-----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, L1WpG81HpdNCjrHLc21i60Ol8OSgjlQcjyZnutw/WG5kgvr6KPxH7QqjOn2/bl1A ydCg4QPwf4fwWMG5zVD58A== 0000950152-96-006128.txt : 19961118 0000950152-96-006128.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950152-96-006128 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE 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: 96664614 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 10QSB 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, 1996 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, 1996 ---------------------------- ------------------------------- Common Stock, $.20 par value 2,357,189 2 INDEX -----
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements a) Consolidated Balance Sheet, September 30, 1996 3 b) Consolidated Statement of Income, Three and Nine Months Ended September 30, 1996 and 1995 4 c) Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 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, 1996 ($000's omitted except per share data) (Unaudited) Assets Current assets: Cash $ 1,566 Accounts receivable 2,127 Inventories 7,037 Deferred tax asset 501 Other 1,336 -------- Total current assets 12,567 Property, plant and equipment, net 7,432 Other assets 710 -------- $ 20,709 ======== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 243 Accounts payable 813 Accrued employee compensation and benefit costs 905 Other accrued liabilities 296 -------- Total current liabilities 2,257 -------- Long-term debt 6,698 Non-current deferred tax liability 635 Other non-current liability 251 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,614,506 shares 523 Capital in excess of par value 13,269 Retained earnings 1,360 -------- 15,152 Employee stock ownership trust commitment (3,044) Treasury stock, at cost, 257,317 shares (1,240) -------- Total shareholders' equity 10,868 $ 20,709 ========
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, 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $ 3,643 $ 3,906 $ 11,543 $ 12,324 Costs and expenses: Cost of goods sold 2,511 2,698 7,963 8,501 Selling, general and administrative 730 790 2,294 2,323 Interest 85 89 250 275 Depreciation and amortization 160 157 473 455 Charges related to sale of assets 477 0 477 0 Gain on sale of assets (1,116) 0 (1,116) 0 -------- -------- --------- --------- 2,847 3,734 10,341 11,554 -------- -------- --------- --------- Income before income taxes 796 172 1,202 770 Income tax provision 307 64 453 294 -------- -------- --------- --------- Net income $ 489 $ 108 $ 749 $ 476 ======== ======== ========= ========= Net income per share $ 0.29 $ 0.07* $ 0.45 $ 0.29* ======== ======== ========= ========= * Restated to give effect to shares issued pursuant to the 8% stock dividend declared in May 1996 (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, 1996 1995 ---- ---- Cash flows related to operating activities: Net income $ 749 $ 476 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation and amortization 473 455 Gain on sale of assets (exclusive of related charges) (1,116) 0 Change in assets and liabilities - Accounts receivable 368 361 Inventories (369) (593) Prepaid income taxes 261 169 Other current assets (386) (503) Other assets (241) 11 Accounts payable (85) (356) Accrued employee compensation & benefit costs 218 (237) Other accrued liabilities 88 130 Other non-current liability 251 0 Change in current portion of long-term debt 17 0 -------- -------- Net cash provided by (used in) operating activities 228 (87) -------- -------- Cash flows related to investing activities: Sale of Assets 1,255 0 Capital expenditures - property, plant & equipment (337) (292) -------- -------- Net cash provided by (used in) investing activities 918 (292) -------- -------- Cash flows related to financing activities: Acquisition of long-term debt 0 302 Increase in demand loan 0 475 Principal payments on long-term debt (192) (123) Payments on demand loan 0 (425) -------- -------- Net cash (used in) provided by financing activities (192) 229 -------- -------- Net increase (decrease) in cash 954 (150) Cash at beginning of period 612 490 -------- -------- Cash at end of period $ 1,566 $ 340 ======== ========
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 $455,000 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. Reclassification of prior year balances --------------------------------------- Certain prior year balances have been reclassified to conform with the current year presentation. 2. Inventories -----------
September 30, 1996 ------------------ Raw materials and common parts $ 1,240 Work-in-process (including engineering and other support costs) 5,676 Finished goods 358 ---------- 7,273 Less common parts expected to be used after one year (236) ---------- $ 7,037 ==========
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, 1996 ------------------ Land $ 11 Buildings 6,052 Machinery, equipment and tooling 7,322 ---------- 13,385 Less accumulated depreciation (5,953) ---------- $ 7,432 ==========
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, 1996 ------------------ Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (4.30% at September 30, 1996) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (8.50% at September 30, 1996); quarterly principal payments of $34,439 through November 1, 2000 551 Secured term note; payable to a government agency with interest at 6%; monthly principal payments of $2,778 commencing on July 1, 1996 through May 1, 2004, with a final principal payment of $102,754 due June 1, 2004 358 Various other secured term notes payable to government agencies 1,032 --------- 6,941 Less current portion (243) --------- $ 6,698 =========
