-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PlpSm6QyW6f09SVfTku3pplpcSzb0Brt+Ca4oxD3DBW8F8eDqbuVlQnBQpKT+cVg vYqyTlaO0grKkWOfQsg43A== 0000950152-01-503839.txt : 20010815 0000950152-01-503839.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950152-01-503839 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVOTRONICS INC /DE/ CENTRAL INDEX KEY: 0000089140 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 160837866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-07109 FILM NUMBER: 1707924 BUSINESS ADDRESS: STREET 1: 1110 MAPLE ST CITY: ELMA STATE: NY ZIP: 14059 BUSINESS PHONE: 7166335990 MAIL ADDRESS: STREET 1: P O BOX 300 STREET 2: ELMA STATE: NY ZIP: 14059-0300 10QSB 1 l89640ae10qsb.txt SERVOTRONICS, INC. 10QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the quarterly period ended June 30, 2001 - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission File No. 1 - 7109 SERVOTRONICS, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 16-0837866 ------------------------------- -------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1110 Maple Street, Elma, New York 14059-0300 -------------------------------------------- (Address of principal executive offices) 716-655-5990 ------------ (Issuer's telephone number, including area code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at July 31, 2001 - ------------------------------------ ----------------------------------- Common Stock, $.20 par value 2,397,381 Transitional Small Business Disclosure Format (Check one): Yes ; No X ------ ------ -1- 2 INDEX -----
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements a) Consolidated Balance Sheet, June 30, 2001 3 b) Consolidated Statement of Income for the Three and Six Months Ended June 30, 2001 and 2000 4 c) Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2001 and 2000 5 d) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 9 PART II. OTHER INFORMATION Signatures 12
-2- 3 PART I FINANCIAL INFORMATION SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, 2001 ($000's omitted except per share data) (Unaudited) Assets Current assets: Cash $ 662 Accounts receivable 2,857 Inventories 6,670 Deferred income taxes 867 Other 1,415 -------- Total current assets 12,471 -------- Property, plant and equipment, net 7,284 Other assets 600 -------- $ 20,355 Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 393 Accounts payable 812 Accrued employee compensation and benefit costs 858 Other accrued liabilities 162 Accrued income tax 50 -------- Total current liabilities 2,275 -------- Long-term debt 5,989 Deferred income taxes 455 Other non-current liability 215 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,614,506 shares 523 Capital in excess of par value 13,361 Retained earnings 1,130 Accumulated other comprehensive income (25) -------- 14,989 Employee stock ownership trust commitment (2,539) Treasury stock, at cost 217,125 shares (1,029) -------- Total shareholders' equity 11,421 -------- $ 20,355 ========
See notes to consolidated financial statements -3- 4 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME ($000's omitted except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net revenues $ 4,714 $ 4,470 $ 9,196 $ 8,726 Costs and expenses: Cost of goods sold 3,472 3,214 6,786 6,424 Selling, general and administrative 674 760 1,454 1,478 Interest 76 104 153 196 Depreciation and amortization 166 135 269 264 --------- --------- --------- ---------- 4,388 4,213 8,662 8,362 --------- --------- --------- ---------- Income before income taxes 326 257 534 364 Income taxes 112 99 198 140 --------- --------- --------- ---------- Net income $ 214 $ 158 $ 336 $ 224 ========= ========= ========= ========== Income Per Share: Basic - ----- Net income per share $ 0.11 $ 0.09 $ 0.18 $ 0.12 ========= ========= ========= ========== Diluted - ------- Net income per share $ 0.11 $ 0.09 $ 0.18 $ 0.12 ========= ========= ========= ==========
See notes to consolidated financial statements -4- 5 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($000's omitted) (Unaudited)
