0000825411-12-000020.txt : 20120514 0000825411-12-000020.hdr.sgml : 20120514 20120514131613 ACCESSION NUMBER: 0000825411-12-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120514 DATE AS OF CHANGE: 20120514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 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: 12837652 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 FORMER COMPANY: FORMER CONFORMED NAME: TECH OPS SEVCON INC DATE OF NAME CHANGE: 19920703 10-Q 1 form10_q.htm 10-Q QUARTER 2 FISCAL 2012 form10_q.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 March 31, 2012

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
 

SEVCON, INC.
(Exact name of registrant as specified in its charter)

Delaware
04-2985631
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

155 Northboro Road, Southborough, Massachusetts 01772
(Address of principal executive offices and zip code)

(508) 281-5510
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant 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 x  No o

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 May 11, 2012
Common stock, par value $.10
3,485,322

 
 

 


 
 

 

SEVCON, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2012
INDEX
 
 

 
PAGE
PART I - FINANCIAL INFORMATION
2
   
2
   
2
   
3
   
3
   
4
   
5-13
   
13-18
   
19
   
19-20
   
PART II - OTHER INFORMATION
20
   
20
   
20-21
   
21
   
21
   
Item 4     Mine Safety Disclosures  
   
22
   
22
   
22
   
22
   



 
- 1 -


PART I.               FINANCIAL INFORMATION

Item 1 Financial Statements

CONSOLIDATED BALANCE SHEETS
Sevcon, Inc. and Subsidiaries

(in thousands of dollars except per share data)
 
       
March 31,
2012
   
September 30,
2011
 
       
 
(unaudited)
   
(derived from audited statements)
 
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
    $ 1,284     $ 1,797  
Trade receivables net of allowances for doubtful accounts of $51 at March 31, 2012
and $49 at September 30, 2011
      6,960       5,315  
Other receivables
      975       637  
Inventories, net
      7,653       7,478  
Prepaid expenses and other current assets
      1,321       1,281  
Total current assets
      18,193       16,508  
Property, plant and equipment:
                 
At cost
      11,165       10,648  
Less: accumulated depreciation and amortization
      (8,893 )     (8,401 )
Net property, plant and equipment
      2,272       2,247  
Long-term deferred tax assets
      2,689       2,699  
Goodwill
      1,435       1,435  
Other long-term assets
      58       58  
Total assets
    $ 24,647     $ 22,947  
                     
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
                 
Current liabilities:
                 
Current portion of long-term debt
    $ 40     $ 39  
Accounts payable
      4,907       3,800  
Accrued expenses
      1,611       2,106  
Accrued and deferred taxes on income
      -       65  
Total current liabilities
      6,558       6,010  
Liability for pension benefits
      7,760       7,634  
Long-term debt
      1,795       1,813  
Total liabilities
      16,113       15,457  
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 3,485,322 shares at March 31, 2012 and 3,360,322 shares at
September 30, 2011
        349         336  
Premium paid in on common stock
      5,409       5,295  
Retained earnings
      9,221       8,467  
Accumulated other comprehensive loss
      (6,445 )     (6,608 )
Total stockholders’ equity
      8,534       7,490  
Total liabilities and stockholders’ equity
    $ 24,647     $ 22,947  

The accompanying notes are an integral part of these consolidated financial statements.

 
- 2 -


CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Sevcon, Inc. and Subsidiaries

     
(in thousands of dollars except per share data)
 
       
Three months ended
   
Six months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Net sales
    $ 10,101     $ 7,787     $ 18,616     $ 14,670  
Cost of sales
      (6,479 )     (5,099 )     (12,012 )     (9,614 )
Gross profit
      3,622       2,688       6,604       5,056  
Selling, research and administrative expenses
      (2,927 )     (2,481 )     (5,657 )     (4,816 )
Gain on sale of fixed assets
      -       451       -       451  
Operating income
      695       658       947       691  
Interest expense
      (34 )     -       (90 )     (31 )
Interest income
      -       2       23       2  
Foreign currency (loss) gain
      (33 )     (75 )     121       (71 )
Income before income taxes
      628       585       1,001       591  
Income taxes provision
      (158 )     (80 )     (247 )     (81 )
Net income
      470       505       754       510  
Basic income per share
    $ .14     $ .15     $ .23     $ .15  
Fully diluted income per share
    $ .14     $ .15     $ .22     $ .15  


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Sevcon, Inc. and Subsidiaries

     
(in thousands of dollars)
 
       
Three months ended
   
Six months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Net income
      470       505       754       510  
Foreign currency translation adjustment
      163       190       71       137  
Pension liability adjustment, net of tax
      46       842       92       900  
Comprehensive income
    $ 679     $ 1,537     $ 917     $ 1,547  

The accompanying notes are an integral part of these consolidated financial statements.


 
- 3 -



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Sevcon, Inc. and Subsidiaries

     
(in thousands of dollars)
 
       
Six months ended
 
       
March 31,
2012
   
April 2,
2011
 
Cash flow from operating activities:
                 
Net income
    $ 754     $ 510  
Adjustments to reconcile net income to net cash from operating activities:
                 
Depreciation
      303       316  
Gain on sale of fixed assets
      -       (451 )
Stock-based compensation
      126       79  
Pension contributions less than pension expense
      75       150  
Deferred tax provision
      274       90  
Increase (decrease) in cash resulting from changes in operating assets and liabilities:
                 
Receivables
      (1,940 )     (733 )
Inventories
      (38 )     (1,303 )
Prepaid expenses and other current assets
      (172 )     (42 )
Accounts payable
      1,008       351  
Accrued expenses
      (516 )     555  
Accrued and deferred taxes on income
      (168 )     (113 )
Net cash used by operating activities
      (294 )     (591 )
Cash flow (used by) generated from investing activities:
                 
Acquisition of property, plant and equipment
      (272 )     (414 )
Proceeds of sale of fixed assets
      2       1,278  
Net cash (used by) generated from investing activities
      (270 )     864  
Cash flow used by financing activities:
                 
Repayment of long term debt
      (20 )     (18 )
Net cash used by financing activities
      (20 )     (18 )
Effect of exchange rate changes on cash
      71       56  
Net (decrease) increase in cash
      (513 )     311  
Beginning balance – cash and cash equivalents
      1,797       803  
Ending balance – cash and cash equivalents
    $ 1,284     $ 1,114  
Supplemental disclosure of cash flow information:
                 
Cash paid for income taxes
    $ 79     $ -  
Cash paid for interest
    $ 90     $ 31  

The accompanying notes are an integral part of these consolidated financial statements.


 
- 4 -


SEVCON, INC.

Notes to Consolidated Financial Statements – March 31, 2012

(Unaudited)

(1)           Basis of Preparation

Sevcon, Inc. (the “Company”) 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.  Through another subsidiary located in the United Kingdom, Sevcon, Inc manufactures special metalized film capacitors that are used as components in the power electronics, signaling and audio equipment markets.

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 Sevcon, Inc. as of March 31, 2012 and the results of operations and cash flows for the six months ended March 31, 2012. These unaudited interim financial statements should be read in conjunction with the 2011 annual consolidated financial statements and related notes included in the 2011 Sevcon, Inc. Annual Report filed on Form 10-K (the “2011 10-K”). Unless otherwise indicated, each reference to a year means the Company’s fiscal year, which ends on September 30.

The results of operations for the six month period ended March 31, 2012, are not necessarily indicative of the results to be expected for the full year.

(2)           Summary of significant accounting policies

Other than the new accounting pronouncement as set forth in Note 3 below, there have been no changes since the end of 2011 to the significant accounting policies followed by Sevcon, Inc.

(3)           New accounting pronouncements

In May 2011, the FASB issued an amendment to the accounting guidance for fair value measurement and disclosure. Among other things, the guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for measurement of the fair value of financial assets and liabilities as well as instruments classified in shareholders’ equity. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting pronouncement did not have a material impact on our financial statements.

In June 2011, the FASB issued an amendment to the accounting guidance for presentation of comprehensive income. Under the amended guidance, a company may present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of choice in presentation,  a company is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. For public companies, the amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and shall be applied retrospectively. Early adoption is permitted. Other than a change in presentation, the implementation of this accounting pronouncement is not expected to have a material impact on our financial statements when implemented.
 
On September 15, 2011, the FASB issued authoritative guidance in respect of the simplification of the testing of goodwill impairment. The Accounting Standards Update (“ASU”) is, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In certain cases this will allow an entity to forego the existing two-step goodwill impairment test. The Company does not anticipate that the adoption of this guidance will have a material impact on either the Company’s consolidated results from operations or its financial position.


(4)           Stock-based compensation plans

Under the Company’s 1996 Equity Incentive Plan (the “Plan”) there were 122,800 shares reserved and available for grant at March 31, 2012. There were no options granted or exercised in the periods ended March 31, 2012 and April 2, 2011.

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.

A summary of option activity for all plans for the six months ended March 31, 2012 is as follows:

     
 
 
Options
No. of shares
   
 
Weighted average Exercise Price
   
Weighted average remaining contractual life (years)
   
 
 
Aggregate Intrinsic Value
 
Outstanding at September 30, 2011
      46,000     $ 5.62    
1 year
    $ 65,500  
Granted
      -       -       -       -  
Exercised
      -       -       -       -  
Cancelled
      (10,000 )     9.60       -     $ -  
Outstanding at March 31, 2012
      36,000     $ 4.51    
1 year
    $ 80,600  
Exercisable at March 31, 2012
      31,000     $ 4.50    
1 year
    $ 69,700  
Exercisable and expected to
 vest at March 31, 2012
      36,000     $ 4.51    
1 year
    $ 80,600  

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 $6.75 and $6.33 closing market price of the Company’s common stock at March 31, 2012 and September 30, 2011 respectively.

A summary of restricted stock activity for the six months ended March 31, 2012 is as follows:

     
 
Number of shares of
Restricted Stock
   
Weighted
Average
Grant – Date
Fair Value
 
Non-vested balance as of September 30, 2011
      50,000     $ 5.21  
Granted
      125,200     $ 5.69  
Vested
      (31,000 )   $ 7.10  
Non-vested balance as of March 31, 2012
      144,200     $ 5.22  
 
In December 2011, the Company granted 110,000 shares of restricted stock to seven employees, which will vest in five equal annual installments so long as the employee is then employed by the Company or as determined by the Compensation Committee. The estimated fair value of the stock on the date of grant was $561,000 based on the fair market value of stock on the date of issue. Compensation expense is being charged to income on a straight line basis over five years. The charge to income for this employee restricted stock will be approximately $28,000 on a quarterly basis.

In January 2012, the Company granted 15,200 shares of restricted stock to eight non-employee directors, which will vest on the day before the 2013 annual meeting providing that the grantee remains a director of the Company, or as otherwise determined by the Compensation Committee. The aggregate fair value of the stock measured on the date of grant was $80,000, based on the closing sale price of the stock on the date of grant. Compensation expense is being charged to income on a straight line basis over the twelve month period during which the forfeiture conditions lapse. The charge to income for these restricted stock grants in the first six months of fiscal 2012 was $13,000 and the subsequent charge will be approximately $20,000 on a quarterly basis.

