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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

	(Mark One)
	☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2015 or

☐  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)

155 Northboro Road, Southborough, Massachusetts 01772

Registrant's Area Code and Telephone Number (508) 281 5510

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐  No ☒

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 ☒ No ☐

 

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 ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes ☐ No ☒

As of April 4, 2015, 3,668,937 common shares were outstanding, and the aggregate market value of the common shares (based upon the closing price on the Nasdaq Stock Market) held by non-affiliates was $10,600,000. As of December 24, 2015, 3,694,872 common shares were outstanding.

Documents incorporated by reference: Portions of the Proxy Statement for Annual Meeting of Stockholders to be held February 2, 2016 are incorporated by reference into Part III of this report.

 

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INDEX

Schedules other than the one referred to above have been omitted as inapplicable or not required, or the information is included elsewhere in financial statements or the notes thereto.

Unless explicitly stated otherwise, each reference to “year” in this Annual Report is to the fiscal year ending on the respective September 30.

 

PART I

ITEM 1

BUSINESS

· General Description

Sevcon, Inc. (or the “Company”) is a Delaware corporation organized on December 22, 1987 to carry on the electronic controls business previously performed by Tech/Ops, Inc. (Tech/Ops). Through wholly-owned subsidiaries located in the United States, England, France, South Korea and Japan and a 50% owned joint venture located in China, and through an international dealer network, the Company designs and sells, under the Sevcon name, motor controllers for zero emission electric and hybrid vehicles (EVs). The controls are used to vary the speed and movement of vehicles, to integrate specialized functions and to optimize the energy consumption of the vehicle's power source. Sevcon's customers are manufacturers of on and off-road vehicles, including cars, trucks, buses, motorcycles, fork lift trucks, aerial lifts, mining vehicles, airport tractors, sweepers and other electrically powered vehicles.

The Company’s Markets

Industrial Markets

In these applications, the customers design and manufacture fork lift trucks, aerial work platforms, airport ground support and mining vehicles. These are, in general, designed for use in off-road applications in distribution, construction, transport and mineral extraction.

On-Road Markets

Customers in the Company’s on-road markets design and manufacture automobiles, scooters,  motorcycles, buses,  trucks, utility vehicles, sweepers and other applications where either all or part of the power system is electrical and the vehicle is homologated for use on-road.

Capacitor Markets

Through another subsidiary located in Wales, Sevcon, Inc. manufactures special metalized film capacitors for electronics applications. Customers use these capacitors as components in power electronics, signaling and audio equipment.

Development of the Business in 2015

We achieved several internal milestones in 2015. We won a contract with a large German OEM to help develop a cost effective solution to reduce emissions, improve performance and lower the lifetime costs of a high power engine. We released the first generation of on-road controllers in the GEN5 range, which will allow us to cost effectively develop standard and bespoke solutions for our customers in both the on-road and industrial sectors. We won new business in China through the JV we established in 2014.

2015 saw an acceleration in the demand for what we call electrification. This is the change from an internal combustion or hydraulically powered system to an electrically engineered solution. The most obvious examples, in our opinion, are the hybrid car, where an internal combustion engine is reduced in size and a battery or fuel cell system is used to compensate for this reduction, and a crane, where the hydraulic pistons for control of an arm are replaced by an electric motor driven from a battery on the vehicle. In each case the Sevcon controller acts as the converter from the power source to the electric motors. The technical challenge in electrification is to achieve the correct balance of performance and cost. Industry’s continuing drive to reduce the cost of the battery makes the cost element of the challenge more achievable, and the introduction of certain motor technologies and our control systems makes the performance improvements attainable. Our product roadmap is focused on the development of controllers and subsystems to help our customers solve these complex problems. In September 2015, we released the first of our new GEN5 products. GEN5 comprises a set of breakthrough core components that we standardize across our product range allowing the cost-effective development of a wide variety of products and solutions for on-road and industrial electrification. These core components set new standards of reliability, flexibility and security, allowing customers to easily adapt and customize them to their specific applications.

In 2015 we saw a substantial increase in our project pipeline associated with electrification. This pipeline includes projects for which we have potential solutions already, but most will require some customization to achieve the cost and performance objectives and provide the customer with a commercial solution. Time to market for these customers is very important. Project timescales tend to be measured in years but are still challenging, and production start dates are fixed. We help alleviate some of these tensions by using a “building block” approach where as much as possible is reused from similar projects to address customer needs. This was why we developed GEN5 to be flexible, innovative technologically and cost effective. We are continuing to invest heavily in engineering as doing so maximizes our potential to win projects in the pipeline and grow the Company.

 

The investment in engineering in 2015 was partly offset by the recognition of engineering service income, particularly in Europe.

All of our geographic markets grew in 2015; North America was the strongest with a 13% increase in shipments. European growth of 7% was fueled by a combination of stronger sales to the on-road markets as well as the recognition of engineering progress on the project with the large German manufacturer of cars, buses, trucks and generation equipment, but was offset by lower sales to the traditional industrial sector. In the Far East, which includes China, sales grew 3%, largely due to sales in traditional markets outside of China. Sales in China were 1% lower year on year, with the increase in business on-road entirely offset by lower sales to traditional off-road industrial customers.

· Marketing and sales

Sales are made primarily through a full-time marketing staff. Sales in the United States were $18,327,000 and $16,389,000 or 45% and 43% of total sales, respectively, in years 2015 and 2014. Approximately 42% of sales in 2015 were made to ten manufacturers or distributors of electric vehicles in the United States, Europe and the Far East, compared with 49% in 2014. See Note 9 to the Consolidated Financial Statements (Segment Information) in this Annual Report for an analysis of sales by segment, geographic location and major customers, and the risk factors beginning on page 4 regarding sales and operations outside the United States.