Six Months Ended June 30, 2001 2000 ---- ---- Cash flows related to operating activities: Net income $ 336 $ 224 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 269 264 Change in assets and liabilities - Accounts receivable (378) 309 Inventories (263) (464) Prepaid income taxes 218 126 Other current assets (163) (188) Other assets 0 6 Accounts payable 248 (286) Accrued employee compensation & benefit costs 88 39 Accrued income taxes 50 0 Other accrued liabilities (4) (26) ---------- ---------- Net cash provided by operating activities 401 4 --------- --------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (213) (81) Purchase of treasury shares (74) 0 ---------- --------- Net cash used in investing activities (287) (81) ---------- ---------- Cash flows related to financing activities: Increase in demand loan 300 500 Payments on demand loan (300) (625) Principal payments on long-term debt (111) (109) ---------- ---------- Net cash used in financing activities (111) (234) ---------- ---------- Net increase (decrease) in cash 3 (311) Cash at beginning of period 659 794 --------- --------- Cash at end of period $ 662 $ 483 ========= =========
See notes to consolidated financial statements -5- 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000 omitted in tables except for per share data) 1. The information set forth herein is unaudited. This financial information reflects all normal accruals and adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. Revenue recognition ------------------- The Company incurred costs for certain contracts which are long term. These contracts are accounted for under the percentage of completion method (cost-to-cost) which recognizes revenue as the work progresses towards completion. Revenues on the remaining contracts are recognized when the terms of purchase orders are met. Included in other current assets are $1,006,000 of unbilled revenues which represent revenue earned under the percentage of completion method (cost-to-cost) not yet billable under the terms of the contracts. Reclassification of prior year balances --------------------------------------- Certain prior year balances have been reclassified to conform with the current year presentation.
2. Inventories June 30, 2001 ----------- ------------- Raw materials and common parts $ 364 Work-in-process 5,846 Finished goods 696 ---------- 6,906 Less common parts expected to be used after one year (236) ---------- $ 6,670 ==========
3. Property, plant and equipment ----------------------------- June 30, 2001 ------------- Land $ 11 Buildings 6,170 Machinery, equipment and tooling 9,131 ---------- 15,312 Less accumulated depreciation (8,028) ----------- $ 7,284 ==========
Property, plant and equipment includes land and building under a $5,000,000 capital lease which can be purchased for a nominal amount at the end of the lease term. The Company believes that it maintains property and casualty insurance in amounts adequate for the risk and nature of its assets and operations and which are generally customary in its industry. -6- 7
4. Long-term debt June 30, 2001 ------------- Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (3.150% at June 30, 2001) $ 4,830 Unsecured term note; payable to a financial institution with interest on $179,000 at LIBOR plus 2% (6.64% at June 30, 2001) and interest on the remaining $500,000 at a current rate of 5.82%; quarterly principal payments of $35,714 through February 1, 2006 679 Various other secured term notes payable to government agencies 873 --------- 6,382 Less current portion (393) ---------- $ 5,989 =========
Industrial Development Revenue Bonds were issued by a government agency to finance the construction of the Company's new headquarters/Advanced Technology facility. Annual sinking fund payments of $170,000 commenced December 1, 2000 and continue through 2013, with a final payment of $2,620,000 due December 1, 2014. The Company has agreed to reimburse the issuer of the letter of credit if there are draws on that letter of credit. The Company pays the letter of credit bank an annual fee of 1% of the amount secured thereby and pays the remarketing agent for the bonds an annual fee of .25% of the principal amount outstanding. The Company's interest under the facility capital lease has been pledged to secure its obligations to the government agency, the bank and the bondholders. The Company's unsecured term note is payable in equal quarterly installments, maturing in 2006. The loan is collateralized by any and all equipment purchased with the proceeds of the term loan. The letter of credit reimbursement agreement, the unsecured term note agreement and the secured term notes contain, among other things, covenants relative to maintenance of working capital and tangible net worth and restrictions on capital expenditures, leases and additional borrowings. The Company also has a $1,000,000 line of credit on which there was no balance outstanding at June 30, 2001. -7- 8 5. Common shareholders' equity ---------------------------
