-----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, DZaAFNnho7qZpOpQO0iaU+GDU2QnVVbpWnhX3o92HVz9MyzwEovGJrWSg3DHuXK1 9cNQGdRyuEcw5eFGxyNcxA== 0000825411-04-000004.txt : 20040514 0000825411-04-000004.hdr.sgml : 20040514 20040514123052 ACCESSION NUMBER: 0000825411-04-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040403 FILED AS OF DATE: 20040514 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: 04805709 BUSINESS ADDRESS: STREET 1: 155 NORTHBORO ROAD CITY: SOUTHBOROUGH STATE: MA ZIP: 01772 BUSINESS PHONE: 5082815510 MAIL ADDRESS: STREET 1: 155 NORTHBORO ROAD CITY: SOUTHBOROUGH STATE: MA ZIP: 01772 10-Q 1 q.txt FORM 10-Q SECOND QUARTER FISCAL 2004 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 April 3, 2004 ------------- / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission File Number 1-9789 ------ TECH/OPS SEVCON, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 04-2985631 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 --- --- 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 May 14, 2004 - ---------------------------- --------------------------- 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) April 3, Sept 30, 2004 2003 --------- ------------ (unaudited) (derived from audited statements) Current assets: Cash and cash equivalents $ 207 $ 524 Accounts receivable, less allowances of $325 at 4/3/2004 and $295 at 9/30/2003 5,206 4,088 Inventories: Raw materials 2,136 1,963 Work-in-process 312 207 Finished goods 1,600 1,829 ------- ------- 4,048 3,999 ------- ------- Prepaid expenses and other current assets 904 762 ------- ------- Total current assets 10,365 9,373 ------- ------- Property, plant and equipment, at cost 9,131 8,100 Less: Accumulated depreciation and amortization 5,879 5,174 ------- ------- Net property, plant and equipment 3,252 2,926 ------- ------- Goodwill 1,435 1,435 ------- ------- $15,052 $13,734 ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Consolidated Balance Sheets LIABILITIES AND STOCKHOLDERS' INVESTMENT (in thousands) April 3, Sept 30, 2004 2003 ----------- ------------ (unaudited) (derived from audited statements) Current liabilities: Accounts payable 1,911 1,490 Dividend payable 94 94 Accrued expenses 2,426 2,273 Accrued taxes on income 238 152 ------- ------- Total current liabilities 4,669 4,009 ------- ------- Deferred taxes on income 82 77 ------- ------- Stockholders' investment Preferred stock - - Common stock 313 313 Premium paid in on common stock 4,047 4,047 Retained earnings 5,932 5,897 Cumulative other comprehensive income (loss) 9 (609) ------- ------- Total stockholders' investment $10,301 $ 9,648 ------- ------- $15,052 $13,734 ======= ======= 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 Six Months Ended ------------------ ------------------ April 3, Mar 31, April 3, Mar 31, 2004 2003 2004 2003 ------- ------- ------- ------- Net sales $ 7,273 $ 6,138 $13,739 $11,783 Costs and expenses: Cost of sales 4,288 3,722 8,145 7,240 Selling, research and Administrative 2,705 2,113 5,141 4,226 ------- ------- ------- ------- 6,993 5,835 13,286 11,466 ------- ------- ------- ------- Operating income 280 303 453 317 Other income (expense), net (60) 22 (109) 17 ------- ------- ------- ------- Income before income taxes 220 325 344 334 Income taxes (78) (114) (121) (117) ------- ------- ------- ------- Net income $ 142 $ 211 223 217 ======= ======= ======= ======= Basic income per share $ .05 $ .07 $ .07 $ .07 ======= ======= ======= ======= Fully diluted income per share $ .05 $ .07 $ .07 $ .07 ======= ======= ======= ======= Consolidated Statement of Comprehensive Income (Unaudited) (in thousands) Three Months Ended Six Months Ended ------------------ ------------------ April 3, Mar 31, April 3, Mar 31, 2004 2003 2004 2003 ------- ------- ------- ------- Net income $ 142 $ 211 $ 223 $ 217 Foreign currency translation adjustment 92 (97) 619 86 Change in fair market value of cash flow hedge 8 (24) (1) (19) ------- ------- ------- ------- Comprehensive income $ 242 $ 90 $ 841 $ 284 ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Consolidated Statement of Cash Flows (Unaudited) (in thousands) Six Months Ended ------------------- April 3, Mar 31, 2004 2003 ------- ------- Net cash flow from operating activities: Net income $ 223 $ 217 Adjustments to reconcile net income to net cash (used by)generated from operating activities: Depreciation and amortization 312 300 Deferred tax provision 5 (3) Increase (decrease) in cash resulting from changes in operating assets & liabilities: Receivables (1,118) (780) Inventories (49) 36 Pre-paid expenses and other current assets (140) (377) Accounts payable 421 132 Accrued