· Patents

Although the Company has international patent protection for some of its product offerings, which is generally effective for up to 20 years from filing an application, the Company believes that its business is not significantly dependent on patent protection. The Company is primarily dependent upon technical competence, the quality of its products, and its prompt and responsive service performance. The Company does however continuously develop intellectual property and in 2014 and 2015 the Company filed worldwide patents for several applications of its products and techniques in control. The Company was awarded six patents in 2015.

· Backlog

Sevcon, Inc.'s backlog was $5,600,000 at September 30, 2015 and $5,705,000 at September 30, 2014. Most of the Company’s customers operate “just in time” (JIT) procurement and manufacturing processes. Backlog is not considered an important key performance indicator in the business as visibility, currency and reporting period timing make the backlog number volatile.

· Raw materials

Sevcon, Inc.'s products require a wide variety of components and materials, and the Company relies on a few suppliers for most of these components and materials. The Company presently relies principally on three main assemblers for all of its requirements for finished products. One of the three main suppliers is based in Poland and the others are in the U.S. and Australia. The U.S. supplier manufactures the Company’s components at two separate plants, in Mexico and China. The Australian supplier manufactures the Company’s components at a plant in Malaysia, principally for the Chinese and South East Asian markets. The Company is taking steps to diversify its risk and reduce its reliance on any single subcontractor  by replicating certain production and test facilities at the manufacturing locations of each of the Polish, U.S. and Malaysian suppliers. The Company decides, based on a lowest cost delivered basis, which plant supplies any particular customer.

· Competition

The Company has global competitors which are divisions of larger public companies, including Sauer Danfoss, Hitachi and the motors division of General Electric. It also competes on a worldwide basis with Curtis Instruments Inc., Zapi SpA. and SME, private companies based in the U.S. and Italy respectively, that have international operations. In its new on-road markets, the Company also competes with Unique Mobility Inc., a U.S. public company, and divisions of Siemens, Continental and Eaton Corporation. In addition, some large industrial and on-road vehicle manufacturers make their own controls and system products. The Company differentiates itself by providing highly reliable, technically innovative products, which the Company is prepared to customize for a specific customer or application. The Company believes that it is one of the largest independent suppliers of controls for electrically powered and hybrid vehicles.

 

· Research and development

 

The Company is subject to federal, state and local provisions enacted or adopted regulating the discharge of materials into the environment or otherwise protecting the environment. Compliance has not had, nor is it expected to have, a material effect on the capital expenditures, earnings, or competitive position of Sevcon, Inc. In 2010, the Company achieved accreditation to ISO14001, the international standard for Environmental Management Systems.

· Executive Officers

Information about our executive officers is included in Part III, Item 10 of this report.

· Employees and labor relations

As of September 30, 2015, the Company employed 152 full-time employees, of whom 14 were in the United States, 117 were in the United Kingdom (of whom 26 were employed by the Capacitor business), 10 were in France, and 11 were in the Far East. Sevcon, Inc. believes its relations with its employees are good.

ITEM 1A

RISK FACTORS

In addition to the market risk factors relating to foreign currency and interest rate risk set out in Item 7A on page 15, the Company believes that the following represent the most significant risk factors for the Company, the occurrence of any of which could have a material adverse effect on our financial condition, results of operations and share price:

Capital markets are cyclical and weakness in the global markets 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 have appeared to improve since 2010, economic instability remains, particularly in the Eurozone. 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, continuing instability in the European credit markets 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 is 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.

 

Program development timescales are long and can be cancelled

In certain markets in which the Company operates, and in particular in the Company’s new market sectors, engineering development programs may take several years to complete and, as result, programs periodically reviewed by the customer can be cancelled at short notice. Cancellation of an engineering development program would potentially result in the Company not being nominated for the production phase of a project.

Production readiness is outside our control

In some new markets the Company’s customer is responsible for ensuring that all of the components of their vehicle, working in unison, comply with local governmental regulations in order to achieve the necessary certification to proceed to volume production. Even though the Company’s product performs to specification in all respects, the customer’s vehicle may fail to satisfy overall the local governmental regulations due to the failure of one or more components supplied by other suppliers, resulting in a project not proceeding to volume production.

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

Ten customers accounted for 42% of the Company’s revenues in 2015 and the largest customer accounted for 10% of revenues. Although we have had business relationships with some of these customers for many years, our relationships with on-road EV customers are newer and, in any event, there are no long-term supply agreements in place with any customer. Accordingly our performance could be adversely affected by the loss of one or more of these key customers.

The Company’s commitment to make defined benefit pension contributions could adversely impact its financial position.

It is estimated that the Company will make contributions to its frozen U.K. and U.S. defined benefit pension plans of approximately $650,000 in 2016 and at similar levels in subsequent years. Should the Company suffer a material reduction in revenues, or should contribution requirements increase, this commitment could adversely impact the Company’s financial position.

The Company has substantial sales and operations outside the United States that could be adversely affected by changes in international markets

A significant portion of our operations is located, and a significant portion of our business comes from, outside the United States. Accordingly, our performance could be adversely affected by economic downturns in Europe or the Far East as well as in the United States. A consequence of significant international business is that a large percentage of our revenues and expenses are denominated in foreign currencies that fluctuate in value versus the U.S. Dollar. Significant fluctuations in foreign exchange rates can and do have a material impact on our financial results, which are reported in U.S. Dollars. Other risks associated with international business include: changing regulatory practices and tariffs; staffing and managing international operations, including complying with local employment laws; longer collection cycles in certain areas; and changes in tax and other laws.

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

The Company relies on 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.

