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 June 30, 2001
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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.)
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
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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 August 14, 2001
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Common stock, par value $.10 3,109,620
TECH/OPS SEVCON, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
ASSETS
(in thousands)
June 30, Sept 30,
2001 2000
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(unaudited) (derived from
audited
statements)
Current assets:
Cash and cash equivalents $ 955 $ 1,542
Short term investments - 591
Accounts receivable, less allowances
of $796,000 at 6/30/2001
and $241,000 at 9/30/2000 6,338 6,132
Inventories:
Raw materials 2,450 1,688
Work-in-process 895 944
Finished goods 975 1,052
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4,320 3,684
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Prepaid expenses and other current
assets 459 831
------- -------
Total current assets 12,072 12,780
------- -------
Property, plant and equipment, at cost 6,922 6,905
Less: Accumulated depreciation
and amortization 4,110 3,911
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Net property, plant
and equipment 2,812 2,994
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Cost of purchased businesses in excess
of net assets acquired 1,435 1,435
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$16,319 $17,209
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The accompanying notes are an integral part of these financial
statements.
TECH/OPS SEVCON, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(in thousands)
June 30, Sept 30,
2001 2000
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(unaudited) (derived from
audited
statements)
Current liabilities:
Accounts payable $ 3,194 $ 2,385
Dividend payable 560 561
Accrued expenses 2,685 2,347
Accrued taxes on income 59 509
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Total current liabilities 6,498 5,802
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Deferred taxes on income 128 135
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Stockholders' investment
Preferred stock - -
Common stock 311 311
Treasury stock (49) -
Premium paid in on common stock 3,925 3,925
Retained earnings 7,368 8,375
Cumulative other comprehensive
income (loss) (1,862) (1,339)
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Total stockholders' investment $9,693 $11,272
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$16,319 $17,209
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The accompanying notes are an integral part of these financial
statements.
TECH/OPS SEVCON, INC.
Consolidated Statements of Income
(Unaudited)
(in thousands except per share data)
Three Months Ended Nine Months Ended
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June 30, June 30, June 30, June 30,
2001 2000 2001 2000
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Net sales $ 7,680 $ 8,054 $21,106 $23,539
Costs and expenses:
Cost of sales 4,800 4,791 13,707 14,114
Selling, research and
administrative 2,224 2,009 6,381 6,062
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7,024 6,800 20,088 20,176
------- ------- ------- -------
Operating income 656 1,254 1,018 3,363
Other income (expense), net (27) 61 18 86
------- ------- ------- -------
Income before income taxes 629 1,315 1,036 3,449
Income taxes 221 445 363 1,159
------- ------- ------- -------
Net income $ 408 $ 870 673 2,290
======= ======= ======= =======
Basic income per share $ .13 $ .28 $ .22 $ .74
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Fully diluted income per share $ .13 $ .28 $ .22 $ .73
======= ======= ======= =======
Consolidated Statement of Comprehensive Income
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
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June 30, June 30, June 30, June 30,
2001 2000 2001 2000
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Net income $ 408 $ 870 $ 673 $ 2,290
Foreign currency
translation adjustment (77) (349) (327) (673)
Change in fair market value
of cash flow hedge (4) - (196) -
------- ------- ------- -------
Comprehensive income $ 327 $ 521 $ 150 $ 1,617
======= ======= ======= =======
The accompanying notes are an integral part of these financial
statements.
TECH/OPS SEVCON, INC.
Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
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June 30, June 30,
2001 2000
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Net cash flow from operating activities:
Net income $ 673 $ 2,290
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 394 380
Deferred tax provision (7) (14)
Increase (decrease) in cash resulting from
changes in operating assets & liabilities:
Receivables (206) (1,600)
Inventories (636) 282
Prepaid expenses and other current assets 372 133
Accounts payable 809 270
Accrued compensation and expenses 338 (265)
Accrued and deferred taxes on income (450) 86
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Net cash generated from operating activities 1,287 1,562
Cash flow generated from (used by)
investing activities:
Acquisition of property, plant, and
equipment, net (357) (418)
Disposal of short-term investments 591 -
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Net cash generated from (used by)
investing activities 234 (418)
Cash flow used by financing activities:
Dividends paid (1,680) (1,682)
Purchase of common stock (49) -
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Net cash used by financing activities (1,729) (1,682)
Effect of exchange rate changes on cash (379) (450)
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Net decrease in cash (587) (988)
Opening balance - cash and cash equivalents 1,542 3,675
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Ending balance - cash and cash equivalents $ 955 $ 2,687
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Supplemental disclosure of cash flow information;
Cash paid for income taxes $ 732 $ 834
Cash paid for interest 9 1
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Supplemental disclosure of non-cash
financing activity:
Dividend declared $ 560 $ 561
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The accompanying notes are an integral part of these financial
statements.
TECH/OPS SEVCON, INC.
Notes to Consolidated Financial Statements - June 30, 2001
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(primarily consisting of only normally recurring accruals)necessary
to present fairly the financial position of Tech/Ops Sevcon as of
June 30, 2001 and the results of operations and cash flows for the
three months and nine months ended June 30, 2001 and June 30, 2000.
The accounting policies followed by Tech/Ops Sevcon are set
forth in Note 1 to the financial statements in the 2000 Tech/Ops
Sevcon, Inc. Annual Report filed on Form 10-K.
The results of operations for the three-month and nine-month
periods ended June 30, 2001 and June 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
(2) Cash Dividends
On June 5, 2001, the Company declared a quarterly dividend
of $.18 per share for the third quarter of fiscal 2001, which was
paid on July 5, 2001 to stockholders of record on June 20, 2001.
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 Nine Months Ended
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June 30 June 30 June 30 June 30
2001 2000 2001 2000
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Net income $ 408 $ 870 $ 673 $2,290
Basic income per share $ .13 $ .28 $ .22 $ .74
Average shares outstanding 3,110 3,115 3,111 3,115
Options outstanding - common
stock equivalents 14 17 15 18
Average common and common
equivalent shares outstanding 3,124 3,132 3,126 3,133
Fully diluted income per share $ .13 $ .28 $ .22 $ .73
====== ====== ====== ======
(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 2000 Annual Report filed on Form 10-K.
Inter-segment revenues 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:
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(in thousands)
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Three months ended June 30, 2001
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Controls Capacitors Corporate Total
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Sales to external customers $ 7,114 $ 566 - $ 7,680
Inter-segment revenues - 77 - 77
Operating income 575 154 (73) 656
Identifiable assets 14,851 1,340 128 16,319
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Three months ended June 30, 2000
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Controls Capacitors Corporate Total
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Sales to external customers $ 7,522 $ 532 - $ 8,054
Inter-segment revenues - 102 - 102
Operating income 1,181 151 (78) 1,254
Identifiable assets 14,692 1,313 2,132 18,137
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Nine months ended June 30, 2001
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Controls Capacitors Corporate Total
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Sales to external customers $19,472 $ 1,634 - $21,106
Inter-segment revenues - 254 - 254
Operating income 768 442 (192) 1,018
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Nine months ended June 30, 2000
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Controls Capacitors Corporate Total
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Sales to external customers $22,017 $ 1,522 - $23,539
Inter-segment revenues - 272 - 272
Operating income 3,162 381 (180) 3,363
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TECH/OPS SEVCON, INC.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three months ended June 30, 2001
In June 2001 UpRight, Inc., a manufacturer of aerial lifts that was
a significant customer of the Company, filed for protection under
Chapter 11 of the bankruptcy code. The Company recorded a charge of
$855,000, equivalent to $0.18 per share, to cover the outstanding
receivable from UpRight of $562,000 and an estimated write-down of
inventory unique to this customer of $293,000. Shipments to UpRight,
Inc. accounted for 6% of total revenues in the first nine months of
fiscal 2001 compared to 5% in fiscal 2000. Set out below is a
comparison of third quarter results before and after this charge.
