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 ----------------- / / 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.) 40 North Avenue, Burlington, Massachusetts, 01803-3391 ------------------------------------------------------ (Address of principal executive offices and zip code) (781) 229-7896 --------------------------------------------------- (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 Dec 31, Sept 30, 1999 1999 --------- ------------ (unaudited) (derived from audited statements) 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 ========== ========== The accompanying notes are an integral part of these financial statements. 3 TECH/OPS SEVCON, INC. Consolidated Statement of Income (Unaudited) Three Months Ended --------------------- Dec 31, Dec 31, 1999 1998 -------- -------- 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 ======= ======= The accompanying notes are an integral part of these financial statements. 4 TECH/OPS SEVCON, INC. Consolidated Statement of Cash Flows (Unaudited) Three Months Ended --------------------- Dec 31, Dec 31, 1999 1998 -------- -------- 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) ------- -------- 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 - - ------- ------- 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): Three Months Ended ------------------ Dec 31 Dec 27 1999 1998 ------- ------ 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 === === 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: - --------------------------------------------------------------------- (in thousands of dollars) - --------------------------------------------------------------------- Three months ended December 31, 1999 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- 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 - --------------------------------------------------------------------- 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