Stock based compensation expense for the three and six month periods ended March 31, 2012 was $66,000 and $126,000, respectively and for the three and six month periods ended April 2, 2011 was $43,000 and $79,000, respectively.  At March 31, 2012 there was $647,000 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 4.1 years.

(5)           Cash dividends

The Company suspended the payment of dividends in order to conserve cash to meet the needs of the business during the recent global recession. The Board of Directors will consider whether to resume paying dividends as conditions and the Company’s operating results improve.

(6)           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
   
Six Months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Net income
    $ 470     $ 505     $ 754     $ 510  
Weighted average shares outstanding – basic
      3,336       3,307       3,313       3,296  
Basic income per share
    $ .14     $ .15     $ .23     $ .15  
Common stock equivalents
      41       28       43       36  
Weighted average shares outstanding – diluted
      3,377       3,335       3,356       3,332  
Diluted income per share
    $ .14     $ .15     $ .22     $ .15  
No. of options that are anti-dilutive excluded from calculation of common stock equivalents
      -       10       -       10  

(7)           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 2011 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:

 
- 5 -




     
(in thousands of dollars)
 
       
Three months ended March 31, 2012
 
       
Controls
   
Capacitors
   
Corporate
   
Total
 
Sales to external customers
    $ 9,702     $ 399     $ -     $ 10,101  
Inter-segment revenues
      -       9       -       9  
Operating income (loss)
      743       (18 )     (30 )     695  
Identifiable assets
      23,159       1,144       344       24,647  

     
Three months ended April 2, 2011
 
       
Controls
   
Capacitors
   
Corporate
   
Total
 
Sales to external customers
    $ 7,154     $ 633     $ -     $ 7,787  
Inter-segment revenues
      -       15       -       15  
Operating income (loss)
      796       151       (289 )     658  
Identifiable assets
      20,142       1,084       246       21,472  


     
Six months ended March 31, 2012
 
       
Controls
   
Capacitors
   
Corporate
   
Total
 
Sales to external customers
    $ 17,775     $ 841     $ -     $ 18,616  
Inter-segment revenues
      -       14       -       14  
Operating income (loss)
      1,039       (46 )     (46 )     947  
Identifiable assets
      23,159       1,144       344       24,647  



     
Six months ended April 2, 2011
 
       
Controls
   
Capacitors
   
Corporate
   
Total
 
Sales to external customers
    $ 13,540     $ 1,130     $ -     $ 14,670  
Inter-segment revenues
      -       18       -       18  
Operating income (loss)
      799       208       (316 )     691  
Identifiable assets
      20,142       1,084       246       21,472  

In the electronic controls segment, the revenues were derived from the following products and services:

(in thousands of dollars)
 
       
Three Months ended
   
Six Months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Electronic controls for zero emission and hybrid electric vehicles
    $ 7,595     $ 6,207     $ 13,179     $ 9,908  
Accessory and aftermarket products and services
      2,107       947       4,596       3,632  
Total electronic controls segment revenues
    $ 9,702     $ 7,154     $ 17,775     $ 13,540  

(8)           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
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Research and development expense, net of grants receivable
    $ 826     $ 563     $ 1,643     $ 1,259  
Percentage of sales
      8 %     7.2 %     9 %     8.6 %

In fiscal 2010 the Company was awarded a research and development grant by the Technology Strategy Board, a public body established by the U.K. government in 2007 to stimulate technology-enabled innovation. The Company is one of a consortium of organizations participating in a project to research and design ultra-efficient systems for electric and hybrid vehicles. In the second quarter of 2012, the Company recorded grant income from this Technology Strategy Board project of $110,000 associated with research and development expense of $240,000.  The grant income was recorded as a reduction of research and development expense. In the second quarter of 2010 and the first quarter of 2011, the Company was awarded research and development grants by One North East, the Regional Development Agency responsible for the support of business in the North East of England, to accelerate the development of two new products. These two projects were completed in March 2011 as required by the grant awards. The Company recorded grant income of $217,000 and $383,000 in the first and second quarters of 2011, respectively, associated with research and development expense of $620,000 and $1,094,000 in the first and second quarters of 2011, respectively, on these two projects. The grant income was recorded as a reduction of research and development expense.

(9)           Employee benefit plans

Sevcon has a defined benefit plan covering the majority of its U.K. employees and a frozen defined benefit pension plan in the Company’s wholly owned subsidiary, Sevcon USA, Inc. There is also a small defined contribution plan covering senior managers in the capacitor business and a defined contribution plan for employees in the U.S. controls business.  The following table sets forth the components of the net pension cost for the defined benefit plans:

     
(in thousands of dollars)
 
       
Three Months ended
   
Six Months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Service cost
    $ 65     $ 111     $ 131     $ 221  
Interest cost
      338       319       650       636  
Expected return on plan assets
      (291 )     (277 )     (570 )     (550 )
Amortization of net loss
      67       71       134       139  
Amortization of prior service cost
      (6 )     (21 )     (12 )     (9 )
Net periodic benefit cost
      173       203       333       437  
Net cost of defined contribution plans
    $ 51     $ 7     $ 90     $ 14  


Amounts recognized in the balance sheet consist of:

     
(in thousands of dollars)
 
       
March 31,
2012
   
April 2,
2011
 
Non current liabilities
    $ 7,760     $ 7,272  

Amounts recognized in accumulated other comprehensive loss consist of:

     
(in thousands of dollars)
 
       
Three Months ended
   
Six Months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2,
2011
 
Amortization of net actuarial loss net of tax benefit
    $ 51     $ 51     $ 101     $ 100  
Amortization of prior service cost net of tax benefit
      (5 )     (15 )     (9 )     (6 )
Actuarial gain net of tax benefit
      -       806       -       806  
Net cost of defined contribution plans
    $ 46     $ 842     $ 92     $ 900  

Sevcon, Inc. contributed $13,000 to its frozen U.S. pension plan in the six months ended March 31, 2012; it presently anticipates contributing a further $38,000 to fund this U.S. plan in the remainder of 2012. In addition, employer contributions to the U.K. defined benefit plan were $245,000 in the first six months and are estimated to total $498,000 in 2012.

The table below presents information about the Company’s pension plan assets measured and recorded at fair value as of March 31, 2012 and indicates the fair value hierarchy of the inputs utilized by the Company to determine the fair values.

 
- 6 -





     
(in thousands of dollars)
 
       
Level 1*
(Quoted prices in active markets)
   
Level 2**
(Significant observable inputs)
   
 
Level 3***
(Unobservable inputs)
 
Mutual Funds
              -       -  
Standard Life Pension Global Absolute Returns Strategies Fund
      5,823       -       -  
Standard Life UK Indexed Linked Fund
      1,600       -       -  
Standard Life Long Corporate Bond Fund
      1,415       -       -  
CF Ruffer Absolute Return Fund
      6,220       -       -  
U.S. Equity Funds
      1,336       -       -  
U.S. Fixed Income Funds
      839       -       -  
Other Types of Investments
                         
Cash
      20       -       -  
Total
      17,253       -       -  

*
Level 1 investments represent mutual funds for which a quoted market price is available on an active market. These investments will primarily hold stocks or bonds, or a combination of stocks and bonds.

**
The Company currently does not have any Level 2 pension plan financial assets.

***
The Company currently does not have any Level 3 pension plan financial assets.

The following estimated benefit payments, which reflect future service, as appropriate have been or are expected to be paid:

     
(in thousands
of dollars)
 
2012
    $ 406  
2013
      371  
2014
      513  
2015
      658  
2016
      726  
2017 – 2021       3,910  

The following table sets forth the movement in the liability for pension benefits in the six months ended March 31, 2012:

     
(in thousands of dollars)
 
               
Six Months ended
 
               
March 31,
2012
 
Liability for pension benefits at September 30, 2011
    $ 7,634  
Net periodic benefit cost
      333  
Plan contributions
      (258 )
Amortization of net loss
      (134 )
Amortization of prior service costs
      12  
Actuarial gain
      -  
Effect of exchange rate changes
      173  
Liability for pension benefits at March 31, 2012
    $ 7,760  


 
- 7 -



(10)           Inventories

Inventories were comprised of:

     
(in thousands of dollars)
 
       
March 31,
2012
   
September 30,
2011
 
Raw materials
    $ 2,916     $ 1,281  
Work-in-process
      80       99  
Finished goods
      4,657       6,098  
        $ 7,653     $ 7,478  

(11)           Fair Value Measurements

The fair value topic of FASB’s Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
 
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
At March 31, 2012, the Company had no financial instruments that are required to be recorded at fair value on a recurring basis. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, a bank loan payable, and a revolving credit facility payable.
 
The recorded values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value based on their short-term nature. The carrying value of the Company’s bank loan payable and the revolving credit facility payable approximate their fair value due to their fixed and variable interest rates, respectively, which are Level 2 inputs.

(12)           Accrued expenses

Set out below is an analysis of other accrued expenses at March 31, 2012 and September 30, 2011, which shows separately any items in excess of 5% of total current liabilities:

     
(in thousands of dollars)
 
       
March 31,
2012
   
September 30,
2011
 
Accrued compensation and related costs
    $ 1,136     $ 1,090  
Warranty reserves
      88       89  
Other accrued expenses
      387       927  
        $ 1,611     $ 2,106  


 
- 8 -



(13)           Warranty reserves

The movement in warranty reserves was as follows:

     
(in thousands of dollars)
 
       
Three Months ended
   
Six Months ended
 
       
March 31,
2012
   
April 2,
2011
   
March 31,
2012
   
April 2
2011
 
Warranty reserves at beginning of period
    $ 87     $ 119     $ 89     $ 96  
Decrease in beginning balance for warranty obligations settled during the period
      (6 )     (26 )     (8 )     (26 )
Other changes to pre-existing warranties
      (8 )     (25 )     (8 )     (25 )
Foreign currency translation adjustment
      1       3       -       2  
Net increase in warranty reserves for products sold during the period
      14       (1 )     15       23  
Warranty reserves at end of period
    $ 88     $ 70     $ 88     $ 70  

(14)           Debt

At March 31, 2012 the Company had $135,000 (September 30, 2011, $152,000) outstanding under a U.K. bank loan entered into in April 2010, with a fixed interest rate of 6.8%. The loan, which was entered into by the U.K. metalized film capacitor subsidiary to purchase an item of capital equipment, is denominated in British Pounds. The loan agreement provides for equal monthly installments comprising interest and principal for a five year period which commenced in May 2010. Of the total amount outstanding at March 31, 2012, $40,000 is shown in the current liabilities section of the accompanying consolidated balance sheet under current portion of long-term debt, representing the principal element of the loan installments in the twelve months commencing March 31, 2012. Included in long term debt, at March 31, 2012, is $95,000 which represents the principal element of the loan installments for the years 2013 to 2015. The carrying value of the debt at March 31, 2012 approximated to fair value based on current interest rates.

On June 15, 2011, the Company’s wholly owned subsidiary, Sevcon USA, Inc., entered into a $3,500,000 secured revolving credit facility with RBS Citizens, National Association for working capital and general corporate purposes. The loan and security agreement will expire on June 14, 2014 when all outstanding principal and unpaid interest will be due and payable in full.  The facility may be paid before maturity in whole or in part at the option of Sevcon USA, Inc., without penalty or premium.  Interest on the loan is payable monthly, and in the first quarter of 2012, was calculated at a margin over LIBOR.  Upon entering into the revolving credit facility, Sevcon USA, Inc. drew down $1,700,000, which was the total amount outstanding at March 31, 2012.  This $1,700,000 is shown in the accompanying consolidated balance sheet under long-term debt. The carrying value of the debt approximated to fair value based on current interest rates.

