-----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, QmjX/TiJCTo8bXTQKX6BF6qqYhXQQ2z1lHZmPHUbnA3G4W1Jd0AsxaOIDe8BPsu1 PEM/0u1lpzCjQhAtbQxYww== 0000950152-95-002573.txt : 19951119 0000950152-95-002573.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950152-95-002573 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07109 FILM NUMBER: 95589678 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 10-Q 1 SERVOTRONICS, INC. 10-Q 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 September 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 October 31, 1995 ---------------------------- ------------------------------- Common Stock, $.20 par value 2,183,091 2 INDEX ----- PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements _______ a) Consolidated Balance Sheet, September 30, 1995 3 b) Consolidated Statement of Income, Three and Nine Months Ended September 30, 1995 and 1994 4 c) Consolidated Statement of Cash Flows for the Nine Months Ended September 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 6(a). Exhibits 27 Financial Data Schedule -2- 3 PART I FINANCIAL INFORMATION SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1995 ($000's omitted except per share data) (Unaudited) Assets Current assets: Cash $ 340 Accounts receivable 2,700 Inventories 6,707 Prepaid income taxes 115 Deferred tax asset 497 Other 1,612 ---------- Total current assets 11,971 Property, plant and equipment, net 8,109 Other assets 474 ---------- $ 20,554 Liabilities and Shareholders' Equity ============ Current liabilities: Current portion of long-term debt $ 200 Demand loan 450 Accounts payable 1,434 Accrued employee compensation and benefit costs 431 Other accrued liabilities 543 ------------ Total current liabilities 3,058 ------------ Long-term debt 6,598 Non-current deferred tax liability 602 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,440,408 shares 488 Capital in excess of par value 12,496 Retained earnings 1,697 ------------ 14,681 Employee stock ownership trust commitment (3,145) Treasury stock, at cost, 257,317 (1,240) ------------ Total shareholders' equity 10,296 ------------ $ 20,554 ============
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 Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ---------- ---------- ----------- ----------- Net sales $ 3,906 $ 3,345 $ 12,324 $ 10,677 Costs and expenses: Cost of goods sold 2,698 2,269 8,501 7,090 Selling, general and administrative 790 823 2,323 2,238 Interest 89 87 275 291 Depreciation and amortization 157 137 455 326 ---------- ---------- ----------- ----------- 3,734 3,316 11,554 9,945 ---------- ---------- ----------- ----------- Income before income taxes 172 29 770 732 Income tax provision 64 13 294 290 ---------- ---------- ----------- ----------- Net income $ 108 $ 16 $ 476 $ 442 ========== ========== =========== =========== Net income per share* $ 0.07 $ 0.01 $ 0.31 $ 0.30 ========== ========== =========== =========== *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)
Nine Months Ended September 30, 1995 1994 ----- ---- Cash flows related to operating activities: Net income $ 476 $ 442 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 455 326 Change in assets and liabilities - Accounts receivable 361 (515) Inventories (593) (887) Prepaid income taxes 169 (34) Other current assets (503) 10 Other assets 11 742 Accounts payable (356) (637) Accrued employee compensation & benefit costs (237) 18 Other accrued liabilities 130 (244) ---------- ---------- Net cash used in operating activities (87) (779) ---------- ---------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (292) (1,104) ---------- ---------- Net cash used in investing activities (292) (1,104) ---------- ---------- Cash flows related to financing activities: Acquisition of long-term debt 302 2,325 Increase in demand loan 475 0 Payments on long-term debt (123) (300) Payments on demand loan (425) 0 Purchase of treasury stock 0 (2) ---------- ---------- Net cash provided by financing activities 229 2,023 ---------- ---------- Net (decrease) increase in cash (150) 140 Cash at beginning of period 490 562 ---------- ---------- Cash at end of period $ 340 $ 702 ========== ==========
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 accrued liabilities is $49,000 of deferred revenue which represents billings under the terms of the contracts in excess of revenue earned under the percentage of completion method. 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 September 30, 1995 ------------------ Raw materials and common parts $ 1,405 Work-in-process (including engineering and other support costs) 5,207 Finished goods 331 --------- 6,943 Less common parts expected to be used after one year (236) --------- $ 6,707 =========
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 September 30, 1995 ------------------ Land $ 19 Buildings 6,588 Machinery, equipment and tooling 7,087 --------- 13,694 Less accumulated depreciation (5,585) -------- $ 8,109 =========
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
September 30, 1995 ------------------ Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (4.95% at September 30, 1995) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (9% at September 30, 1995); quarterly principal payments of $34,439 through November 1, 2000 689 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 392 Various other secured term notes payable to government agencies 717 -------- 6,798 Less current portion (200) -------- $ 6,598 ========
