form10q_q12010.htm
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 January 2, 2010
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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No
x
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company x
|
|
|
(Do
not check if a smaller reporting company)
|
|
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 16, 2010
|
Common
stock, par value $.10
|
3,338,322
|
FORM
10-Q
FOR
THE QUARTER ENDED JANUARY 2, 2010
INDEX
|
PAGE
|
|
3
|
|
3
|
|
3
|
|
4
|
|
4
|
|
5
|
|
6
|
|
10
|
|
13
|
|
14
|
|
14
|
|
14
|
|
14
|
|
15
|
|
15
|
|
15
|
|
15
|
|
15
|
|
16
|
|
16
|
Item
1 Financial Statements
Tech/Ops
Sevcon, Inc. and Subsidiaries
(in
thousands of dollars except per share data)
|
|
|
|
January
2,
2010
|
|
|
September
30,
2009
|
|
|
|
(unaudited)
|
|
|
(derived
from audited statements)
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
884 |
|
|
$ |
632 |
|
Receivables, net of allowances
for doubtful accounts of $41 at January 2, 2010
and $92 at September 30,
2009
|
|
|
4,832 |
|
|
|
3,383 |
|
Inventories
|
|
|
4,625 |
|
|
|
4,723 |
|
Prepaid expenses and other
current assets
|
|
|
1,066 |
|
|
|
1,398 |
|
Total
current assets
|
|
|
11,407 |
|
|
|
10,136 |
|
Property,
plant and equipment:
|
|
|
|
|
|
|
|
|
At cost
|
|
|
10,932 |
|
|
|
10,745 |
|
Less: accumulated depreciation
and amortization
|
|
|
8,078 |
|
|
|
7,874 |
|
Net
property, plant and equipment
|
|
|
2,854 |
|
|
|
2,871 |
|
Long-term
deferred tax asset
|
|
|
2,368 |
|
|
|
2,357 |
|
Goodwill
|
|
|
1,435 |
|
|
|
1,435 |
|
Other
long-term assets
|
|
|
14 |
|
|
|
11 |
|
Total
assets
|
|
$ |
18,078 |
|
|
$ |
16,810 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ INVESTMENT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
2,821 |
|
|
$ |
1,730 |
|
Accrued expenses
|
|
|
1,428 |
|
|
|
1,611 |
|
Accrued and deferred taxes on
income
|
|
|
6 |
|
|
|
- |
|
Total
current liabilities
|
|
|
4,255 |
|
|
|
3,341 |
|
Liability
for pension benefits
|
|
|
7,356 |
|
|
|
7,166 |
|
Other
long term liabilities
|
|
|
48 |
|
|
|
48 |
|
Total
liabilities
|
|
|
11,659 |
|
|
|
10,555 |
|
Stockholders’
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 3,326,322 shares at
January 2, 2010 and 3,326,322 shares at
September 30,
2009
|
|
|
333 |
|
|
|
333 |
|
Premium paid in on common
stock
|
|
|
5,072 |
|
|
|
5,033 |
|
Retained
earnings
|
|
|
7,048 |
|
|
|
6,889 |
|
Accumulated other comprehensive
loss
|
|
|
(6,034 |
) |
|
|
(6,000 |
) |
Total
stockholders’ equity
|
|
|
6,419 |
|
|
|
6,255 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
18,078 |
|
|
$ |
16,810 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
(Unaudited)
Tech/Ops
Sevcon, Inc. and Subsidiaries
(in
thousands of dollars except per share data)
|
|
|
|
Three
months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Net
sales
|
|
$ |
6,361 |
|
|
$ |
6,827 |
|
Cost
of sales
|
|
|
4,080 |
|
|
|
4,545 |
|
Gross
profit
|
|
|
2,281 |
|
|
|
2,282 |
|
Selling,
research and administrative expenses
|
|
|
2,120 |
|
|
|
2,209 |
|
Operating
income
|
|
|
161 |
|
|
|
73 |
|
Interest
expense
|
|
|
(2 |
) |
|
|
(7 |
) |
Interest
income
|
|
|
26 |
|
|
|
5 |
|
Foreign
currency gain (loss)
|
|
|
61 |
|
|
|
(289 |
) |
Income
(loss) before income taxes
|
|
|
246 |
|
|
|
(218 |
) |
Income
taxes (provision) benefit
|
|
|
(87 |
) |
|
|
77 |
|
Net
income (loss)
|
|
$ |
159 |
|
|
$ |
(141 |
) |
Basic
income (loss) per share
|
|
$ |
.05 |
|
|
$ |
(.04 |
) |
Fully
diluted income (loss) per share
|
|
$ |
.05 |
|
|
$ |
(.04 |
) |
(Unaudited)
Tech/Ops
Sevcon, Inc. and Subsidiaries
|
|
(in
thousands of dollars)
|
|
|
|
Three
months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Net
income (loss)
|
|
$ |
159 |
|
|
$ |
(141 |
) |
Foreign
currency translation adjustment
|
|
|
(43 |
) |
|
|
(1,133 |
) |
Amortization
of pension transition items to income
|
|
|
9 |
|
|
|
11 |
|
Comprehensive
income (loss)
|
|
$ |
125 |
|
|
$ |
(1,263 |
) |
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
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
159 |
|
|
$ |
(141 |
) |
Adjustments
to reconcile net income (loss) to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
143 |
|
|
|
100 |
|
Stock-based
compensation
|
|
|
39 |
|
|
|