compensation and expenses 153 (178) Accrued and deferred taxes on income 83 9 ------- ------- Net cash used by operating activities (110) (644) ------- ------- Cash flow (used by) generated from investing activities: Acquisition of property, plant, and equipment, net (370) (386) Increase in short-term borrowing - 725 ------- ------- Net cash (used by) generated from investing activities (370) 339 ------- ------- Cash flow used by financing activities: Dividends paid (188) (187) ------- ------- Effect of exchange rate changes on cash 351 77 ------- ------- Net decrease in cash (317) (415) Opening balance - cash and cash equivalents 524 695 ------- ------- Ending balance - cash and cash equivalents $ 207 $ 280 ======= ======= Supplemental disclosure of cash flow information Cash paid for income taxes $ 24 $ 244 Cash paid for interest 6 37 ------- ------- Supplemental disclosure of non-cash financing activity: Dividend declared $ 94 $ 94 ======= ======= The accompanying notes are an integral part of these financial statements. TECH/OPS SEVCON, INC. Notes to Consolidated Financial Statements - April 3, 2004 (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 April 3, 2004 and the results of operations and cash flows for the three months and six months ended April 3, 2004. The significant accounting policies followed by Tech/Ops Sevcon are set forth in Note 1 to the financial statements in the 2003 Tech/Ops Sevcon, Inc. Annual Report filed on Form 10-K. The results of operations for the three-month and six-month periods ended April 3, 2004 are not necessarily indicative of the results to be expected for the full year. (2) New Accounting Pronouncements In December 2003, the Financial Accounting Standards Board issued SFAS #132R, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This Statement revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements #87, "Employers' Accounting for Pensions", #88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This Statement retains the disclosure requirements contained in FASB Statement #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which it replaces. It requires additional disclosures to those in the original Statement #132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The Company adopted the provisions of SFAS #132R on January 1, 2004. The adoption of this pronouncement did not have a material effect on the Company's financial position, results from operations or cash flows. (3) Stock-Based Compensation Plans SFAS #123 "Accounting for Stock-Based Compensation" as amended by SFAS #148 "Accounting for Stock-Based Compensation - Transition and Disclosure" defines a fair value based method of accounting for employee stock options or similar equity instruments and encourages all entities to adopt that method of accounting. However, it also allows an entity to continue to measure compensation costs using the method of accounting proscribed by APB #25 "Accounting for Stock Issued to Employees". The Company is evaluating the transition options under SFAS #148 and continues to account for its stock- based compensation plans under APB #25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS #123 the Company's net income and earnings per share would have equaled the following pro forma amounts: (in thousands of dollars, except for per share amounts) Three Months Ended Six Months Ended ------------------ ---------------- Apr 3 Mar 31 Apr 3 Mar 31 2004 2003 2004 2003 ------ ------ ------ ------ Net income As reported $ 142 $ 211 $ 223 $ 217 Pro forma effect of expensing stock options (net of income tax) (17) (14) (34) (28) Net income Pro forma $ 125 $ 197 $ 189 $ 189 Income per share: Basic As reported $ .05 $ .07 $ .07 $ .07 Basic Pro forma $ .04 $ .06 $ .06 $ .06 Diluted As reported $ .05 $ .07 $ .07 $ .07 Diluted Pro forma $ .04 $ .06 $ .06 $ .06 - ---------------------------------------------------------------------------- The effects of applying SFAS #123 in this pro forma disclosure are not indicative of future amounts. SFAS #123 does not apply to awards prior to fiscal 1996 and additional awards in future years are anticipated. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for the grants in 2003: risk-free interest rate of 6%; expected dividend yield of 2.4%; expected life of 7 years; expected volatility of 47%. No options were granted in the first six months of fiscal 2004. (4) Cash Dividends On March 9, 2004, the Company declared a quarterly dividend of $.03 per share for the second quarter of fiscal 2004, which was paid on April 8, 2004 to stockholders of record on March 24, 2004. 