Common stock ------------ Accumulated Number Capital in other of shares excess of Retained Treasury Comprehensive comprehensive issued Amount par value earnings ESOP stock income income ------------------------------------------------------------------------------------------ Balance December 31, 2000 2,614,506 $523 $13,361 $ 794 ($ 2,539) ($ 955) ($ 25) ========= ==== ======= ===== ======= ======= ========= Comprehensive income Net income - - - $ 336 - - $ 336 - Other comprehensive income, net of tax - - - - - - - - Minimum pension liability adjustment - - - - - - - - Other comprehensive income - - - - - - - - ------- Comprehensive income - - - - - - $ 336 - ======= Issuance of common stock - - - - - - - Compensation expense - - - - - - - Treasury stock - - - - - (74) - Exercise of stock options - - - - - - - --------- ---- ------- ------ -------- -------- ---------- Balance June 30, 2001 2,614,506 $523 $13,361 $1,130 ($ 2,539) ($ 1,029) ($ 25) ========= ==== ======= ===== ======= ======== =========
Earnings per share - ------------------ Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net earnings $ 214 $ 158 $ 336 $ 224 ===== ====== ====== ===== Weighted average common shares outstanding (basic) 1,877 1,844 1,883 1,844 Incremental shares from assumed conversions of stock options 0 4 0 4 Weighted average common shares outstanding (diluted) 1,877 1,848 1,883 1,848 Basic ----- Net income per share $0.11 $ 0.09 $ 0.18 $0.12 ===== = ==== = ==== ===== Diluted ------- Net income per share $0.11 $ 0.09 $ 0.18 $0.12 ===== = ==== = ==== =====
-8- 9 6. Business segments ----------------- The Company operates in two business segments, Advanced Technology Products and Consumer Products. The Company's reportable segments are strategic business units that offer different products and services. The segments are separate corporations and are managed separately. Operations in Advanced Technology Products involve the design, manufacture, and marketing of servo-control components for government and commercial industrial applications. Consumer Products operations involve the design, manufacture and marketing of a variety of cutlery products for use by consumer and government agencies. The Company's sales revenue are primarily derived from domestic customers.
Advanced Period ended Technology Consumer June 30, 2001 Products Products Consolidated ------------- -------- -------- ------------ Revenues from unaffiliated customers $ 6,142 $ 3,054 $ 9,196 ========= ========= ========= Profit $ 1,100 $ 110 $ 1,210 ========= ========= Depreciation expense (269) Interest expense (153) General corporate expense (254) ---------- Income before income taxes $ 534 =========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - ------- --------------------------------------------------------- The following table sets forth for the period indicated the percentage relationship of certain items in the consolidated statement of income to net revenues and the percentage increase or decrease of such items as compared to the indicated prior period.
Relationship to Period to Relationship to Period to net revenues period $ net revenues period $ three months ended increase six months ended increase June 30, (decrease) June 30, (decrease) 2001 2000 01-00 2001 2000 01-00 ---- ---- ----- ---- ---- ----- Net revenues Advanced technology products 68.5% 55.5% 30.2% 66.8% 53.2% 32.3% Consumer products 31.5% 44.5% (25.4%) 33.2% 46.8% (25.2%) ----- ----- ----- ----- 100.0% 100.0% 5.5% 100.0% 100.0% 5.4% Cost of goods sold, exclusive of depreciation 73.7% 71.9% 8.0% 73.8% 73.6% 5.6% ----- ----- ----- ----- Gross profit 26.3% 28.1% (1.1%) 26.2% 26.4% 4.7% ----- ----- ----- ----- Selling, general and administrative 14.3% 17.0% (11.3%) 15.8% 16.9% (1.6%) Interest 1.6% 2.3% (26.9%) 1.7% 2.2% (21.9%) Depreciation and amortization 3.5% 3.0% 23.0% 2.9% 3.0% 1.9% ---- ---- ----- ---- ---- ---- 19.4% 22.3% (15.2%) 20.4% 22.1% (21.6%) ----- ----- ----- ----- Income before income taxes 6.9% 5.8% 26.8% 5.8% 4.3% 46.7% Income tax provision 2.4% 2.3% 13.1% 2.1% 1.6% 41.4% ---- ---- ---- ---- Net income 4.5% 3.5% 35.4% 3.7% 2.6% 50.0% ==== ==== ==== ====