46 |
|
Pension contributions less than
(greater than) pension expense
|
|
|
140 |
|
|
|
(43 |
) |
Deferred tax
provision
|
|
|
(5 |
) |
|
|
15 |
|
Increase (decrease) in cash
resulting from changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(1,457 |
) |
|
|
558 |
|
Inventories
|
|
|
124 |
|
|
|
(322 |
) |
Prepaid expenses and other
current assets
|
|
|
26 |
|
|
|
48 |
|
Accounts
payable
|
|
|
1,095 |
|
|
|
(220 |
) |
Accrued
expenses
|
|
|
(180 |
) |
|
|
(321 |
) |
Accrued and deferred taxes on
income
|
|
|
321 |
|
|
|
(201 |
) |
Net
cash generated from (used by) operating activities
|
|
|
405 |
|
|
|
(481 |
) |
Cash
flow used by investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and
equipment
|
|
|
(100 |
) |
|
|
(59 |
) |
Net
cash used by investing activities
|
|
|
(100 |
) |
|
|
(59 |
) |
Cash
flow used by financing activities:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
- |
|
|
|
(98 |
) |
Net cash used by financing
activities
|
|
|
- |
|
|
|
(98 |
) |
Effect
of exchange rate changes on cash
|
|
|
(53 |
) |
|
|
(248 |
) |
Net
increase (decrease) in cash
|
|
|
252 |
|
|
|
(886 |
) |
Beginning
balance - cash and cash equivalents
|
|
|
632 |
|
|
|
1,630 |
|
Ending
balance - cash and cash equivalents
|
|
$ |
884 |
|
|
$ |
744 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for income
taxes
|
|
$ |
- |
|
|
$ |
97 |
|
Cash paid for
interest
|
|
$ |
2 |
|
|
$ |
7 |
|
Supplemental
disclosure of non-cash financing activity:
|
|
|
|
|
|
|
|
|
Dividend declared
|
|
$ |
- |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to Consolidated Financial Statements – January 2, 2010
(Unaudited)
(1)
|
Basis
of presentation
|
Tech/Ops Sevcon, Inc. (“Tech/Ops”) is a
Delaware corporation organized on December 22, 1987 to carry on the electronic
controls business previously performed by Tech/Ops, Inc. Through wholly-owned
subsidiaries located in the United States, the United Kingdom, France, South
Korea and Japan, the Company designs and sells, under the Sevcon name,
microprocessor based controls for zero emission and hybrid electric vehicles.
The controls are used to vary the speed and movement of vehicles, to integrate
specialized functions and to prolong the shift life of vehicles’ power source.
The Company’s customers are manufacturers of on-road, off-road and industrial
vehicles including automobiles, buses, fork lift trucks, aerial lifts, mining
vehicles, airport ground support vehicles, utility vehicles, sweepers and other
battery powered vehicles
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 as of January 2, 2010 and the
results of operations and cash flows for the three months ended January 2, 2010.
These unaudited interim financial statements should be read in conjunction with
the 2009 annual consolidated financial statements and related notes included in
the 2009 Tech/Ops Annual Report filed on Form 10-K (the “2009 10-K”). Unless
otherwise indicated, each reference to a year means the Company’s fiscal year,
which ends on September 30.
The significant accounting policies
followed by Tech/Ops are set forth in Note 1 to the financial statements in the
2009 10-K. Other than as set forth in Item 2, there have been no changes since
the end of 2009 to the significant accounting policies followed by
Tech/Ops.
The results of operations for the three
month period ended January 2, 2010 are not necessarily indicative of the results
to be expected for the full year.
(2) New
accounting pronouncements
In December 2008 the Financial
Accounting Standards Board (“FASB”) issued authoritative guidance regarding
disclosures about postretirement benefit plan assets. The new guidance requires
employers of public and nonpublic companies to disclose more information about
how investment allocation decisions are made, more information about major
categories of plan assets, including concentration of risk and fair-value
measurements, and the fair-value techniques and inputs used to measure plan
assets. The disclosure requirements are effective for annual financial
statements for years ending after December 15, 2009. The disclosure requirements
will be adopted for our annual financial statements for the year ended September
30, 2010, on a prospective basis.
