Form 10-Q first quarter fiscal 2007
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 30, 2006
o
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 incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
155
Northboro Road, Southborough, Massachusetts, 01772
(Address
of principal executive offices and zip code)
(508)
281 5510
(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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
Filer o Non
accelerated filer x
Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act). Yes o
No
x
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 13, 2007
|
Common
stock, par value $.10
|
3,211,051
|
FORM
10-Q
FOR
THE QUARTER ENDED DECEMBER 30, 2006
INDEX
PART
I -FINANCIAL INFORMATION
|
PAGE
|
|
3
|
|
3
|
|
4
|
|
4
|
|
5
|
|
6
|
|
11
|
|
17
|
|
18
|
|
18
|
|
18
|
|
19
|
|
19
|
|
19
|
Tech/Ops
Sevcon, Inc. and Subsidiaries
(in
thousands of dollars except per share data)
|
|
|
|
December
30,
2006
|
|
September
30,
2006
|
|
|
|
(unaudited)
|
|
(derived
from audited statements)
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,626
|
|
$
|
1,290
|
|
Receivables,
net of allowances for doubtful accounts of $150 at December 30, 2006
and
$141 at September 30, 2006
|
|
|
6,213
|
|
|
6,187
|
|
Inventories
|
|
|
4,633
|
|
|
4,717
|
|
Prepaid
expenses and other current assets
|
|
|
875
|
|
|
847
|
|
Total
current assets
|
|
|
13,347
|
|
|
13,041
|
|
Property,
plant and equipment:
|
|
|
|
|
|
|
|
At
cost
|
|
|
11,195
|
|
|
10,497
|
|
Less:
accumulated depreciation and amortization
|
|
|
7,683
|
|
|
7,202
|
|
Net
property, plant and equipment
|
|
|
3,512
|
|
|
3,295
|
|
Long-term
deferred tax asset
|
|
|
916
|
|
|
881
|
|
Goodwill
|
|
|
1,435
|
|
|
1,435
|
|
Total
assets
|
|
$
|
19,210
|
|
$
|
18,652
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ INVESTMENT
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,733
|
|
$
|
2,397
|
|
Dividend
payable
|
|
|
96
|
|
|
96
|
|
Accrued
expenses
|
|
|
2,439
|
|
|
2,701
|
|
Accrued
and deferred taxes on income
|
|
|
488
|
|
|
479
|
|
Total
current liabilities
|
|
|
5,756
|
|
|
5,673
|
|
Liability
for pension benefits
|
|
|
2,992
|
|
|
2,886
|
|
Other
long term liabilities
|
|
|
59
|
|
|
56
|
|
Total
liabilities
|
|
|
8,807
|
|
|
8,615
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Stockholder
equity
|
|
|
|
|
|
|
|
Preferred
stock, par value $.10 per share - authorized - 1,000,000
shares;
outstanding
- none
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $.10 per share - authorized - 8,000,000
shares;
outstanding
3,211,051 shares at December 31, 2006 and at September 30, 2006
|
|
|
321
|
|
|
321
|
|
Premium
paid in on common stock
|
|
|
4,356
|
|
|
4,309
|
|
Retained
earnings
|
|
|
7,115
|
|
|
7,123
|
|
Cumulative
other comprehensive loss
|
|
|
(1,389
|
)
|
|
(1,716
|
)
|
Total
stockholder equity
|
|
|
10,403
|
|
|
10,037
|
|
Total
liabilities and stockholder equity
|
|
$
|
19,210
|
|
$
|
18,652
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
|
(Unaudited)
Tech/Ops
Sevcon, Inc. and Subsidiaries
(in
thousands except per share data)
|
|
|
|
Three
months ended
|
|
|
|
December
30, 2006
|
|
December
31, 2005
|
|
Net
sales
|
|
$
|
8,226
|
|
$
|
7,821
|
|
Cost
of sales
|
|
|
5,228
|
|
|
4,774
|
|
Gross
Profit
|
|
|
2,998
|
|
|
3,047
|
|
Selling,
research and administrative expenses
|
|
|
2,794
|
|
|
2,803
|
|
Operating
income
|
|
|
204
|
|
|
244
|
|
Interest
expense
|
|
|
(5
|
)
|
|
(21
|
)
|
Interest
income
|
|
|
2
|
|
|
1
|
|
Foreign
currency gain or (loss)
|
|
|
(67
|
)
|
|
22
|
|
Income
before income taxes
|
|
|
134
|
|
|
246
|
|
Income
taxes
|
|
|
(46
|
)
|
|
(86
|
)
|
Net
income
|
|
$
|
88
|
|
$
|
160
|
|
Basic
income per share
|
|
$
|
.03
|
|
$
|
.05
|
|
Fully
diluted income per share
|
|
$
|
.03
|
|
$
|
.05
|
|
(Unaudited)
Tech/Ops
Sevcon, Inc. and Subsidiaries
|
|
(in
thousands of dollars)
|
|
|
Three
months ended
|
|
|
|
December
30, 2006
|
|
|
December
31,
2005
|
|
Net
income
|
|
$
|
88
|
|
$
|
160
|
|
Foreign
currency translation adjustment
|
|
|
315
|
|
|
(182
|
)
|
Changes
in fair market value of cash flow hedges
|
|
|
-
|
|
|
(1
|
)
|
Amortization
of pension transition items to income
|
|
|
12
|
|
|
-
|
|
Comprehensive
income (loss)
|
|
$
|
415
|
|
$
|
(23
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
(Unaudited)
Tech/Ops
Sevcon, Inc. and Subsidiaries
|
|
(in
thousands of dollars)
|
|
|
|
Three
months ended
|
|
|
|
December
31,
2006
|
|
December
31,
2005
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
88
|
|
$
|
160
|
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
178
|
|
|
152
|
|
Stock-based
compensation
|
|
|
47
|
|
|
44
|
|
Deferred
tax benefit
|
|
|
(35
|
)
|
|
-
|
|
Increase
(decrease) in cash resulting from changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
Receivables
|
|
|
(26
|
)
|
|
267
|
|
Inventories
|
|
|
84
|
|
|
(220
|
)
|
Prepaid
expenses and other current assets
|
|
|
(28
|
)
|
|
(166
|
)
|
Accounts
payable
|
|
|
336
|
|
|
(21
|
)
|
Accrued
expenses
|
|
|
(262
|
)
|
|
(150
|
)
|
Accrued
and deferred taxes on income
|
|
|
9
|
|
|
(207
|
)
|
Net
cash generated from (used by) operating activities
|
|
|
391
|
|
|
(141
|
)
|
Cash
flow used by investing activities:
|
|
|
|
|
|
|
|
Acquisition
of property, plant and equipment
|
|
|
(237
|
)
