investment $11,119,000 $10,793,000
---------- ----------
$18,224,000 $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>
<CAPTION>
(in thousands except per share data)
Three Months Ended Six Months Ended
------------------ ----------------
April 3 March 28 April 3 March 28
1999 1998 1999 1998
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net sales $ 8,005 $ 8,625 $16,009 $15,674
Costs and expenses:
Cost of sales 4,653 5,249 9,393 9,511
Selling, general and
administrative 1,886 1,916 3,775 3,744
----- ----- ----- -----
6,539 7,165 13,168 13,255
----- ----- ----- -----
Operating income 1,466 1,460 2,841 2,419
Other income/(expense), net 5 ( 17) 60 ( 38)
---- ---- ----- ---
Income before income taxes 1,471 1,443 2,901 2,381
Income taxes 512 513 1,012 846
----- --- ----- ---
Net income $ 959 $ 930 $1,889 $1,535
===== === ===== =====
Basic income per share $ .31 $ .30 $ .61 $ .50
=== === === ===
Fully diluted income per share $ .31 $ .30 $ .61 $ .49
=== === === ===
Cash dividends per share $ .18 $ .15 $ .36 $ .30
==== === === ===
Consolidated Statement of Comprehensive Income
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
April 3 March 28 April 3 March 28
1999 1998 1999 1998
------- ------ ------- ------
Net income $ 959 $ 930 $ 1,889 $ 1,535
Foreign currency
translation adjustment (297) 3 (419) 127
---- --- ----- -----
Comprehensive income $ 662 $ 933 $ 1,470 $ 1,662
==== ==== ===== =====
</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>
Six Months Ended
---------------------
Apr 3, Mar 28,
(in thousands) 1999 1998
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income $1,889 $1,535
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 253 179
Deferred tax provision ( 11) 8
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Receivables (850) (1,989)
Inventories (464) ( 461)
Accounts payable 36 1,282
Accrued compensation and expenses (174) ( 9)
Accrued and deferred taxes on income 262 409
Other assets - 6
---- ---
Net cash generated from
operating activities 941 960
Cash flow used by investing activities:
Acquisition of property, plant, and
equipment, net ( 247) ( 292)
----- -----
Cash flow used by financing activities:
Repayment of long-term debt - ( 98)
Exercise of stock options 22 5
Purchase of common stock ( 49) ( 9)
Dividends paid (1,118) (927)
----- -----
Net cash used by financing activities (1,145) (1,029)
Effect of exchange rate changes on cash ( 232) 30
----- -----
Net (decrease) in cash ( 683) ( 331)
Opening balance - cash and cash equivalents 3,988 2,361
----- -----
Ending balance - cash and cash equivalents $3,305 $2,030
===== =====
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 692 $ 535
Cash paid for interest 4 29
--- ---
Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 560 $ 464
=== ===
</TABLE>
The accompanying notes are an integral part of these financial
statements. 5
<PAGE>
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - April 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 April 3, 1999
and the results of operations and cash flows for the three months and
six months ended April 3, 1999 and March 28, 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 six-month
periods ended April 3, 1999 and March 28, 1998 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On March 5, 1999, the Company declared a quarterly dividend of
$.18 per share for the second quarter of fiscal 1999, which was paid
on April 6, 1999 to stockholders of record on March 19, 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 (in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
Apr 3 Mar 28 Apr 3 Mar 28
1999 1998 1999 1998
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net income $ 959 $ 930 $1,889 $1,535
Basic income per share $ .31 $ .30 $ .61 $ .50
Average shares outstanding 3,110 3,094 3,109 3,093
Options outstanding - common stock
equivalents 32 45 30 45
Average common and common equivalent
shares outstanding 3,142 3,139 3,139 3,138
Fully diluted income per share $ .31 $ .30 $ .61 $ .49
=== === === ===
</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 April 3, 1999
Sales in the second fiscal quarter ended April 3, 1999 were
$8,005,000, compared to $8,625,000 in the same quarter of the
previous year, a decrease of $620,000, or 7%. Revenues in the US
increased by 9%, mainly due to increased demand in the mining
market. Sales in foreign markets decreased by 12%. Approximately
$80,000, or 1%, 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 41.9% of sales compared to 39.1% in the
second quarter of fiscal 1998. Gross profit was $24,000 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 were $30,000, or
2%, lower than in 1998.
Despite the $620,000 decrease in sales, operating income
increased by $6,000 to $1,466,000, compared to $1,460,000 in the
second quarter of last year, due to increased gross
profitability.
Income before income taxes was $1,471,000, compared to
$1,443,000 last year, an increase of $28,000, or 2%. Income taxes
were 34.8% of pre-tax income, compared to 35.6% last year mainly
due to higher foreign tax credits. Despite lower sales, net
income increased by $29,000, or 3%, to $959,000.
Six months ended April 3, 1999
Sales in the first six months of fiscal 1998 were $16,009,000,
compared to $15,674,000 in the same period last year, an increase of
$335,000, or 2%. Revenues in the US increased by $495,000, or 9%,
mainly due to increased demand in the mining, fork lift truck and
aerial lift markets. Sales in foreign markets increased by $160,000,
or 2%, mainly due to foreign currency fluctuations
Gross profit was 41.3% of sales compared to 39.3% in 1998.
Gross profit increased by $453,000 compared to the first six months
of last year. The higher gross profit was mainly attributable to
lower material costs, improved manufacturing efficiency, and
increased volumes. Operating expenses for the six month period were
$3,775,000 compared to $3,744,000 last year, an increase of 1%.
7
<PAGE>
Operating income for the first half year was $2,841,000, an
increase of $422,000, or 17%, compared to last year. Lower
material costs, improved manufacturing efficiency and increased
sales volumes were the main reasons for the increase in operating
income.
Income before income taxes was $2,901,000, compared to
$2,381,000 last year, an increase of $520,000, or 22%. Other
income was $60,000 compared to other expense of $38,000 in the
first half of fiscal 1998. This improvement was mainly due to
foreign currency transactions. Income taxes were 34.9% of pre-
tax income, compared to 35.5% last year, mainly due to higher
foreign tax credits. Net income was $1,889,000, an increase of
$354,000, or 23%, compared to the same period 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 $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.
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 the majority 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.
8
<PAGE>
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting held on January 27, 1999, the
shareholders voted to re-elect as directors for three year terms the
following persons: Matthew Boyle and C. Vincent Vappi. Mr. Boyle
received 2,768,866 votes for and 5,823 withheld, and Mr. Vappi
received 2,766,432 votes for and 8,257 withheld. There were no
abstentions or broker non-votes.
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: May 13, 1999 By: /s/ Paul A. McPartlin
---------------------
Paul A. McPartlin
Chief Financial and Accounting
Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> APR-03-1999
<CASH> 3,305
<SECURITIES> 0
<RECEIVABLES> 7,126
<ALLOWANCES> (185)
<INVENTORY> 3,524
<CURRENT-ASSETS> 13,770
<PP&E> 6,793
<DEPRECIATION> (3,774)
<TOTAL-ASSETS> 18,224
<CURRENT-LIABILITIES> 6,952
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 10,808
<TOTAL-LIABILITY-AND-EQUITY> 18,224
<SALES> 16,009
<TOTAL-REVENUES> 19,009
<CGS> 9,393
<TOTAL-COSTS> 9,393
<OTHER-EXPENSES> 3,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,901
<INCOME-TAX> (1,012)
<INCOME-CONTINUING> 1,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,889
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