(in thousands except per share data)
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Third quarter
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Fiscal 2001 Fiscal 2000
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As UpRight Before As
reported charge charge reported
Net sales 7,680 - 7,680 8,054
Cost of sales 4,800 (293) 4,507 4,791
Gross profit 2,880 (293) 3,173 3,263
Gross profit % 37.5% 41.3% 40.5%
Selling, research and
administrative
expenses 2,224 (562) 1,662 2,009
Operating income 656 (855) 1,511 1,254
Net income 408 (556) 964 870
Fully diluted income
per share $.13 $(.18) $.31 $.28
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Sales in the third fiscal quarter ended June 30, 2001 were
$7,680,000 compared to $8,054,000 in the same quarter of last year,
a decrease of $374,000, or 5%. Third quarter volumes were in line
with last year, however, the weakness of European currencies compared
to the U.S. dollar resulted in a 5% decrease in reported revenues.
Revenues in the U.S. controller business increased by 2% compared to
the third quarter of fiscal 2000. Strong performance in the mining
and airport ground support markets was offset by a very sharp decline
in shipments to the U.S. aerial lift market to less than half the
level recorded last year. The decrease in shipments to the aerial
lift market was due to a significant slowdown in demand affecting the
majority of the company's aerial lift customers and the bankruptcy of
UpRight, Inc. in June 2001. Volumes in the European controller markets
were 4% lower than last year, mainly due to weakness in both the fork
lift truck and aerial lift markets where volumes were down by 6% and
8% respectively. Currency fluctuations accounted for an 8% decrease
in reported sales in European controller markets. Capacitor volumes
were 13% higher than last year. Currency fluctuations reduced
reported capacitor sales by 7% resulting in a year to year increase
in capacitor sales for the third quarter of 6%.
Gross profit was $2,880,000, or 37.5% of sales, including the impact
of the $293,000 charge for the write-down of UpRight inventory. Prior
to the charge, gross profit was $3,173,000, or 41.3% of sales,
compared to $3,263,000, or 40.5% of sales, in the third quarter last
year. The increase in gross profit percentage was mainly due to cost
improvements arising from the company's outsourcing of certain
manufacturing operations as part of its plan to reorganize and
refocus manufacturing facilities on their core competencies. Selling,
research and administrative expense for the quarter were $2,224,000,
including $562,000 for the increase in the allowance for bad and
doubtful debt to cover the outstanding receivable from UpRight.
Before this charge, selling, general and administrative expenses were
$1,662,000 compared to $2,009,000 last year, a decrease of 17%.
Approximately 9% of this decrease was due to currency fluctuations
with the remainder due to lower spending following workforce
reductions effected during the second quarter of fiscal 2001.
Additional expense of $55,000 was recorded during the third quarter
in settlement of a litigation claim. This claim is discussed in
Part II, Item 1, Legal Proceedings.
Operating income was $656,000 after recording a charge totaling
$855,000 relating to UpRight, Inc. Before the charge, operating
income was $1,511,000, an increase of 20% compared to the same
quarter last year when operating income was $1,254,000. This
improvement in operating income, before the charge, was a result
of the company's plan to reorganize and refocus manufacturing
facilities on their core competencies, reduce manufacturing cost and
improve quality. This resulted in lower manufacturing costs and
decreased overhead following workforce reductions. Operating income
in the capacitor segment was $154,000 compared to $151,000 in the
third quarter last year. In the controller segment and before the
$855,000 charge relating to UpRight, operating income increased from
$1,181,000 to $1,430,000, an improvement of 21%.
The company incurred other expense in the quarter of $27,000 compared
to other income of $61,000 in the third quarter of last year, a
year-to-year swing of $88,000. This change was mainly due to lower
interest income and foreign currency losses this year compared to
foreign currency gains in fiscal 2000.