|
|
(161
|
)
|
Net
cash used by investing activities
|
|
|
(237
|
)
|
|
(161
|
)
|
Cash
flow used by financing activities:
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(96
|
)
|
|
(95
|
)
|
Net
cash generated from (used by) financing activities
|
|
|
(96
|
)
|
|
(95
|
)
|
Effect
of exchange rate changes on cash
|
|
|
278
|
|
|
(131
|
)
|
Net
increase (decrease) in cash
|
|
$
|
336
|
|
$
|
(528
|
)
|
Beginning
balance - cash and cash equivalents
|
|
|
1,290
|
|
|
1,130
|
|
Ending
balance - cash and cash equivalents
|
|
$
|
1,626
|
|
$
|
602
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
196
|
|
$
|
265
|
|
Cash
paid for interest
|
|
$
|
5
|
|
$
|
20
|
|
Supplemental
disclosure of non-cash financing activity:
|
|
|
|
|
|
|
|
Dividend
declared
|
|
$
|
96
|
|
$
|
96
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to Consolidated Financial Statements - December 31, 2006
(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 30, 2006 and the results of operations and cash
flows for the three months ended December 30, 2006 and December 31,
2005.
The
significant accounting policies followed by Tech/Ops Sevcon are set forth in
Note 1 to the financial statements in the 2006 Tech/Ops Sevcon, Inc. Annual
Report filed on Form 10-K. Other than as set forth below, there have been no
changes since the end of fiscal 2006 to the significant accounting policies
followed by Tech/Ops Sevcon.
The
results of operations for the three month periods ended December 30, 2006 and
December 31, 2005 are not necessarily indicative of the results to be expected
for the full year.
(2) New
Accounting Pronouncements
In
July
2006 the Financial Accounting Standards Board (FASB) issued Interpretation
#48
“Accounting for Uncertain Tax Positions” which will be effective for fiscal
years beginning after December 15, 2006. The Company is currently evaluating
the
impact of this interpretation on its financial statements.
In
September 2006, the FASB issued SFAS No. 158, "Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R)." SFAS No. 158 requires an employer to recognize
a
plan’s overfunded or underfunded status in its balance sheets and recognize the
changes in a plan’s funded status in comprehensive income in the year which the
changes occur. The Company adopted SFAS #158 effective on September 30, 2006.
There was no impact on the income statement in either fiscal 2007 or 2006
arising from the adoption of SFAS #158.
(3) Stock-Based
Compensation Plans
Under
the
Company’s 1996 Equity Incentive Plan (the “Plan”) there were 71,000 shares
reserved and available for grant at December 30, 2006. Recipients of grants
or
options must execute a standard form of non-competition agreement. The plan
provides for the grant of Restricted Stock, Restricted Stock Units, Options,
and
Stock Appreciation Rights (SARs). Stock Appreciation Rights may be awarded
either separately, or in relation to options granted, and for the grant of
bonus
shares. Options granted are exercisable at a price not less than fair market
value on the date of grant.
Since
the
beginning of fiscal 2006 the Company has accounted
for
stock based compensation under SFAS 123R “Share-Based Payment” which defines a
fair value based method of accounting for employee stock options or similar
equity instruments.
The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. There were no option grants in the first
quarter of fiscal 2007 or in fiscal 2006 and therefore no assumptions were
made
as to risk-free interest rate, expected dividend yield, expected life or
expected volatility in fiscal 2007 or fiscal 2006. When options are exercised
the Company normally issues new shares.
A
summary
of option activity for all plans for the three months ended December 30, 2006
is
as follows:
|
|
Options
#
of shares
|
|
Weighted
average Exercise Price
|
|
Weighted
average remaining contractual life (years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at September 30, 2006
|
|
|
172,000
|
|
$
|
9.35
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(20,000
|
)
|
$
|
14.31
|
|
|
|
|
|
|
|
Outstanding
at December 30, 2006
|
|
|
152,000
|
|
$
|
8.70
|
|
|
3.0
years
|
|
$
|
242,000
|
|
Exercisable
at December 30, 2006
|
|
|
105,900
|
|
$
|
9.73
|
|
|
3.4
years
|
|
$
|
124,000
|
|
The
aggregate intrinsic value included in the table above represents the difference
between the exercise price of the options and the market price of the Company’s
common stock for the options that had exercise prices that were lower than
the
$7.85 market price of the Company’s common stock at December 30, 2006. No
options were granted or exercised during the three months ended December 30,
2006, or in the corresponding period last year. At December 30, 2006 there
was
$82,000 of total unrecognized compensation expense related to options granted
under all equity compensation plans. The Company expects to recognize that
cost
over a weighted average period of 3.3 years.
In
fiscal
2006 the Company granted 25,000 shares of restricted stock to three employees
which will vest in five equal annual installments and 12,000 shares of
restricted stock to six non-employee directors which vested on the day before
the 2007 annual meeting. No restricted stock grants were made during the first
quarter of fiscal 2007.