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 for per share amounts) Three Months Ended Six Months Ended ------------------ ---------------- April 3 Mar 31 April 3 Mar 31 2004 2003 2004 2003 ------ ------ ------ ------ Net income $ 142 $ 211 $ 223 $ 217 Basic income per share $ .05 $ .07 $ .07 $ .07 Average shares outstanding 3,125 3,125 3,125 3,125 Options outstanding - common stock equivalents 24 - 21 - Average common and common equivalent shares outstanding 3,149 3,125 3,146 3,125 Fully diluted income per share $ .05 $ .07 $ .07 $ .07 ====== ====== ====== ====== (6) 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 significant accounting policies of the segments are the same as those described in note(1) to the 2003 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 April 3, 2004 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- Sales to external customers $ 6,766 $ 507 $ - $ 7,273 Inter-segment revenues - 50 - 50 Operating income 274 85 (79) 280 Identifiable assets 13,119 1,353 580 15,052 - --------------------------------------------------------------------- - --------------------------------------------------------------------- (in thousands) - --------------------------------------------------------------------- Three months ended March 31, 2003 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- Sales to external customers $ 5,371 $ 767 $ - $ 6,138 Inter-segment revenues - 88 - 88 Operating income 173 207 (77) 303 Identifiable assets 12,227 1,606 478 14,311 - --------------------------------------------------------------------- - --------------------------------------------------------------------- Six months ended April 3, 2004 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- Sales to external customers $12,801 $ 938 $ - $13,739 Inter-segment revenues - 75 - 75 Operating income 503 94 (144) 453 - --------------------------------------------------------------------- - --------------------------------------------------------------------- Six months ended March 31, 2003 - --------------------------------------------------------------------- Controls Capacitors Corporate Total - --------------------------------------------------------------------- Sales to external customers $10,555 $ 1,228 - $11,783 Inter-segment revenues - 260 - 260 Operating income 177 277 (137) 317 - --------------------------------------------------------------------- (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 Six Months Ended ------------------ ---------------- Apr 3 Mar 31 Apr 3 Mar 31 2004 2003 2004 2003 ------ ------ ------ ------ Research and Development expense $1,066 $ 680 $1,994 $1,347 Percentage of sales 14.7% 11.1% 14.5% 11.4% ------ ------ ------ ------ Research and development expense increased by $386,000, or 57%, compared to the second quarter of last fiscal year and by $647,000, or 48% for the six month period. This increase was principally due to consultancy costs on advanced new product development, recruitment of additional internal engineering resources and currency fluctuations. (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 #132R. (in thousands of dollars) Three Months Ended Six Months Ended ------------------ ---------------- Apr 3 Mar 31 Apr 3 Mar 31 2004 2003 2004 2003 ------ ------ ------ ------ Components of net periodic benefit cost: Service cost $ 119 $107 $233 $213 Interest cost $ 218 192 425 382 Expected return on plan assets $ (221) (193) (431) (384) Amortization of transition obligation $ - - - - Amortization of prior service cost $ 13 12 25 24 Recognized net actuarial gain (loss) $ - - - - ----- ----- ----- ----- Net periodic benefit cost $ 129 $118 $252 $235 ---- ----- ----- ----- Net cost of defined contribution plans $ 8 $ 7 $ 15 $ 14 Tech/Ops Sevcon contributed $315,000 to its pension plans in the six months ended April 3, 2004 and presently anticipates contributing a further $252,000 to fund its plans in the remainder of fiscal 2004, for a total contribution of $567,000. 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 throughout this Item 2. NEW ACCOUNTING PRONOUNCEMENTS The Company has adopted the following new accounting pronouncement in fiscal 2004. See Notes to Consolidated Financial Statements (2) for a more detailed description of this new accounting pronouncement. SFAS #132R, "Employers' Disclosures about Pensions and Other Postretirement Benefits" - Adoption on January 1, 2004 did not have a material effect on consolidated financial statements. CRITICAL ACCOUNTING ESTIMATES There have been no material changes from the disclosures regarding critical accounting policies and estimates contained in the Form 10-K for fiscal 2003. RISK FACTORS In addition to the market risk factors relating to foreign currency and