-----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, AiVqKuuVms/QGEIe+A2QBOj2ocTeQzizkHrQIzJcYMzoIoW+d3fUzogGy8f6NJ25 opZKjpuGQxg6WJRNd+19IA== 0000950152-97-003917.txt : 19970515 0000950152-97-003917.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950152-97-003917 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97605455 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, INC. 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 March 31, 1997 __ 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 April 30, 1997 - ------------------------------------ ----------------------------- Common Stock, $.20 par value 2,355,478 (See Note 5 to Consolidated Financial Statements) 2 INDEX -----
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements a) Consolidated Balance Sheet, March 31, 1997 3 b) Consolidated Statement of Income, Three Months Ended March 31, 1997 and 1996 4 c) Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1997 and 1996 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 MARCH 31, 1997 ($000'S OMITTED EXCEPT PER SHARE DATA) (UNAUDITED) Assets Current Assets: Cash $ 1,261 Accounts receivable 2,044 Inventories 7,821 Prepaid income taxes 102 Deferred tax asset 564 Other 1,072 -------- Total current assets 12,864 Property, plant and equipment, net 7,597 Other assets 451 -------- $ 20,912 ======== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 246 Accounts payable 1,291 Accrued employee compensation and benefit costs 912 Other accrued liabilities 162 -------- Total current liabilities 2,611 -------- Long-term debt 6,589 Non-current deferred tax liability 543 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,614,506 523 Capital in excess of par value 13,269 Retained earnings 1,560 -------- 15,352 Employee stock ownership trust commitment (2,943) Treasury stock, at cost, 259,028 shares (1,240) -------- Total shareholders' equity 11,169 -------- $ 20,912 ======== 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 March 31, 1997 1996 ---- ---- Net sales $ 3,473 $ 3,486 Costs and expenses: Cost of goods sold 2,402 2,416 Selling, general and administrative 721 729 Interest 79 80 Depreciation and amortization 158 156 ------- ------ 3,360 3,381 ------- ------ Income before income taxes 113 105 Income tax provision 38 35 ------- ------ Net income $ 75 $ 70 ======= ====== Net income per share $ 0.04 $ 0.04 * ======= ====== * Restated to give effect for shares issued in conjunction with 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) Three Months Ended March 31, 1997 1996 ---- ---- Cash flows related to operating activities: Net income $ 75 $ 70 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation and amortization 158 156 Change in assets and liabilities - Accounts receivable 670 242 Inventories (614) (590) Prepaid income taxes (102) 8 Other current assets 57 7 Other assets 4 4 Accounts payable 300 123 Accrued employee compensation & benefit costs 36 130 Other accrued liabilities (58) 0 Accrued income taxes (200) 0 ------- ------- Net cash provided by operating activities 326 150 Cash flows related to investing activities: Capital expenditures - property, plant & equipment (395) (97) ------- ------- Net cash used in investing activities (395) (97) Cash flows related to financing activities: Principal payments on long-term debt (59) (53) ------- ------- Net cash used in financing activities (59) (53) ------- ------- Net decrease in cash (128) 0 Cash at beginning of period 1,389 612 ------- ------- $1,261 $ 612 See notes to consolidated financial statements -5- 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000's 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 is $227,000 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. Included in other accrued liabilities is $26,000 of deferred revenue which represents billings under the terms of the contracts in excess of revenue earned under the percentage of completion method. Reclassification of prior year balances --------------------------------------- Certain prior year balances have been reclassified to conform with the current year presentation. 2. Inventories March 31, 1997 ----------- -------------- Raw materials and common parts $1,165 Work-in-process (including engineering and other support costs) 6,561 Finished goods 331 ------ 8,057 Less common parts expected to be used after one year (236) ------ $7,821 ====== 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 March 31, 1997 ----------------------------- -------------- Land $ 11 Buildings 6,069 Machinery, equipment and tooling 7,785 ------- 13,865 Less accumulated depreciation (6,268) ------- $ 7,597 ======= 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 March 31, 1997 -------------- Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (3.85% at March 31, 1997) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (8.50% at March 31, 1997); quarterly principal payments of $34,439 through November 1, 2000 482 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 342 Various other secured term notes payable to government agencies 1,011 ------- 6,835 Less current portion (246) ------- $ 6,589 ======= 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 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 under the facility capital lease has been pledged to secure its obligations to the government agency, the bank and the bondholders. -7- 8 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. 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, 1996 2,614,506 $ 523 $ 13,269 $ 1,485 ($ 2,943) ($ 1,240) Net income -- -- -- 75 -- -- --------- -------- ---------- --------- --------- ---------- Balance March 31, 1997 2,614,506 $ 523 $ 13,269 $ 1,560 ($ 2,943) ($ 1,240) ========= ======== ========== ========= ========= ==========