During
the restriction period, five years for employees and one year for non-employee
directors, ownership of unvested shares cannot be transferred. Restricted stock
has the same cash dividend and voting rights as other common stock and is
considered to be currently issued and outstanding. For the purposes of
calculating average issued shares for earnings per share these shares are only
considered to be outstanding when the forfeiture conditions lapse and the shares
vest.
Restricted
stock activity for the three months ended December 30, 2006 was as
follows:
|
|
|
Number
of shares of Restricted Stock
|
|
|
Weighted
Average Grant-Date Fair Value
|
|
Non-vested
balance as of September 30, 2006
|
|
|
65,000
|
|
$
|
5.70
|
|
Granted
|
|
|
-
|
|
|
N/A
|
|
Vested
|
|
|
(12,000
|
)
|
$
|
5.72
|
|
Forfeited
|
|
|
-
|
|
|
N/A
|
|
Non-vested
balance as of December 30, 2006
|
|
|
53,000
|
|
$
|
5.70
|
|
As
of
December 30, 2006, there was $211,000 of total restricted stock compensation
expense related to non-vested awards not yet recognized, which is expected
to be
recognized over a weighted average period of 2.7 years.
The
stock-based compensation expense was as follows.
|
|
(in
thousands of dollars)
|
|
|
Three
Months ended
|
|
|
|
Dec
30,
2006
|
|
|
Dec
31,
2005
|
|
Stock
option expense under SFAS # 123R
|
|
$
|
11
|
|
$
|
13
|
|
Restricted
stock grants:
|
|
|
|
|
|
|
|
Employees
|
|
|
19
|
|
|
9
|
|
Non-employee
directors
|
|
|
17
|
|
|
22
|
|
Total
stock based compensation expense
|
|
$
|
47
|
|
$
|
44
|
|
(4) Cash
Dividends
On
December 5, 2006, the Company declared a quarterly dividend of $.03 per share
for the first quarter of fiscal 2007, which was paid on January 4, 2007 to
stockholders of record on December 20, 2006. The Company has paid regular
quarterly cash dividends since the first quarter of fiscal 1990.
(5) Calculation
of Earnings per Share and Weighted Average Shares
Outstanding
Basic
and
fully diluted earnings per share were calculated as follows:
|
|
(in
thousands except per share data)
|
|
|
|
Three
Months ended
|
|
|
|
December
30,
2006
|
|
|
December
31,
2005
|
|
Net
income
|
|
$
|
88
|
|
$
|
160
|
|
Weighted
average shares outstanding - basic
|
|
|
3,147
|
|
|
3,127
|
|
Basic
income per share
|
|
$
|
.03
|
|
$
|
.05
|
|
Common
stock equivalents
|
|
|
46
|
|
|
35
|
|
Weighted
average shares outstanding - diluted
|
|
|
3,193
|
|
|
3,162
|
|
Diluted
income per share
|
|
$
|
.03
|
|
$
|
.05
|
|
Number
of options that are anti-dilutive excluded from calculation of common
stock equivalents
|
|
|
90
|
|
|
100
|
|
(6) Segment
information
The
Company has two reportable segments: electronic controls and capacitors. The
electronic controls segment produces control systems and accessories 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
significant accounting policies of the segments are the same as those described
in note (1) to the 2006 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:
|
|
(in
thousands of dollars)
|
|
|
|
Three
months ended December 30, 2006
|
|
|
|
|
Controls
|
|
|
Capacitors
|
|
|
Corporate
|
|
|
Total
|
|
Sales
to external customers
|
|
$
|
7,803
|
|
$
|
423
|
|
$
|
-
|
|
$
|
8,226
|
|
Inter-segment
revenues
|
|
|
-
|
|
|
15
|
|
|
-
|
|
|
15
|
|
Operating
income
|
|
|
319
|
|
|
(75
|
)
|
|
(40
|
)
|
|
204
|
|
Depreciation
and amortization
|
|
|
165
|
|
|
13
|
|
|
-
|
|
|
178
|
|
Identifiable
assets
|
|
|
17,763
|
|
|
1,028
|
|
|
419
|
|
|
19,210
|
|
Capital
expenditures
|
|
|
175
|
|
|
62
|
|
|
-
|
|
|
237
|
|
|
|
|
|
|
Three
months ended December 31, 2005
|
|
|
|
Controls
|
|
|
Capacitors
|
|
|
Corporate
|
|
|
Total
|
|
Sales
to external customers
|
|
$
|
7,503
|
|
$
|
318
|
|
$
|
-
|
|
$
|
7,821
|
|
Inter-segment
revenues
|
|
|
-
|
|
|
19
|
|
|
-
|
|
|
19
|
|
Operating
income
|
|
|
395
|
|
|
(54
|
)
|
|
(97
|
)
|
|
244
|
|
Depreciation
and amortization
|
|
|
139
|
|
|
13
|
|
|
-
|
|
|
152
|
|
Identifiable
assets
|
|
|
14,475
|
|
|
824
|
|
|
696
|
|
|
15,995
|
|
Capital
expenditures
|
|
|
126
|
|
|
35
|
|
|
-
|
|
|
161
|
|
In
the
controls business segment the revenues were derived from the following products
and services.
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months ended
|
|
|
|
December
30,
2006
|
|
|
December
31,
2005
|
|
Electronic
controllers for battery driven vehicles
|
|
$
|
5,176
|
|
$
|
5,256
|
|
Accessory
and aftermarket products and services
|
|
|
2,627
|
|
|
2,247
|
|
Total
controls segment revenues
|
|
$
|
7,803
|
|
$
|
7,503
|
|
(7) Research
and Development
The
cost
of research and development programs is charged against income as incurred
and
was as follows:
|
|
(in
thousands of dollars)
|
|
|
Three
Months ended
|
|
|
|
December
30,
2006
|
|
|
December
31,
2005
|
|
Research
and Development expense
|
|
$
|
895
|
|
$
|
916
|
|
Percentage
of sales
|
|
|
10.9
|
|
|
11.7
|
%
|
Research
and development expense decreased by $21,000 compared to the first three months
of last fiscal year.
