-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V9VEMaLbLv15EXYt4TR/RhL1iOYcvsiIf4Fp6HSMy8/qCjmYIoEHqpAUYv7HMnX5 6wD92hDk3Mvm7ii2z98eHA== 0000825411-03-000001.txt : 20030214 0000825411-03-000001.hdr.sgml : 20030214 20030214115354 ACCESSION NUMBER: 0000825411-03-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECH OPS SEVCON INC CENTRAL INDEX KEY: 0000825411 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 042985631 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09789 FILM NUMBER: 03564214 BUSINESS ADDRESS: STREET 1: 40 NORTH AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-3391 BUSINESS PHONE: 7812297896 MAIL ADDRESS: STREET 1: 40 NORTH AVENUE CITY: BURLINGTON STATE: MA ZIP: 01803-3391 10-Q 1 a.txt TECH/OPS SEVCON 10-Q FY 2003 Q1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2002 ----------------- / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- 1-9789 ---------------------- Commission File Number TECH/OPS SEVCON, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 04-2985631 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 North Avenue, Burlington, Massachusetts, 01803-3391 ------------------------------------------------------ (Address of principal executive offices and zip code) (781) 229-7896 ----------------------------------------------------- (Registrant's telephone number, including area code:) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes 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 14, 2003 - ---------------------------- -------------------------------- Common stock, par value $.10 3,125,051 TECH/OPS SEVCON, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets ASSETS (in thousands) Dec 31, Sept 30, 2002 2002 --------- ------------ (unaudited) (derived from audited statements) Current assets: Cash and cash equivalents $ 346 $ 695 Accounts receivable, less allowances of $341 at 12/31/2002 and $356 at 9/30/2002 4,328 3,938 Inventories: Raw materials 2,506 2,096 Work-in-process 407 594 Finished goods 1,482 1,447 ------- ------- 4,395 4,137 ------- ------- Prepaid expenses and other current assets 755 539 ------- ------- Total current assets 9,824 9,309 ------- ------- Property, plant and equipment, at cost 8,292 7,913 Less: Accumulated depreciation and amortization 5,394 5,136 ------- ------- Net property, plant and equipment 2,898 2,777 ------- ------- Goodwill 1,435 1,435 ------- ------- $14,157 $13,521 ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Consolidated Balance Sheets LIABILITIES AND STOCKHOLDERS' INVESTMENT (in thousands) Dec 31, Sept 30, 2002 2002 --------- ------------ (unaudited) (derived from audited statements) Current liabilities: Short-term borrowings $ 469 $ - Accounts payable 1,887 1,406 Dividend payable 94 94 Accrued expenses 2,023 2,315 Accrued taxes on income 23 160 ------- ------- Total current liabilities 4,496 3,975 ------- ------- Deferred taxes on income 92 93 ------- ------- Stockholders' investment Preferred stock - - Common stock 313 313 Premium paid in on common stock 4,047 4,047 Retained earnings 6,117 6,189 Cumulative other comprehensive income (loss) (908) (1,096) ------- ------- Total stockholders' investment $ 9,569 $ 9,453 ------- ------- $14,157 $13,521 ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Consolidated Statements of Income (Unaudited) (in thousands except per share data) Three Months Ended ------------------ Dec 31, Dec 31, 2002 2001 ------- ------- Net sales $ 5,645 $ 5,402 Costs and expenses: Cost of sales 3,518 3,421 Selling, research and administrative 2,113 1,889 ------- ------- 5,631 5,310 ------- ------- Operating income 14 92 Other income (expense), net (5) (13) ------- ------- Income before income taxes 9 79 Income taxes (3) (28) ------- ------- Net income $ 6 $ 51 ======= ======= Basic income per share $ .00 $ .02 ======= ======= Fully diluted income per share $ .00 $ .02 ======= ======= Consolidated Statement of Comprehensive Income (Unaudited) (in thousands) Three Months Ended ------------------ Dec 31, Dec 31, 2002 2001 ------- ------- Net income (loss) $ 6 $ 51 Foreign currency translation adjustment 183 (126) Change in fair market value of cash flow hedge 5 (53) ------- ------- Comprehensive income (loss) $ 194 $ (128) ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Consolidated Statement of Cash Flows (Unaudited) (in thousands) Three Months Ended ------------------ Dec 31, Dec 31, 2002 2001 ------- ------- Net cash flow from operating activities: Net income $ 6 $ 51 Adjustments to reconcile net income to net cash (used by) generated from operating activities: Depreciation and amortization 143 133 Deferred tax provision (1) (2) Increase (decrease) in cash resulting from changes in operating assets & liabilities: Receivables (390) 836 Inventories (258) 380 Prepaid expenses and other current assets (203) (12) Accounts payable 481 (1,010) Accrued compensation and expenses (292) (65) Accrued and deferred taxes on income (108) (7) ------- ------- Net cash (used by) generated from operating activities (622) 304 ------- ------- Cash flow generated from (used by) investing activities: Acquisition of property, plant, and equipment, net (201) (14) Increase in short-term borrowing 469 - ------- ------- Net cash generated from (used by) investing activities 268 (14) ------- ------- Cash flow used by financing activities: Dividends paid (94) (560) ------- ------- Net cash used by financing activities (94) (560) ------- ------- Effect of exchange rate changes on cash 99 (138) ------- ------- Net decrease in cash (349) (408) Opening balance - cash and cash equivalents 695 812 ------- ------- Ending balance - cash and cash equivalents $ 346 $ 404 ======= ======= Supplemental disclosure of cash flow information; Cash paid for income taxes $ 254 $ 31 Cash paid for interest 36 8 ------- ------- Supplemental disclosure of non-cash financing activity: Dividend declared $ 94 $ 280 ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Notes to Consolidated Financial Statements - December 31, 2002 (Unaudited) (1) Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (primarily consisting of only normally recurring accruals)necessary to present fairly the financial position of Tech/Ops Sevcon as of December 31, 2002 and the results of operations and cash flows for the three months ended December 31, 2002 and December 31, 2001. The accounting policies followed by Tech/Ops Sevcon are set forth in Note 1 to the financial statements in the 2002 Tech/Ops Sevcon, Inc. Annual Report filed on Form 10-K. The results of operations for the three-month periods ended December 31, 2002 and December 31, 2001 are not necessarily indicative of the results to be expected for the full year. New Accounting Pronouncements On December 31, 2002, the FASB issued FASB Statement No. 148 (SFAS 148), Accounting for Stock-Based Compensation -- Transition and Disclosure, amending FASB Statement No. 123 (SFAS 123), Accounting for Stock-Based Compensation. This Statement amends SFAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS 148 amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. For entities that voluntarily change to the fair value based method of accounting for stock-based employee compensation, the transition provisions are effective for fiscal years ending after December 15, 2002. For all other companies, the disclosure provisions and the amendment to APB No. 28 are effective for interim periods beginning after December 15, 2002. The Company is currently evaluating the impact of SFAS 148 on its financial statements. On November 25, 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies (SFAS 5), relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 covers guarantee contracts that have any of the following four characteristics: (a) contracts that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, a liability, or an equity security of the guaranteed party (e.g., financial and market value guarantees), (b) contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity's failure to perform under an obligating agreement (performance guarantees), (c) indemnification agreements that contingently require the indemnifying party (guarantor) to make payments to the indemnified party (guaranteed party) based on changes in an underlying that is related to an asset, a liability, or an equity security of the indemnified party, such as an adverse judgment in a lawsuit or the imposition of additional taxes due to either a change in the tax law or an adverse interpretation of the tax law, and (d) indirect guarantees of the indebtedness of others. FIN 45 specifically excludes certain guarantee contracts from its scope. Additionally, certain guarantees are not subject to FIN 45's provisions for initial recognition and measurement but are subject to its disclosure requirements. The initial recognition and measurement provisions are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for our annual financial statements for the year ended September 30, 2003. The Company is currently evaluating the impact of FIN 45 on its financial statements and related disclosures but do not expect that there will be any material impact. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations' SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, an entity capitalizes a cost by increasing the carrying amount of the long- lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material effect on the financial position or results of operations of the Company. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. It replaces SFAS No. 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of SFAS No. 144 did not have a material effect on the financial position or results of operations of the Company. In July 2002, FASB issued Statement No. 146 "Accounting for Costs Associated with Exit or Disposal Activities", which becomes effective January 2003. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of commitment. Management believes the adoption of SFAS No. 146 will not have a material effect on the financial position or results of operations or retained earnings. In April 2002, FASB issued Statement No. 145, "Rescission of FASB Statements No 4, 44, and 64, Amendment of FASB 13, and Technical Corrections", which is effective for fiscal years beginning after May 15, 2002. Upon adoption of SFAS 145, companies will be required to apply the criteria in APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" in determining the classification of gains/losses resulting from the extinguishment of debt. Upon adoption, extinguishments of debt shall be classified under the criteria in APB Opinion No. 30. The adoption of SFAS No. 145 did not have a material effect on the financial position or results of operations or retained earnings. (2) Cash Dividends On December 16, 2002, the Company declared a quarterly dividend of $.03 per share for the first quarter of fiscal 2003, which was paid on January 16, 2003 to stockholders of record on December 31, 2002. The Company has paid cash dividends each quarter since the first quarter of fiscal 1990. (3) Calculation of Earnings Per Share and Weighted Average Shares Outstanding Basic and fully diluted earnings per share were calculated as follows: (in thousands, except for per share amounts) Three Months Ended ------------------ Dec 31 Dec 31 2002 2001 ------ ------ Net income $ 6 $ 51 Basic income per share $ .00 $ .02 Average shares outstanding 3,125 3,110 Options outstanding - common stock equivalents - 14 Average common and common equivalent shares outstanding 3,125 3,124 Fully diluted income per share $ .00 $ .02 ====== ====== (4) Segment information The Company has two reportable segments: electronic controls and capacitors. The electronic controls segment produces control systems for battery powered vehicles. The capacitor segment produces electronic components for sale to electronic equipment manufacturers. Each segment has its own management team, manufacturing facilities and sales force. The accounting policies of the segments are the same as those described in note 1 to the 2002 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) - --------------------------------------------------------------------- Three months ended December, 31, 2002 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- Sales to external customers $ 5,184 $ 461 - $ 5,645 Inter-segment revenues - 172 - 172 Operating income (loss) 4 70 (60) 14 Identifiable assets 12,304 1,421 432 14,157 - --------------------------------------------------------------------- - --------------------------------------------------------------------- Three months ended December 31, 2001 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- Sales to external customers $ 4,932 $ 470 - $ 5,402 Inter-segment revenues - 143 - 143 Operating income (loss) 95 89 (92) 92 Identifiable assets 12,507 1,289 95 13,891 - --------------------------------------------------------------------- (5) Research and Development The cost of research and development programs is charged against income as incurred and amounted to approximately $667,000 and $540,000 in the quarters ended December 31, 2002 and December 31, 2001 respectively. TECH/OPS SEVCON, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING STATEMENTS This discussion and analysis contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected, including the following: ability of outsource sub-contractors to meet the Company's cost and quality targets and to deliver products in a timely manner; ability to produce products meeting technical requirements of customers and acceptance of those products by customers; ability of consultants to assist in the engineering of new products that meet the Company's cost and quality targets; level of demand for controls; impact of the variability of foreign exchange rates on sales and earnings; availability of electronic components at reasonable prices; ability of the Company to meet customers quality objectives; availability of earnings and capital resources to permit continuation of dividend payments; the outcome of litigation as well as other factors that may be described from time to time in the Company's filings with the Securities and Exchange Commission, including on Form 10-K. NEW ACCOUNTING PRONOUNCEMENTS The Company has considered the impact of the following new accounting pronouncements: SFAS #148 "Accounting for Stock-Based Compensation - Transition and Disclosure" "-Currently evaluating impact on consolidated financial statements" FASB Interpretation #45 "Guarantor's Accounting and Disclosure Requirements for Guarantees""-Currently evaluating impact on consolidated financial statements" SFAS #143, "Accounting for Asset Retirement Obligations" "-Adoption did not have a material effect on consolidated financial statements" SFAS #144, "Accounting for the Impairment or Disposal of Long-Lived Assets" "-Adoption did not have a material effect on consolidated financial statements" SFAS #146 "Accounting for Costs Associated with Exit or Disposal Activities" "-Adoption will not have a material effect on consolidated financial statements" SFAS #145, "Rescission of FASB Statements No 4, 44, and 64, Amendment of FASB 13, and Technical Corrections" "-Adoption did not have a material effect on consolidated financial statements" A discussion of these pronouncements is contained in Note (1) of the Notes to Consolidated Financial Statements. CRITICAL ACCOUNTING POLICIES The Company's significant accounting policies are summarized in Note 1 of its financial statements on Form 10-K. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company's financial statements and require management to use a greater degree of judgement and/or estimates. Actual results may differ from those estimates. The Company believes the following represent its critical accounting policies: Revenue Recognition The Company recognizes revenue when title transfers in accordance with its normal trading terms, which is usually upon shipment of its products. Over 98% of the Company's revenues are derived from product shipments. The Company's only post shipment obligation relates to warranty in the normal course of business for which reserves are maintained, which management believes are adequate. Foreign Currencies and Hedging Tech/Ops Sevcon translates the assets and liabilities of its foreign subsidiaries at the current rate of exchange, and income statement accounts at the average exchange rates in effect during the period. Gains or losses from foreign currency translation are credited or charged to cumulative translation adjustment included in the statement of comprehensive income and as a component of cumulative other comprehensive income in stockholders' investment in the balance sheet. Foreign currency transaction gains and losses are included in costs and expenses. Forward foreign exchange contracts are used primarily by the Company to hedge the operational ("cash-flow" hedges) and balance sheet ("fair value" hedges) exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts are entered into to hedge anticipated intercompany product purchases and third party sales and the associated accounts payable and receivable made in the normal course of business. Accordingly, these forward foreign exchange contracts are not speculative in nature. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, the Company hedges a portion of its foreign currency exposures anticipated over the ensuing 9-month period. Bad Debt The Company estimates an allowance for doubtful accounts based on factors related to the credit risk of each customer. 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. Ten customers accounted for approximately 51% of the Company's sales in fiscal 2002. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventories Inventories are priced 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. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Warranty Costs The Company provides for the estimated cost of product warranties at the time revenue is recognized based upon estimated costs and anticipated in-warranty failure rates. 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. Should actual product failure rates and repair or replacement costs differ from estimates, revisions to the estimated warranty liability may be required. MARKET RISK The primary market risks for the Company are foreign currency risk and interest rate risk. Foreign currency risk The Company manufactures products principally in the United Kingdom and sells products world-wide. Therefore the Company's operating results are subject to fluctuations in foreign currency exchange rates. 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 to manage the foreign exchange exposures related to forecast 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. As of and for the three months ended December 31, 2002 approximately 59% of the Company's revenues and 69% of its assets were denominated in foreign currencies. Interest Rate Risk The Company from time-to-time draws upon its overdraft facility in its European businesses. The Company invests surplus funds in instruments with maturities of less than 12 months at both fixed and floating interest rates. Due to the short-term nature of both the Company's overdrafts and investments at December 31, 2002 the risk arising from changes in interest rates was not material. RESULTS OF OPERATIONS Three months ended December 31, 2002 Sales in the first fiscal quarter ended December 31, 2002 were $5,645,000 compared to $5,402,000 in the same quarter of the previous year, an increase of $243,000, or 4.5%. Foreign currency fluctuations resulted in a $310,000, or 5.7% increase in reported sales. Shipment volumes decreased by 1.2%. Volumes in the U.S. Controller business decreased by 2% mainly due to lower demand in the aerial lift, airport ground support and mining markets. Shipments to the US fork lift truck and other electric vehicle markets were ahead of last year despite the continued depressed conditions in these markets. Volumes in the foreign controller markets were 2.9% lower than last year, mainly due to weakness in the aerial