Per share data is based on weighted average outstanding shares of 1,692,918 and 1,660,104 for the first quarter ended March 31, 1997 and 1996. In February of 1997, the Financial Accounting Standards Board (FASB) issued a Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FASB 128). FASB 128 replaces the presentation of primary and fully diluted earnings per share with basic and diluted earnings per share, respectively. In accordance with the provisions of FASB 128, the Company will adopt the standards for reporting the basic and diluted earnings per share for all financial statements with periods ending after December 15, 1997. The Company has considered the potential impact of FASB 128 and has concluded that the effect of adoption will not have a material effect on earnings per share. 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 have been stated 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: May 14, 1997 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 net sales period $ three months ended increase March 31, (decrease) 1997 1996 97-96 ---- ---- ----- Net sales Advanced technology products 53.2% 45.4% 7.6% Consumer products 46.8% 54.6% -8.0% ----- ----- ----- 100.0% 100.0% -0.4% Cost of goods sold, exclusive of depreciation 69.2% 69.3% -0.6% ------ ------ ----- Gross profit 30.8% 30.7% -1.3% ------ ------ ----- Selling, general and administrative 20.8% 20.9% -1.1% Interest 2.3% 2.3% -1.3% Depreciation and amortization 4.5% 4.5% 1.3% ------ ------ ----- 27.6% 27.7% -1.1% Income before provision for income taxes 3.2% 3.0% 7.6% Income tax provision 1.1% 1.0% 8.6% ------ ------ ----- Net income 2.1% 2.0% 7.1% ====== ====== ===== -10- 11 Management Discussion - --------------------- During the three month period ended March 31, 1997 and for the comparable period ended March 31, 1996, approximately 34% and 20% respectively, of the Company's revenues were derived from contracts with agencies of the US 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, 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 three month period ended March 31, 1997 showed an approximate .4% decrease in net sales and an increase in net income of approximately 7.1% when compared to the same three month period of 1996. The decrease in sales is the result of a decrease in sales at the Consumer Products operations, due to a decrease in customer demands partially offset by an increase in sales at the Advanced Technology operations. The Advanced Technology Group's total backlog (funded and unfunded) as of March 31, 1997 increased by approximately 43% from a year earlier. The March 31, 1997 total backlog is approximately $45,900,000 as compared to $32,100,000 of which $37,700,000 and $24,700,000 were unfunded in each of the respective comparable periods. Approximately $29,500,000 of the March 31, 1997 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. Operating profit as a percentage of net sales for the three month period ended March 31, 1997 increased to 3.2 % from 3.0% as reported for the same three month period of 1996. The -11- 12 fluctuations in operating profit as a percentage of net sales is a result of differences in the product mix. Selling, general and administrative costs decreased for the three month period ended March 31, 1997 when compared to the same three month period of 1996 due to a decrease in sales and professional costs. Income taxes for the three month period ended March 31, 1997 increased as a percentage of income before taxes when compared to the same three month period of 1996 due primarily 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. During the three month period ending March 31, 1997, the Company continued to invest in additional inventory for primarily new programs. These costs and those incurred in previous periods are expensed as hardware is shipped. The inventories at March 31, 1997, 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 three month period ended March 31, 1997, the Company expended $395,000 on capital expenditures. The Company also has a $1,000,000 line of credit at March 31, 1997 of which nothing is outstanding at March 31, 1997. There are no material commitments for capital expenditures at March 31, 1997. 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 254,424 shares have been purchased. In 1997, through April 30, no additional shares have been purchased. -12- 13 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 approximately 34% 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, the growth of the national deficit and difficulty in predicting defense appropriations, the discontinuance of current defense programs, 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 and issue substantial follow-on orders to the Company for long-term programs, competitive products and pricing, difficulties in the development or commercialization of products, product demand and market acceptance, both for the Company's products and its customers' products which incorporate components supplied by the Company, enforceability of intellectual property rights, capacity and supply, the effects of foreign competition, and the Company's future accounting policies. 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 the date hereof. The Company assumes no obligation to update forward-looking statements. -13- EX-27 2 EXHIBIT 27
5 0000089140 SERVOTRONICS, INC. 1,000 3-MOS DEC-31-1997 MAR-31-1997 1,261 0 2,044 0 7,821 12,864 7,597 0 20,912 2,611 6,589 523 0 0 10,646 20,912 3,473 3,473 2,402 3,360 0 0 79 113 38 0 0 0 0 75 $0.04 $0.04
-----END PRIVACY-ENHANCED MESSAGE-----