(8) Employee
Benefit Plans
Tech/Ops
Sevcon has defined benefit plans covering the majority of its US and UK
employees. There is also a small defined contribution plan. The following table
sets forth the components of the net pension cost as defined by SFAS
#158.
|
|
(in
thousands of dollars)
|
|
|
Three
Months ended
|
|
|
|
December
30,
2006
|
|
|
December
31,
2005
|
|
Service
cost
|
|
$
|
145
|
|
$
|
93
|
|
Interest
cost
|
|
|
283
|
|
|
228
|
|
Expected
return on plan assets
|
|
|
(280
|
)
|
|
(214
|
)
|
Amortization
of transition obligation
|
|
|
-
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
14
|
|
|
13
|
|
Recognized
net actuarial gain (loss)
|
|
|
3
|
|
|
-
|
|
Net
periodic benefit cost
|
|
|
165
|
|
|
120
|
|
Net
cost of defined contribution plans
|
|
$
|
11
|
|
$
|
8
|
|
The
following table sets forth the movement in the liability for pension benefits
in
accordance with SFAS #158 in the three months ended December 30,
2006:
|
|
(in
thousands of dollars)
|
|
|
Three
Months ended
|
|
|
|
December
30,
2006
|
|
|
December
31,
2005
|
|
Liability
for pension benefits at beginning of period
|
|
$
|
2,886
|
|
$
|
N/A
|
|
Net
periodic benefit cost
|
|
|
165
|
|
|
N/A
|
|
Plan
contributions
|
|
|
(153
|
)
|
|
N/A
|
|
Effect
of exchange rate changes
|
|
|
94
|
|
|
N/A
|
|
Balance
at end of period
|
|
$
|
2,992
|
|
$
|
N/A
|
|
Tech/Ops
Sevcon contributed $153,000 to its pension plans in the three months ended
December 30, 2006 and presently anticipates contributing a further $554,000
to
fund its plans in the remainder of fiscal 2007, for a total contribution of
$707,000. In addition employee contributions to the UK plan were $72,000 in
the
first three months and are estimated to total $296,000 in fiscal 2007.
The
table
below sets out the movement in the amounts included in accumulated other
comprehensive income that has not yet been recognized as pension costs in the
income statement:
|
|
|
Unrecognized
transition obligation |
|
|
Unrecognized
prior service cost
|
|
|
Unrecognized
net actuarial gain (loss)
|
|
|
Deferred
Tax
|
|
|
Total
|
|
Balance
at September 30, 2006
|
|
$
|
(1
|
)
|
$
|
2,006
|
|
$
|
765
|
|
$
|
(849
|
)
|
$
|
1,923
|
|
Amounts
recognized in accumulated other comprehensive income in the first
quarter
of fiscal 2007
|
|
|
-
|
|
|
(14
|
)
|
|
(3
|
)
|
|
5
|
|
|
(12
|
)
|
Balance
at December 30, 2006
|
|
$
|
(1
|
)
|
$
|
2,006
|
|
$
|
765
|
|
$
|
(849
|
)
|
$
|
1,923
|
|
Amounts
expected to be recognized in the remainder of fiscal 2007
|
|
|
-
|
|
|
(42
|
)
|
|
(9
|
)
|
|
15
|
|
|
(36
|
)
|
(9) Inventories
Inventories
were comprised of:
|
|
(in
thousands of dollars)
|
|
|
|
|
December
30,
2006
|
|
|
September
30,
2006
|
|
Raw
materials
|
|
$
|
2,290
|
|
$
|
2,195
|
|
Work-in-process
|
|
|
177
|
|
|
119
|
|
Finished
goods
|
|
|
2,166
|
|
|
2,403
|
|
|
|
$
|
4,633
|
|
$
|
4,717
|
|
(10) Accrued
expenses
Set
out
below is an analysis of other accrued expenses at December 30, 2006 and
September 30, 2006 which shows separately any items in excess of 5% of total
current liabilities.
|
|
(in
thousands of dollars)
|
|
|
|
December
30,
2006
|
|
|
September
30,
2006
|
|
Accrued
compensation and related costs
|
|
$
|
560
|
|
$
|
1,047
|
|
Warranty
reserves
|
|
|
390
|
|
|
364
|
|
Other
accrued expenses
|
|
|
1,489
|
|
|
1,290
|
|
|
|
$
|
2,439
|
|
$
|
2,701
|
|
(11) Warranty
reserves
The
movement in warranty reserves was as follows:
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months Ended
|
|
|
|
|
December
30,
2006
|
|
|
December
31,
2005
|
|
Warranty
reserves at beginning of period
|
|
$
|
364
|
|
$
|
364
|
|
Decrease
in beginning balance for warranty obligations settled during the
period
|
|
|
(109
|
)
|
|
(103
|
)
|
Other
changes to pre-existing warranties
|
|
|
10
|
|
|
(6
|
)
|
Net
increase in warranty reserves for products sold during the
period
|
|
|
125
|
|
|
127
|
|
Warranty
reserves at end of period
|
|
$
|
390
|
|
$
|
382
|
|
FORWARD
LOOKING STATEMENTS
Statements
in this discussion and analysis about the Company’s anticipated financial
results and growth, as well as those about the development of its products
and
markets, are forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from those projected.
These
include the risks discussed under ‘Risk Factors’ below and throughout this Item
2.
NEW
ACCOUNTING PRONOUNCEMENTS
The
Company adopted SFAS #158 on September 30, 2006. See Note 2 to Consolidated
Financial Statements for a more detailed description of this new accounting
pronouncement.