(3) Stock-based
compensation plans
Under the Company’s 1996 Equity
Incentive Plan (the “Plan”) there were 54,500 shares reserved and available for
grant at January 2, 2010. Recipients of grants 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”). SARs
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.
The fair value of each grant is
measured on the date of grant and is recognized over the period during which the
recipient is required to provide service in connection with the grant. The fair
value of stock grants is determined using the market price of our common stock
on the date of grant, while the value of option grants is estimated using the
Black-Scholes option pricing model. There were no option grants in the first
three months of 2010 or in fiscal 2009 and therefore no assumptions were made as
to risk-free interest rate, expected dividend yield, expected life or expected
volatility in 2010 or 2009. When options are exercised the Company normally
issues new shares.
A summary of option activity for all
plans for the three months ended January 2, 2010 is as follows:
|
|
Options
No.
of shares
|
|
|
Weighted
average
Exercise
Price
|
|
|
Weighted
average
remaining
contractual
life
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at September 30, 2009
|
|
|
63,500 |
|
|
$ |
7.03 |
|
|
2
years
|
|
|
$ |
- |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding
at January 2, 2010
|
|
|
63,500 |
|
|
$ |
7.03 |
|
|
2
years
|
|
|
$ |
- |
|
Exercisable
at January 2, 2010
|
|
|
51,300 |
|
|
$ |
7.40 |
|
|
2
years
|
|
|
$ |
- |
|
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 $2.74 closing market price of the
Company’s common stock at January 2, 2010. As the exercise price of all shares
under option is higher than the $2.74 closing market price of the Company’s
common stock at January 2, 2010, the aggregate intrinsic value of all
outstanding share options is nil. At January 2, 2010, there was $165,000 of
unrecognized compensation expense related to share options and restricted stock
granted under the Plan. The Company expects to recognize that cost over a
weighted average period of 3.1 years.
During the restriction period,
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. However, 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 January 2, 2010 was as follows:
|
|
Number
of shares of Restricted Stock
|
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
Non-vested
balance as of September 30, 2009
|
|
|
79,000 |
|
|
$ |
3.62 |
|
Granted
|
|
|
- |
|
|
$ |
- |
|
Vested
|
|
|
21,000 |
|
|
$ |
4.85 |
|
Forfeited
|
|
|
- |
|
|
$ |
- |
|
Non-vested
balance as of January 2, 2010
|
|
|
58,000 |
|
|
$ |
3.17 |
|
The stock-based compensation expense
was as follows:
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Stock
option expense
|
|
$ |
- |
|
|
$ |
6 |
|
Restricted
stock grants:
|
|
|
|
|
|
|
|
|
Employees
|
|
|
32 |
|
|
|
20 |
|
Non-employee
directors
|
|
|
7 |
|
|
|
20 |
|
Total
stock based compensation expense
|
|
$ |
39 |
|
|
$ |
46 |
|
(4) Cash
dividends
While the Company has paid regular
quarterly dividends in the past, due to the continuing uncertain economic
outlook, the Board of Directors continues to suspend the payment of dividends
and will consider whether to resume paying dividends on a quarter by quarter
basis.
(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
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Net
income (loss)
|
|
$ |
159 |
|
|
$ |
(141 |
) |
Weighted
average shares outstanding - basic
|
|
|
3,254 |
|
|
|
3,226 |
|
Basic
income (loss) per share
|
|
$ |
.05 |
|
|
$ |
(.04 |
) |
Common
stock equivalents
|
|
|
14 |
|
|
|
- |
|
Weighted
average shares outstanding - diluted
|
|
|
3,268 |
|
|
|
3,226 |
|
Diluted
income (loss) per share
|
|
$ |
.05 |
|
|
$ |
(.04 |
) |
No.
of options that are anti-dilutive excluded from calculation of common
stock equivalents
|
|
|
64 |
|
|
|
64 |
|
No.
of shares of non-vested restricted stock that are anti-dilutive excluded
from calculation of common stock equivalents
|
|
|
- |
|
|
|
39 |
|
(6) Segment
information
The Company has two reportable
segments: electronic controls and capacitors. The electronic controls segment
produces microprocessor based control systems for zero emission and hybrid
electric vehicles. The capacitors segment produces metalized film capacitors for
sale to electronic equipment manufacturers. Each segment has its own management
team and sales force and the capacitors segment has its own manufacturing
facility.