lift, and airport ground support markets. Capacitor revenues were 2% lower than last year with foreign currency fluctuations resulting in a 7% increase in reported sales. Due to continuing difficult conditions in the European markets for railway signaling and audio capacitors capacitor volumes were 9% less than last year. First quarter gross profit was 37.7% of sales, an increase of 1% from 36.7% in the same quarter of fiscal 2002. Gross profit of $2,127,000 was $146,000 higher than last year. The increase in gross profit percentage was mainly due to better margins on new products sold to certain European controller customers and to foreign currency fluctuations which caused an $85,000 increase in gross profit. Selling, research and administrative expenses increased by $224,000, or 12%, compared to the same quarter last year. In the first quarter of the current year engineering and R&D expense increased by $125,000 mainly due to increased consulting expense to accelerate the development of new high quality products. The Company commenced a three year program to use external consultants to accelerate new product development during the second quarter of fiscal 2002. Foreign currency fluctuations increased reported operating expenses by $110,000. In the first quarter there was operating income of $14,000 compared to $92,000 in the same quarter last year, a decrease of $78,000. Foreign currency fluctuations reduced reported operating income by $25,000. Operating income in the capacitor business segment decreased by $19,000 to $70,000, due to lower volumes and foreign currency fluctuations. Operating income in the controller business of $4,000 was $91,000 lower than in fiscal 2002. The decrease in controller business operating income was mainly due to lower volumes, foreign currency fluctuations and higher engineering and R&D expense partially offset by better gross margins. Unallocated corporate expenses decreased by $32,000 compared to the first quarter of last year. Other expense in the first quarter of fiscal 2003 was $5,000 compared to $13,000 last year. Foreign currency gains in fiscal 2003 compared to losses in the prior year more than offset higher net interest expense. Income before income taxes was $9,000, compared to $79,000 last year, a decrease of $70,000. Income taxes were 33% of pre-tax income compared to 35% in the same quarter last year. Net income was $6,000 compared to $51,000 last year, a decrease of $45,000. Basic and fully diluted income per share decreased from $.02 in the first quarter of fiscal 2002, to $.00 in the current year. Financial Condition The Company has, since January 1990, maintained a program of regular cash dividends, which, for the most recent quarter, amounted to $94,000. Cash balances at the end of December 2002 were $346,000 compared to $695,000 at September 30, 2002. The Company used $469,000 of its short-term borrowing facilities in Europe at the end of the first quarter compared to no borrowings at the beginning of fiscal 2003. In the first three months net income was $6,000, and operating activities used $622,000 of cash. Dividend payments for the first 3 months of the current fiscal year amounted to $94,000. Capital Expenditure was $201,000 compared to depreciation of $143,000. The Company has no long-term debt and has overdraft facilities in the UK of $1,770,000 and $340,000 in France. The UK overdraft facilities are secured by all of the Company's assets in the UK and the French overdraft facilities are unsecured. Both the UK and French overdraft facilities are due for renewal in September 2003 but, in line with normal practice in Europe, can be withdrawn on demand by the bank. Tech/Ops Sevcon's capital resources, in the opinion of management, are adequate for projected operations and capital spending programs. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly report, have concluded that, as of the Evaluation Date, the disclosure controls and procedures were adequate 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 controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date. TECH/OPS SEVCON, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report. None (b) Reports on Form 8-K None CERTIFICATIONS I, Matthew Boyle, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tech/Ops Sevcon, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effective- ness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 _/s/ Matthew Boyle Matthew Boyle President and Chief Executive Officer I, Paul A McPartlin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Tech/Ops Sevcon, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effective- ness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 _/s/ Paul A. McPartlin Paul A McPartlin Vice President, Chief Financial Officer and Treasurer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECH/OPS SEVCON, INC. Date: February 14, 2003 By: /s/ Paul A. McPartlin --------------------- Paul A. McPartlin Chief Financial and Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----