-9- 10 Management Discussion - --------------------- During the six month period ended June 30, 2001 and for the comparable period ended June 30, 2000, approximately 18% and 26% respectively, of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors. The Company's business is performed under fixed price contracts. It is noted that the many uncertainties in today's global economy, and difficulty in predicting defense appropriations, government and other expenditures (both actual and proposed) preclude any guarantees or even assurances that current programs will be continued or that programs in the prototype stages will ultimately result in production applications. It is because of such uncertainties and because such adverse occurrences may not be counterbalanced with new programs or otherwise, that cyclical downturns in operational performances are realistic expectations. Results of Operations - --------------------- The Company's consolidated results of operations for the six month period ended June 30, 2001 showed an approximate 5.4% increase in net revenues and an increase in net income of approximately 50.0% when compared to the same six month period of 2000. For the second quarter ended June 30, 2001, net revenues increased approximately 5.5% with an increase in net income of 35.4% compared to the same period of 2000. The increase in revenues for the six month period and quarter ended June 30, 2001 is primarily the result of increased sales and shipments at the Advanced Technology Group. Operating profit as a percentage of net revenues increased for both the six month period and quarter ended June 30, 2001 when compared to the comparable periods of 2000 due to product mix with a greater percentage of total revenues being generated from the Company's Advanced Technology Group. Selling, general and administrative expenses decreased for both the six month period and quarter ended June 30, 2001 when compared to the comparable periods of 2000 primarily due to a decrease in general administrative expenses. Interest expense decreased for both the six month period and quarter ended June 30, 2001 as the Company continues to pay down institutional debt and interest rates fluctuate as driven by external market factors. Income taxes for the six month period and quarter ended June 30, 2001 decreased as a percentage of income before taxes when compared to the same periods in 2000 due to the advantage of the recently passed tax law which provides a tax benefit for extraterritorial sales as well as the effects of variable state income taxes. Liquidity and Capital Resources - ------------------------------- The Company's primary liquidity and capital requirements relate to the working capital needs; primarily inventory, accounts receivable, capital investments in facilities, machinery, tools/dies and equipment and principal/interest payments on indebtedness. The Company's primary sources of liquidity have been from operating cash flows and from bank financing. During the six month period ended June 30, 2001, the Company expended $213,000 on capital expenditures. There are no material commitments for capital expenditures at June 30, 2001. -10- 11 FORWARD-LOOKING STATEMENTS In addition to historical information, certain sections of this Form 10-QSB contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those pertaining to the Company's capital resources and profitability. Forward-looking statements involve numerous risks and uncertainties. The Company derives a material portion of its revenues from contracts with agencies of the U.S. Government or their prime contractors. The Company's business is performed under fixed price contracts and the following factors, among others discussed herein, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: uncertainties in today's global economy and global competition, and difficulty in predicting defense appropriations, the vitality of the commercial aviation industry and its ability to purchase new aircraft, the willingness and ability of the Company's customers to fund long-term purchase programs, and market demand and acceptance both for the Company's products and its customers' products which incorporate Company-made components. The success of the Company also depends upon the trends of the economy, including interest rates, income tax laws, governmental regulation, legislation, population changes and those risk factors discussed elsewhere in this Form 10-QSB. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. The Company assumes no obligation to update forward-looking statements. -11- 12 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. Date: August 9, 2001 SERVOTRONICS, INC. By: /s/Lee D. Burns, Treasurer ------------------------------------------ Lee D. Burns, Treasurer and Chief Financial Officer By: /s/Raymond C. Zielinski, Vice President ------------------------------------------ Raymond C. Zielinski, Vice President -12- -----END PRIVACY-ENHANCED MESSAGE-----