Inventory and warranty reserves may be less than required

Management uses its judgment and market information to assess levels of reserve required in certain areas, including inventory and warranty. If actual future demand or market conditions are less favorable than those projected by management, or if product designs change more quickly than forecast, additional inventory reserves may be required. Should actual product failure rates and repair or replacement costs differ from management estimates, revisions to the estimated warranty reserve may be required and the Company’s results may be materially adversely affected.

Product defect may result in product recall

In the event that the Company discovers a product defect that impacts the safety or operation of its products, a product recall may be necessary that could involve the Company in a substantial unanticipated expense significantly in excess of any reserve that had been made.

 

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 currently produced in four separate plants in Poland, Mexico, China and Malaysia; these plants are owned by sub-contractors. The capacitor business is located in a single plant in Wales. In the event that any of these plants was to be damaged or destroyed, there is no certainty that the Company would be able to establish alternative facilities in time to meet customer demand. The Company does carry property damage and business interruption insurance but this may not cover certain lost business due to the long-term nature of the relationships with many customers.

Product liability claims may have a material adverse effect

The Company’s products are technically complex and are installed and used by third parties. Defects in their design, installation, use or manufacturing may result in product liability claims against the Company. Such claims may result in significant damage awards, and the cost of any such litigation could be material.

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

As of September 30, 2015, the Company’s subsidiary in the United States, Sevcon USA, Inc. had $500,000 of outstanding indebtedness under a revolving credit facility with a bank that the Company has guaranteed.  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 – Liquidity and Capital Resources”.  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.

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, financial position and results of operations could be materially and adversely affected.

We may not be able to attract and retain the level of high quality engineering staff that we need to develop the new and improved products we need to be successful.

The Company needs sufficient highly qualified engineers and technicians to develop and test the products our customers require. This is an expensive and scarce resource. If we are unable to attract and retain the level of high quality engineering staff that we need for our new and improved products, we will lose business and our financial condition will be adversely affected.

Businesses we acquire may not generate the revenue and earnings we anticipate and may otherwise adversely affect our operations and financial condition.

We are considering supplementing our growth by acquiring new businesses. If we do that, but we fail to successfully integrate and manage the businesses we acquire, or if an acquisition does not further our business strategy as we expected, our operating results and financial condition may be materially adversely affected. Business combinations also involve a number of risks and uncertainties that can have an adverse impact, including that:

·

the costs of acquiring and integrating another business may be materially greater than we anticipate;

·

managing an acquired company’s technologies or lines of business or entering new markets where we have limited or no prior experience or where competitors may have stronger market positions may be more difficult than we anticipate;

·

we may fail to achieve the expected return on our investments, which could adversely affect our business or operating results and potentially cause impairment to assets that we recorded as a part of an acquisition, including intangible assets and goodwill;

·

the attention of our management and employees may be diverted;

·

we may not be able to retain key personnel of an acquired business;

·

we may assume unanticipated legal or financial liabilities;

 

·

we may suffer significant increases in our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition; and

·

our existing stockholders may be diluted and earnings per share may decrease if we were to issue a significant amount of equity securities in connection with an acquisition.

ITEM 2

PROPERTIES

The U.S. subsidiary of the Company leases approximately 13,500 square feet in Southborough, Mass., under a lease expiring in 2023. The U.K. electronic controls business of Sevcon, Inc. is carried on in a building owned by it located in Gateshead, England, containing 40,000 square feet of space. The land on which this building stands is held on a ground lease expiring in 2068. The capacitor subsidiary of the Company owns a 9,000 square foot building, built in 1981, in Wrexham, Wales. The properties and equipment of the Company are in good condition and, in the opinion of the management, are suitable and adequate for the Company's operations.

ITEM 3

LEGAL PROCEEDINGS

None.

ITEM 4

MINE SAFETY DISCLOSURES

Not applicable.

 

PART II

ITEM 5

MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Common Stock trades on the NASDAQ Capital Market under the symbol SEV. A summary of the market prices of the Company’s Common Stock is shown below. At December 9, 2015, there were approximately 119 shareholders of record.

The Company suspended the payment of dividends at the beginning of 2009 in order to conserve cash to meet the needs of the business during the global recession. The Board of Directors will consider whether to resume paying dividends as conditions and the Company’s operating results improve.

ITEM 7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Statements in this discussion and analysis about the Company’s anticipated financial results and growth, as well as those about the development of its products and markets, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These include the risks discussed in Item 1A to this Annual Report, entitled ‘Risk Factors’, and others discussed in this report.

CRITICAL ACCOUNTING ESTIMATES

The Company's significant accounting policies are summarized in Note 1 of its Consolidated Financial Statements in this Annual Report. While these significant accounting policies impact the Company’s financial condition and results of operations, certain of these policies require management to use a significant degree of judgment and/or make estimates, consistent with generally accepted accounting principles, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Since these are judgments and estimates, they are sensitive to changes in business and economic realities, and events may cause actual operating results to differ materially from the amounts derived from management’s estimates and judgments.

The Company believes the following represent the most critical accounting judgments and estimates affecting its reported financial condition and results of operations:

Bad Debts

The Company estimates an allowance for doubtful accounts based on known factors related to the credit risk of each customer and management’s judgment about the customer’s business. Ten customers account for approximately 42% of the Company’s sales in 2014 and 61% of trade receivables at September 30, 2015. At September 30, 2015, the allowance for bad debts amounted to $37,000 which represented 1% of trade receivables.

Because of the Company’s long term relationships with the majority of its customers, in most cases, the principal bad debt risk to the Company arises from the insolvency of a customer rather than its unwillingness to pay. In addition, the Company maintains credit insurance covering up to 90% of the amount outstanding from specific customers. The Company also carries out some of its foreign trade, particularly in the Far East, using letters of credit.