interest rate risk set out below, the Company believes that the following represent the most significant risk factors for the Company: Capital Goods Markets 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 depressed. Demand in these markets could decrease further 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. Materials and subcontractors The Company relies on certain suppliers and subcontractors for all of its requirements for certain components, subassemblies and finished products. In the event that such suppliers and subcontractors 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. Buildings and Insurance In the controller business the majority of product is produced in a single plant in England. The capacitor business is located in a single plant in Wales. In the event that either 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. Litigation Risk In fiscal 2002 the Company received a demand for repayment of an alleged preference payment of $180,000 received from a customer in the 90 days prior to their filing for protection under Chapter 11 during fiscal 2000. At the time this customer filed for Chapter 11 protection it owed the Company $50,000 and this amount was fully reserved in the fiscal 2000 financial statements. The Company is vigorously contesting this demand and believes that it has a good defense and that its reserves for doubtful accounts are adequate to cover its estimated exposure to this customer. OVERVIEW OF SECOND QUARTER AND FIRST SIX MONTHS In the second quarter net income was $142,000, or $.05 per diluted share, compared to last year's results when the Company had net income of $211,000, or $.07 per diluted share. Revenues for the second quarter were $7,273,000, an increase of $1,135,000, or 18%, compared to the prior year's $6,138,000. Foreign currency fluctuations resulted in a $645,000 increase in reported sales. Second quarter volumes were 8% higher than last year, mainly due to gains in the controls business. Engineering expense, mainly on advanced new products, was $386,000 higher than the second quarter of last year. Operating income for the second quarter was $280,000 compared to $303,000 in the same quarter last year. Foreign currency changes compared to last year resulted in a decrease of $20,000 in second quarter operating income. For the six month period, net income was $223,000, or $.07 per diluted share, compared to $217,000, or $.07 per diluted share last year. Revenues in the first six months of fiscal 2004 were $13,739,000, an increase of $1,956,000, or 17%, compared to last year. Foreign currency fluctuations resulted in a $1,200,000 increase in reported sales. Volumes were 6% ahead of the prior year. Higher spending on new products resulted in an increase in engineering expense of $647,000, equivalent to $.13 per share. Operating income for the six-month period was $453,000, compared to $317,000, in the first half of the prior year. Foreign currency fluctuations increased year-to- date reported operating income by $140,000 compared to the same period last year. Results of Operations Three months ended April 3, 2004 Sales in the second fiscal quarter ended April 3, 2004 were $7,273,000 compared to $6,138,000 in the same quarter of the previous year, an increase of $1,135,000, or 18%. Foreign currency fluctuations, principally the weakness of the US dollar compared to the Euro and the British pound, accounted for $645,000, or 11%, of the increase in revenues. Shipment volumes were 8% ahead of the second quarter of last year. Volumes in the U.S. Controller business increased by 21% with gains in shipments to the aerial lift, airport ground support and mining markets partially offset by lower demand in the US fork lift truck market. Volumes in the foreign controller markets were 11% higher than last year, mainly due to growth in shipments to the aerial lift market. Shipment volumes to the foreign fork lift truck and airport ground support markets were in line with the same period last year. Capacitor revenues were 34% lower than last year. Capacitor volumes were 42% down on the prior year with foreign currency fluctuations resulting in a $63,000 increase in reported sales of capacitors. The volume decrease in the second quarter was due to lower demand in the European markets for railway signaling capacitors and audio capacitors. Second quarter gross profit was 41.1% of sales, an increase of 1.7% from 39.4% in the same quarter of fiscal 2003. Gross profit of $2,986,000 was $480,000 higher than last year. The increase in gross profit percentage was due to both higher volumes and to foreign currency fluctuations which caused a $285,000 increase in gross