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. 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, 1995 2,440,408 $ 488 $ 12,495 $ 1,422 ($ 3,044) ($ 1,240) Stock dividend 174,098 35 774 (811) -- -- Net income -- -- -- 749 -- -- --------- -------- ---------- --------- --------- ---------- Balance September 30, 1996 2,614,506 $ 523 $ 13,269 $ 1,360 ($ 3,044) ($ 1,240) ========= ======== ========== ========= ========= ==========
Per share data is based on weighted average outstanding shares of 1,661,815 and 1,628,844 for the third quarter ended September 30, 1996 and 1995 and 1,661,815 and 1,628,844 for the nine month period ended September 30, 1996 and 1995. On May 3, 1996 the Company's Board of Directors declared an 8% stock dividend payable to shareholders of record on May 31, 1996. The payment date for the stock dividend was July 1, 1996. 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 14, 1996 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 periods 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) 1996 1995 96-95 1996 1995 96-95 ---- ---- ----- ---- ---- ----- Net sales Advanced technology products 55.4% 51.4% -0.2% 53.4% 49.6% 0.4% Consumer products 44.6% 48.6% -7.5% 46.6% 50.4% -7.0% ----- ----- ----- ----- ----- ----- 100.0% 100.0% -6.7% 100.0% 100.0% -6.3% Cost of goods sold, exclusive of depreciation 68.9% 69.1% -6.9% 69.0% 69.0% -6.3% Gross profit 31.1% 30.9% -6.3% 31.0% 31.0% -6.3% ----- ----- ----- ----- ----- ----- Selling, general and administrative 20.0% 20.2% -7.6% 19.9% 18.8% -1.2% Interest 2.3% 2.3% -4.5% 2.2% 2.2% -9.1% Depreciation and amortization 4.4% 4.0% 1.9% 4.1% 3.7% 4.0% Charges related to sale of assets 13.1% 0.0% - 4.1% 0.0% - Gain on sale of assets -30.6% 0.0% - -9.7% 0.0% - ----- ----- ----- ----- ----- ----- 9.2% 26.5% -10.2% 20.6% 24.7% -6.3% ----- ----- ----- ----- ----- ----- Income before provision for income taxes 21.9% 4.4% 362.8% 10.4% 6.3% 56.1% Income tax provision 8.5% 1.6% 379.7% 3.9% 2.4% 54.1% ----- ----- ----- ----- ----- ----- Net income 13.4% 2.8% 352.8% 6.5% 3.9% 57.4% ----- ----- ----- ----- ----- -----
-10- 11 Management Discussion - --------------------- During the nine month period ended September 30, 1996 and for the comparable period ended September 30, 1995, approximately 32% and 40% 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 1996 and 1995, approximately 39% and 46% 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. Because of such uncertainties and because such adverse occurrences may not be counterbalanced with new programs or otherwise mitigated, 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, 1996 showed an approximate 6.3% decrease in net sales with a decrease in operating income as a percentage of net sales from approximately 6.2% to 4.9% when compared to the same nine month period of 1995. For the third quarter of 1996, net sales decreased approximately 6.7% with a decrease in operating profit as a percentage of net sales from approximately 4.4% to 4.3% compared to the same period in 1995. The decrease in sales is primarily attributable to a decrease in sales at the Consumer Products Group's operations due to a decrease in customer demands while the decrease in operating profit as a percentage of net sales is a result of differences in product mix. The Advanced Technology Group's total backlog (funded and unfunded) as of September 30, 1996 increased by approximately 25% from a year earlier. The September 30, 1996 total backlog is approximately $32,000,000 as compared to $25,500,000 of which $25,200,000 and $20,000,000 were unfunded in each of the respective comparative periods. Approximately -11- 12 $9,600,000 of the September 30, 1996 backlog is for product deliveries beyond 1999. 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. Net income for the nine month period ended September 30, 1996 increased 57.4% when compared to the same period of 1995. The increase in net income reflects the previously reported sale of the former headquarters which was located at 3901 Union Road. This sale was completed in the third quarter of 1996 and is reflected as a gain on the sale of assets and the related charges, which include certain enviornmental and compensation costs, on the aforementioned sale of assets and resulted in an increase in net income when comparing quarter to quarter results of 1996 and 1995 as shown in the accompanying financial statements. Selling, general and administrative costs decreased for the nine month period and quarter ended September 30, 1996 when compared to the comparable periods of 1995 due to a decrease in sales and professional costs. Income taxes for the nine month period ended September 30, 1996 decreased as a percentage of income before taxes when compared to the same period of 1995 while income taxes for the three month period ended September 30, 1996 increased as a percentage of income before taxes when compared to the same period in 1995. The fluctuations are primarily attributable to 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 September 30, 1996, 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 times. -12- 13 During the nine month period ended September 30, 1996, the Company expended $337,000 on capital expenditures. The Company also has a $1,000,000 line of credit at September 30, 1996, of which nothing is outstanding at September 30, 1996. There are no material commitments for capital expenditures at September 30, 1996. 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 1996, through October 31, no additional shares have been purchased. -13- EX-27 2 EXHIBIT 27
5 0000089140 SERVOTRONICS, INC. 1,000 9-MOS DEC-31-1996 SEP-30-1996 1,566 0 2,127 0 7,037 12,567 7,432 0 20,709 2,257 6,698 523 0 0 10,345 20,709 11,543 11,543 7,963 10,341 0 0 250 1,202 453 749 0 0 0 749 0.45 0.45
-----END PRIVACY-ENHANCED MESSAGE-----