0000950152-95-001778.txt : 19950815 0000950152-95-001778.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950152-95-001778 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: AMEX 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: 95562301 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 SERVOTRONICS 10-QSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 __ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 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) Check whether the registrant (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, 1995 ---------------------------- ---------------------------- Common Stock, $.20 par value 2,183,091 (Including shares to be issued for Stock Dividend; see Note 5 to Consolidated Financial Statements) 2
INDEX ----- PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements a) Consolidated Balance Sheet, June 30, 1995 3 b) Consolidated Statement of Income, Three and Six Months Ended June 30, 1995 and 1994 4 c) Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995 and 1994 5 d) Notes to Consolidated Financial Statements 6 e) Signatures 9 Item 2. Management's Discussion and Analysis or Plan of Operation 10 PART II. OTHER INFORMATION Item 4. Submission of matters to a Vote of Security Holders 13 Item 6(a). Exhibits 27 Financial Data Schedule
-2- 3 PART I FINANCIAL INFORMATION SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 1995 ($000's omitted except per share data) (Unaudited) Assets Current assets: Cash $ 144 Accounts receivable 2,444 Inventories 6,949 Prepaid income taxes 313 Deferred tax asset 499 Other 1,700 ---------- Total current assets 12,049 Property, plant and equipment, net 8,169 Other assets 477 ---------- $ 20,695 ========== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 165 Demand loan 575 Accounts payable 1,718 Accrued employee compensation and benefit cost 605 Other accrued liabilities 430 ---------- Total current liabilities 3,493 ---------- Long-term debt 6,412 Non-current deferred tax liability 602 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,440,408 shares 488 (including 123,160 shares to be issued for Stock Dividend; see Note 5 to Consolidated Financial Statements) Capital in excess of par value 12,496 Retained earnings 1,589 ---------- 14,573 Employee stock ownership trust commitment (3,145) Treasury stock, at cost, 257,317 shares (1,240) ---------- Total shareholders' equity 10,188 ---------- $ 20,695 ========== 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, 1995 1994 1995 1994 ---- ---- ---- ---- Net sales $ 4,481 $ 3,918 $ 8,418 $ 7,332 Costs and expenses: Cost of goods sold 3,145 2,587 5,803 4,821 Selling, general and administrative 798 736 1,533 1,415 Interest 110 130 186 204 Depreciation and amortization 135 92 298 189 -------- -------- -------- -------- 4,188 3,545 7,820 6,629 -------- -------- -------- -------- Income before income taxes 293 373 598 703 Income tax provision 114 149 230 277 -------- -------- -------- -------- Net income $ 179 $ 224 $ 368 $ 426 ======== ======== ======== ======== Net income per share* $ 0.12 $ 0.15 $ 0.24 $ 0.28 ======== ======== ======== ======== *Restated to give effect for shares issued in conjunction with the 6% stock dividend declared in June 1995 (See Note 5 to Consolidated Financial Statements). 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, 1995 1994 ---- ---- Cash flows related to operating activities: Net income $ 368 $ 426 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 298 189 Change in assets and liabilities - Accounts receivable 617 (294) Inventories (835) (641) Prepaid income taxes (29) (136) Other current assets (591) (14) Other assets 7 8 Accounts payable (72) (209) Accrued employee compensation & benefit costs (63) (31) Other accrued liabilities 17 (23) ------- -------- Net cash used in operating activities (283) (725) ------- -------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (195) (508) ------- -------- Net cash used in investing activities (195) (508) ------- -------- Cash flows related to financing activities: Acquisition of long-term debt 31 1,446 Increase in demand loan 475 0 Payments on long-term debt (74) (69) Payments on demand loan (300) 0 Purchase of treasury stock 0 (2) ------- -------- Net cash provided by financing activities 132 1,375 ------- -------- Net (decrease) increase in cash (346) 142 Cash at beginning of period 490 562 ------- -------- Cash at end of period $ 144 $ 704 ======= ======== See notes to consolidated financial statements
- 5 - 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000 omitted in tables except for 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 is $206,000 of unbilled revenues which represents revenue earned under the percentage of completion method (cost-to-cost) not yet billable under the terms of the contracts. During 1994, the Company suffered damages caused by a fire at one of its subsidiaries. The Company maintains property and business interruption insurance. Reclassification of prior year balances --------------------------------------- Certain prior year balances have been reclassified to conform with the current year presentation. 2. Inventories June 30, 1995 ------------- Raw materials and common parts $ 1,476 Work-in-process (including engineering and other support costs) 5,311 Finished goods 398 --------- 7,185 Less common parts expected to be used after one year (236) --------- $ 6,949 =========
Engineering and other support costs are incurred in fulfilling certain contracts which have a production cycle longer than one year. A portion of these costs will, therefore, not be realized within one year. -6- 7
3. Property, plant and equipment June 30, 1995 ----------------------------- ------------- Land $ 19 Buildings 6,578 Machinery, equipment and tooling 7,000 --------- 13,597 Less accumulated depreciation (5,428) --------- $ 8,169 =========
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.