The Company reviews all accounts receivable balances on a regular basis, concentrating on any balances that are more than 30 days overdue or where there is an identified credit risk with a specific customer. A decision is made on a customer-by-customer basis as to whether a bad debt reserve is considered necessary based on the specific facts and circumstances of each account. In general, the Company would reserve 100% of the receivable, net of any recoverable value added taxes or insurance coverages, for a customer that becomes insolvent or files for bankruptcy, and lesser amounts for less imminent defaults. The Company maintains a small bad debt reserve to cover the remaining balances based on historical default percentages.

 

If the financial condition of any of the Company's customers is worse than estimated or were to deteriorate, resulting in an impairment of its ability to make payments, the Company’s results may be adversely affected and additional allowances may be required.

Inventories

Inventories are valued at the lower of cost or market value. Inventory costs include materials and overhead, and are relieved from inventory on a first-in, first-out basis. The Company’s reported financial condition includes a provision for estimated slow-moving and obsolete inventory that is based on a comparison of inventory levels with forecasted future demand. Such demand is estimated based on many factors, including management judgments, relating to each customer’s business and to economic conditions. The Company reviews in detail all significant inventory items with holdings in excess of estimated normal requirements. It also considers the likely impact of changing technology. It makes an estimate of the provision for slow moving and obsolete stock on an item-by-item basis based on a combination of likely usage based on forecasted customer demand, potential sale or scrap value and possible alternative use. This provision represents the difference between original cost and market value at the end of the financial period. In cases where there is no estimated future use for the inventory item and there is no estimated scrap or resale value, a 100% provision is recorded. Where the Company estimates that only part of the total holding of an inventory item will not be used, or there is an estimated scrap, resale or alternate use value, then a proportionate provision is recorded. Once an item has been written down, it is not subsequently revalued upwards. The provision for slow moving and obsolete inventories at September 30, 2015 was $443,000, or 6% of the original cost of gross inventory. If actual future demand or market conditions are less favorable than those projected by management, or if product designs change more quickly than forecast, additional inventory write-downs may be required, which may have a material adverse impact on reported results.

Warranty Costs

The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, the Company's warranty obligation is affected by product failure rates and repair or replacement costs incurred in correcting a product failure. Accordingly, the provision for warranty costs, $278,000 at September 30, 2015, is based upon anticipated in-warranty failure rates and estimated costs of repair or replacement. Anticipating product failure rates involves making judgments about the likelihood of defects in materials, design and manufacturing errors, and other factors that are based in part on historical failure rates and trends, but also on management’s expertise in engineering and manufacturing. Estimated repair and replacement costs are affected by varying component and labor costs.

Goodwill Impairment

At September 30, 2015, the Company’s balance sheet reflected $1,435,000 of goodwill relating to the controls business. The Company carries out an assessment annually, or more frequently if events or circumstances change, to determine if its goodwill has been impaired. The assessment is based on three separate methods of valuing the controls business based on expected free cash flows, the market price of the Company’s stock and an analysis of precedent transactions. These valuation methods require estimates of future revenues, profits, capital expenditures and working capital requirements which are based on evaluation of historical trends, current budgets, operating plans and industry data. Based on all of these valuation methods, management concluded that goodwill is not impaired. If, in future periods, the Company’s results of operations, cash flows or the market price of the Company’s stock were to decrease significantly, then it may be necessary to record impairment charges relating to goodwill.

Pension Plan Assumptions

The Company makes a number of assumptions relating to its pension plans in order to measure the financial position of the plans and the net periodic benefit cost. The most important assumptions relate to the discount rate, the expected long term return on plan assets, the rate of future compensation increase, mortality rates and other actuarial factors. The Company’s pension plans are significant relative to the size of the Company. At September 30, 2015, pension plan assets were valued at $20,127,000 and plan liabilities were $31,090,000, resulting in a deficit in the funded status of $10,963,000.  By comparison, the total assets of the Company were $35,616,000. The funded status of the Company’s defined benefit pension plans has fluctuated significantly in previous years, due in large part to changes in the assumptions described above. In accordance with Financial Accounting Standards Board (“FASB”) guidance, changes in the funded status of the pension plans (plan assets less plan liabilities) are recorded in the Company’s balance sheet. If the assumptions we made at September 30, 2015 prove to be incorrect, and in any event as they change going forward, the Company may need to record, and may actually incur, additional expense or liabilities relating to the pension plans. This could have a material adverse effect on the Company’s financial position and/or results of operations.

 

The table below sets out the approximate impact on the funded status of the Company’s pension plans at September 30, 2015 that the Company estimates would arise from the following respective changes in significant plan assumptions:

Income Taxes

The Company’s effective tax rate is dependent on many factors, including the impact of enacted tax laws in jurisdictions in which the Company operates, the amount of earnings by jurisdiction, varying tax rates in each jurisdiction and the Company’s ability to utilize foreign tax credits related to foreign taxes paid on foreign earnings that will be remitted to the U.S.

The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the period in which the underlying transactions are recorded. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and such amounts as measured by tax laws. If the Company determines that a deferred tax asset arising from temporary differences is not likely to be utilized, the Company will establish a valuation allowance against that asset to record it at its expected realizable value. If the Company later determines, based on the weight of available evidence, that the deferred tax assets are more likely than not to be realized in the future, the allowance may be reversed in whole or in part. Management considers many factors when assessing the likelihood of future realization of the Company’s deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, the carry-forward periods available for tax reporting purposes and other factors. The range of possible estimates relating to the valuation of the Company’s deferred tax assets is very wide. Significant judgment is required in making these assessments and it is very difficult to predict when, if ever, management may conclude that any portion of the deferred tax assets is realizable. As of September 30, 2015, there is a partial valuation allowance against net deferred tax assets. If future experience is significantly different from that which was projected in making these assessments, there could be significant additional adjustments to the Company’s deferred tax assets and income tax expense.