The significant accounting policies of
the segments are the same as those described in Note 1 to the 2009 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 January 2, 2010
|
|
|
|
Controls
|
|
|
Capacitors
|
|
|
Corporate
|
|
|
Total
|
|
Sales
to external customers
|
|
$ |
5,965 |
|
|
$ |
396 |
|
|
$ |
- |
|
|
$ |
6,361 |
|
Inter-segment
revenues
|
|
|
- |
|
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
Operating
income
|
|
|
215 |
|
|
|
21 |
|
|
|
(75 |
) |
|
|
161 |
|
Identifiable
assets
|
|
|
17,058 |
|
|
|
788 |
|
|
|
232 |
|
|
|
18,078 |
|
|
|
Three
months ended December 27, 2008
|
|
|
|
Controls
|
|
|
Capacitors
|
|
|
Corporate
|
|
|
Total
|
|
Sales
to external customers
|
|
$ |
6,380 |
|
|
$ |
447 |
|
|
$ |
- |
|
|
$ |
6,827 |
|
Inter-segment
revenues
|
|
|
- |
|
|
|
5 |
|
|
|
- |
|
|
|
5 |
|
Operating
income
|
|
|
79 |
|
|
|
52 |
|
|
|
(58 |
) |
|
|
73 |
|
Identifiable
assets
|
|
|
15,747 |
|
|
|
695 |
|
|
|
476 |
|
|
|
16,918 |
|
In the electronic controls segment, the
revenues were derived from the following products and services:
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Electronic
controls for zero emission and hybrid electric vehicles
|
|
$ |
3,866 |
|
|
$ |
3,992 |
|
Accessory
and aftermarket products and services
|
|
|
2,099 |
|
|
|
2,388 |
|
Total
electronic controls segment revenues
|
|
$ |
5,965 |
|
|
$ |
6,380 |
|
(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
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Research
and development expense
|
|
$ |
676 |
|
|
$ |
762 |
|
Percentage
of sales
|
|
|
10.6 |
|
|
|
11.2 |
|
(8) Employee
benefit plans
Tech/Ops has defined benefit plans
covering the majority of its U.S. and U.K. employees. There is also a small
defined contribution plan. The following table sets forth the components of the
net pension cost:
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Service
cost
|
|
$ |
84 |
|
|
$ |
92 |
|
Interest
cost
|
|
|
310 |
|
|
|
276 |
|
Expected
return on plan assets
|
|
|
(237 |
) |
|
|
(268 |
) |
Amortization
of net loss
|
|
|
68 |
|
|
|
- |
|
Amortization
of prior service cost
|
|
|
12 |
|
|
|
11 |
|
Net
periodic benefit cost
|
|
|
237 |
|
|
|
111 |
|
Net
cost of defined contribution plans
|
|
$ |
7 |
|
|
$ |
9 |
|
The following table sets forth the
movement in the liability for pension benefits in the three months ended January
2, 2010:
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Liability
for pension benefits at beginning of period
|
|
$ |
7,166 |
|
|
$ |
378 |
|
Net
periodic benefit cost
|
|
|
237 |
|
|
|
111 |
|
Plan
contributions
|
|
|
(97 |
) |
|
|
(154 |
) |
Amortization
of prior service cost
|
|
|
(12 |
) |
|
|
(11 |
) |
Effect
of exchange rate changes
|
|
|
62 |
|
|
|
(34 |
) |
Balance
at end of period
|
|
$ |
7,356 |
|
|
$ |
290 |
|
Tech/Ops did not contribute to its U.S.
pension plan in the three months ended January 2, 2010; it presently anticipates
contributing $241,000 to fund its U.S. plan in the remainder of 2010. In
addition, employer contributions to the U.K. defined benefit plan were $97,000
in the first three months and are estimated to total $385,000 in
2010.
(9) Inventories
Inventories were comprised
of:
|
|
(in
thousands of dollars)
|
|
|
|
January
2,
2010
|
|
|
September
30,
2009
|
|
Raw
materials
|
|
$ |
692 |
|
|
$ |
676 |
|
Work-in-process
|
|
|
78 |
|
|
|
141 |
|
Finished
goods
|
|
|
3,855 |
|
|
|
3,906 |
|
|
|
$ |
4,625 |
|
|
$ |
4,723 |
|
(10) Fair
value of financial instruments
The Company's financial instruments
consist mainly of cash and cash equivalents, short-term investments, accounts
receivable and accounts payable. The carrying amount of these financial
instruments as of January 2, 2010 and September 30, 2009, approximates fair
value due to the short-term nature of these instruments. At January 2, 2010 the
Company had no financial assets or liabilities that are measured at fair value
on a recurring basis.