profit in the second quarter. Selling, research and administrative expenses were $2,705,000, an increase of $592,000, or 28%, compared to last year's second quarter. Foreign currency fluctuations increased these expenses by $305,000, or 14%. In the second quarter of fiscal 2004, engineering and R&D expense increased by at total of $386,000. This was mainly due to increased consulting expense and additional internal resources to accelerate the development of new high quality products. Foreign currency fluctuations increased the reported engineering and R&D expense by $112,000. In the second quarter there was operating income of $280,000 compared to $303,000 in the same quarter last year, a decrease in operating income of $22,000. Foreign currency fluctuations decreased reported operating income by $20,000. Operating income in the capacitor business segment decreased by $122,000 to $85,000, mainly due to lower volumes. Operating income in the controller business of $274,000 was $101,000 higher than in the second quarter of last year. The increase in controller business operating income was mainly due to higher volumes. This was partially offset by higher engineering and R&D expense. Unallocated corporate expenses were $79,000 in the current year compared to $77,000 in the second quarter of last year. Other expense in the second quarter of fiscal 2004 was $60,000 compared to other income of $22,000 in the same quarter last year, a difference of $82,000. This was mainly due to foreign currency losses in the second quarter of fiscal 2004 compared to gains last year. Income before income taxes was $220,000, compared to $325,000 in the same quarter last year, a decrease of $105,000. Income taxes were 35% of pre- tax income, in line with the same quarter last year. Net income was $142,000 compared to $211,000 in the same quarter last year, a decrease of $69,000. Basic and fully diluted income per share decreased from $.07 in the second quarter of fiscal 2003, to $.05 in the second quarter of fiscal 2004. Six months ended April 3, 2004 Sales in the first six months of fiscal 2004 were $13,739,000, compared to $11,783,000 in the same period last year, an increase of $1,956,000, or 17%. Foreign currency fluctuations accounted for a $1,200,000, or 10%, increase in reported sales. Volumes were 6% ahead last year. Volumes in the controller business were 11% better than last year. In the capacitor business sales decreased by $290,000 compared to the same period last year. Volumes were down by $396,000, or 32%, compared to the first six months of last year. Foreign currency fluctuations accounted for a $106,000 increase in reported sales. Revenues in the US controller business increased by 9%. This was mainly due to decreased demand in the aerial lift, airport ground support, and mining markets, partially offset by decreased sales into the fork lift truck market. Controller volumes in foreign markets grew by 12%, mainly due to increased demand in the European aerial lift market. Gross profit was 40.7% of sales in the first half of fiscal 2004 compared to 38.6% in 2003. Gross profit increased by $1,051,000 compared to the first six months of last year. Higher volumes caused a $310,000 increase in gross profit. Foreign currency fluctuations increased reported gross profit by $610,000. Higher margins on new products and improved manufacturing efficiency were the main cause of the remaining $131,000 improvement in gross profit. Selling, research and administrative expenses were $5,141,000, an increase of $915,000, or 22%, compared to the same period last year. In the first six months of the current year, and excluding the impact of foreign currency fluctuations, engineering and R&D expense increased by $647,000 mainly due to increased consulting expense and additional internal resources to accelerate the development of new high quality products. Foreign currency fluctuations increased reported operating expenses by $470,000, or 11%. Operating income for the first half year was $453,000, an increase of $136,000 compared to the first six months of last year. Foreign currency fluctuations resulted in a $140,000 increase in reported operating income. Operating income for the controller business increased by $326,000 to $503,000. The main causes of this increase in operating income were higher volumes partially offset by increased engineering and R&D expense. In the capacitor business segment operating income decreased by $183,000 to $94,000, mainly due to lower volumes, partially offset by a positive impact of foreign currency fluctuations. Other expense was $109,000 compared to other income of $17,000 in the first half of last year, an