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, 1999
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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
- ------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 North Avenue, Burlington, Massachusetts, 01803-3391
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(Address of principal executive offices and zip code)
(781) 229-7896
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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 February 1, 2000
- ----------------------------- -------------------------------
Common stock, par value $.10 3,114,820
1
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
Dec 31, Sept 30,
1999 1999
--------- ------------
(unaudited) (derived from
audited
statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,099,000 $ 3,675,000
Accounts receivable, less allowances
of $175,000 at 12/31/99
and $174,000 at 9/30/99 6,334,000 5,566,000
Inventories:
Raw materials 2,292,000 2,080,000
Work-in-process 814,000 1,112,000
Finished goods 964,000 1,020,000
--------- ---------
4,070,000 4,212,000
--------- ---------
Total current assets 13,973,000 13,453,000
--------- ----------
Property, plant and equipment, at cost 7,242,000 7,282,000
Less: Accumulated depreciation
and amortization 4,040,000 4,051,000
--------- ---------
Net property, plant
and equipment 3,202,000 3,231,000
--------- ---------
Cost of purchased businesses in excess
of net assets acquired 1,435,000 1,435,000
---------- ----------
$18,140,000 $18,119,000
========== ==========
The accompanying notes are an integral part of these financial statements.
2
TECH/OPS SEVCON, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Dec 31, Sept 30,
1999 1999
-------- ------------
(unaudited) (derived from
audited
statements)
Current liabilities:
Accounts payable 2,759,000 2,650,000
Dividend payable 561,000 561,000
Accrued expenses 2,894,000 2,950,000
Accrued taxes on income 536,000 409,000
--------- ---------
Total current liabilities 6,750,000 6,570,000
--------- ---------
Deferred taxes on income 135,000 138,000
--------- ---------
Stockholders' investment
Preferred stock - -
Common stock 312,000 312,000
Premium paid in on common stock 3,924,000 3,924,000
Retained earnings 7,866,000 7,811,000
Cumulative translation adjustment (847,000) (636,000)
---------- ----------
Total stockholders' investment $11,255,000 $11,411,000
---------- ----------
$18,140,000 $18,119,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
TECH/OPS SEVCON, INC.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
Dec 31, Dec 31,
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 7,347,000 $ 8,004,000
Costs and expenses:
Cost of sales 4,458,000 4,740,000
Selling, research and
administrative 1,966,000 1,889,000
--------- ---------
6,424,000 6,629,000
--------- ---------
Operating income 923,000 1,375,000
Other income (expense), net 19,000 55,000
-------- --------
Income before income taxes 942,000 1,430,000
Income taxes 328,000 500,000
------- -------
Net income $ 614,000 $ 930,000
======= =======
Basic income per share $ .20 $ .30
=== ===
Fully diluted income per share $ .20 $ .30
=== ===
Consolidated Statement of Comprehensive Income
(Unaudited)
Three Months Ended
---------------------
Dec 31, Dec 31,
1999 1998
-------- --------
Net income $ 614,000 $ 930,000
Foreign currency translation adjustment (211,000) (122,000)
------- -------
Comprehensive income $ 403,000 $ 808,000
======= =======
</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>
Three Months Ended
---------------------
Dec 31, Dec 31,
1999 1998
-------- --------
<S> <C> <C>
Net cash flow from operating activities:
Net income $ 614,000 $ 930,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 117,000 135,000
Deferred tax provision ( 3,000) ( 4,000)
Increase (decrease) in cash resulting from
changes in operating assets & liabilities:
Receivables (768,000) (540,000)
Inventories 142,000 ( 45,000)
Accounts payable 109,000 633,000
Accrued compensation and expenses ( 56,000) (311,000)
Accrued and deferred taxes on income 127,000 131,000
-------- -------
Net cash generated from (used by)
operating activities 282,000 929,000
Cash flow used by investing activities:
Acquisition of property, plant, and
equipment, net (151,000) ( 69,000)
Cash flow from (used by) financing activities:
Dividends paid (559,000) (559,000)
Effect of exchange rate changes on cash (148,000) ( 52,000)
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Net increase (decrease) in cash (576,000) 249,000
Opening balance - cash and cash equivalents 3,675,000 3,439,000
--------- ---------
Ending balance - cash and cash equivalents $3,099,000 $3,688,000
========= =========
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 59,000 $ 351,000
Cash paid for interest - -
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Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 561,000 $ 559,000
======= =======
The accompanying notes are an integral part of these financial statements.
5
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - December 31, 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 December 31,
1999 and the results of operations and cash flows for the three
months ended December 31, 1999 and December 31, 1998.
The accounting policies followed by Tech/Ops Sevcon are set
forth in Note 1 to the financial statements in the 1999 Tech/Ops
Sevcon, Inc. Annual Report filed on Form 10-K.
The results of operations for the three-month periods ended
December 31, 1999 and December 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On December 3, 1999, the Company declared a quarterly dividend
of $.18 per share for the first quarter of fiscal 2000, which was
paid on January 7, 2000 to stockholders of record on December 20,
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
Basic and fully diluted earnings per share were calculated as
follows (in thousands, except for per share amounts):
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
Dec 31 Dec 27
1999 1998
------- ------
<S> <C> <C>
Net income $ 614 $ 930
Basic income per share $ .20 $ .30
Average shares outstanding 3,115 3,108
Options outstanding - common stock
equivalents 18 29
Average common and common equivalent
shares outstanding 3,133 3,137
Fully diluted income per share $ .20 $ .30
=== ===
</TABLE>
6
(4) Segment information
The Company has two reportable segments: electronic controls and
capacitors. The electronic controls segment produces control systems
for battery powered vehicles. The capacitor segment produces
electronic components for sale to electronic equipment manufacturers.