(11) Accrued
expenses
Set out below is an analysis of other
accrued expenses at January 2, 2010 and September 30, 2009, which shows
separately any items in excess of 5% of total current liabilities:
|
|
(in
thousands of dollars)
|
|
|
|
January
2,
2010
|
|
|
September
30,
2009
|
|
Accrued
compensation and related costs
|
|
$ |
532 |
|
|
$ |
497 |
|
Warranty
reserves
|
|
|
237 |
|
|
|
217 |
|
Other
accrued expenses
|
|
|
659 |
|
|
|
897 |
|
|
|
$ |
1,428 |
|
|
$ |
1,611 |
|
(12) Warranty
reserves
The movement in warranty reserves was
as follows:
|
|
(in
thousands of dollars)
|
|
|
|
Three
Months ended
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
Warranty
reserves at beginning of period
|
|
$ |
217 |
|
|
$ |
362 |
|
Decrease
in beginning balance for warranty obligations settled during the
period
|
|
|
(6 |
) |
|
|
(27 |
) |
Other
changes to pre-existing warranties
|
|
|
- |
|
|
|
- |
|
Foreign
currency translation adjustment
|
|
|
1 |
|
|
|
(43 |
) |
Net
increase in warranty reserves for products sold during the
period
|
|
|
25 |
|
|
|
14 |
|
Warranty
reserves at end of period
|
|
$ |
237 |
|
|
$ |
306 |
|
(13) Subsequent
events
In preparing these interim consolidated
financial statements, the Company has evaluated, for the potential recognition
or disclosure, events or transactions subsequent to the end of the most recent
quarterly period, through February 16, 2010, the issuance date of these
financial statements. No material subsequent events were identified that require
recognition or disclosure in these financial statements.
Item
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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 others discussed in this report.
CRITICAL
ACCOUNTING ESTIMATES
As of January 2, 2010, there have been
no material changes to the critical accounting estimates described in the
Company’s 2009 10-K. However, if the continuing worldwide economic troubles
continue to have a negative effect on our business, estimates used in future
periods may vary materially from those included in the Company’s previous
disclosures.
For
example:
(i)
|
if
the financial condition of any of the Company's customers deteriorates as
a result of continuing business declines, the Company may be required to
increase its estimated allowance for bad
debts;
|
(ii)
|
if
actual future demand continues to decline more than previously projected,
inventory write-downs may be required;
or
|
(iii)
|
significant
negative industry or economic trends that adversely affect our future
revenues and profits, or a reduction of our market capitalization relative
to net book value, among other factors, may change the estimated future
cash flows or other factors that we use to determine whether or not
goodwill has been impaired and lead us to conclude that an impairment
charge is required.
|
All of these factors, and others
resulting from the current economic situation, may have a material adverse
impact on the Company’s results.
OVERVIEW
OF FIRST QUARTER
Results
of Operations
Three
months ended January 2, 2010
Due to the continuing economic
recession some of our customers continue to experience substantially lower
demand for their products in construction, distribution and mining. This
situation has resulted in a materially lower demand for our products from these
traditional customers, partially offset by increased demand from customers in
transportation, compared with the end of 2008 and the first quarter of 2009. The
following table compares results by segment for the first quarter of 2010 with
the prior year period and shows the percentage changes in total and split
between the currency impact and volume changes:
|
|
Three
months ended
|
|
|
%
change due to:
|
|
|
|
January
2,
2010
|
|
|
December
27,
2008
|
|
|
Total
|
|
|
Currency
|
|
|
Volume
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls - to external
customers
|
|
$ |
5,965 |
|
|
$ |
6,380 |
|
|
|
-6 |
% |
|
|
4 |
% |
|
|
-10 |
% |
Capacitors - to external
customers
|
|
|
396 |
|
|
|
447 |
|
|
|
-11 |
% |
|
|
7 |
% |
|
|
-18 |
% |
Capacitors -
inter-segment
|
|
|
7 |
|
|
|
5 |
|
|
|
40 |
% |
|
|
19 |
% |
|
|
21 |
% |
Capacitors – total
|
|
|
403 |
|
|
|
452 |
|
|
|
-11 |
% |
|
|
7 |
% |
|
|
-18 |
% |
Total sales to external
customers
|
|
|
6,361 |
|
|
|
6,827 |
|
|
|
-7 |
% |
|
|
4 |
% |
|
|
-11 |
% |
Gross
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
|
|
|
2,105 |
|
|
|
2,076 |
|
|
|
1 |
% |
|
|
7 |
% |
|
|
-6 |
% |
Capacitors
|
|
|
176 |
|
|
|
206 |
|
|
|
-15 |
% |
|
|
6 |
% |
|
|
-21 |
% |
Total
|
|
|
2,281 |
|
|
|
2,282 |
|
|
|
0 |
% |
|
|
7 |
% |
|
|
-7 |
% |
Selling
research and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
|
|
|
1,890 |
|
|
|
1,997 |
|
|
|
-5 |
% |
|
|
5 |
% |
|
|
-10 |
% |
Capacitors
|
|
|
155 |
|
|
|
154 |
|
|
|
1 |
% |
|
|
8 |
% |
|