In March 2012, the Company’s U.K. bank renewed the overdraft facilities of the Company’s U.K. subsidiary operations. The Company’s U.K. subsidiaries have a multi-currency overdraft facility of $1,450,000 which is secured against real estate owned by the U.K. subsidiary companies. In common with bank overdrafts in Europe, the facility renewal is for a twelve month period although in line with normal practice in Europe, it can be withdrawn on demand by the bank.  The facilities were unused at March 31, 2012.


Annual principal payments on long term debt at March 31, 2012 are as follows:

(in thousands of dollars)
 
2012-13 $ 40  
2013-14   1,748  
2014-15   43  
2015-16   4  
  $ 1,835  


 
- 9 -



(15)           Subsequent events

In preparing these interim consolidated financial statements, the Company has evaluated, for potential recognition or disclosure, events or transactions subsequent to the end of the most recent quarterly period and through the date these financial statements were available to be issued. 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 referred to and described under “Risk Factors” below and others discussed in this report.

CRITICAL ACCOUNTING ESTIMATES

As of March 31, 2012, there have been no material changes to the critical accounting estimates described in the Company’s 2011 10-K. However, if the continuing worldwide economic uncertainty continues 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 further business declines, the Company may be required to increase its estimated allowance for bad debts;
 
(ii)  
if actual future demand is less than previously projected, inventory write-downs may be required;
 
(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 adverseimpact on the Company’s results.


 
- 10 -



OVERVIEW OF SECOND QUARTER AND FIRST SIX MONTHS

Results of Operations

Three months ended March 31, 2012 and April 2, 2011

The following table compares the results by segment for the three months ended March 31, 2012 with the same period in the prior year.  The table shows the effect of currency and volume changes in percentage terms.

     
Three months ended
   
Favorable (unfavorable)
% change due to:
 
     
March 31,
2012
   
April 2,
2011
   
Total
   
Currency
   
Volume
 
                                             
Sales:
                                         
Controls - to external customers
    $ 9,702     $ 7,154       36       (3 )     39  
Capacitors - to external customers
      399       633       (37 )     (1 )     (36 )
Capacitors - inter-segment
      9       15       (37 )     (1 )     (36 )
Capacitors – total
      409       648       (37 )     (1 )     (36 )
Total sales to external customers
      10,101       7,787       30       (3 )     33  
Gross Profit:
                                         
Controls
      3,479       2,359       47       (1 )     48  
Capacitors
      143       329       (57 )     (1 )     (56 )
Total
      3,622       2,688       35       (1 )     36  
Selling, research and administrative expenses and gain on sale of fixed assets:
                                         
Controls
      (2,736 )     (2,014 )     (36 )     3       (39 )
Capacitors
      (161 )     (178 )     10       1       9  
Unallocated corporate expense
      (30 )     (289 )     90       -       90  
Gain on sale of fixed assets
      -       451       (100 )     -       (100 )
Total
      (2,927 )     (2,030 )     (44 )     2       (46 )
Operating income (loss):
                                         
Controls
      743       796       (7 )     2       (9 )
Capacitors
      (18 )     151       (112 )     -       (112 )
Unallocated corporate expense
      (30 )     (289 )     90       -       90  
Total
      695       658       6       2       4  
Other income and expense
      (67 )     (73 )     9       60       (51 )
Income before income taxes
      628       585       7       10       (3 )
Income taxes
      (158 )     (80 )     (97 )     (20 )     (77 )
Net income
    $ 470     $ 505       (7 )     9       (16 )

Sales in the second quarter of 2012 were $10,101,000, an increase of $2,314,000 or 30% compared to $7,787,000 reported in the same quarter last year. This increase was due to higher shipment volumes of the Company’s Gen4 controller to both new and traditional markets, partially offset by lower shipments from the capacitor business. Volumes were $2,548,000 or 36% higher in the controls business segment but were $234,000 lower in the capacitor segment. Foreign currency fluctuations decreased reported sales in the second fiscal quarter by $205,000, or 3%, mainly due to a weaker U.S. Dollar compared to both the British Pound and the Euro than in the prior year period.

In the controls business segment, demand for the Company’s products grew globally. Volumes shipped were higher by 52% in the Far East, 40% in Europe and 19% in North America compared to the same period last year. Increased sales volume was mainly due to further customer gains and the start of production in a range of on-road and off-road EV applications; sales in this sector increased by 146%. Customer demand grew by 17% overall in the Company’s traditional markets of industrial applications for construction, distribution, mining, airport ground support and utility applications. In the capacitor business, volumes shipped were 36% lower than last year due to lower demand from customers in the industrial sector.

Gross profit was 35% higher compared to the same fiscal period last year. Gross profit of $3,622,000 was 35.9% of sales in the second quarter compared to $2,688,000 or 34.5% of sales in the same quarter last year. Foreign currency fluctuations decreased the reported gross profit by $32,000, or 1.2%, compared to the same period last year.

Selling, research and administrative expenses in the second quarter of 2012 were $2,927,000, an increase of $446,000 or 18%, compared to $2,481,000 reported in the same period last year. In the second quarter of 2012 the company recorded grant income of $110,000 from on-going project work sponsored by the Technology Strategy Board, a U.K. government body. Prior to the grant income, operating expenses were $3,037,000.

In the second quarter of 2011, selling, research and administrative expenses were partially offset by grant income of $383,000 from One North East, a U.K. government regional development organization. Prior to the grant, income, selling, research and administrative expenses in 2011 were $2,864,000 on a comparable basis. The increase in expenses after adjusting for government grant income in each period was $173,000. The increase of $173,000 was due to one-time employment costs and the salary costs of additional staff which were added later in the 2011 fiscal year. Foreign currency fluctuations decreased operating expense by $48,000 or 1.9%, compared with the same quarter last year.

Operating income in the second quarter of 2012 was $695,000, which includes grant income of $110,000. Operating income in the same period last year was $658,000 which included a one-time gain of $451,000 from the disposal of a surplus building in the U.K. and grant income of $383,000. Before these adjustments the Company recorded an operating loss in 2011 of $176,000. The $761,000 improvement in operating income after adjusting for the one-time gain on the property sale in 2011 and also adjusting for grant income in each period was due to higher shipment volumes partially offset by higher operating costs.

The Company recorded income before income taxes of $628,000 in the second quarter of 2012 compared to income before income taxes of $585,000 in the same period last year.

The Company recorded an effective tax rate of 25.1% and 13.7% of pre-tax income in the second quarter of fiscal 2012 and 2011, respectively. The increase in effective income tax rates from 2011 to 2012 was due to a number of factors, the most significant of which being that the gain on the sale of the surplus U.K. property recognized in the second quarter of 2011was not subject to tax. In addition, in 2011, the Company recorded a $176,000 provision to reduce the balance sheet value of certain U.K. deferred tax assets due to a change in the U.K. Corporation tax rate from 28% to 26%, effective April 1, 2011. The Company also re-evaluated the realizability of its deferred tax assets in the second quarter of 2011 as a result of economic conditions, the Company's operating results, and the Company's revised estimate of pre-tax income in the near-term. Based on the review, the Company reversed, in the second quarter of 2011, $207,000 of a $379,000 deferred tax valuation allowance recognized in 2009. This valuation allowance related primarily to deferred tax assets in the U.S. The total income tax provision for the second quarter of 2011 was $80,000.

There was net income for the quarter of $470,000 or $.14 per diluted share compared to net income of $505,000 or $.15 per diluted share in the second quarter of fiscal 2011.


 
- 11 -



Six months ended March 31, 2012 and April 2, 2011

The following table compares first half year results by segment for the six months ended March 31 2012 with the same period in the prior year.  The table shows the effect of currency and volume changes in percentage terms.


     
Six months ended
   
Favorable (unfavorable)
% change due to:
 
     
March 31,
2012
   
April 2,
2011
   
Total
   
Currency
   
Volume
 
Sales:
                                         
Controls - to external customers
    $ 17,775     $ 13,540       31       (2 )     33  
Capacitors - to external customers
      841       1,130       (26 )     (1 )     (25 )
Capacitors - inter-segment
      14       18       (22 )     (1 )     (21 )
Capacitors - total
      855       1,148       (26 )     (1 )     (25 )
Total sales to external customers
      18,616       14,670       27       (2 )     29  
Gross Profit:
                                         
Controls
      6,315       4,504       40       (1 )     41  
Capacitors
      289       552       (48 )     -       (48 )
Total
      6,604       5,056       31       (1 )     32  
Selling, research and administrative expenses and gain on sale of fixed assets:
                                         
Controls
      (5,276 )     (4,156 )     27       (1 )     28  
Capacitors
      (335 )     (344 )     3       1       2  
Unallocated corporate expense
      (46 )     (316 )     85       -       85  
Gain on sale of fixed assets
      -       451       (100 )     -       (100 )
Total
      (5,657 )     (4,365 )     (30 )     1       (31 )
Operating income (loss):
                                         
Controls
      1,039       799       30       (2 )     32  
Capacitors
      (46 )     208       (122 )     1       (123 )
Unallocated corporate expense
      (46 )     (316 )     85       -       85  
Total
      947       691       37       (2 )     39  
Other income and expense
      54       (100 )     154       192       (38 )
Income before income taxes
      1,001       591       69       30       39  
Income taxes
      (247 )     (81 )     (204 )     (55 )     (149 )
Net income
    $ 754     $ 510       48       27       21  

Sales in the six months ended March 31, 2012 were $18,616,000, an increase of $3,946,000, or 27%, compared to the same period last year when sales were $14,670,000. The increase in sales was due to increased volumes shipped, which were $4,166,000, or 28.4%, higher than in the same period last year. Foreign currency fluctuations accounted for a reduction in reported sales of $220,000, or 1.5%, mainly due to a stronger Euro compared to the US Dollar from the same period in 2011.

In the controls business segment, volumes shipped were higher in all geographic regions in which the Company operates, Europe, North America and the Far East were 54%, 12% and 34% higher respectively compared to the same period last year. The increase in sales volume is due to the release of new products and continued customer gains in a range of on-road and off-road EV applications coupled with the start of production at new customers. The Company’s traditional markets for industrial vehicles like fork lift trucks, aerial work platforms and mining equipment continued recovery in the half year. Following significant reductions during the 2009 recession these markets have improved but are still lower than pre-recession levels. Sales to these sectors increased by 18% compared to the same period in fiscal 2011. Volumes shipped in the capacitor business were 25% lower in the first half year, largely due to lower demand from the railway signaling sector. The railway signaling sector in the capacitor business is mainly driven by infrastructure project demand.

Gross profit of $6,604,000 was 35.5% of sales in this period compared to $5,056,000 or 34.5% in the comparable period in fiscal 2011. Foreign currency fluctuations reduced reported gross profit by $58,000 compared with the prior year period; excluding the impact of foreign currency fluctuations, gross profit increased by $1,606,000, or 31.8%, compared to the first half of last year due to the increase in volumes shipped in the period.  Excluding the impact of foreign currency fluctuations, in the controller business, gross profit increased by $1,868,000, or 41.5%, compared to the first six months of fiscal 2011 due to increased volumes shipped; in the capacitor business, gross profit decreased by $262,000, or 47.5%, due to lower demand in the first half year compared to the prior year due to lower demand from the railway signaling sector.