Each segment has its own management team, manufacturing facilities
and sales force.
The accounting policies of the segments are the same as those
described in note 1 to the 1999 Annual Report filed on Form 10-K.
Inter-segment sales are accounted for at current market prices. The
Company evaluates the performance of each segment principally based
on operating income. The Company does not allocate income taxes,
interest income and expense or foreign currency translation gains
and losses to segments. Information concerning operations of these
businesses is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(in thousands of dollars)
- ---------------------------------------------------------------------
Three months ended December 31, 1999
- ---------------------------------------------------------------------
Controls Capacitors Corporate Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to external
customers $ 6,879 $ 468 - $ 7,347
Inter-segment revenues - 72 - 72
Operating income 900 85 ( 62) 923
Identifiable assets 14,506 1,208 2,426 18,140
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Three months ended December 31, 1998
- ---------------------------------------------------------------------
Controls Capacitors Corporate Total
- ---------------------------------------------------------------------
Sales to external
customers $ 7,598 $ 406 - $ 8,004
Inter-segment revenues - 41 - 174
Operating income 1,395 37 ( 57) 1,375
Identifiable assets 14,283 1,347 2,853 18,483
- ---------------------------------------------------------------------
</TABLE>
7
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, 1999
Sales in the first fiscal quarter ended December 31, 1999 were
$7,347,000, compared to $8,004,000 in the same quarter of the
previous year, a decrease of $657,000, or 8%. Foreign currency
fluctuations accounted for $305,000, or 4% of the sales decrease.
Revenues in the U.S. Controller business increased by 6% due to
increased demand in the fork lift truck and aerial lift markets.
Sales in the European Controller markets decreased by 13%. Capacitor
sales were 15% higher than last year due to a limited recovery from
the difficult conditions in the European capacitor market during the
past two years.
Gross profit was 39.3% of sales compared to 40.8% in the first
quarter of fiscal 1999, and was $375,000 lower than last year. The
decrease in gross profit was attributable to foreign currency
fluctuations, lower volumes, and adverse sales mix. Selling Research
and administrative expenses for the quarter were $77,000, or 4%,
higher than fiscal in 1999.
Operating income was $923,000, a decrease of $452,000, or 33%,
compared to the first quarter of last year. Foreign currency
fluctuations caused a decrease in operating income of $135,000, or
10%. Operating income in the capacitor business segment increased by
$48,000, or 130%, mainly due to increased volumes. In the controller
business our plan to reorganize and refocus manufacturing facilities
on their core competencies, reduce manufacturing costs, improve
quality, expand our worldwide sales presence and increase new product
introduction and development resources is ongoing. Implementation of
this plan resulted in additional costs of $100,000 during the first
quarter of fiscal 2000. The remainder of the decrease in controller
business operating income was due to lower physical volumes and
adverse sales mix.
Income before income taxes was $614,000, compared to $930,000
last year, a decrease of $316,000, or 34%. Other income was $19,000
compared to $55,000 in fiscal 1999, a decrease of $36,000. This was
principally due to a decrease in foreign currency translation gains
compared to last year. Income taxes were 35% of pre-tax income in
both periods. Basic and fully-diluted income per share decreased by
33%, from $.30 in the first quarter of fiscal 1999 to $.20 in the
current year.
8
Year 2000 Issues
Since January 1, 2000, the Company has not encountered any Year
2000 issues. Most of the Company's systems have been tested since
that date without any Year 2000 issues becoming evident. No Year 2000
issues have been reported to us by either suppliers or customers.
Prior to January 1, 2000 the Company conducted a review of both
its state of readiness with respect to Year 2000 issues and that of
its key suppliers and customers. This review indicated that the
Company's products do not include date-sensitive technology and
therefore do not present a Year 2000 exposure.
Conclusions from this review of the Company's internal systems,
including Information Technology (IT) and non IT systems, indicated
certain issues related to Year 2000. The Company resolved each of
these issues at a cost of approximately $45,000. The Company's
circularization of both vendors and customers indicated that there
were no key vendors or customers who were not compliant.
The Company's contingency planning 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 short-term disruption which may occur early in 2000.
Due to the nature of the Company's business, the lack of any
Year 2000 issues during January 2000, and based on the results of the
review, 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 $561,000. 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.
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: February 7, 2000 By: /s/ Paul A. McPartlin
---------------------
Paul A. McPartlin
Vice President Finance
Principal Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,099
<SECURITIES> 0
<RECEIVABLES> 6,509
<ALLOWANCES> 175
<INVENTORY> 4,070
<CURRENT-ASSETS> 13,973
<PP&E> 7,242
<DEPRECIATION> 4,040
<TOTAL-ASSETS> 18,140
<CURRENT-LIABILITIES> 6,750
<BONDS> 0
0
0
<COMMON> 312
<OTHER-SE> 10,943
<TOTAL-LIABILITY-AND-EQUITY> 18,140
<SALES> 7,347
<TOTAL-REVENUES> 7,347
<CGS> 4,458
<TOTAL-COSTS> 4,458
<OTHER-EXPENSES> 1,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 942
<INCOME-TAX> 328
<INCOME-CONTINUING> 614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 614
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