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 -- -- -- 476 -- -- ------------- -------- ----------- --------- ---------- ----------- Balance September 30, 1995 2,440,408 $ 488 $ 12,496 $ 1,697 ($3,145) ($ 1,240) ============= ======== ========= ======== ======= ===========
Per share data is based on weighted average outstanding shares of 1,544,566 and 1,484,755 for the third quarter ended September 30, 1995 and 1994 and 1,544,566 and 1,484,758 for the nine month period ended September 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 was 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: November 13, 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 nine months ended increase September 30, (decrease) September 30, (decrease) 1995 1994 95-94 1995 1994 95-94 ---- ---- ----- ---- ---- ----- Net sales Advanced technology products 51.4% 37.9% 22.9% 49.6% 43.4% 14.8% Consumer products 48.6% 62.1% -5.0% 50.4% 56.6% 2.2% ------ ------ ------ ------ ------ ----- 100.0% 100.0% 16.8% 100.0% 100.0% 15.4% Cost of goods sold, exclusive of depreciation 69.1% 67.8% 18.9% 69.0% 66.4% 19.9% ------ ------ ------ ------ ------ ------ Gross profit 30.9% 32.2% 2.3% 31.0% 33.6% -5.5% ------ ------ ------ ------ ------ ------ Selling, general and administrative 20.2% 24.6% -4.0% 18.8% 21.0% 3.8% Interest 2.3% 2.6% 2.3% 2.2% 2.7% -5.5% Depreciation and amortization 4.0% 4.1% 14.6% 3.7% 3.1% 39.6% ------ ------ ------ ------ ------ ------ 26.5% 31.3% 12.9% 24.7% 26.8% 37.9% ------ ------ ------ ------ ------ ----- Income before provision forincome taxes 4.4% 0.9% 493.1% 6.3% 6.8% 5.2% Income tax provision 1.6% 0.4% 392.3% 2.4% 2.7% 1.4% ----- ------ ------ ------ ------ ----- Net income 2.8% 0.5% 575.0% 3.9% 4.1% 7.7% ----- ------ ------ ------ ------ -----
- 10 - 11 MANAGEMENT DISCUSSION During the nine month period ended September 30, 1995 and for the comparable period ended September 30, 1994, approximately 40% and 25% respectively, of the Company's revenues were derived from contracts with agencies of the US Government or their prime contractors. For the third quarter of 1995 and 1994, approximately 46% and 20% 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 nine month period ended September 30, 1995 showed an approximate 15.4% increase in net sales and an increase in net income of approximately 7.7% when compared to the same nine month period of 1994. For the third quarter of 1995, net sales increased approximately 16.8% with an increase in net income of 575.0% 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 total sales backlog (including the funded and unfunded) at September 30, 1995 and 1994 for the Advanced Technology Group (ATG) were approximately $5,500,000 for the funded sales backlog and in excess of $25,500,000 for the total sales backlog and approximately $6,000,000 for the funded sales backlog and in excess -11- 12 of $21,900,000 for the total sales backlog. Approximately $13,100,000 of the September 30, 1995 backlog is for product deliveries beyond 1997. The increasing industry-wide pressures to shorten lead time and the recognition, by the Company, of the percentage of completion method for recognition of revenue (cost to cost method) results in a reported lower funded backlog than otherwise would be reported if these factors were not present. The unfunded portion of the backlog is based on the Company's customers' estimated quantities for long term arrangements for which the Company has not received firm orders. Operating profit as a percentage of net sales for the nine month period ended September 30, 1995 decreased to 6.3% from 6.8% when compared to the same nine month period of 1994. For the third quarter of 1995 operating profit as a percent of net sales increased to 4.4% from 0.9% 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 nine month period ended September 30, 1995 when compared to the comparable periods of 1994 due to an increase in sales, professional costs and financing costs. For the quarter ended September 30, 1995 these costs showed a decrease compared to the comparable period of 1994 as the prior year amount included certain non-recurring expenses associated with the move of the Advanced Technology Group to its new facility which was partially offset by increased sales costs, 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 for the nine month period and increased in the three month comparable period due to fluctuation in interest rate which is partially offset by an increase in institutional debt. Income taxes for the nine month period and quarter ended September 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. -12- 13 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 September 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. During the nine month period ended September 30, 1995, the Company expended $292,000 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 September 30, 1995 of which $450,000 is outstanding at September 30, 1995. There are no material commitments for capital expenditures at September 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 October 31, the Company has not purchased any of its shares. -13- EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 340 0 2,700 0 6,707 11,971 13,694 5,585 20,554 3,058 6,598 488 0 0 9,808 20,554 12,324 12,324 8,501 11,554 0 0 275 770 294 476 0 0 0 476 0.31 0.31
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