The Company recognizes uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. Although the Company believes that its tax positions are appropriate, the final determination of tax audits and any related litigation could result in material changes in the underlying estimates.

OVERVIEW

· A) Results of Operations

2015 compared to 2014

The following table compares the 2015 results, for both the controls and capacitor segments, with the prior year, showing separately the percentage variances due to currency exchange rate changes and volume.

The Company’s main customers in the controls segment manufacture electric and hybrid vehicles as well as drivetrains for on-road, off-road and industrial applications, including automotive, construction, distribution, mining, marine, airport ground support and utility applications. Increasingly customers also look to the Company to help migrate existing internal combustion systems to hybrid and pure electric systems.

In 2015 the Company recorded record sales of $41.1 million, an 8.5% increase from the $37.9 million reported in the prior year. In our controls segment sales increased by $3.3 million or 9.3% and in our capacitor segment sales decreased by $0.1 million, a 5% reduction year-on-year.

In our controls business, sales increased 1% in the traditional off-road industrial market segment and sales in the on-road market increased 41% year-over-year.

The Company’s traditional markets largely mirrored global economic trends with relatively low growth overall. There were single digit reductions year-on-year in sales to manufacturers of aerial work platforms, fork lift trucks and mining vehicles. However, sales for airport ground support in Europe and the U.S. were 8% higher in fiscal 2015 than in the prior year. In the U.S. the mining equipment sector continued to experience demanding conditions driven by a global reduction in the markets for raw materials and coal in particular. Sales to the mining sector were 47% lower than in 2014. The sales reductions in the traditional markets were more than offset, however, by a 42% year-over-year increase in sales to customers in a variety of industries the Company categorizes as “other EV” which includes applications as diverse as gyro stabilizers for marine applications to off-road equipment like all-terrain vehicles and standby generation. Other EV sales growth is an indication that electrification is appearing in a wide variety of applications and geographic regions.

 

Sales for on-road two-wheel applications were 30% higher, largely due to demand from customers in the U.S. where customers manufacture larger electric motorcycles and are finding a more stable demand. Sales for four-wheel applications were 46% higher, respectively, than the prior year, primarily reflecting growth in Europe and North America, and increasing global electrification of commercial vehicles, including both EV and hybrid applications.

With regard to geography, the U.S. was the best performing region with sales growth of 13%, driven largely by higher sales to on-road OEM’s and the marine and agricultural sectors. Europe’s sales declined 8% due to lower demand from the industrial sector, although there was a significant sales increase in the U.K. over last year due to higher revenue from engineering services. Sales in the Far East grew 7% compared to last year driven by continued growth in shipment volumes.

Looking forward we continue to support new and potential customers in their desire to electrify their products. We are investing at historically high levels in engineering and sales resources. We believe that the Company is well placed to exploit this drive to electrification with both generic and bespoke products.

In the capacitor business, reported sales to external customers decreased by $102,000, or 5%, compared to 2014. Currency exchange rate changes reduced sales by $157,000, or 7%, and capacitor volumes shipped were $55,000, or 2.5%, higher than last year, due principally to increased demand from the railway signaling market.

The table below analyzes the year-to-year change in sales, cost of sales and gross profit.

 

Selling, research and administrative expenses were $13,940,000 in 2015 compared to $13,765,000 in the prior year, an increase of $175,000. In 2014, the Company incurred two non-recurring charges amounting to $699,000: a $481,000 charge for the establishment of our Chinese joint venture and a charge of $218,000 to recognize a write-off arising from a bankrupt customer in France. Excluding the impact of the two non-recurring items in 2014, selling, research and administrative expenses increased by $814,000 or 6.7%, on a like-for-like basis, reflecting the continued investment in sales and marketing and engineering and research and development, including the hiring of additional staff, in response to the strong top-line growth.

The Company recorded U.K. government grants of $191,000 in 2015 associated with research and development expense of $1,178,000 in the same period. In 2014, the Company recorded government grants of $500,000 associated with research and development expense of $1,959,000.  The grants were recorded as a reduction of research and development expense in each period. In addition, in 2015, the Company participated in a U.K. government research and development arrangement which allows U.K. companies to record an additional available tax credit to the income statement above operating income as an “above the line credit” subject to meeting certain qualifying conditions. In 2015 the Company recorded an income statement credit of $463,000 (2014: $261,000) which it also recorded as a reduction of research and development expense in the year.

 

An analysis of the year-to-year change in selling, research and administrative expenses, before the two non-recurring items in 2014, is set out below:

There was a gain in the year due to favorable foreign currency movements of $118,000 in 2015, compared to a foreign currency exchange loss of $83,000 in 2014. Interest expense was $76,000, which was $60,000 lower than the prior year, due principally to the repayment of the Citizens Bank credit facility in the first quarter of the year.

There was income before income taxes in 2015 of $1,945,000 compared to $816,000 in 2014, an improvement year-on-year of $1,129,000, or 138%.

The Company recorded an income tax charge of $406,000 or 20.9% of pre-tax income for the year compared to a charge of $85,000 or 10.4% of pre-tax income in 2014. The income tax charge of 20.9% of pre-tax income was lower than the statutory Federal income tax rate of 34% for several reasons. The main items which reduced the effective tax rate were a benefit of $163,000 due to U.K and French tax rates being lower than the Federal tax rate and $166,000 of additional research and development tax credits arising from research and development activity in the Company’s U.K. operations.