|
-7 |
% |
Unallocated corporate
expense
|
|
|
75 |
|
|
|
58 |
|
|
|
29 |
% |
|
|
0 |
% |
|
|
29 |
% |
Total
|
|
|
2,120 |
|
|
|
2,209 |
|
|
|
-4 |
% |
|
|
5 |
% |
|
|
-9 |
% |
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controls
|
|
|
215 |
|
|
|
79 |
|
|
|
172 |
% |
|
|
48 |
% |
|
|
124 |
% |
Capacitors
|
|
|
21 |
|
|
|
52 |
|
|
|
-60 |
% |
|
|
2 |
% |
|
|
-62 |
% |
Unallocated corporate
expense
|
|
|
(75 |
) |
|
|
(58 |
) |
|
|
29 |
% |
|
|
0 |
% |
|
|
29 |
% |
Total
|
|
|
161 |
|
|
|
73 |
|
|
|
121 |
% |
|
|
54 |
% |
|
|
67 |
% |
Other
income and expense
|
|
|
85 |
|
|
|
(291 |
) |
|
|
129 |
% |
|
|
121 |
% |
|
|
8 |
% |
Income
(loss) before income taxes
|
|
|
246 |
|
|
|
(218 |
) |
|
|
213 |
% |
|
|
179 |
% |
|
|
34 |
% |
Income
taxes
|
|
|
(87 |
) |
|
|
77 |
|
|
|
-213 |
% |
|
|
-64 |
% |
|
|
-149 |
% |
Net
income (loss)
|
|
$ |
159 |
|
|
$ |
(141 |
) |
|
|
213 |
% |
|
|
242 |
% |
|
|
-29 |
% |
Sales in the first quarter of 2010
declined by $466,000, or 7%, to $6,361,000 compared to $6,827,000 in the same
quarter last year. Foreign currency fluctuations increased reported sales in the
first fiscal quarter by $269,000; this was mainly due to a weaker U.S. Dollar
compared to both the British Pound and the Euro in the prior year period.
Excluding the impact of foreign currency, shipment volumes were $735,000 lower
than last year, caused by the continued lower demand in the Company’s
traditional markets partially offset by sales of the Company’s new Gen4 AC
product to new customers and new applications. In the controls business segment,
volumes shipped were lower in Europe and the Far East although a small increase
in volume was seen in the United States compared to the first quarter last year.
The Company believes its traditional markets have now stabilized at these lower
levels. Recent improvement in order intake has been driven by new markets for
the Company’s new and existing products. New product introduction has led to
customer gains in on-road vehicle applications
since the beginning of the third quarter of fiscal 2009; however, there cannot
yet be any assurance that these gains will translate into increased sales. In
the capacitor business, volumes shipped were 18% lower than during the first
quarter last year, which was largely due to lower demand from customers in the
industrial sector. Currency changes, mainly the weaker U.S. Dollar compared to
the British Pound, increased reported total sales in the capacitor business by
$31,000, or 7%, from the first quarter of 2009.
Gross profit of $2,281,000 was 35.9% of
sales in the first quarter compared to $2,282,000 or 33.4% of sales in the same
quarter last year. Cost savings realized in production-related overheads, lower
material costs and foreign currency fluctuations improved the gross margin
percentage. Foreign currency fluctuations increased reported gross profit by
$158,000.
Selling, research and administrative
expenses in the first quarter of 2010 were $2,120,000, a reduction of $89,000,
or 4%, compared to the same period last year. Foreign currency fluctuations
increased operating expense by $118,000 or 5%, compared with the same quarter
last year. Excluding the impact of currency fluctuations, selling, research and
administrative expenses were $207,000, or 9%, lower in the first quarter
compared to the same period last year due largely to restructuring actions taken
in the second quarter of 2009 in addition to cost saving measures to preserve
cash and reduce operating expense.
There was an operating profit in the
first quarter of $161,000, compared with $73,000 in the same period last year.
Lower shipment volumes reduced operating profit by $159,000 although this was
more than offset by a reduction in selling, research and administrative expenses
of $207,000. Foreign currency fluctuations had an overall positive impact of
$40,000 in the quarter. In the capacitor business segment, there was an
operating profit of $21,000 compared to $52,000 in the first quarter last
year.
In the first quarter, interest expense
was $2,000, a reduction of $5,000 compared to the prior year. Interest income
was $26,000 compared to $5,000 in the first quarter last year. There was a
foreign currency gain of $61,000 in the first quarter of 2010 compared to a loss
of $289,000 in the same period last year. The foreign currency gain in the first
quarter of 2010 was due to the weaker U.S. Dollar compared to the British Pound
and the Euro in the prior year period.
The Company recorded a profit before
income taxes of $246,000 in the first quarter of 2010 compared to a loss before
income taxes of $218,000 in the same period last year.There was a net profit for the quarter of
$159,000 or $.05 per share compared to a net loss of $141,000 and a loss of $.04
per share in the first quarter of 2009.