Selling, research and administrative expenses were $5,657,000, an increase of $841,000, or 17.5% from the $4,816,000 in the same period last year. In the second quarter of fiscal 2012 the Company recorded grant income of $110,000 from a U.K. government sponsored development program for a new integrated electric drivetrain. Excluding grant income, expenses were $5,767,000 in the first half of fiscal 2012. In the first six months of 2011 the Company recorded U.K. government grant income of $600,000 which partially offset selling, research and administrative expenses. Excluding grant income, selling, research and administrative expenses were $5,416,000 in the first half of fiscal 2011. The increase of $351,000 in fiscal 2012 was due to higher staffing costs associated with business growth and our investment in new product development resources.

Operating income in the first half of fiscal 2012 was $947,000 including $110,000 of grant income, compared with $691,000 last year, which included $600,000 of grant income and a $451,000 gain from the sale of the surplus property in the U.K. Prior to these adjustments there was an operating loss of $360,000 in the same period in 2011. The increase in operating profit of $1,197,000 on a comparable basis was due to higher shipment volumes partially offset by higher expenses in growing and supporting new business.

In the first half of fiscal 2012 there was a foreign currency gain of $121,000 compared to a loss of $71,000 in the same period last year, mainly due to a stronger U.S. Dollar compared to the Euro in the prior year period.

In the first half of fiscal 2012 the Company recorded an effective income tax rate of 24.7% of pre-tax income. This relatively low rate being largely due to the availability of research and development income tax credits in the Company’s two U.K. subsidiaries which reduced the income tax rate to 12.2% on the combined results of the Company’s U.K. subsidiary operations.

In the first half of fiscal 2011 the Company recorded an effective income tax rate of 13.7% of pre-tax income; this low effective rate was largely due to there being no income tax payable in respect of the gain on the sale of the U.K. property recognized in the second quarter of 2011. In addition, in 2011, the Company recorded a $176,000 provision to reduce the balance sheet value of U.K. deferred tax asset due to a change in the U.K. Corporation tax rate from 28% to 26%, effective April 1, 2011. The Company also re-evaluated the realizability of its deferred tax assets in the second quarter of 2011as a result of economic conditions, the Company's operating results, and the Company's revised estimate of pre-tax income in the near-term. Based on the review, the Company reversed, in the second quarter of 2011, $207,000 of a $379,000 deferred tax valuation allowance recognized in 2009. This valuation allowance related primarily to deferred tax assets in the U.S. The total income taxes provision for the first six months of 2011 was $81,000.

In March 2012 the U.K. government announced a reduction in the U.K. Corporation tax rate from 25% to 24% effective April 1, 2012 and a further reduction to 23% effective April 1, 2013.  It is anticipated that both tax rate reductions will be substantively enacted in U.K. law in July 2012.  The effect on deferred tax assets and liabilities of the change in the tax rates will be recognized in income in the period that includes the enactment date.  It is estimated that the charge to income to write down the value of the U.K. deferred tax asset will be approximately $160,000 when the rate changes are enacted.
 
 
The Company recorded net income of for the first half of fiscal 2012 of $754,000 or $.22 per diluted share compared to net income of $510,000 and $.15 per diluted share in the same period in fiscal 2011.


 
- 12 -



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 second quarter of fiscal 2012 were $1,284,000, compared to $1,797,000 on September 30, 2011, a decrease in cash of $513,000 in the first six months of fiscal 2012.

In the first six months of fiscal 2012, there was a net income of $754,000 and operating activities used $294,000 of cash. Excluding the impact of currency fluctuations, receivables increased by $1,940,000 and inventories increased $38,000 both of which reduced cash during the period. Payables increased by $1,008,000 and accrued expenses decreased by $516,000, during the period. The number of days sales in receivables increased in the first six months of 2012 by one day from 62 days at September 30, 2011 to 63 days at March 31, 2012. Capital expenditures in the first six months were $272,000. Exchange rate changes increased reported cash by $71,000 in the first six months of fiscal 2012.

The Company had a U.K. bank loan of $135,000, of which $40,000 was short-term and $95,000 long-term debt at March 31, 2012. It has overdraft facilities in the United Kingdom amounting to $1,450,000 which were unused as of March 31, 2012 and September 30, 2011. The overdraft facility of the U.K. capacitor subsidiary is secured by a legal charge over the facility owned and occupied by that company. The overdraft facility of the U.K. controls subsidiary is secured by a legal charge over a facility owned by that company. Both facilities were renewed in 2012 for a period of twelve months but, in line with normal practice in Europe, can be withdrawn on demand by the bank. Management believes that, if these facilities were withdrawn, adequate alternative credit resources would be available. However, this would depend on the Company’s situation and the economic environment at the time. Accordingly, management does not rely on their availability in projecting the adequacy of the Company’s capital resources.

In June 2011, the Company’s wholly owned subsidiary, Sevcon USA, Inc., entered into a $3,500,000 secured revolving credit facility with RBS Citizens, National Association for working capital and general corporate purposes. The obligations under the revolving credit facility are guaranteed by the Company and are secured by all of the assets of Sevcon USA, Inc. and a pledge of all of the capital stock of Sevcon USA, Inc.  The facility imposes customary limitations on Sevcon USA, Inc.’s ability to, among other things, pay dividends, make distributions, and incur additional indebtedness.  Under the facility, Sevcon USA, Inc. must maintain, on a quarterly basis, a debt to tangible net worth ratio of no more than 2:1 and a debt service coverage ratio of no less than 1.25:1 for each rolling twelve-month period.  At March 31, 2012, the Company was in compliance with these covenants. Upon entering into the revolving credit facility, Sevcon USA, Inc. drew down $1,700,000, which was the total amount outstanding at March 31, 2012. The revolving credit facility will expire on June 14, 2014 when all outstanding principal and unpaid interest will be due and payable in full.

There were no significant capital expenditure commitments at March 31, 2012. It is estimated that the Company will make contributions to its U.K. and U.S. defined benefit pension plans of approximately $549,000 in fiscal 2012; should the Company suffer a material reduction in revenues in 2012 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 continues to remain uncertain, given the continuing worldwide economic situation and in particular the low economic growth in Europe and North America. 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.


 
- 13 -



Item 3                      Quantitative and Qualitative Disclosures about Market Risk.

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 six months of 2012, approximately 50% of the Company’s sales were made in U.S. Dollars, 17% were made in British Pounds and 33% were made in Euros. Approximately 80% 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 March 31, 2012. 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 March 31, 2012 are expected to mature based on the exchange rate of the relevant foreign currency to U.S. Dollars at March 31, 2012:

     
(in thousands of dollars)
 
       
Expected maturity or
transaction date
       
       
Fiscal 2012
   
Fiscal 2013
   
Fair Value
 
On balance sheet financial instruments
                         
In $ U.S. Functional Currency
                         
Accounts receivable in British Pounds
      988       -       988  
Accounts receivable in Euros
      1,158       -       1,158  
Accounts payable in British Pounds
      521       -       521  
Accounts payable in Euros
      2,868       -       2,868  
Anticipated Transactions
                         
In $ U.S. Functional Currency
                         
Firmly committed sales contracts
                         
In British Pounds
      825       104       929  
In Euros
      3,056       -       3,056  

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 economic instability. If the banking system or the fixed income or credit markets deteriorate further 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 March 31, 2012.

At March 31, 2012, the Company had $135,000 of interest bearing debt related to a bank loan for the purchase of capital equipment by the Company’s U.K. metalized film capacitor business.  The Company invests surplus funds in instruments with maturities of less than 12 months at both fixed and floating interest rates.  The Company incurs short-term borrowings from time-to-time on its overdraft facilities in Europe at variable interest rates.

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 Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)), have concluded that, as of March 31, 2012, 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.

PART II.                      OTHER INFORMATION

Item 1 Legal Proceedings

None.

Item 1A Risk Factors

In addition to the market risk factors set forth in Part I, Item 1A of our 2011 10-K and the considerations set out in Part I, Items 2 and 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 traditional 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 experienced a significant decline in demand during the recent global recession. Further, as our business has expanded globally, we have become increasingly subject to the risks arising from adverse changes in global economic conditions. While market conditions appear to be improving, economic instability remains. As a result, 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.

Demand for on-road electric vehicles incorporating our products may not materialize.

The Company has become increasingly involved in developing products for the on-road electric vehicle market. We have relationships with several customers that incorporate our products into their EV products. Our competitors and others are also developing products for other entrants in the EV market, with similar and competing technologies. If our customers’ products or technology are not successful commercially, or if worldwide demand for EVs fails to grow as much as we hope, we may not realize the anticipated demand for our products in the EV market, which may have a material adverse effect on our results of operations.

The Company relies on a small number of key customers for a substantial portion of its revenues.

Ten customers accounted for 49% of the Company’s revenues in the first six months of 2012 and the largest customer accounted for 10% of revenues. Although we have had business relationships with most of 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.

The continuing debt crisis in the Eurozone may have a material adverse effect on our business and operating results, which could adversely affect our stock price.

There continues to be significant uncertainty about the stability of global credit and financial markets in light of the continuing debt crisis in certain European countries.  A default or a withdrawal from the Eurozone by any of the countries involved, or the uncertainty alone, could cause the value of the Euro to deteriorate.  This, or a change to a local currency, would reduce the purchasing power of affected European customers. We are unable to predict the likelihood of any of these events but, if any occurs, our business and results of operations could be materially and adversely affected.

Single source materials and sub-contractors may not meet the Company’s needs.

The Company relies on single, or a small number of, 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.

Failure to comply with financial covenants in our loan agreement could adversely affect us.

As of March 31, 2012, the Company’s subsidiary in the United States, Sevcon USA, Inc. had approximately $1,700,000 of outstanding indebtedness under a revolving credit facility with RBS Citizens, National Association.  This indebtedness is secured by all of Sevcon USA, Inc.’s assets and a pledge of all the capital stock of Sevcon USA, Inc.  The loan agreement includes financial covenants which require us to maintain compliance with certain financial ratios during the term of the agreement.  See “Management's Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition”.  Failure to comply with the financial covenants would be an event of default under the loan agreement that would give the lender the right to cease making additional advances, accelerate repayment of all sums due and take action to collect the monies owed to it, including foreclosing on its security interest, which would have a material adverse effect on the Company’s financial condition.

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.

Item 2                      Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3                      Defaults upon Senior Securities

None.

Item 4                      Mine Safety Disclosures

Not applicable.

 
- 14 -



Item 5                      Other Information

None.

Item 6                      Exhibits

See Exhibit Index immediately preceding the exhibits.


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.

 
SEVCON, INC.
   
   
Date: May 14, 2012
By: /s/ Paul N. Farquhar
 
 
Paul N. Farquhar
 
Chief Financial Officer (Principal Financial Officer)
 


INDEX OF EXHIBITS
   
Exhibit
Description
 


3.1
Restated Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on June 7, 2011).
   
3.2
Amended and Restated By-laws of the registrant (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed on June 7, 2011).
   