4. Long-term debt -------------- June 30, 1995 ------------- Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (4.40% at June 30, 1995) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (9.25% at June 30, 1995); quarterly principal payments of $34,439 through November 1, 2000 724 Secured term note; payable to a government agency with interest at 6%; monthly principal payments of $2,778 commencing on July 1, 1995 through May 1, 2004, with a final principal payment of $102,754 due June 1, 2004 400 Various other secured term notes payable to government agencies 453 -------- 6,577 Less current portion (165) -------- $ 6,412 ========
Industrial Development Revenue Bonds were issued by a government agency in 1994 to replace an interim construction loan related to the construction of the Company's new headquarters/Advanced Technology facility. Annual sinking fund payments of $170,000 commence 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 -7- 8 under the facility capital lease has been pledged to secure its obligations to the government agency, the bank and the bondholders. The letter of credit reimbursement agreement, the unsecured term note agreement and a secured term note 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 secured term notes are secured by certain property and equipment and contain, among other things, covenants restricting loan proceeds for use in the construction of the Company's new headquarters/Advanced Technology facility. 5. Common shareholders' equity ---------------------------
Common stock ------------ Number Capital in of shares excess of Retained Treasury issued Amount par value earnings ESOP stock ------ ------ --------- -------- ---- ----- Balance December 31, 1994 2,317,248 $ 463 $ 11,982 $ 1,762 ($ 3,145) ($ 1,240) Stock dividend 123,160 25 514 (541) -- -- Net income -- -- -- 368 -- -- --------- ----- --------- ------- ------- ------- Balance June 30, 1995 2,440,408 $ 488 $ 12,496 $ 1,589 ($ 3,145) ($ 1,240) ========= ===== ========= ======= ======= =======
Per share data is based on weighted average outstanding shares of 1,544,566 and 1,484,475 for the second quarter ended June 30, 1995 and 1994 and 1,544,566 and 1,484,759 for the six month period ended June 30, 1995 and 1994. On June 30, 1995 the Company's Board of Directors declared a 6% stock dividend payable to shareholders of record on July 21, 1995. The payment date for the stock dividend is August 11, 1995. Accordingly, per share data for all periods presented in the accompanying income statement has been restated to give effect to the issuance of these shares. -8- 9 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 11, 1995 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 -9- 10 SERVOTRONICS, INC. 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 sales 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 sales period $ net sales period $ quarter ended increase six months ended increase June 30, (decrease) June 30, (decrease) 1995 1994 95-94 1995 1994 95-94 ---- ---- ----- ---- ---- ----- Net sales Advanced technology products 48.7% 44.5% 12.1% 48.8% 45.9% 11.1% Consumer products 51.3% 55.5% 4.2% 51.2% 54.1% 5.6% ------ ------ ----- ------ ------ ----- 100.0% 100.0% 14.4% 100.0% 100.0% 14.8% Cost of goods sold, exclusive of depreciation 70.2% 66.0% 21.6% 68.9% 65.8% 20.4% ------ ------ ----- ------ ------ ----- Gross profit 29.8% 34.0% -15.4% 31.1% 34.2% -8.8% ------ ------ ----- ------ ------ ----- Selling, general and administrative 17.8% 18.8% 8.4% 18.2% 19.3% 8.3% Interest 2.5% 3.3% -15.4% 2.2% 2.8% -8.8% Depreciation and amortization 3.0% 2.3% 46.7% 3.5% 2.6% 57.7% ------ ------ ----- ------ ------ ----- 23.3% 24.4% 39.7% 23.9% 24.7% 57.2% ------ ------ ----- ------ ------ ----- Income before provision for income taxes 6.5% 9.6% -21.4% 7.2% 9.5% -14.9% Income tax provision 2.5% 3.8% -23.5% 2.7% 3.8% -17.0% ------ ------ ----- ------ ------ ----- Net income 4.0% 5.8% -20.1% 4.5% 5.7% -13.6% ------ ------ ----- ------ ------ -----
- 10 - 11 Management Discussion --------------------- During the six month period ended June 30, 1995 and for the comparable period ended June 30, 1994, approximately 37% and 30% respectively, of the Company's revenues were derived from contracts with agencies of the US Government or their prime contractors. For the second quarter of 1995 and 1994, approximately 36% and 33% respectively, of the Company's revenues were derived from comparable sources. The Company's business is performed under fixed price contracts. It is noted that, the many uncertainties in today's global economy, the national deficit and defense cutbacks (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, 1995 showed an approximate 14.8% increase in net sales and a decrease in net income of approximately 13.6% when compared to the same six month period of 1994. For the second quarter of 1995, net sales increased approximately 14.4% with a decrease in net income of 20.1% compared to the same period in 1994. The