Financial
Condition
While the Company has paid regular
quarterly dividends in the past, due to the continuing uncertain economic
outlook, the Board of Directors continues to suspend the payment of dividends
and will consider whether to resume paying dividends on a quarter by quarter
basis.
Cash balances at the end of the first
quarter of fiscal 2010 were $884,000, compared to $632,000 on September 30,
2009, an increase in cash of $252,000 in the first three months of fiscal
2010.
In the first three months of fiscal
2010, there was a net profit of $159,000 and operating activities generated
$405,000 of cash. Excluding the impact of currency fluctuations, receivables
increased by $1,457,000 which reduced cash during the period; however, payables
increased by $1,095,000 generating cash during the quarter. The number of days
sales in receivables decreased in the first three months of 2010 from 67 days at
September 30, 2009 to 63 days at January 2, 2010. Adjusted for the effects of
currency, there was a decrease in inventories of $124,000 in the first three
months of 2010. Capital expenditures in the first three months were $100,000.
Exchange rate changes decreased reported cash by $53,000 in the first three
months of 2010.
The reserve for doubtful accounts
reduced from $92,000 at September 30, 2009 to $41,000 at January 2, 2010 due to
the write off of an uncollectable account of $51,000 in the Company’s French
subsidiary which had previously been fully reserved.
The Company has no long-term debt but
has overdraft facilities of approximately $1.6 million in the U.K. and $140,000
in France. At the end of the first quarter of 2010, the Company had no
borrowings against these overdraft facilities. The U.K. overdraft facilities are
secured by U.K. real estate property owned by the Company and the French
overdraft facilities are unsecured. In line with normal practice in Europe, both
facilities can be withdrawn on demand by the bank. Accordingly, management does
not rely on their availability in projecting the adequacy of the Company’s
capital resources.
There were no significant capital
expenditure commitments at January 2, 2010. It is estimated that the Company
will make contributions to its U.K. and U.S. defined benefit pension plans of
approximately $626,000 in fiscal 2010; should the Company suffer a material
reduction in revenues in 2010 this commitment could adversely impact the
Company’s financial position. In the opinion of management, the Company’s
requirements for working capital to meet projected operational and capital
spending in both the short and long term can be met by a combination of existing
cash resources, future earnings and existing borrowing facilities in Europe.
However, the outlook remains uncertain, given the continuing worldwide economic
deterioration. Any material reduction in revenues will have a materially adverse
impact on the Company’s financial position, which would be exacerbated if any of
the Company’s lenders withdraws or reduces available credit. If the Company is
unable to generate sufficient cash from operations and if the bank overdraft
facilities are withdrawn, the Company would need to raise additional debt or
equity capital from other sources to avoid significantly curtailing its business
and materially adversely affecting its results.
Foreign
currency risk
The Company sells to customers
throughout the industrialized world. The majority of the Company’s products are
manufactured in, or sourced from, the United Kingdom. In the first three months
of 2010, approximately 60% of the Company’s sales were made in U.S. Dollars, 21%
were made in British Pounds and 19% were made in Euros. Over 75% of the
Company’s cost of sales was incurred in British Pounds and Euros. This resulted
in the Company’s sales and margins being exposed to fluctuations due to the
change in the exchange rates of the U.S. Dollar, the British Pound and the Euro.
The Company has trade accounts receivable and accounts payable denominated in
both British Pounds and Euros that are exposed to exchange
fluctuations.
In addition, the translation of the
sales and income of foreign subsidiaries into U.S. Dollars is also subject to
fluctuations in foreign currency exchange rates.
The following table provides
information about the Company’s foreign currency accounts receivable, accounts
payable and firmly committed sales contracts outstanding as of January 2, 2010.
The information is provided in U.S. Dollar amounts, as presented in the
Company’s consolidated financial statements. The table presents the amounts at
which the Company’s foreign currency accounts receivable, accounts payable and
firmly committed sales contracts as of January 2, 2010 are expected to mature
based on the exchange rate of the relevant foreign currency to U.S. Dollars at
January 2, 2010:
|
|
(in
thousands of dollars)
|
|
|
|
Expected
maturity or
transaction
date
|
|
|
|
|
|
|
FY2010
|
|
|
Fair
Value
|
|
On
balance sheet financial instruments:
|
|
|
|
|
|
|
In $ U.S. Functional
Currency
|
|
|
|
|
|
|
Accounts receivable in British
Pounds
|
|
|
985 |
|
|
|
985 |
|
Accounts receivable in
Euros
|
|
|
1,210 |
|
|
|
1,210 |
|
Accounts payable in British
Pounds
|
|
|
326 |
|
|
|
326 |
|
Accounts payable in
Euros
|
|
|
1,275 |
|
|
|
1,275 |
|
Anticipated
Transactions
|
|
|
|
|
|
|
|
|
In $ U.S. Functional
Currency
|
|
|
|
|
|
|
|
|
Firmly committed sales
contracts
|
|
|
|
|
|
|
|
|
In British Pounds
|
|
|
835 |
|
|
|
835 |
|
In Euros
|
|
|
641 |
|
|
|
641 |
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Interest
Rate Risk
The Company’s policy is to invest
surplus funds in instruments with maturities of less than 12 months at both
fixed and floating interest rates. This investment portfolio is generally
subject to general credit, liquidity, counterparty, market and interest rate
risks that may be exacerbated by the current global financial crisis. If the
banking system or the fixed income or credit markets continue to deteriorate or
remain volatile, the values and liquidity of these investments could be
adversely affected. The Company did not have any surplus funds invested as of
January 2, 2010.