After adjusting for a $36,000 loss attributable due to the non-controlling interest in the Company’s joint venture and $440,000 of preference share dividends, the Company recorded net income after taxes of $1,135,000 compared to $909,000 last year, after $23,000 of preference share dividends, an increase of $206,000, year-on-year. Diluted income per share was $0.32 in 2015 compared to $0.19, in 2014.

· B) Liquidity and Capital Resources

The Company’s operating activities used $161,000 of cash during 2015 compared with cash generated by operating activities for 2014 of $340,000. Acquisitions of property, plant and equipment amounted to $1,309,000 compared to $744,000 in 2014.   Cash used by financing activities was $1,575,000 in 2015; this principally comprised $263,000 of preference share dividends paid and $1,728,000 of bank debt repayments less a drawdown of $500,000 on our revolving credit facility. In 2014 net cash generated by financing activities of $9,235,000 which was largely due to the net proceeds of the issue of preference shares of $9,345,000. In 2015, the exchange rate changes reduced cash by $145,000 compared to an increase of $24,000 last year. At September 30, 2015 the Company’s cash balances were $8,048,000 compared to $11,238,000 last year.

Trade and other receivables, inventories and prepaid expenses and other current assets increased by $3,235,000, $841,000 and $984,000, respectively, which reduced cash during the year. Accounts payable and accrued expenses increased by $2,040,000 and $245,000, respectively, which increased cash during the year.

The Company has multi-currency overdraft facilities in the U.K. amounting to $1,360,000 which were unused as of September 30, 2015 and September 30, 2014. The overdraft facility of both the U.K. controls and capacitor subsidiaries are secured by real estate owned by those companies. Both U.K. overdraft facilities were renewed in the third quarter of 2015 for a further 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.

 

The Company’s wholly owned subsidiary, Sevcon USA, Inc., has a $3,500,000 secured revolving credit facility with Citizens Bank, 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 2.40:1 and a debt service coverage ratio of no less than 1.25:1 for each rolling twelve-month period.  At September 30, 2015, it was in compliance with these covenants. The total amount outstanding at September 30, 2015 was $500,000 and at September 30, 2014, $1,700,000. The term of the revolving credit facility will expire on June 14, 2017 when all outstanding principal and unpaid interest then drawn will be due and payable in full.

The funded status of the Company’s defined benefit pension plans deteriorated from a deficit of $9,529,000 at September 30, 2014 to a deficit of $10,963,000 at September 30, 2015.  The net increase in the deficit of $1,434,000 was due to several factors.  The actuarial loss in the Company’s U.K. defined benefit plan was due to lower than expected returns on the U.K. plan’s assets of $1 million and also a deterioration in the financial assumptions underlying the calculation of the liabilities during the year, and in particular the yield on high quality corporate bonds, which accounted for a further increase to the liability of $1 million.  In addition, a revision to the assumptions relating to the longevity tables in the Company’s U.S. plan resulted in an increase to the liability of $800,000. Contributions to the plans during the year amounted to $663,000 and favorable exchange rate movements due to a stronger U.S. dollar compared to the British pound than in the prior year reduced the deficit by $648,000.

There were no significant capital expenditure commitments at September 30, 2015. The Company’s capital expenditures are expected, on average over a two to three year period, to be broadly in line with the depreciation charge, which averaged $615,000 over the last three years. It is estimated that the Company will make contributions to its U.K. and U.S. defined benefit pension plans of approximately $653,000 in 2016. Should the Company suffer a material reduction in revenues in 2016, this commitment could adversely impact the Company’s financial position. Furthermore, a material reduction in revenues in 2016 would significantly reduce the Company’s cash balances; however, in the opinion of management, the Company’s requirements for working capital to meet projected operational and capital spending needs in both the short-term (next twelve months) and long-term (twelve to thirty-six months) can be met by a combination of existing cash resources, future earnings and existing borrowing facilities. Nonetheless, the outlook remains unpredictable given the significant uncertainty about the stability of global credit and financial markets in light of the continuing debt crisis in certain European countries. 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.   

 

· C) Off balance sheet arrangements

The Company does not have any off balance sheet financing or arrangements.

 

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, the Company is not required to respond to this item. However, we are providing the following information about our foreign currency and interest rate risks to supplement the disclosure in Item 7.

Foreign currency risk

The Company sells to customers throughout the industrialized world. In 2015 approximately 53% of the Company’s sales were made in U.S. Dollars, 26% were made in British Pounds and 21% were made in Euros. In the controller business the majority of the product is produced in three separate plants in Poland, Mexico and China and cost of sales is incurred in a combination of British Pounds, Euros and U.S. Dollars. 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.

In addition, the translation of the sales and income of foreign subsidiaries into U.S. Dollars is subject to fluctuations in foreign currency exchange rates.

In the year ended September 30, 2015 the company entered into foreign currency forward contracts to hedge its exposure to future fluctuations in the exchange rate between the U.S. Dollar and the Euro.  These contracts were intended to partially hedge the U.S. Dollar equivalent cost of the company’s planned purchases of inventory denominated in Euros.  The total gross amount of the outstanding forward contracts was $804,000 at September 30, 2015 ($0 at September 30, 2014).  These agreements were recorded at fair value in the consolidated balance sheet, resulting in a net loss of $22,000 in the consolidated statement of income for the year ended September 30, 2015 ($0 net gain or loss for the year ended September 30, 2014).

The following table presents the fair values of the Company’s derivative financial instruments for the following periods:

The above liability derivative foreign currency contracts represent a Level 2 liability at September 30, 2015 in accordance with the fair value hierarchy described in Note 1 N.