increase in sales occurred in both the Advanced Technology and Consumer operations. Increased sales at the Advanced Technology operations is primarily due to revenue recognized under long-term contracts and increased shipments. Increased sales at the Consumer operations is due to increased shipments and price increases. The respective amounts of funded and unfunded sales backlog at June 30, 1995 and 1994 for the Advanced Technology Group (ATG) were approximately $8,300,000 of funded and $12,900,000 of unfunded and approximately $6,000,000 of funded and $16,600,000 of unfunded. Approximately $8,800,000 of the June 30, 1995 backlog is for product deliveries -11- 12 beyond 1997. The unfunded portion of the backlog is based on the Company's customers' estimated quantities for multi-year agreements for which the Company has not received firm orders. Operating profit as a percentage of net sales for the six month period ended June 30, 1995 decreased to 7.2% from 9.5% as reported for the same six month period of 1994. For the second quarter of 1995 operating profit as a percent of net sales decreased to 6.5% from 9.6% when compared to the same period in 1994. The fluctuations in operating profit as a percentage of net sales is a result of differences in the product mix in combination with higher depreciation and interest associated with the acquisition of the new Advanced Technology facility as previously reported. Selling, general and administrative costs increased for the six month period and quarter ended June 30, 1995 when compared to the comparable periods of 1994 due to an increase in sales, professional costs and financing costs. Further, depreciation expense for the same period increased as a result of the acquisition of the new Advanced Technology facility as previously reported while interest expense decreased due to fluctuation in interest rate which is partially offset by an increase in institutional debt. Income taxes for the six month period and quarter ended June 30, 1995 decreased as a percentage of income before taxes when compared to the comparable periods of 1994 primarily because of variable state income tax rates. Liquidity and Capital Resources ------------------------------- Certain contracts of the Advanced Technology Group require development and engineering costs in addition to hardware and the maintenance of inventory for replacement and/or overhaul. The replacement and/or overhaul units are billed at the time of shipment. The inventories at June 30, 1995, include costs associated with the initiation and maintenance of certain programs and costs in anticipation of increased demands upon the Company to support new programs And the request of customers' for shorter production lead time. -12- 13 During the six month period ended June 30, 1995, the Company expended $195,000 on capital expenditures. As previously reported, the Company moved into its new corporate headquarters/Advanced Technology facility during 1994. The financing of certain construction and related costs of the new facility was government assisted. Nonetheless, the new facility has resulted in an increase in long-term debt and substantial increase in related depreciation expense. The Company has received an Industrial Development Revenue Bond backed by a letter of credit from a financial institution to finance the construction and certain equipment for the new corporate headquarters/Advanced Technology facility. The Company has agreed to reimburse the financial institution if there are any draws under the letter of credit. The Company also has a $1,000,000 line of credit at June 30, 1995 of which $575,000 is outstanding at June 30, 1995. There are no material commitments for capital expenditures at June 30, 1995. In 1991, the Company's Board of Directors authorized the purchase by the Company of up to 250,000 additional shares of its common stock in open and privately negotiated transactions for a total authorized purchase of up to 350,000 shares, of which 257,317 shares have been purchased. In 1995, through July 31, no additional shares have been purchased. PART II OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------ --------------------------------------------------- The annual meeting of shareholders of the Registrant was held on June 30, 1995. At the meeting, each of the directors of the Registrant was elected to serve until the next annual meeting of shareholders until his successor is elected and qualified. The following table shows the results of the voting at the meeting. Withheld Name of Nominee For Authority --------------- --- --------- Dr. William H. Duerig 1,889,317.475 16,695.662 Donald W. Hedges 1,889,317.475 16,695.662 Nicholas D. Trbovich, Jr. 1,888,509.475 17,503.662 Dr. Nicholas D. Trbovich 1,889,319.475 16,693.662
-13- EX-27 2 EXHIBIT 27
5 1,000 6-MOS DEC-31-1995 JUN-30-1995 144 0 2,444 0 6,949 12,049 13,597 5,428 20,695 3,493 6,412 488 0 0 9,700 20,695 8,418 8,418 5,803 7,820 0 0 186 598 230 368 0 0 0 368 .24 .24