adverse change of $126,000. This was mainly due to foreign currency losses in the current year compared to gains last year. Income before income taxes was $344,000, compared to $334,000 last year, an increase of $10,000. Income taxes were 35% of pre-tax income, in line with the first half of last year. Net income was for the first half of fiscal 2004 was $223,000, an increase of $6,000 compared to the same period last year. Basic and fully diluted income per share was $.07 per share which was in line with the first half of fiscal 2003. Financial Condition The Company has, since January 1990, maintained a program of regular cash dividends, which, for the quarter ended April 3, 2004, amounted to $94,000. Cash balances at the end of the second quarter of 2004 were $207,000 compared to $524,000 in September 2003, a decrease of $317,000. In the first six months of fiscal 2004 net income was $223,000, and operating activities used $110,000 of cash. There was an increase of $1,118,000 in receivables due to both higher volumes and foreign currency fluctuations. The number of days sales in receivables decreased in the first six months of fiscal 2004 from 70 days to 62 days. Dividend payments for the first six months of fiscal 2004 amounted to $188,000. Capital expenditures were $370,000 compared to depreciation of $312,000. The Company has no long-term debt and has overdraft facilities in the UK of $1,815,000 and of $379,000 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. Tech/Ops Sevcon's capital resources, in the opinion of management, are adequate for projected operations and capital spending programs. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The primary market risks for the Company are foreign currency risk and interest rate risk. There have been no material changes in our exposure as described in the Form 10-K for fiscal 2003. Item 4. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. The Company's principal executive officer and principal financial officer, after evaluating the effectiveness of the "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15-d-15(e))have concluded that, as of April 3, 2004, the 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 Rules 13a-15(f) and 15d-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. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting held on January 27, 2004, the shareholders approved the election of directors and the amendments to the 1996 equity incentive plan as follows: A) To re-elect as directors for three year terms the following persons: Maarten D. Hemsley, David R. A. Steadman and Marvin G. Schorr. Mr. Hemsley received 2,851,140 votes for and 23,005 withheld, Mr. Steadman received 2,803,459 votes for and 70,686 withheld and Dr. Schorr received 2,752,669 votes for and 121,746 withheld. There were no abstentions or broker non-votes. B) To amend the 1996 Equity Incentive Plan. There were 1,757,148 votes for the proposal, 386,173 votes against, 93,673 abstentions and 637,151 broker non-votes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report. See Exhibit Index immediately preceding the exhibits. (b) Reports on Form 8-K. A Current Report on Form 8-K was furnished on April 28, 2004 (Item 12). The report contained information announcing Tech/Ops Sevcon, Inc.'s earnings release issued on April 27, 2004. The description of this Form 8-K in this Item 6 is for informational purposes only and the news release furnished thereon shall not be deemed "filed" with the Commission. 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: May 14, 2004 By: /s/ Paul A. McPartlin --------------------- Paul A. McPartlin Chief Financial Officer(Principal financial and chief accounting officer) Exhibit Index 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. EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2004 /s/ Matthew Boyle --------------------- Matthew Boyle President and Chief Executive Officer EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 14, 2004 /s/ Paul A. McPartlin --------------------- Paul A. McPartlin Chief Financial and Accounting Officer EXHIBIT 32.1 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 Each of the undersigned officers of Tech/Ops Sevcon, Inc. (the "Company") certifies, under the standards set forth in and solely for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of the Company for the quarter ended April 3, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 14, 2004 /s/ Matthew Boyle ----------------------- Matthew Boyle Chief Executive Officer Dated: May 14, 2004 /s/ Paul A. McPartlin ----------------------- Paul A. McPartlin Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----