The following table provides information about the Company’s foreign currency accounts receivable, accounts payable and firmly committed sales contracts as of September 30, 2015. The information is provided in U.S. Dollar amounts, as presented in the Company’s consolidated financial statements.

 

Interest rate risk

At September 30, 2015, the Company’s wholly owned subsidiary, Sevcon USA, Inc., had $500,000 (September 30, 2014: $1,700,000) of interest bearing debt related to a secured revolving credit facility which was entered into for working capital and general corporate purposes.

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. Due to the short-term nature of the Company’s investments at September 30, 2015 the risk arising from changes in interest rates was not material.

 

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

Sevcon, Inc. and Subsidiaries

September 30, 2015 and 2014

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

 

CONSOLIDATED STATEMENTS OF INCOME

Sevcon, Inc. and Subsidiaries

For the Years ended September 30, 2015 and 2014

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Sevcon, Inc. and Subsidiaries

For the Years ended September 30, 2015 and 2014

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

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Sevcon, Inc. and Subsidiaries

For the Years ended September 30, 2015 and 2014

(in thousands except number of shares data)

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

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Sevcon, Inc. and Subsidiaries

For the Years ended September 30, 2015 and 2014

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

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		(in thousands of dollars)
		2015				2014
Warranty reserves at beginning of year			153				138
Decrease in beginning balance for warranty obligations settled during the year			(37	)			-
Foreign currency translation adjustment			(10	)			(4	)
Net increase in warranty reserves for products sold during the year			172				19
Warranty reserves at end of year		$	278			$	153

		(in thousands of dollars)
		2015				2014
Raw materials		$	2,453			$	2,095
Work-in-process			90				102
Finished goods			4,247				4,061
		$	6,790			$	6,258

		(in thousands of dollars except per share data)
		2015				2014
Numerator:
Net income attributable to common stockholders for computing net income per ordinary share - basic		$	1,135			$	909
Dividend eliminated upon assumed conversion of convertible preference shares			440				23
Net income attributable to common stockholders for computing net income per ordinary share - diluted		$	1,575			$	932
Denominator:
Weighted average shares used in calculating net income per ordinary share - basic			3,469				3,398
Adjustment for assumed conversion of convertible preference shares			1,374				1,382
Adjustment for shares issuable upon vesting of restricted stock			86				76
Weighted average shares used in calculating net income per ordinary share - diluted			4,929				4,856
Net income per ordinary share - basic		$	0.33			$	0.27
Net income per ordinary share - diluted		$	0.32			$	0.19
No. of shares of convertible preference stock excluded during the period as such shares and related dividends would have the effect of increasing earnings per share			-				-

		(in thousands of shares)
		2015				2014
Beginning Balance – Non-vested			168.6				103.8
Granted to employees – 5 year vesting			20.0				80.0
Granted to employees – 2 year vesting			42.0				-
Granted to non-employee directors – 1 year vesting			30.6				28.6
Vested			(64.6	)			(43.8	)
Forfeited			-				-
Ending Balance – Non-vested			196.6				168.6
Weighted-average fair value for shares granted during the year		$	7.49			$	5.23
Weighted-average fair value for shares vested during the year		$	6.32			$	4.63
Weighted-average fair value for ending balance - non-vested		$	5.97			$	5.27

		(in thousands of dollars)
		2015				2014
Domestic		$	863			$	430
Foreign			1,082				386
		$	1,945			$	816

		(in thousands of dollars)
		2015
		Current				Deferred
Federal		$	38			$	349
State			85				3
Foreign			(16	)			(53	)
		$	107			$	299

		2014
		Current				Deferred
Federal		$	-			$	134
State			44				87
Foreign			(97	)			(83	)
		$	(53	)		$	138

		(in thousands of dollars)
		2015				2014
Statutory Federal income tax rate			34	%			34	%
Computed tax provision  at statutory rate		$	659			$	275
Increases (decreases) resulting from:
Foreign tax rate differentials			(163	)			(122	)
State taxes net of federal tax benefit			57				71
Foreign research incentives			(166	)			(213	)
U.K. rate change			5				27
Other			14				47
Income tax provision in the consolidated statements of income		$	406			$	85

		2015
		Domestic current				Domestic long-term				Foreign current				Foreign long-term				Total
Assets:
Pension accruals		$	-			$	389			$	-			$	2,028			$	2,417
Inventory basis differences			72				-				-				-				72
Warranty reserves			67				-				-				-				67
Foreign tax credit carry forwards			-				203				-				-				203
Accrued compensation expense			-				-				-				54				54
Net operating losses			-				2				1,101				818				1,921
Other (net)			3				211				1				-				215
			142				805				1,102				2,900				4,949
Liabilities:
Property basis asset (liability)			-				1				-				(233	)			(232	)
Net asset			142				806				1,102				2,667				4,717
Valuation allowance			-				(158	)			-				(83	)			(241	)
Net deferred tax asset		$	142			$	648			$	1,102			$	2,584			$	4,476

		2014
		Domestic current				Domestic long-term				Foreign current				Foreign long-term				Total
Assets:
Pension accruals		$	-			$	186			$	37			$	1,805			$	2,028
Inventory basis differences			69				-				-				-				69
Warranty reserves			21				-				-				-				21
Foreign tax credit carry forwards			-				266				-				-				266
Accrued compensation expense			-				-				-				58				58
Net operating losses			103				108				289				1,568				2,068
Other (net)			-				308				3				-				311
			193				868				329				3,431				4,821
Liabilities:
Property basis asset (liability)			-				12				-				(130	)			(118	)
Net asset			193				880				329				3,301				4,703
Valuation allowance			-				(159	)			-				(112	)			(271	)
Net deferred tax asset		$	193			$	721			$	329			$	3,189			$	4,432