Income before income taxes was $629,000 after the $855,000 charge
relating to UpRight compared to $1,315,000 in the third quarter of
last year. Income taxes were 35% of pre-tax income compared to 34%
in last year's third quarter. Net income for the third quarter was
$408,000, or $.13 per fully diluted share after the charge relating
to UpRight, which reduced net income by $556,000, or $.18 per share.
Prior to the charge, net income was $964,000, or $.31 per share
compared to $870,000, or $.28 per share, last year, an increase of
11%.
Nine months ended June 30, 2001
In addition to the charge relating to the bankruptcy of UpRight, Inc.
of $855,000 incurred in the third quarter, the Company incurred a
charge of $390,000 relating to a 20% reduction in its worldwide
workforce in the second quarter of fiscal 2001. In the first quarter
of fiscal 2001 there was a technical problem with a product line which
impacted one major fork lift truck customer. This resulted in the
Company incurring a charge for product rectification costs of
$450,000. In total the impact of the above charges in the first nine
months of fiscal 2001 was $1,695,000. Set out below is a comparison
of nine-month results before and after these charges.
(in thousands except per share data)
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Nine months year-to-date
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Fiscal 2001 Fiscal 2000
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As Charges Before As
reported charges reported
Net sales 21,106 - 21,106 23,539
Cost of sales 13,707 (743) 12,964 14,114
Gross profit 7,399 (743) 8,142 9,425
Gross profit % 35.1% 38.6% 40.0%
Selling, research and
administrative
expenses 6,381 (952) 5,429 6,062
Operating income 1,018 (1,695) 2,713 3,363
Net income 673 (1,102) 1,775 2,290
Fully diluted income
per share $.22 $(.35) $.57 $.73
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Sales in the first nine months of fiscal 2001 were $21,106,000
compared to $23,539,000 in the same period last year, a decrease of
$2,533,000, or 11%. Foreign currency fluctuations accounted for a
$1,175,000, or 5%, decrease in reported sales. Revenues in the U.S.
controller business were in line with last year. Decreased demand in
the U.S. aerial lift market was offset by increases in both the
mining and airport ground support markets. Sales in the U.S. fork
lift truck market were in line with last year. Controller sales in
foreign markets decreased by 20%. This was due to foreign currency
fluctuations that reduced reported controller segment sales by 8% and
to a 12% decrease in volumes mainly in the European aerial lift and
fork lift truck markets. Capacitor sales increased by $112,000, or
7%, compared to the first nine months of last year. Volume increases
of 18% were partially offset by an 11% decrease in reported sales due
to a decline in the value of the British pound compared to the U.S.
dollar.
Gross profit was $7,399,000 after the $293,000 charge relating to the
write-down of inventory relating to UpRight recorded in the third
quarter of fiscal 2001 and the $450,000 charge relating to product
rectification costs reported in the first quarter of this fiscal
year. Prior to these charges, amounting to $743,000,gross profit was
$8,142,000, or 38.6% of sales, compared to $9,425,000, or 40.0% of
sales last year. The decrease in gross profit percentage was mainly
due to difficult material supply conditions, due to a worldwide
shortage of electronic components, the start-up of the company's
outsourcing program and lower labor efficiency during the period of
workforce reduction.
Operating expenses for the nine month period were $6,381,000 including
$562,000 relating to the increase in reserves for the UpRight account
receivable and $390,000 for the charge incurred in the second quarter
relating to workforce reductions. Prior to these charges of $952,000,
operating expenses were $5,429,000 compared to $6,062,000 in the
first nine months of last year, a decrease of 12%. Foreign currency
fluctuations caused 7% of this decrease, with the remaining 5%
mainly due to savings resulting from the workforce reduction. Expense
of $125,000 was incurred in the first nine months for settlement of a
litigation claim. This claim is discussed in Part II, Item 1, Legal
Proceedings.