The Company does not currently have any
long-term interest-bearing debt. The Company incurs short-term borrowings from
time-to-time on its overdraft facilities in Europe at variable interest
rates.
(a)
Evaluation of disclosure controls and procedures. The Company’s principal
executive officer and principal financial officer, after evaluating the
effectiveness of the Company’s “disclosure controls and procedures” (as defined
in the Securities Exchange Act of 1934 Rule 13a-15(e)), have concluded that, as
of January 2, 2010, these disclosure controls and procedures were
effective.
(b) Changes
in internal control over financial reporting. Our principal executive officer
and principal financial officer have identified no change in the Company’s
“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, the Company’s internal control over financial
reporting.
None.
In addition to the market risk factors
set forth in Part 1A of our 2009 10-K and those relating to foreign currency and
interest rate risk set out in Part I, Item 3 above, the Company believes that
the following represent the most significant risk factors for the
Company:
Capital
markets are cyclical and weakness in the United States and international
economies may harm our business
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 depend heavily on
worldwide transportation, shipping and other economic activity. They are
continuing to experience a significant decline in demand. Further, as our
business has expanded globally, we have become increasingly subject to the risks
arising from adverse changes in global economic conditions. Economic growth in
the United States and other principal economies has slowed and macroeconomic
conditions have deteriorated worldwide, causing a general tightening in the
credit markets, lower levels of liquidity, increases in the rates of default and
bankruptcy, and extreme volatility in credit and equity markets. These
developments have already had an adverse impact on the Company’s business and
may materially negatively affect the Company’s business, operating results or
financial condition in a number of additional ways. For example, current or
potential customers may be unable to fund purchases or manufacturing of
products, which could cause them to delay, decrease or cancel purchases of our
products or not to pay the Company or to delay paying for previously purchased
products. In addition, the effect of the crisis on the Company’s banks and other
banks may cause the Company to lose its current overdraft facilities and be
unable otherwise to obtain financing for operations as needed.
The
Company relies on a small number of key customers for a substantial portion of
its revenues.
Ten customers accounted for 53% of the
Company’s revenues in the first quarter of 2010 and the largest customer
accounted for 8% of revenues. Although we have had business relationships with
these customers for many years, there are no long-term contractual supply
agreements in place. Accordingly our performance could be adversely affected by
the loss of one or more of these key customers.
The
Company has substantial sales and operations outside the United States that
could be adversely affected by changes in international markets.
A significant portion of our operations
is located, and a significant portion of our business comes from, outside the
United States. Accordingly, our performance could be adversely affected by
economic downturns in Europe or the Far East as well as in the United States. A
consequence of significant international business is that a large percentage of
our revenues and expenses are denominated in foreign currencies that fluctuate
in value versus the U.S. Dollar. Significant fluctuations in foreign exchange
rates can and do have a material impact on our financial results, which are
reported in U.S. Dollars. Other risks associated with international business
include: changing regulatory practices and tariffs; staffing and managing
international operations, including complying with local employment laws; longer
collection cycles in certain areas; and changes in tax and other
laws.
Single
source materials and sub-contractors may not meet the Company’s
needs.
The Company relies on certain suppliers
and sub-contractors for its requirements for most 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-contractors’ buildings would hurt results.
In the electronic controls segment, the
majority of the Company’s finished product is produced in three separate plants
in Poland, Mexico and China; these plants are owned by sub-contractors. 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.
None.
None.
None.
None.
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.
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TECH/OPS
SEVCON, INC.
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|
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Date:
February 16, 2010
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By:
/s/ Paul N. Farquhar
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Paul
N. Farquhar
|
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Chief
Financial Officer (Principal Financial Officer)
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|
|
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Exhibit
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Description
|
3.1
|
Certificate
of Incorporation of the registrant (incorporated by reference to Exhibit
(3) (a) to the Company’s Quarterly Report on Form 10-Q for the quarter
ended July 3, 2004).
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|
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3.2
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By-laws
of the registrant (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K filed on September 19,
2008).
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31.1
|
Certification
of Principal Executive Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
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|
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31.2
|
Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
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|
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32.1
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
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