10.1
Sevcon, Inc. 1996 Equity Incentive Plan, as amended and restated (filed herewith).
   
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
 
 
101
Certification of Principal Executive Officer and Principal Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
The following materials formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations (ii) Consolidated Statements of Comprehensive Income (iii) Consolidated Balance Sheets (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.  These materials are furnished and not “filed” herewith.
 





EX-31.1 2 exhibit31_1.htm EXHIBIT 31.1 exhibit31_1.htm


 
 

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 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)      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
 
d)      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:  May14, 2012
/s/ Matthew Boyle
Matthew Boyle
President and Chief Executive Officer

 


 
 



EX-31.2 3 exhibit31_2.htm EXHIBIT 31.2 exhibit31_2.htm

 
 

 

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul N. Farquhar, certify that:
 
1.      I have reviewed this Quarterly Report on Form 10-Q of 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(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)      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

d)      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, 2012
/s/ Paul N. Farquhar
Paul N. Farquhar
Chief Financial Officer

 
 

 




 
 

 
 


 
 



 
 

EX-32.1 4 exhibit32_1.htm EXHIBIT 32.1 exhibit32_1.htm
 
 



EXHIBIT 32.1

CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO 18 U.S.C. SECTION 1350

Each of the undersigned officers of 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 March 31, 2012 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, 2011
/s/ Matthew Boyle
 
 
Matthew Boyle
 
President and Chief Executive Officer
   
   
   
Dated: May 14, 2011
/s/ Paul N. Farquhar
 
 
Paul N. Farquhar
 
Chief Financial Officer



 
 



EX-10.1 5 equityincentive.htm 1996 EQUITY INCENTIVE PLAN equityincentive.htm
 
 

 

SEVCON, INC.
 
1996 EQUITY INCENTIVE PLAN
 
(As Amended and Restated)
 
1. Purpose and History
 
The purpose of the Sevcon, Inc. 1996 Equity Incentive Plan as amended and restated (the “Plan”) is to attract and retain key employees, directors, and consultants of the Company and its Affiliates, to provide an incentive for them to achieve long-range performance goals, and to enable them to participate in the long-term growth of the Company.
 
The Plan was originally adopted by the Board and approved by the Company’s stockholders effective as of January 31, 1996.  The Board and the Company’s stockholders subsequently approved amendments to the Plan effective as of January 21, 2003, and January 26, 2010, increasing the number of shares available for award.
 
The Board and the Company’s stockholders also adopted and approved the establishment of the 1998 Director Stock Option Plan effective as of January 28, 1998 (the “Directors’ Plan”).  Effective as of January 27, 2004, non-employee directors of the Company shall be eligible to participate in this Plan, any remaining shares of Common Stock available for grant under the Directors’ Plan shall instead be available for issue under this Plan, and no further options shall be granted under the Directors’ Plan.  Any options that are outstanding under the Directors’ Plan as of January 27, 2004, shall continue to be governed by the terms and conditions of the Directors’ Plan and the relevant grant agreements.
 
2. Definitions
 
“Affiliate” means any business entity in which the Company owns directly or indirectly 50% or more of the total voting power or has a significant financial interest as determined by the Committee.
 
“Award” means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Foreign National Award granted under the Plan.
 
“Board” means the Board of Directors of the Company.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor law.
 
“Committee” means one or more committees each comprised of not less than three members of the Board appointed by the Board to administer the Plan or a specified portion thereof.  If a Committee is authorized to grant Awards to a Reporting Person or a Covered Employee, each member shall be a “disinterested person” or the equivalent within the meaning of applicable Rule 16b-3 under the Exchange Act or an “outside director” or the equivalent within the meaning of Section 162(m) of the Code, respectively.
 
“Common Stock” or “Stock” means the Common Stock, $.10 par value, of the Company.
 
“Company” means Tech/Ops Sevcon, Inc.
 
“Covered Employee” means a “covered employee” within the meaning of Section 162(m)(3) of the Code.
 
“Designated Beneficiary” means the beneficiary designated by a Participant, in a manner determined by the Committee, to receive amounts due or exercise rights of the Participant in the event of the Participant’s death.  In the absence of an effective designation by a Participant, “Designated Beneficiary” means the Participant’s estate.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor law.
 
“Fair Market Value” means, with respect to Common Stock or any other property, the fair market value of such property as determined by the Committee in good faith or in the manner established by the Committee from time to time.
 
“Foreign National Award” – See Section 9(i).
 
“Incentive Stock Option” - See Section 6(a).
 
“Nonstatutory Stock Option” - See Section 6(a).
 
“Option” - See Section 6(a).
 
“Participant” means a person selected by the Committee to receive an Award under the Plan.
 
“Performance Goals” means with respect to any Performance Period, one or more objective performance goals based on one or more of the following objective criteria established by the Committee prior to the beginning of such Performance Period or within such period after the beginning of the Performance Period as shall meet the requirements to be considered “pre-established performance goals” for purposes of Code Section 162(m):  (i) increases in the price of the Common stock; (ii) market share; (iii) sales; (iv) revenue; (v) return on equity, assets, or capital; (vi) economic profit (economic value added); (vii) total shareholder return; (viii) costs; (ix) expenses; (x) margins; (xi) earnings or earnings per share; (xii) cash flow; (xiii) customer satisfaction; (xiv) operating profit; or (xv) any combination of the foregoing, including without limitation goals based on any of such measures relative to appropriate peer groups or market indices.  Such Performance Goals may be particular to a Participant or may be based, in whole or in part, on the performance of the division, department, line of business, subsidiary, or other business unit, whether or not legally constituted, in which the Participant works or on the performance of the Company generally.
 
“Performance Period” means the period of service designated by the Committee applicable to an Award subject to Section 9(l) during which the Performance Goals will be measured.
 
“Reporting Person” means a person subject to Section 16 of the Exchange Act.
 
“Restricted Period” - See Section 8(a).
 
“Restricted Stock” - See Section 8(a).
 
“Restricted Stock Unit” – See Section 8(c).
 
“Stock Appreciation Right” or “SAR” - See Section 7(a).
 
3. Administration
 
The Plan shall be administered by the Committee.  The Committee shall have authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, and to interpret the provisions of the Plan.  The Committee’s decisions shall be final and binding.  To the extent permitted by applicable law, the Committee may delegate to one or more executive officers of the Company the power to make Awards to Participants who are not subject to Section 16 of the Exchange Act and all determinations under the Plan with respect thereto, provided that the Committee shall fix the maximum amount of such Awards for all such Participants, a maximum for any one Participant, and such other features of the Awards as required by applicable law.
 
4. Eligibility
 
All employees and, in the case of Awards other than Incentive Stock Options under Section 6, consultants and directors of the Company or any Affiliate, capable of contributing significantly to the successful performance of the Company, other than a person who has irrevocably elected not to be eligible, are eligible to be Participants in the Plan.  Incentive Stock Options may be granted only to persons eligible to receive such Options under the Code.
 
5. Stock Available for Awards
 
(a) Amount.  Subject to adjustment under subsection (b), Awards may be made under the Plan for up to 450,000 shares of Common Stock, together with all shares of Common Stock available for issue under the 1987 Plan on January 31, 1996, and all shares of stock available for issuance under the Directors’ Plan as of January 27, 2004.  If any Award (including any grant under the 1987 Plan or the Directors’ Plan) expires or is terminated unexercised or is forfeited or settled in a manner that results in fewer shares outstanding than were awarded, the shares subject to such Award, to the extent of such expiration, termination, forfeiture or decrease, shall again be available for award under the Plan.  Common Stock issued through the assumption or substitution of outstanding grants from an acquired company shall not reduce the shares available for Awards under the Plan.  Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.
 
(b) Adjustment.  In the event that the Committee determines that any stock dividend, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, or other transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits intended to be provided by the Plan, then the Committee (subject in the case of Incentive Stock Options to any limitation required under the Code) shall equitably adjust any or all of (i) the number and kind of shares in respect of which Awards may be made under the Plan, (ii) the number and kind of shares subject to outstanding Awards, and (iii) the exercise price with respect to any of the foregoing, and if considered appropriate, the Committee may make provision for a cash payment with respect to an outstanding Award, provided that the number of shares subject to any Award shall always be a whole number.
 
(c) Limit on Individual Grants.  The maximum number of shares of Common Stock subject to all Awards that may be granted under this Plan to any Participant in the aggregate in any calendar year shall not exceed 60,000 shares, subject to adjustment under subsection (b).
 
6. Stock Options
 
(a) Grant of Options.  Subject to the provisions of the Plan, the Committee may grant options (“Options”) to purchase shares of Common Stock (i) complying with the requirements of Section 422 of the Code or any successor provision and any regulations thereunder (“Incentive Stock Options”) and (ii) not intended to comply with such requirements (“Nonstatutory Stock Options”).  The Committee shall determine the number of shares subject to each Option and the exercise price therefor, which shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant.  No Incentive Stock Option may be granted hereunder more than ten years after the effective date of the Plan.
 
(b) Terms and Conditions.  Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may specify in the applicable grant or thereafter; provided that no Option shall be exercisable after the expiration of ten years from the date the Option is granted.  The Committee may impose such conditions with respect to the exercise of Options, including conditions relating to applicable securities laws, as it considers necessary or advisable.
 
(c) Payment.  No shares shall be delivered pursuant to any exercise of an Option until payment in full of the exercise price therefor is received by the Company.  Such payment may be made in whole or in part in cash or through a so-called “cashless” or “broker-assisted” exercise.  To the extent permitted by the Committee at or after the grant of the Option, such payment may also be made by delivery of a note (subject to the limitations of Section 9(g)) or shares of Common Stock owned by the optionee, including vested Restricted Stock, or by retaining shares otherwise issuable pursuant to the Option, in each case valued at their Fair Market Value on the date of delivery or retention, or such other lawful consideration as the Committee may determine.
 
7. Stock Appreciation Rights
 
(a) Grant of SARs.  Subject to the provisions of the Plan, the Committee may grant rights to receive any excess in value of shares of Common Stock over the exercise price (“Stock Appreciation Rights” or “SARs”) in tandem with an Option (at or after the award of the Option), or alone and unrelated to an Option.  SARs in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall terminate to the extent that the tandem SARs are exercised.  The Committee shall determine at the time of grant or thereafter whether SARs are settled in cash, Common Stock or other securities of the Company, Awards or other property.
 
(b) Exercise Price.  The Committee shall fix the exercise price of each SAR or specify the manner in which the price shall be determined.  An SAR granted in tandem with an Option shall have an exercise price not less than the exercise price of the related Option.  An SAR granted alone and unrelated to an Option may not have an exercise price less than 100% of the Fair Market Value of the Common Stock on the date of the grant.
 
(c) Limited SARs.  An SAR related to an Option, which SAR can only be exercised upon or during limited periods following a change in control of the Company, may entitle the Participant to receive an amount based upon the highest price paid or offered for Common Stock in any transaction relating to the change in control or paid during a specified period immediately preceding the occurrence of the change in control in any transaction reported in the stock market in which the Common Stock is normally traded.
 
8. Restricted Stock and Restricted Stock Units
 
(a) Grant of Restricted Stock.  Subject to the provisions of the Plan, the Committee may grant shares of Common Stock subject to forfeiture (“Restricted Stock”) and determine the duration of the period (the “Restricted Period”) during which, and the conditions under which, the shares may be forfeited to the Company and the other terms and conditions of such Awards.  Shares of Restricted Stock may be issued for no cash consideration or such minimum consideration as may be required by applicable law.
 