CRITICAL
ACCOUNTING ESTIMATES
The
Company's significant accounting policies are summarized in Note 1 of its
Consolidated Financial Statements in this Quarterly Report on Form 10-Q. While
all these significant accounting policies impact its financial condition and
results of operations, certain of these policies require management to use
a
significant degree of judgement and/or make estimates, consistent with generally
accepted accounting principles, that affect the reported amounts of assets
and
liabilities and disclosures of contingent assets and liabilities as of the
date
of the financial statements and the reported amounts of income and expenses
during the reporting periods. Since these are judgements and estimates, they
are
sensitive to changes in business and economic realities, and events may cause
actual operating results to differ materially from the amounts derived from
management’s estimates and judgements.
The
Company believes the following represent the most critical accounting judgments
and estimates affecting its reported financial condition and results of
operations:
Bad
Debts
The
Company estimates an allowance for doubtful accounts based on known factors
related to the credit risk of each customer and management’s judgment about the
customer’s business. Ten customers account for approximately 62% of the
Company’s sales in the current fiscal year to date. At December 30, 2006, the
allowance for bad debts amounted to $150,000, which represented 2% of
receivables.
Because
of the Company’s long term relationships with the majority of its customers, in
most cases, the principal bad debt risk to the Company arises from the
insolvency of a customer rather than its unwillingness to pay. In addition,
in
certain cases the Company maintains credit insurance covering up to 90% of
the
amount outstanding from specific customers. The Company also carries out some
of
its foreign trade, particularly in the Far East, using letters of
credit.
The
Company reviews all accounts receivable balances on a regular basis,
concentrating on any balances that are more than 30 days overdue, or where
there
is an identified credit risk with a specific customer. A decision is taken
on a
customer-by-customer basis as to whether a bad debt reserve is considered
necessary based on the specific facts and circumstances of each account. In
general, the Company would reserve 100% of the receivable, net of any
recoverable value added taxes or insurance overages, for a customer that becomes
insolvent or files for bankruptcy, and lesser amounts for less imminent
defaults. To a lesser degree, the Company maintains a small bad debt reserve
to
cover the remaining balances based on historical default percentages.
If
the
financial condition of any of the Company's customers is worse than estimated
or
were to deteriorate, resulting in an impairment of its ability to make payments,
the Company’s results may be adversely affected and additional allowances may be
required. With the exception of a significant loss of $562,000 in fiscal 2001
relating to one US customer, credit losses have not been significant in the
past
ten years.
Inventories
Inventories
are valued at the lower of cost or market. Inventory costs include materials,
direct labor and manufacturing overhead, and are relieved from inventory on
a
first-in, first-out basis. The Company carries out a significant amount of
customization of standard products and also designs and manufactures special
products to meet the unique requirements of its customers. This results in
a
significant proportion of the Company’s inventory being customer specific. The
Company’s reported financial condition includes a provision for estimated
slow-moving and obsolete inventory that is based on a comparison of inventory
levels with forecast future demand. Such demand is estimated based on many
factors, including management judgments, relating to each customer’s business
and to economic conditions. The Company reviews in detail all significant
inventory items with holdings in excess of estimated normal requirements. It
also considers the likely impact of changing technology. It makes an estimate
of
the provision for slow moving and obsolete stock on an item-by-item basis based
on a combination of likely usage based on forecast customer demand, potential
sale or scrap value and possible alternative use. This provision represents
the
difference between original cost and market value at the end of the financial
period. In cases where there is no estimated future use for the inventory item
and there is no estimated scrap or resale value, a 100% provision is recorded.
Where the Company estimates that only part of the total holding of an inventory
item will not be used, or there is an estimated scrap, resale or alternate
use
value, then a proportionate provision is recorded. Once an item has been written
down, it is not subsequently revalued upwards. The provision for slow moving
and
obsolete inventories at December 30, 2006 was $901,000, or 16% of the original
cost of gross inventory. At September 30, 2006 the provision was $923,000,
also
16% of gross inventory. If actual future demand or market conditions are less
favorable than those projected by management, or if product designs change
more
quickly than forecast, additional inventory write-downs may be required, which
may have a material adverse impact on reported results.
Warranty
Costs
The
Company provides for the estimated cost of product warranties at the time
revenue is recognized. While the Company engages in product quality programs
and
processes, the Company's warranty obligation is affected by product failure
rates and repair or replacement costs incurred in correcting a product failure.
Accordingly, the provision for warranty costs is based upon anticipated
in-warranty failure rates and estimated costs of repair or replacement.
Anticipating product failure rates involves making difficult judgments about
the
likelihood of defects in materials, design and manufacturing errors, and other
factors that are based in part on historical failure rates and trends, but
also
on management’s expertise in engineering and manufacturing. Estimated repair and
replacement costs are affected by varying component and labor costs. Should
actual product failure rates and repair or replacement costs differ from
estimates, revisions to the estimated warranty liability may be required and
the
Company’s results may be materially adversely affected. In the event that the
Company discovers a product defect that impacts the safety of its products,
then
a product recall may be necessary, which could involve the Company in
substantial unanticipated expense significantly in excess of the reserve. There
were no significant safety related product recalls during the past three fiscal
years.
Goodwill
Impairment
The
Company carries out an annual assessment to determine if the goodwill relating
to the controls business amounting to $1,435,000 has been impaired, in
accordance with the requirements of SFAS #142 “Goodwill and Other Intangible
Assets”. The assessment is based on three separate methods of valuing the
controls business based on expected free cash flows, the market price of the
Company’s stock and an analysis of precedent transactions. These methods require
estimates of future revenues, profits, capital expenditures and working capital
requirements which are based on evaluation of historical trends, current
budgets, operating plans and industry data... If, in future periods, the
Company’s results of operations, cash flows or the market price of the Company’s
stock were to decrease significantly then it may be necessary to record an
impairment charge relating to goodwill of up to $1,435,000.
Pension
Plan Assumptions
The
Company’s pension plans are significant relative to the size of the Company.
Pension plan assets were $17,590,000 at September 30, 2006 and the total assets
of the Company were $18,652,000. Although the plan assets are not included
in
the assets of the Company, they are 94% of size of the Company’s total assets.