		(in thousands of dollars)
		2015				2014
Accrued compensation and related costs		$	827			$	1,062
Other accrued expenses			1,146				774
		$	1,973			$	1,836

		(in thousands of dollars)
		2015				2014
Change in benefit obligation:
Benefit obligation at beginning of year		$	30,646			$	27,908
Interest cost			1,236				1,303
Actuarial loss			1,540				1,911
Benefits paid			(437	)			(482	)
Foreign currency exchange rate changes			(1,895	)			6
Benefit obligation at end of year			31,090				30,646
Change in plan assets:
Fair value of plan assets at beginning of year			21,117				19,554
Return on plan assets			22				1,334
Employer contributions			662				698
Benefits paid			(437	)			(482	)
Foreign currency exchange rate changes			(1,237	)			13
Fair value of plan assets at end of year			20,127				21,117
Funded status			(10,963	)			(9,529	)
Liability for pension benefits recorded in the balance sheet		$	(10,963	)		$	(9,529	)

		(in thousands of dollars)
		2015				2014
Non-current liabilities		$	10,963			$	9,529

		(in thousands of dollars)
		2015				2014
Actuarial loss, net of $644 tax benefit (2014:actuarial loss net of $351 tax benefit)		$	(1,857	)		$	(1,311	)

		(in thousands of dollars)
		2015				2014
Components of net periodic benefit cost:
Interest cost		$	1,236			$	1,303
Expected return on plan assets			(1,250	)			(1,309	)
Amortization of net actuarial loss			264				227
Net periodic benefit cost		$	250			$	221
Net cost of defined contribution plans		$	494			$	500

		2015				2014
Plan obligations:
Discount rate			3.90	%			4.24	%
Net periodic benefit cost:
Discount rate			3.90	%			4.24	%
Expected long term return on plan assets			5.73	%			6.15	%

		2015		2014
Retirement age – U.K. Plan		65		65
Retirement age – U.S. Plan		65		65
Post-retirement mortality tables – U.K. Plan		105% of the S1PXA birth year tables with the latest CMI projections and a 1.0% p.a. long-term future improvement rate		105% of the S1PXA birth year tables with the latest CMI projections and a 1.0% p.a. long-term future improvement rate
Post-retirement mortality tables – U.S. Plan		RP-2014 White Collar Annuitant with MP-2014 Generational Projection (M/F)		IRS 2013 Present Value Optional Combined Table
Pre-retirement mortality tables – U.K. Plan		None		None
Pre-retirement mortality tables – U.S. Plan		RP-2014 White Collar Employee with MP-2014 Generational Projection (M/F)		IRS 2013 Present Value Optional Combined Table

		(in thousands of dollars)
2015		Level 1* (Quoted prices in active markets)				Level 2** (Significant observable inputs)				Level 3*** (Unobservable inputs)
Adept Strategy 9 Fund (a sub-fund of Adept Investment Management plc)			-				13,044				-
Schroder Matching Plus Nominal and Index Linked Liability Driven Investment Swap Funds (funds managed by Schroder Investment Management   Limited)			-				3,845				-
U.S. Mutual Funds and Fixed Income Funds			2,557				-				-
U.S. Equity Funds			350				-				-
Other Types of Investments
Cash			331				-				-
Total			3,238				16,889				-

		(in thousands of dollars)
2014		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			7,187				-				-
Standard Life UK Indexed Linked Fund Standard Life Long Corporate Bond Fund			1,856 1,785				-				-
CF Rubber Absolute Return Fund			7,177				-				-
U.S. Mutual Funds			2,431
U.S. Exchange Traded Funds			348				-				-
Other Types of Investments
Cash			333				-				-
Total			21,117				-				-

(in thousands of dollars)
2016		$	441
2017			514
2018			532
2019			540
2020			550
2021 – 2025			2,958

		(in thousands of dollars)
		2015
		Controls				Capacitors				Corporate				Total
Sales to external customers		$	39,029			$	2,113			$	-			$	41,142
Inter-segment revenues			-				3				-				3
Operating income (loss)			1,776				160				(42	)			1,894
Depreciation			556				81				-				637
Identifiable assets, excluding goodwill			25,702				1,176				7,303				34,181
Capital expenditures			1,266				43				-				1,309
		2014
		Controls				Capacitors				Corporate				Total
Sales to external customers		$	35,708			$	2,215			$	-			$	37,923
Inter-segment revenues			-				5				-				5
Operating income (loss)			977				283				(235	)			1,025
Depreciation			517				90				1				608
Identifiable assets, excluding goodwill			21,072				1,199				10,261				32,532
Capital expenditures			709				33				2				744

		(in thousands of dollars)
		2015				2014
Sales:-
U.S. sales		$	18,327			$	16,389
Foreign sales:
United Kingdom			15,056				13,486
France			7,054				8,026
China			705				22
Total Foreign			22,815				21,534
Total sales		$	41,142			$	37,923
Long-lived assets:
U.S.A.		$	2,205			$	2,245
Foreign:
United Kingdom			4,908				5,239
France			298				74
Korea, Japan and China			324				289
Total Foreign			5,530				5,602
Total		$	7,735			$	7,847

		(in thousands of dollars)
		2015				2014
Electronic controls for zero emission and hybrid electric vehicles		$	26,951			$	26,014
Accessory and aftermarket products and services			12,078				9,694
Total controls segment revenues		$	39,029			$	35,708

(in thousands of dollars)
2017			500
Total		$	500

(in thousands of dollars)

September 30, 2015

September 30, 2014

Assets

Liabilities

Assets

Liabilities

Foreign currency contracts

-

22

-

-