(b) Restrictions.  Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Committee, during the Restricted Period.  Shares of Restricted Stock shall be evidenced in such manner as the Committee may determine.  Any certificates issued in respect of shares of Restricted Stock shall be registered in the name of the Participant and unless otherwise determined by the Committee, deposited by the Participant, together with a stock power endorsed in blank, with the Company.  At the expiration of the Restricted Period, the Company shall deliver such certificates to the Participant or if the Participant has died, to the Participant’s Designated Beneficiary.
 
(c)           Restricted Stock Units.  Subject to the provisions of the Plan, the Committee may grant the right to receive in the future shares of Common Stock subject to forfeiture (“Restricted Stock Units”) and determine the duration of the Restricted Period during which, and the conditions under which, the Award may be forfeited to the Company and the other terms and conditions of such Awards.  Restricted Stock Unit Awards shall constitute an unfunded and unsecured obligation of the Company, and shall be settled in shares of Common Stock or cash, as determined by the Committee at the time of grant or thereafter.  Such Awards shall be made in the form of “units” with each unit representing the equivalent of one share of Common Stock.
 
9. General Provisions Applicable to Awards
 
(a) Reporting Person Limitations.  Notwithstanding any other provision of the Plan, to the extent required to qualify for the exemption provided by Rule 16b-3 under the Exchange Act, Awards made to a Reporting Person shall not be transferable by such person other than by will or the laws of descent and distribution and are exercisable during such person’s lifetime only by such person or by such person’s guardian or legal representative.  If then permitted by Rule 16b-3, such Awards shall also be transferable pursuant to a qualified domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder.
 
(b) Documentation.  Each Award under the Plan shall be evidenced by a writing delivered to the Participant specifying the terms and conditions thereof and containing such other terms and conditions not inconsistent with the provisions of the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan (including but not limited to the requirement that a Participant satisfy Performance Goals) or to comply with applicable tax and regulatory laws and accounting principles.
 
(c) Committee Discretion.  Each type of Award may be made alone, in addition to or in relation to any other Award.  The terms of each type of Award need not be identical, and the Committee need not treat Participants uniformly.  Except as otherwise provided by the Plan or a particular Award, any determination with respect to an Award may be made by the Committee at the time of grant or at any time thereafter.
 
(d) Dividends and Cash Awards.  In the discretion of the Committee, any Award under the Plan may provide the Participant with (i) dividends or dividend equivalents payable currently or deferred with or without interest, and (ii) cash payments in lieu of or in addition to an Award.
 
(e) Termination of Employment or Service.  The Committee shall determine the effect on an Award of the disability, death, retirement or other termination of employment or service of a Participant and the extent to which, and the period during which, the Participant’s legal representative, guardian or Designated Beneficiary may receive payment of an Award or exercise rights thereunder.  Unless the Committee provides otherwise in any case, a Participant’s employment or other service shall have terminated for purposes of this Plan at the time the entity by which the Participant is employed or to which the Participant renders service ceases to be an Affiliate of the Company.
 
(f) Change in Control.  In order to preserve a Participant’s rights under an Award in the event of a change in control of the Company, the Committee in its discretion may, at the time an Award is made or at any time thereafter, take one or more of the following actions:  (i) provide for the acceleration of any time period relating to the exercise or payment of the Award, (ii) provide for payment to the Participant of cash or other property with a Fair Market Value equal to the amount that would have been received upon the exercise or payment of the Award had the Award been exercised or paid upon the change in control, (iii) adjust the terms of the Award in a manner determined by the Committee to reflect the change in control, (iv) cause the Award to be assumed, or new rights substituted therefor, by another entity, or (v) make such other provision as the Committee may consider equitable to Participants and in the best interests of the Company.
 
(g) Loans.  The Committee may authorize the making of loans or cash payments to Participants in connection with the grant or exercise any Award under the Plan, which loans may be secured by any security, including Common Stock, underlying or related to such Award (provided that the loan shall not exceed the Fair Market Value of the security subject to such Award), and which may be forgiven upon such terms and conditions as the Committee may establish at the time of such loan or at any time thereafter.  Notwithstanding the foregoing, no loans may be made to any director or executive officer (or equivalent thereof) of the Company which would be prohibited by Section 13(k) of the Exchange Act.
 
(h) Withholding Taxes.  The Participant shall pay to the Company, or make provision satisfactory to the Committee for payment of, any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability.  In the Committee’s discretion, such tax obligations may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery.  The Company and its Affiliates may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Participant.
 
(i) Foreign National Awards.  Notwithstanding anything to the contrary contained in this Plan, Awards may be made to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or to comply with applicable laws.
 
(j) Amendment of Award.  The Committee may amend, modify or terminate any outstanding Award, including substituting therefor another Award of the same or a different type, changing the date of exercise or realization and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant.
 
(k) Exchange Programs.  In addition to the authority granted to the Committee in Section 9(j), the Committee may, without further shareholder approval, engage in one or more exchange offers under which Participants may elect to exchange or surrender their outstanding Awards (including awards made under the Directors’ Plan) for other Awards or cash (each, an “Exchange Program”).  Each Exchange Program shall provide that each eligible Participant must exchange or surrender Awards with a fair value (as determined by the Committee using established methods including but not limited to Black-Scholes) equal to or greater than the fair value of the replacement Award or the present value of any cash consideration, as the case may be.  No Award granted on or after January 27, 2004, shall be eligible for any Exchange Program.
 
(l) Code Section 162(m) Provisions.  If the Committee determines at the time Restricted Stock or a Restricted Stock Unit is granted to a Participant that such Participant is, or may be as of the end of the tax year for which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that the Participant’s right to receive cash, Shares, or other property pursuant to such Award shall be subject to the satisfaction of Performance Goals during a Performance Period.  Prior to the payment of any Award subject to this Section 9(l), the Committee shall certify in writing that the Performance Goals applicable to such award were met.  The Committee shall have the power to impose such other restrictions on Awards subject to this Section 9(l) as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code.
 

10. Miscellaneous
 
(a) No Right To Employment.  No person shall have any claim or right to be granted an Award.  Neither the Plan nor any Award hereunder shall be deemed to give any employee the right to continued employment or service, or to limit the right of the Company to discharge any Participant at any time.
 
(b) No Rights As Stockholder.  Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed under the Plan until he or she becomes the holder thereof.  A Participant to whom Common Stock is awarded shall be considered the holder of the Stock at the time of the Award except as otherwise provided in the applicable Award.
 
(c) Effective Date.  Subject to the approval of the stockholders of the Company, the Plan as herein amended and restated shall be effective on January 27, 2004.  Unless terminated earlier by the Board, the Plan shall terminate such that no further Awards shall be made as of January 27, 2014.
 
(d) Amendment of Plan.  The Board may amend, suspend or terminate the Plan or any portion thereof at any time, subject to such stockholder approval as the Board determines to be necessary or advisable to comply with any tax or regulatory requirement.
 
(e) Governing Law.  The provisions of the Plan shall be governed by and interpreted in accordance with the laws of Delaware.
 

BOS111 11301021.4
 
 

 

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DPC\#;F\NM"L;L:E?C;<7UW<27-U+_P!M)*]*HHH`****`/_9 ` end EX-101.INS 7 sev-20120331.xml XBRL INSTANCE DOCUMENT 0000825411 2010-10-01 2011-03-31 0000825411 2012-05-11 0000825411 2012-03-31 0000825411 2011-09-30 0000825411 2012-01-01 2012-03-31 0000825411 2011-01-03 2011-04-02 0000825411 2011-10-01 2012-03-31 0000825411 2010-10-01 2011-04-02 0000825411 2010-09-30 0000825411 2011-04-02 xbrli:shares iso4217:USD iso4217:USD xbrli:shares <div><div style="text-align: left; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(3)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;New accounting pronouncements</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">In May 2011, the FASB issued an amendment to the accounting guidance for fair value measurement and disclosure.&#160;Among other things, the guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed.&#160;It also clarifies and expands upon existing requirements for measurement of the fair value of financial assets and liabilities as well as instruments classified in shareholders' equity.&#160;The guidance is effective for interim and annual periods beginning after December 15, 2011.&#160;The adoption of this accounting pronouncement did not have a material impact on our financial statements.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">In June 2011, the FASB issued an amendment to the accounting guidance for presentation of comprehensive income. Under the amended guidance, a company may present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of choice in presentation, &#160;a company is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. For public companies, the amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and shall be applied retrospectively. Early adoption is permitted. Other than a change in presentation, the implementation of this accounting pronouncement is not expected to have a material impact on our financial statements when implemented.</div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">&#160;</div><div style="text-align: justify; text-indent: 36pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">On September 15, 2011, the FASB issued authoritative guidance in respect of the simplification of the testing of goodwill impairment. The Accounting Standards Update ("ASU") is, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In certain cases this will allow an entity to forego the existing two-step goodwill impairment test. The Company does not anticipate that the adoption of this guidance will have a material impact on either the Company's consolidated results from operations or its financial position.</div></div> <div><div style="text-align: left; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt;">(12)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Accrued expenses</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Set out below is an analysis of other accrued expenses at March 31, 2012 and September 30, 2011, which shows separately any items in excess of 5% of total current liabilities:</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: left;"><table cellpadding="0" cellspacing="0" style="width: 100%; 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New accounting pronouncements
6 Months Ended
Mar. 31, 2011
New accounting pronouncements [Abstract]  
New accounting pronouncements
(3)           New accounting pronouncements

In May 2011, the FASB issued an amendment to the accounting guidance for fair value measurement and disclosure. Among other things, the guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for measurement of the fair value of financial assets and liabilities as well as instruments classified in shareholders' equity. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting pronouncement did not have a material impact on our financial statements.

In June 2011, the FASB issued an amendment to the accounting guidance for presentation of comprehensive income. Under the amended guidance, a company may present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, a company is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of choice in presentation,  a company is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. For public companies, the amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and shall be applied retrospectively. Early adoption is permitted. Other than a change in presentation, the implementation of this accounting pronouncement is not expected to have a material impact on our financial statements when implemented.
 
On September 15, 2011, the FASB issued authoritative guidance in respect of the simplification of the testing of goodwill impairment. The Accounting Standards Update ("ASU") is, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives an entity the option in its annual goodwill impairment test to first assess revised qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In certain cases this will allow an entity to forego the existing two-step goodwill impairment test. The Company does not anticipate that the adoption of this guidance will have a material impact on either the Company's consolidated results from operations or its financial position.
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Summary of significant accounting policies
6 Months Ended
Mar. 31, 2011
Summary of significant accounting policies [Abstract]  
Summary of significant accounting policies
(2)           Summary of significant accounting policies

Other than the new accounting pronouncement as set forth in Note 3 below, there have been no changes since the end of 2011 to the significant accounting policies followed by Sevcon, Inc.