In accordance with SFAS #158 the funded status of the pension plans (plan assets
less the accumulated benefit obligation) is recognized in the Company’s balance
sheet as “Liability for pension benefits” which amounted to a $2,992,000 at
December 30, 2006; compared to $2,886,000 at September 30, 2006.
The
Company makes a number of assumptions relating to its pension plans in order
to
measure the financial position of the plans and the net periodic benefit cost.
The most significant assumptions relate to the discount rate, the expected
long
term return on plan assets and the rate of future compensation increase. If
these assumptions prove to be incorrect then the Company may need to record
additional expense relating to the pension plans which could have a material
effect on the Company’s results of operations.
The
table
below sets out the approximate impact on the funded status of the Company’s
pension plans at September 30, 2006 that the Company estimates would arise
from
the following respective changes in significant plan assumptions:
Plan
Assumption
|
Change
in Assumption
|
Impact
on Funded Status
(in
thousands of dollars)
|
Change
in funded status
|
Assumptions
impacting accumulated benefit obligation:
|
|
|
|
Discount
rate
|
0.1%
|
$450
|
16%
|
Inflation
rate
|
0.1%
|
380
|
13%
|
Salary
Increase
|
0.1%
|
190
|
7%
|
Mortality
rate
|
1
year
|
500
|
17%
|
Assumption
impacting plan assets:
|
|
|
|
Return
on plan assets
|
0.1%
per year
|
$18
per year
|
1%
per year
|
OVERVIEW
OF FIRST QUARTER
The
Company reported that sales for the first fiscal quarter ended December 30,
2006
increased by 5% to $8,266,000 compared with $7,821,000 last year. However,
the
weakness of the US dollar compared to European currencies accounted for a 6%
increase in reported sales while underlying volumes were down 1%. While the
Company achieved sales increases in the fork lift truck, airport ground support
and other electric vehicle markets, these were offset by lower shipments to
the
US aerial lift sector.
The
weakness of the US dollar negatively affected gross margins, which were 36.4%
of
sales compared to 39.0% in the first quarter of the prior year. With operating
expenses in line with last year, operating income for the first quarter was
down
by $40,000 to $204,000. There was a currency exchange loss of $67,000 in the
first quarter of this year compared to a currency gain of $22,000 in last year’s
first quarter.
Net
income for the quarter was $88,000, or $.03 per diluted share, compared with
$160,000, or $.05 per diluted share, in last year’s first quarter.
Cash
balances increased by $336,000 in the first three months of fiscal 2007 to
$1,626,000. Operating activities generated cash of $391,000. Capital
expenditures used cash of $237,000 and dividend payments amounted to $96,000.
Exchange rate changes increased cash by $278,000.
Results
of Operations
Three
months ended December 30, 2006
The
following table compares first quarter results by segment for the first quarter
of fiscal 2007 with the prior year period and shows the percentage changes
in
total and split between the currency impact and volume / other
changes.
|
|
Three
months ended
|
|
%
change due to:
|
|
|
|
|
December
30, 2006 |
|
|
December
31, 2005
|
|
|
Total
|
|
|
Currency
|
|
|
Volume
/ other
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
- to external customers
|
|
$
|
7,803
|
|
$
|
7,503
|
|
|
4
|
%
|
|
6
|
%
|
|
-2
|
%
|
Capacitors-
to external customers
|
|
|
423
|
|
|
318
|
|
|
33
|
%
|
|
11
|
%
|
|
22
|
%
|
Capacitors
- inter-segment
|
|
|
15
|
|
|
19
|
|
|
-21
|
%
|
|
11
|
%
|
|
-32
|
%
|
Capacitors
- total
|
|
|
438
|
|
|
337
|
|
|
30
|
%
|
|
11
|
%
|
|
19
|
%
|
Total
sales to external customers
|
|
|
8,226
|
|
|
7,821
|
|
|
5
|
%
|
|
6
|
%
|
|
-1
|
%
|
Gross
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
|
|
|
2,866
|
|
|
2,920
|
|
|
-2
|
%
|
|
7
|
%
|
|
-9
|
%
|
Capacitors
|
|
|
132
|
|
|
127
|
|
|
4
|
%
|
|
11
|
%
|
|
-7
|
%
|
Total
|
|
|
2,998
|
|
|
3,047
|
|
|
-2
|
%
|
|
7
|
%
|
|
-9
|
%
|
Selling
research and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
|
|
|
2,547
|
|
|
2,525
|
|
|
1
|
%
|
|
7
|
%
|
|
-6
|
%
|
Capacitors
|
|
|
207
|
|
|
181
|
|
|
14
|
%
|
|
11
|
%
|
|
3
|
%
|
Unallocated
corporate expense
|
|
|
40
|
|
|
97
|
|
|
-59
|
%
|
|
0
|
%
|
|
-59
|
%
|
Total
|
|
|
2,794
|
|
|
2,803
|
|
|
0
|
%
|
|
7
|
%
|
|
-7
|
%
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
|
|
|
319
|
|
|
395
|
|
|
-19
|
%
|
|
6
|
%
|
|
-25
|
%
|
Capacitors
|
|
|
(75
|
)
|
|
(54
|
)
|
|
39
|
%
|
|
11
|
%
|
|
28
|
%
|
Unallocated
corporate expense
|
|
|
(40
|
)
|
|
(97
|
)
|
|
-59
|
%
|
|
0
|
%
|
|
59
|
%
|
Total
|
|
|
204
|
|
|
244
|
|
|
-16
|
%
|
|
7
|
%
|
|
-23
|
%
|
Other
income and expense
|
|
|
(70
|
)
|
|
2
|
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
Income
before income taxes
|
|
|
134
|
|
|
246
|
|
|
-46
|
%
|
|
-30
|
%
|
|
-16
|
%
|
Income
taxes
|
|
|
(46
|
)
|
|
(86
|
)
|
|
-47
|
%
|
|
-31
|
%
|
|
-16
|
%
|
Net
Income
|
|
$
|
88
|
|
$
|
160
|
|
|
-45
|
%
|
|
-30
|
%
|
|
-15
|
%
|
Sales
in
the first fiscal quarter ended December 30, 2006 were $8,226,000 compared to
$7,821,000 in the same period last year, an increase of $405,000, or 5%. Foreign
currency fluctuations accounted for a 6% increase in reported sales while
volumes were 1 % below last year. Volumes in the controller business were 2%
below the same period last year, mainly due to slower performance in the US
aerial lift market... In the capacitor business, sales to external customers
increased by $105,000, or 33%, compared to the same period last year. Capacitor
volumes increased by 22%, compared to the same period last year mainly due
to
better conditions in most markets. Foreign currency fluctuations accounted
for a
$36,000 increase in reported sales of capacitors.