Operating income for the first nine months of fiscal 2001 was
$1,018,000. Charges impacting operating income were $855,000 relating
to UpRight incurred in the third quarter of fiscal 2001, $390,000 for
workforce reductions in the second quarter and $450,000 relating to
product rectification incurred in the first quarter of this year.
All of these charges impacted the controller business segment. Prior
to these charges operating income was $2,713,000, a decrease of
$650,000, or 19%, compared to the same period last year when
operating income was $3,363,000. This decrease in operating income
was principally due to lower volumes. Operating income in the
capacitor business segment was $442,000, an increase of 16%,
compared to the same period last year when operating income was
$381,000. In the controller business segment and before the charges
mentioned above, totaling $1,695,000, operating income was $2,463,000,
a decrease of 22% compared to the $3,162,000 of operating income in
the controller business segment in the first nine months of fiscal
2000. This decrease in operating income was principally due to lower
volumes.
Other income was $18,000 in the first nine months of fiscal 2001
compared to $86,000 in the prior year period. Lower net interest
income and a decrease in currency gains compared to last year were
the principal causes of this change.
Income before income taxes was $1,036,000 compared to $3,449,000 in
the same period last year. $1,695,000 of this decrease was due to the
charges mentioned above. The remainder of the decrease was mainly
due to lower volumes. Income taxes were 35% of pre-tax income in
the first nine months of fiscal 2001 compared to 34% in the same
period last year. Net income was $673,000, or $.22 per share. The
charges in fiscal 2001 reduced net income by $1,102,000, or $.35 per
share. Prior to these charges net income would have been $1,775,000,
or $.57 per share compared to $2,290,000 or $.73 per share for the
same period last year.
Financial Condition, Liquidity and Capital Resources
Tech/Ops Sevcon's cash flow from operating activities for the nine months
ended June 30, 2001 was $1,267,000 compared to $1,562,000 in the first nine
months of last year. Acquisitions of property plant and equipment amounted
to $357,000 compared to $418,000 in fiscal 2000. Dividend payments amounted
to $1,680,000 compared to $1,682,000 in the first nine months of fiscal 2000,
and the purchase of common stock in the first quarter of fiscal 2001 cost
$49,000. Exchange rate changes reduced cash by $379,000 compared to a
reduction of $450,000 last year. In the first nine months cash balances
decreased by $587,000 and short-term investments decreased by $591,000. The
decrease in the total of cash and short term investments was $1,178,000
compared to $988,000 in the same period last year.
The main working capital changes in the nine month period were an increase in
inventories of $636,000, an increase in payables of $809,000 and a decrease
in accrued income taxes of $450,000.
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. The Company has no current plan to
change its dividend policy.
Forward Looking Statements
This discussion and analysis contains forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected, including the following: ability of the
Company to successfully implement its plan to reorganize and refocus the
Company, to reduce manufacturing costs and successfully implement its
outsourcing program in a timely manner; ability to produce products meeting
technical requirements of customers and acceptance of those products
by customers; level of demand for controls; impact of the variability of foreign
exchange rates on sales and earnings; availability of electronic components at
reasonable prices; availability of earnings and capital resources to permit
continuation of dividend payments; the outcome of litigation against the
company, as well as other factors that may be described from time to time in
the Company's filings with the Securities and Exchange Commission, including
on Form 10-K.
TECH/OPS SEVCON, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 2001 the Company reached an out-of-court settlement with an
Indian electronics manufacturer which was claiming damages from the
Company's UK subsidiary of approximately $1.4 million. The claim was
for loss of profits and expenses relating to an alleged contact to
supply the Company's requirements of certain products for a five year
period. The total cost of settling this claim including legal costs
and the write-off of certain tooling was $125,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report.
None
(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 14, 2001 By: /s/ Paul A. McPartlin
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Paul A. McPartlin
Chief Financial and Accounting
Officer