XML 16 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Sep. 30, 2011
Current assets:    
Cash and cash equivalents $ 1,284 $ 1,797
Trade receivables net of allowances for doubtful accounts of $51 at March 31, 2012 and $49 at September 30, 2011 6,960 5,315
Other receivables 975 637
Inventories, net 7,653 7,478
Prepaid expenses and other current assets 1,321 1,281
Total current assets 18,193 16,508
Property, plant and equipment:    
At cost 11,165 10,648
Less: accumulated depreciation and amortization (8,893) (8,401)
Net property, plant and equipment 2,272 2,247
Long-term deferred tax assets 2,689 2,699
Goodwill 1,435 1,435
Other-long term assets 58 58
Total assets 24,647 22,947
Current liabilities:    
Current portion of long-term debt 40 39
Accounts payable 4,907 3,800
Accrued expenses 1,611 2,106
Accrued and deferred taxes on income 0 65
Total current liabilities 6,558 6,010
Liability for pension benefits 7,760 7,634
Long-term debt 1,795 1,813
Total liabilities 16,113 15,457
Stockholders' equity:    
Preferred stock, par value $.10 per share - authorized - 1,000,000 shares; outstanding - none 0 0
Common stock, par value $.10 per share - authorized - 8,000,000 shares; Outstanding 3,485,322 shares at March 31, 2012 and 3,360,322 shares at September 30, 2011 349 336
Premium paid in on common stock 5,409 5,295
Retained earnings 9,221 8,467
Accumulated other comprehensive loss (6,445) (6,608)
Total stockholders' equity 8,534 7,490
Total liabilities and stockholders' equity $ 24,647 $ 22,947
XML 17 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Mar. 31, 2012
Apr. 02, 2011
Cash flow from operating activities:    
Net income $ 754 $ 510
Adjustments to reconcile net income to net cash from operating activities:    
Depreciation 303 316
Gain on sale of fixed assets 0 (451)
Stock-based compensation 126 79
Pension contributions less than pension expense 75 150
Deferred tax provision 274 90
Increase (decrease) in cash resulting from changes in operating assets andliabilities:    
Receivables (1,940) (733)
Inventories (38) (1,303)
Prepaid expenses and other current assets (172) (42)
Accounts payable 1,008 351
Accrued expenses (516) 555
Accrued and deferred taxes on income (168) (113)
Net cash used by operating activities (294) (591)
Cash flow (used by) generated from investing activities:    
Acquisition of property, plant and equipment (272) (414)
Proceeds of sale of fixed assets 2 1,278
Net cash (used by) generated from investing activities (270) 864
Cash flow used by financing activities:    
Repayment of long term debt (20) (18)
Net cash used by financing activities (20) (18)
Effect of exchange rate changes on cash 71 56
Net (decrease) increase in cash (513) 311
Beginning balance - cash and cash equivalents 1,797 803
Ending balance - cash and cash equivalents 1,284 1,114
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 79 0
Cash paid for interest $ 90 $ 31
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XML 19 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
Basis of presentation
6 Months Ended
Mar. 31, 2011
Basis of presentation [Abstract]  
Basis of presentation
(1)           Basis of Preparation

Sevcon, Inc. (the "Company") 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.  Through another subsidiary located in the United Kingdom, Sevcon, Inc manufactures special metalized film capacitors that are used as components in the power electronics, signaling and audio equipment markets.

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 Sevcon, Inc. as of March 31, 2012 and the results of operations and cash flows for the six months ended March 31, 2012. These unaudited interim financial statements should be read in conjunction with the 2011 annual consolidated financial statements and related notes included in the 2011 Sevcon, Inc. Annual Report filed on Form 10-K (the "2011 10-K"). Unless otherwise indicated, each reference to a year means the Company's fiscal year, which ends on September 30.

The results of operations for the six month period ended March 31, 2012, are not necessarily indicative of the results to be expected for the full year.
XML 20 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS (Parenthetical) (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2012
Sep. 30, 2011
Current assets:    
Trade receivables, allowances for doubtful accounts $ 51 $ 49
Stockholders' equity:    
Preferred stock, par value (in dollars per share) $ 0.10 $ 0.10
Preferred stock, authorized (in shares) 1,000,000 1,000,000
Preferred stock, outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.10 $ 0.10
Common stock, authorized (in shares) 8,000,000 8,000,000
Common stock, outstanding (in shares) 3,485,322 3,360,322
XML 21 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair value of financial instruments
6 Months Ended
Mar. 31, 2011
Fair value of financial instruments [Abstract]  
Fair value of financial instruments
(11)           Fair Value Measurements

The fair value topic of FASB's Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
 
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
At March 31, 2012, the Company had no financial instruments that are required to be recorded at fair value on a recurring basis. The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, a bank loan payable, and a revolving credit facility payable.
 
The recorded values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value based on their short-term nature. The carrying value of the Company's bank loan payable and the revolving credit facility payable approximate their fair value due to their fixed and variable interest rates, respectively, which are Level 2 inputs.
XML 22 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
6 Months Ended
Mar. 31, 2011
May 11, 2012
Document and Entity Information [Abstract]    
Entity Registrant Name SEVCON, INC.  
Entity Central Index Key 0000825411  
Current Fiscal Year End Date --09-30  
Entity Well-known Seasoned Issuer No  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   3,485,322
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q2  
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2012  
XML 23 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Accrued expenses
6 Months Ended
Mar. 31, 2011
Accrued expenses [Abstract]  
Accrued expenses
(12)           Accrued expenses

Set out below is an analysis of other accrued expenses at March 31, 2012 and September 30, 2011, which shows separately any items in excess of 5% of total current liabilities:

   
(in thousands of dollars)
 
    
March 31,
2012
  
September 30,
2011
 
Accrued compensation and related costs
  $1,136  $1,090 
Warranty reserves
   88   89 
Other accrued expenses
   387   927 
    $1,611  $2,106 

XML 24 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Mar. 31, 2012
Apr. 02, 2011
Mar. 31, 2012
Apr. 02, 2011
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Abstract]        
Net sales $ 10,101 $ 7,787 $ 18,616 $ 14,670
Cost of sales (6,479) (5,099) (12,012) (9,614)
Gross profit 3,622 2,688 6,604 5,056
Selling, research and administrative expenses (2,927) (2,481) (5,657) (4,816)
Gain on sale of fixed assets 0 451 0 451
Operating income 695 658 947 691
Interest expense (34) 0 (90) (31)
Interest income 0 2 23 2
Foreign currency (loss) gain (33) (75) 121 (71)
Income before income taxes 628 585 1,001 591
Income taxes provision (158) (80) (247) (81)
Net income $ 470 $ 505 $ 754 $ 510
Basic income per share (in dollars per share) $ 0.14 $ 0.15 $ 0.23 $ 0.15
Fully diluted income per share (in dollars per share) $ 0.14 $ 0.15 $ 0.22 $ 0.15
XML 25 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
Calculation of earnings per share and weighted average shares outstanding
6 Months Ended
Mar. 31, 2011
Calculation of earnings per share and weighted average shares outstanding [Abstract]  
Calculation of earnings per share and weighted average shares outstanding
(6)           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
  
Six Months ended
 
    
March 31,
2012
  
April 2,
2011
  
March 31,
2012
  
April 2,
2011
 
Net income
  $470  $505  $754  $510 
Weighted average shares outstanding - basic
   3,336   3,307   3,313   3,296 
Basic income per share
  $.14  $.15  $.23  $.15 
Common stock equivalents
   41   28   43   36 
Weighted average shares outstanding - diluted
   3,377   3,335   3,356   3,332 
Diluted income per share
  $.14  $.15  $.22  $.15 
No. of options that are anti-dilutive excluded from calculation of common stock equivalents
   -   10   -   10 
 
XML 26 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
Cash dividends
6 Months Ended
Mar. 31, 2011
Cash dividends [Abstract]  
Cash dividends
(5)           Cash dividends

The Company suspended the payment of dividends in order to conserve cash to meet the needs of the business during the recent global recession. The Board of Directors will consider whether to resume paying dividends as conditions and the Company's operating results improve.
XML 27 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
Warranty reserves
6 Months Ended
Mar. 31, 2011
Warranty reserves [Abstract]  
Warranty reserves
(13)           Warranty reserves

The movement in warranty reserves was as follows:

   
(in thousands of dollars)
 
    
Three Months ended
  
Six Months ended
 
    
March 31,
2012
  
April 2,
2011
  
March 31,
2012
  
April 2
2011
 
Warranty reserves at beginning of period
  $87  $119  $89  $96 
Decrease in beginning balance for warranty obligations settled during the period
   (6)  (26)  (8)  (26)
Other changes to pre-existing warranties
   (8)  (25)  (8)  (25)
Foreign currency translation adjustment
   1   3   -   2 
Net increase in warranty reserves for products sold during the period
   14   (1)  15   23 
Warranty reserves at end of period
  $88  $70  $88  $70 
 
XML 28 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Employee benefit plans
6 Months Ended
Mar. 31, 2011
Employee benefit plans [Abstract]  
Employee benefit plans
(9)           Employee benefit plans

Sevcon has a defined benefit plan covering the majority of its U.K. employees and a frozen defined benefit pension plan in the Company's wholly owned subsidiary, Sevcon USA, Inc. There is also a small defined contribution plan covering senior managers in the capacitor business and a defined contribution plan for employees in the U.S. controls business.  The following table sets forth the components of the net pension cost for the defined benefit plans:

   
(in thousands of dollars)
 
    
Three Months ended
  
Six Months ended
 
    
March 31,
2012
  
April 2,
2011
  
March 31,
2012
  
April 2,
2011
 
Service cost
  $65  $111  $131  $221 
Interest cost
   338   319   650   636 
Expected return on plan assets
   (291)  (277)  (570)  (550)
Amortization of net loss
   67   71   134   139 
Amortization of prior service cost
   (6)  (21)  (12)  (9)
Net periodic benefit cost
   173   203   333   437 
Net cost of defined contribution plans
  $51  $7  $90  $14 
 
Amounts recognized in the balance sheet consist of:

   
(in thousands of dollars)
 
    
March 31,
2012
  
April 2,
2011
 
Non current liabilities
  $7,760  $7,272 

Amounts recognized in accumulated other comprehensive loss consist of:

   
(in thousands of dollars)
 
    
Three Months ended
  
Six Months ended
 
    
March 31,
2012
  
April 2,
2011
  
March 31,
2012
  
April 2,
2011
 
Amortization of net actuarial loss net of tax benefit
  $51  $51  $101  $100 
Amortization of prior service cost net of tax benefit
   (5)  (15)  (9)  (6)
Actuarial gain net of tax benefit
   -   806   -   806 
Net cost of defined contribution plans
  $46  $842  $92  $900 

Sevcon, Inc. contributed $13,000 to its frozen U.S. pension plan in the six months ended March 31, 2012; it presently anticipates contributing a further $38,000 to fund this U.S. plan in the remainder of 2012. In addition, employer contributions to the U.K. defined benefit plan were $245,000 in the first six months and are estimated to total $498,000 in 2012.

The table below presents information about the Company's pension plan assets measured and recorded at fair value as of March 31, 2012 and indicates the fair value hierarchy of the inputs utilized by the Company to determine the fair values.