Revenues
in the US controller business decreased by 14% compared to the first quarter
of
fiscal 2006. This was mainly due to lower demand in the aerial lift market.
Controller volumes in foreign markets were ahead of last year’s first quarter by
9%, mainly due to higher demand in Europe and the Far East.
Gross
profit was 36.4% of sales in this period compared to 39.0% in the comparable
period in fiscal 2006. Gross profit decreased by $49,000 compared to the first
quarter of last year. Foreign currency fluctuations increased reported gross
profit by $224,000. Net of currency impact, gross profit was $273,000 below
last
year. The decrease in gross profit was mainly due to lower volumes and adverse
sales mix.
Selling,
research and administrative expenses were $2,794,000, a decrease of $9,000
compared to the same period last year. Foreign currency fluctuations increased
reported operating expenses by $207,000, or 7%. Therefore, excluding the impact
of currency fluctuations, operating expenses were 8%, lower than the same period
last year. This was due to decreased sales & marketing expense mainly in the
Far East; lower engineering expense due to the completion of a customer specific
project in fiscal 2006 and decreased administrative expenses.
Operating
income for the first quarter was $204,000, a decrease of $40,000, or 16%,
compared to the same period last year. Foreign currency fluctuations resulted
in
a $17,000 increase in reported operating income. Excluding the currency impact,
operating income for the controller business decreased by $98,000. The main
causes of this decrease in operating income were lower volumes and adverse
sales
mix. In the capacitor business segment there was an operating loss of $75,000
compared to an operating loss of $54,000 in the first quarter of fiscal 2006.
The increased losses in the capacitor business were mainly due to foreign
currency fluctuations and lower gross margin percentages.
In
the
first quarter interest expense was $5,000, a decrease of $16,000 compared to
the
prior year. There was a foreign currency loss of $67,000 in the first quarter
of
fiscal 2007 compared to a gain of $22,000 in the same period last year.
Throughout the first quarter of 2007 the dollar weakened compared to both the
British pound and the Euro; resulting in losses on accounts payables balances
denominated in foreign currencies.
Income
before income taxes was $134,000 compared to $246,000 in the same period last
year, a decrease of $112,000. Income taxes were 34 % of pre-tax income, compared
to 35% in the same period last year. Net income for the first quarter was
$88,000, a decrease of $72,000 compared to the same period last year. Basic
and
fully diluted income per share was $.03 per share compared to $.05 per share
in
the first quarter of fiscal 2006.
Financial
Condition
The
Company has, since January 1990, maintained a program of regular cash dividends.
The dividend for the first quarter of fiscal 2007 was paid on January 4, 2007,
and amounted to $96,000. Cash balances at the end of the first quarter of 2007
were $1,626,000 compared to $1,290,000 on September 30, 2006, an increase in
cash of $336,000 in the first three months of fiscal 2007.
In
the
first quarter of fiscal 2007, net income was $88,000, and operating activities
generated $391,000 of cash. There was an increase of $26,000 in receivables
mainly due to foreign currency fluctuations, partially offset by lower volumes.
The number of days sales in receivables increased in the first three months
of
fiscal 2007 from 64 days to 65 days.
Inventories
decreased by $84,000 mainly due to lower volumes. Prepaid expense and other
current assets increased by $28,000. Accounts payable increased by $336,000
due
to both foreign currency fluctuations and a seasonal impact on purchases from
certain vendors. Accrued expenses decreased by $262,000 mainly due to bonuses
for fiscal 2006 performance which were paid in the first quarter of fiscal
2007.
Accrued income taxes increased by $9,000. The dividend for the fourth quarter
of
fiscal 2006, which was paid during the first quarter of fiscal 2007, amounted
to
$96,000. Capital expenditures in the first three months were $237,000. Exchange
rate changes increased cash by $278,000 in the first three months of fiscal
2007.
The
Company has no long-term debt and has overdraft facilities in the UK of
approximately $2.1 million and of $200,000 in France. At the end of the first
quarter the Company had no borrowings against these overdraft facilities. The
UK
overdraft facilities are secured by all of the Company’s assets in the UK and
the French overdraft facilities are unsecured.
Tech/Ops
Sevcon's capital resources, in the opinion of management, are adequate for
projected operations and capital spending programs. Capital spending programs
are not expected to be significantly higher than depreciation over the next
two
years and projected volume growth is not expected to require significant
additional cash resources.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk.
The
Company’s operations are sensitive to a number of market factors, any one of
which could materially adversely affect its results of operations in any given
year. Other risks dealing with contingencies are described in Note 5 to the
Company’s Consolidated Financial Statements included under Item 8 of the
Company’s Form 10-K for the year ended September 30, 2006 and other risks are
described under the caption Risk Factors in Management’s Discussion and Analysis
of Financial Condition and Results of Operations above.
Foreign
currency risk
The
Company sells to customers throughout the industrialized world. The majority
of
the Company’s products are manufactured in the United Kingdom. In the first
three months of fiscal 2007, approximately 38% of the Company’s sales were made
in US Dollars, 28% were made in British Pounds and 34% were made in Euros.
Over
70% of the Company’s cost of sales was incurred in British Pounds. This resulted
in the Company’s sales and margins being exposed to fluctuations due to the
change in the exchange rates of the US Dollar, the British Pound and the Euro.
The Company has trade accounts receivable and accounts payable denominated
in
both British pounds and Euros which are exposed to exchange
fluctuations.
In
addition, the translation of the sales and income of foreign subsidiaries into
US Dollars is also subject to fluctuations in foreign currency exchange
rates.
The
Company undertakes hedging activities from time-to-time to manage the foreign
exchange exposures related to forecasted purchases and sales in foreign currency
and the associated foreign currency denominated receivables and payables. The
Company does not engage in speculative foreign exchange transactions. Details
of
this hedging activity and the underlying exposures are set out
below.
The
following table provides information about the Company’s foreign currency
accounts receivable, accounts payable, firmly committed sales contracts and
derivative financial instruments outstanding as of December 30, 2006. The
information is provided in US Dollar amounts, as presented in the Company’s
consolidated financial statements. The table presents the notional amount (at
contract exchange rates) and the weighted average contractual foreign currency
exchange rates. There were no hedging contracts at December 30,
2006.
|
(in
thousands, except average contract rates)
|
|
Expected
maturity or transaction date
|
|
|
FY2007
|
FY2008
|
Total
|
Fair
Value
|
On
balance sheet financial instruments:
|
|
|
|
|
In
$ US Functional Currency
|
|
|
|
|
Accounts
receivable in pounds
|
1,478
|
-
|
1,478
|
1,478
|
Accounts
receivable in euros
|
3,006
|
-
|
3,006
|
3,006
|
Accounts
payable in pounds
|
2,053
|
-
|
2,053
|
2,053
|
Accounts
payable in euros
|
349
|
-
|
349
|
349
|
Anticipated
Transactions and related derivatives
|
|
|
|
|
In
$ US Functional Currency
|
|
|
|
|
Firmly
committed sales contracts
|
|
|
|
|
In
pounds
|
1,982
|
-
|
1,982
|
-
|
In
Euros
|
1,708
|
-
|
1,708
|
-
|
Forward
exchange agreements
|
|
|
|
|
Sell
US Dollars for British Pounds
|
-
|
-
|
-
|
-
|
Sell
Euros for British Pounds
|
-
|
-
|
-
|
-
|
Average
contractual exchange rate
|
N/A
|
N/A
|
N/A
|
|
Amount
recorded as other comprehensive income
|
$
-
|
$
-
|
$
-
|
$ -
|
Interest
Rate Risk
The
Company does not currently have any interest bearing debt. The Company does
invest surplus funds in instruments with maturities of less than 12 months
at
both fixed and floating interest rates. The Company incurs short-term borrowings
from time-to-time on its overdraft facilities in Europe at variable interest
rates. Due to the short-term nature of the Company’s investments at December 30,
2006, the risk arising from changes in interest rates was not
material.
(a) Evaluation
of disclosure controls and procedures. Our management, with the participation
of
our principal executive officer and principal financial officer, has evaluated
the effectiveness of our “disclosure controls and procedures” (as defined in the
Securities Exchange Act of 1934 Rule 13a-15(e)) as of December 30, 2006. Based
on this evaluation, our principal executive officer and principal financial
officer concluded that these disclosure controls and procedures were effective
and designed to ensure that the information required to be disclosed in the
reports filed or submitted by the Company under the Securities Exchange Act
of
1934 is recorded, processed, summarized and reported within the requisite time
periods.
(b) Changes
in internal control over financial reporting. Our principal executive officer
and principal financial officer have identified no change in our “internal
control over financial reporting” (as defined in Securities Exchange Act of 1934
Rule 13a-15(f)) that occurred during the period covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
In
addition to the market risk factors relating to foreign currency and interest
rate risk set out in PART 1 Item 3 above, the Company believes that the
following represent the most significant risk factors for the
Company:
Capital
goods markets are cyclical
The
Company’s customers are mainly manufacturers of capital goods such as fork lift
trucks, aerial lifts and railway signaling equipment. These markets are cyclical
and are currently showing modest growth, but demand in these markets could
decrease or customers could decide to purchase alternative products. In this
event the Company’s sales could decrease below its current break even point and
there is no certainty that the Company would be able to decrease overhead
expenses to enable it to operate profitably.
Single
source materials and sub-contractors may not meet the Company’s
needs.
The
Company relies on certain suppliers and sub-contractors for all of its
requirements for certain components, sub-assemblies and finished products.
In
the event that such suppliers and sub-contractors are unable or unwilling to
continue supplying the Company, or to meet the Company’s cost and quality
targets or needs for timely delivery, there is no certainty that the Company
would be able to establish alternative sources of supply in time to meet
customer demand.
Damage
to the Company’s or sub-contractor’s buildings would hurt
results.
In
the
controller business the majority of product is produced in a single plant in
England and uses sub-assemblies sourced from a sub-contractor with two plants
in
Poland. The capacitor business is located in a single plant in Wales. In the
event that any of these plants was to be damaged or destroyed, there is no
certainty that the Company would be able to establish alternative facilities
in
time to meet customer demand. The Company does carry property damage and
business interruption insurance but this may not cover certain lost business
due
to the long-term nature of the relationships with many
customers.
Product
liability claims may have a material adverse effect
The
Company’s products are technically complex and are installed and used by third
parties. Defects in their design, installation, use or manufacturing may result
in product liability claims against the Company. Such claims may result in
significant damage awards, and the cost of any such litigation could be
material.
See
Exhibit Index immediately preceding the exhibits.
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 13, 2007
|
By:
/s/ Paul A. McPartlin
|
|
Paul
A. McPartlin
|
|
Chief
Financial Officer (Principal financial and chief accounting
officer)
|
|
|
|
|
|
Exhibit
|
Description
|
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
|
32.1
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant
to
section 906 of the Sarbanes-Oxley Act of 2002. Furnished
herewith.
|