   
(in thousands of dollars)
 
    
Level 1*
(Quoted prices in active markets)
  
Level 2**
(Significant observable inputs)
  
 
Level 3***
(Unobservable inputs)
 
Mutual Funds
       -   - 
Standard Life Pension Global Absolute Returns Strategies Fund
   5,823   -   - 
Standard Life UK Indexed Linked Fund
   1,600   -   - 
Standard Life Long Corporate Bond Fund
   1,415   -   - 
CF Ruffer Absolute Return Fund
   6,220   -   - 
U.S. Equity Funds
   1,336   -   - 
U.S. Fixed Income Funds
   839   -   - 
Other Types of Investments
             
Cash
   20   -   - 
Total
   17,253   -   - 

*
Level 1 investments represent mutual funds for which a quoted market price is available on an active market. These investments will primarily hold stocks or bonds, or a combination of stocks and bonds.

**
The Company currently does not have any Level 2 pension plan financial assets.

***
The Company currently does not have any Level 3 pension plan financial assets.

The following estimated benefit payments, which reflect future service, as appropriate have been or are expected to be paid:

   
(in thousands
of dollars)
 
2012
  $406 
2013
   371 
2014
   513 
2015
   658 
2016
   726 
2017 - 2021   3,910 

The following table sets forth the movement in the liability for pension benefits in the six months ended March 31, 2012:

   
(in thousands of dollars)
 
        
Six Months ended
 
        
March 31,
2012
 
Liability for pension benefits at September 30, 2011
  $7,634 
Net periodic benefit cost
   333 
Plan contributions
   (258)
Amortization of net loss
   (134)
Amortization of prior service costs
   12 
Actuarial gain
   - 
Effect of exchange rate changes
   173 
Liability for pension benefits at March 31, 2012
  $7,760 

XML 29 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Segment information
6 Months Ended
Mar. 31, 2011
Segment information [Abstract]  
Segment information
(7)           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 2011 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 March 31, 2012
 
    
Controls
  
Capacitors
  
Corporate
  
Total
 
Sales to external customers
  $9,702  $399  $-  $10,101 
Inter-segment revenues
   -   9   -   9 
Operating income (loss)
   743   (18)  (30)  695 
Identifiable assets
   23,159   1,144   344   24,647 

   
Three months ended April 2, 2011
 
    
Controls
  
Capacitors
  
Corporate
  
Total
 
Sales to external customers
  $7,154  $633  $-  $7,787 
Inter-segment revenues
   -   15   -   15 
Operating income (loss)
   796   151   (289)  658 
Identifiable assets
   20,142   1,084   246   21,472 


   
Six months ended March 31, 2012
 
    
Controls
  
Capacitors
  
Corporate
  
Total
 
Sales to external customers
  $17,775  $841  $-  $18,616 
Inter-segment revenues
   -   14   -   14 
Operating income (loss)
   1,039   (46)  (46)  947 
Identifiable assets
   23,159   1,144   344   24,647 

 
   
Six months ended April 2, 2011
 
    
Controls
  
Capacitors
  
Corporate
  
Total
 
Sales to external customers
  $13,540  $1,130  $-  $14,670 
Inter-segment revenues
   -   18   -   18 
Operating income (loss)
   799   208   (316)  691 
Identifiable assets
   20,142   1,084   246   21,472 

In the electronic controls segment, the revenues were derived from the following products and services:

(in thousands of dollars)
 
    
Three Months ended
  
Six Months ended
 
    
March 31,
2012
  
April 2,
2011
  
March 31,
2012
  
April 2,
2011
 
Electronic controls for zero emission and hybrid electric vehicles
  $7,595  $6,207  $13,179  $9,908 
Accessory and aftermarket products and services
   2,107   947   4,596   3,632 
Total electronic controls segment revenues
  $9,702  $7,154  $17,775  $13,540 
 
XML 30 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Research and development
6 Months Ended
Mar. 31, 2011
Research and development [Abstract]  
Research and development
(8)           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
 
    
March 31,
2012
  
April 2,
2011
  
March 31,
2012
  
April 2,
2011
 
Research and development expense, net of grants receivable
  $826  $563  $1,643  $1,259 
Percentage of sales
   8%  7.2%  9%  8.6%

In fiscal 2010 the Company was awarded a research and development grant by the Technology Strategy Board, a public body established by the U.K. government in 2007 to stimulate technology-enabled innovation. The Company is one of a consortium of organizations participating in a project to research and design ultra-efficient systems for electric and hybrid vehicles. In the second quarter of 2012, the Company recorded grant income from this Technology Strategy Board project of $110,000 associated with research and development expense of $240,000.  The grant income was recorded as a reduction of research and development expense. In the second quarter of 2010 and the first quarter of 2011, the Company was awarded research and development grants by One North East, the Regional Development Agency responsible for the support of business in the North East of England, to accelerate the development of two new products. These two projects were completed in March 2011 as required by the grant awards. The Company recorded grant income of $217,000 and $383,000 in the first and second quarters of 2011, respectively, associated with research and development expense of $620,000 and $1,094,000 in the first and second quarters of 2011, respectively, on these two projects. The grant income was recorded as a reduction of research and development expense.
XML 31 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
Inventories
6 Months Ended
Mar. 31, 2011
Inventories [Abstract]  
Inventories
(10)           Inventories

Inventories were comprised of:

   
(in thousands of dollars)
 
    
March 31,
2012
  
September 30,
2011
 
Raw materials
  $2,916  $1,281 
Work-in-process
   80   99 
Finished goods
   4,657   6,098 
    $7,653  $7,478 
 
XML 32 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
Subsequent events
6 Months Ended
Mar. 31, 2011
Subsequent events [Abstract]  
Subsequent events
(15)           Subsequent events

In preparing these interim consolidated financial statements, the Company has evaluated, for potential recognition or disclosure, events or transactions subsequent to the end of the most recent quarterly period and through the date these financial statements were available to be issued. No material subsequent events were identified that require recognition or disclosure in these financial statements.
XML 33 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Mar. 31, 2012
Apr. 02, 2011
Mar. 31, 2012
Apr. 02, 2011
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) [Abstract]        
Net income $ 470 $ 505 $ 754 $ 510
Foreign currency translation adjustment 163 190 71 137
Pension liability adjustment, net of tax 46 842 92 900
Comprehensive income $ 679 $ 1,537 $ 917 $ 1,547
XML 34 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
Stock-based compensation plans
6 Months Ended
Mar. 31, 2011
Stock-based compensation plans [Abstract]  
Stock-based compensation plans
(4)           Stock-based compensation plans

Under the Company's 1996 Equity Incentive Plan (the "Plan") there were 122,800 shares reserved and available for grant at March 31, 2012. There were no options granted or exercised in the periods ended March 31, 2012 and April 2, 2011.

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.

A summary of option activity for all plans for the six months ended March 31, 2012 is as follows:

   
 
 
Options
No. of shares
  
 
Weighted average Exercise Price
  
Weighted average remaining contractual life (years)
  
 
 
Aggregate Intrinsic Value
 
Outstanding at September 30, 2011
   46,000  $5.62  
1 year
  $65,500 
Granted
   -   -   -   - 
Exercised
   -   -   -   - 
Cancelled
   (10,000)  9.60   -  $- 
Outstanding at March 31, 2012
   36,000  $4.51  
1 year
  $80,600 
Exercisable at March 31, 2012
   31,000  $4.50  
1 year
  $69,700 
Exercisable and expected to
 vest at March 31, 2012
   36,000  $4.51  
1 year
  $80,600 

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 $6.75 and $6.33 closing market price of the Company's common stock at March 31, 2012 and September 30, 2011 respectively.

A summary of restricted stock activity for the six months ended March 31, 2012 is as follows:

   
 
Number of shares of
Restricted Stock
  
Weighted
Average
Grant - Date
Fair Value
 
Non-vested balance as of September 30, 2011
   50,000  $5.21 
Granted
   125,200  $5.69 
Vested
   (31,000) $7.10 
Non-vested balance as of March 31, 2012
   144,200  $5.22 
 
In December 2011, the Company granted 110,000 shares of restricted stock to seven employees, which will vest in five equal annual installments so long as the employee is then employed by the Company or as determined by the Compensation Committee. The estimated fair value of the stock on the date of grant was $561,000 based on the fair market value of stock on the date of issue. Compensation expense is being charged to income on a straight line basis over five years. The charge to income for this employee restricted stock will be approximately $28,000 on a quarterly basis.

In January 2012, the Company granted 15,200 shares of restricted stock to eight non-employee directors, which will vest on the day before the 2013 annual meeting providing that the grantee remains a director of the Company, or as otherwise determined by the Compensation Committee. The aggregate fair value of the stock measured on the date of grant was $80,000, based on the closing sale price of the stock on the date of grant. Compensation expense is being charged to income on a straight line basis over the twelve month period during which the forfeiture conditions lapse. The charge to income for these restricted stock grants in the first six months of fiscal 2012 was $13,000 and the subsequent charge will be approximately $20,000 on a quarterly basis.

Stock based compensation expense for the three and six month periods ended March 31, 2012 was $66,000 and $126,000, respectively and for the three and six month periods ended April 2, 2011 was $43,000 and $79,000, respectively.  At March 31, 2012 there was $647,000 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 4.1 years.
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Debt
6 Months Ended
Mar. 31, 2011
Debt [Abstract]  
Debt
(14)           Debt

At March 31, 2012 the Company had $135,000 (September 30, 2011, $152,000) outstanding under a U.K. bank loan entered into in April 2010, with a fixed interest rate of 6.8%. The loan, which was entered into by the U.K. metalized film capacitor subsidiary to purchase an item of capital equipment, is denominated in British Pounds. The loan agreement provides for equal monthly installments comprising interest and principal for a five year period which commenced in May 2010. Of the total amount outstanding at March 31, 2012, $40,000 is shown in the current liabilities section of the accompanying consolidated balance sheet under current portion of long-term debt, representing the principal element of the loan installments in the twelve months commencing March 31, 2012. Included in long term debt, at March 31, 2012, is $95,000 which represents the principal element of the loan installments for the years 2013 to 2015. The carrying value of the debt at March 31, 2012 approximated to fair value based on current interest rates.

On June 15, 2011, the Company's wholly owned subsidiary, Sevcon USA, Inc., entered into a $3,500,000 secured revolving credit facility with RBS Citizens, National Association for working capital and general corporate purposes. The loan and security agreement will expire on June 14, 2014 when all outstanding principal and unpaid interest will be due and payable in full.  The facility may be paid before maturity in whole or in part at the option of Sevcon USA, Inc., without penalty or premium.  Interest on the loan is payable monthly, and in the first quarter of 2012, was calculated at a margin over LIBOR.  Upon entering into the revolving credit facility, Sevcon USA, Inc. drew down $1,700,000, which was the total amount outstanding at March 31, 2012.  This $1,700,000 is shown in the accompanying consolidated balance sheet under long-term debt. The carrying value of the debt approximated to fair value based on current interest rates.

In March 2012, the Company's U.K. bank renewed the overdraft facilities of the Company's U.K. subsidiary operations. The Company's U.K. subsidiaries have a multi-currency overdraft facility of $1,450,000 which is secured against real estate owned by the U.K. subsidiary companies. In common with bank overdrafts in Europe, the facility renewal is for a twelve month period although in line with normal practice in Europe, it can be withdrawn on demand by the bank.  The facilities were unused at March 31, 2012.
 
Annual principal payments on long term debt at March 31, 2012 are as follows:

(in thousands of dollars)
 
2012-13$40 
2013-14 1,748 
2014-15 43 
2015-16 4 
 $1,835