-----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, L6RAo/7VgHN8xLuDR9L4pb2UhD4SYxFyL4Ao0Py1LAHgzhGZjJd6qfwttV1JaPYg vFT+6113+QDHhesgCoDl5g== 0000950152-97-007899.txt : 19971113 0000950152-97-007899.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950152-97-007899 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 001-07109 FILM NUMBER: 97715276 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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 [ ] 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) 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 OCTOBER 31, 1997 - ---------------------------- ------------------------------------- COMMON STOCK, $.20 PAR VALUE 2,355,478 (SEE NOTE 5 TO CONSOLIDATED FINANCIAL STATEMENTS) 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, SEPTEMBER 30, 1997 3 b) CONSOLIDATED STATEMENT OF INCOME, THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 4 c) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 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 13 ITEM 6(a). EXHIBITS 27 FINANCIAL DATA SCHEDULE
-2- 3 PART I FINANCIAL INFORMATION SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 ($000'S OMITTED EXCEPT PER SHARE DATA) (UNAUDITED) ASSETS CURRENT ASSETS: CASH $ 1,000 ACCOUNTS RECEIVABLE 2,188 INVENTORIES 8,118 PREPAID INCOME TAXES 249 DEFERRED TAX ASSET 564 OTHER 969 -------- TOTAL CURRENT ASSETS 13,088 PROPERTY, PLANT AND EQUIPMENT, NET 7,493 OTHER ASSETS 444 -------- $ 21,025 ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: CURRENT PORTION OF LONG-TERM DEBT $ 246 ACCOUNTS PAYABLE 1,021 ACCRUED EMPLOYEE COMPENSATION AND BENEFIT COSTS 880 ACCRUED INCOME TAXES 99 OTHER ACCRUED LIABILITIES 265 -------- TOTAL CURRENT LIABILITIES 2,511 -------- LONG-TERM DEBT 6,486 NON-CURRENT DEFERRED TAX LIABILITY 543 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 1,876 -------- 15,668 EMPLOYEE STOCK OWNERSHIP TRUST COMMITMENT (2,943) TREASURY STOCK, AT COST, 259,028 SHARES (1,240) -------- TOTAL SHAREHOLDERS' EQUITY 11,485 -------- $ 21,025 ========
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, 1997 1996 1997 1996 ---- ---- ---- ---- NET SALES $ 3,578 $ 3,643 $11,278 $ 11,543 COSTS AND EXPENSES: COST OF GOODS SOLD 2,418 2,511 7,612 7,963 SELLING, GENERAL AND ADMINISTRATIVE 743 730 2,319 2,294 INTEREST 92 85 252 250 DEPRECIATION AND AMORTIZATION 159 160 475 473 --------- ---------- --------- ---------- 3,412 3,486 10,658 10,980 --------- --------- --------- ---------- INCOME BEFORE NET GAIN ON THE SALE OF ASSETS AND INCOME TAXES 166 157 620 563 NET GAIN ON SALE OF ASSETS 0 639 0 639 --------- ---------- --------- ---------- INCOME BEFORE INCOME TAXES 166 796 620 1,202 INCOME TAX PROVISION 61 307 229 453 --------- --------- --------- ---------- NET INCOME $ 105 $ 489 $ 391 $ 749 ========= ========= ========= ========== NET INCOME PER SHARE $ 0.06 $ 0.29 $ 0.23 $ 0.45 ========= ========= ========= ==========
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, 1997 1996 ---- ---- CASH FLOWS RELATED TO OPERATING ACTIVITIES: NET INCOME $ 391 $ 749 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES - DEPRECIATION AND AMORTIZATION 475 473 GAIN ON SALE OF ASSETS (EXCLUSIVE OF RELATED CHARGES) 0 (1,116) CHANGE IN ASSETS AND LIABILITIES - ACCOUNTS RECEIVABLE 526 368 INVENTORIES (911) (369) PREPAID INCOME TAXES (249) 261 OTHER CURRENT ASSETS 160 (386) OTHER ASSETS 11 (241) ACCOUNTS PAYABLE 30 (85) ACCRUED EMPLOYEE COMPENSATION & BENEFIT COSTS 6 218 OTHER ACCRUED LIABILITIES 42 88 OTHER NON-CURRENT LIABILITY 0 251 CHANGE IN CURRENT PORTION OF LONG-TERM DEBT (3) 17 ACCRUED INCOME TAXES (101) 0 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 377 228 --------- --------- CASH FLOWS RELATED TO INVESTING ACTIVITIES: SALE OF ASSETS 0 1,255 CAPITAL EXPENDITURES - PROPERTY, PLANT & EQUIPMENT (607) (337) --------- --------- NET CASH USED IN (PROVIDED BY) INVESTING ACTIVITIES (607) 918 --------- --------- CASH FLOWS RELATED TO FINANCING ACTIVITIES: INCREASE IN DEMAND LOAN 250 0 PAYMENTS ON DEMAND LOAN (250) 0 PRINCIPAL PAYMENTS ON LONG-TERM DEBT (159) (192) --------- --------- NET CASH USED IN FINANCING ACTIVITIES (159) (192) --------- --------- NET (DECREASE) INCREASE IN CASH (389) 954 --------- --------- CASH AT BEGINNING OF PERIOD 1,389 612 --------- --------- CASH AT END OF PERIOD $ 1,000 $ 1,566 ========= =========
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 $157,000 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 $18,000 of deferred revenue which represents billings and 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 SEPTEMBER 30, 1997 ----------- ------------------ Raw materials and common parts $ 1,084 Work-in-process (including engineering and other support costs) 6,820 Finished goods 450 ------- 8,354 Less common parts expected to be used after one year (236) ------- $ 8,118 =======
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, 1997 ------------------ Land $ 11 Buildings 6,109 Machinery, equipment and tooling 7,957 -------- 14,077 Less accumulated depreciation (6,584) -------- $ 7,493 ========
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, 1997 ------------------ Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (4.25% at September 30, 1997) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (8.75% at September 30, 1997); quarterly principal payments of $34,439 through November 1, 2000 413 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 325 Various other secured term notes payable to government agencies 994 --------- 6,732 Less current portion (246) --------- $ 6,486 =========
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 -7- 8 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. 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 -- -- -- 391 -- -- --------- ---- ------- ------ ------- ------- Balance September 30, 1997 2,614,506 $523 $13,269 $1,876 ($2,943) ($1,240) ========= ==== ======= ====== ======= =======
Per share data is based on weighted average outstanding shares of 1,692,918 for the third quarter and nine month periods ended September 30, 1997 and 1,660,104 for the third quarter and nine month periods ended September 30, 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. 8 9 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) 1997 1996 97-96 1997 1996 97-96 ---- ---- ----- ---- ---- ----- Net sales Advanced technology products 58.1% 55.4% 2.8% 57.9% 53.4% 3.5% Consumer products 41.9% 44.6% -2.7% 42.1% 46.6% -5.4% ---- ---- ----- ---- ---- ---- 100.0% 100.0% -1.8% 100.0% 100.0% -2.3% Cost of goods sold, exclusive of depreciation 67.6% 68.9% -3.7% 67.5% 69.0% -4.4% ---- ---- ----- ---- ---- ---- Gross profit 32.4% 31.1% 2.5% 32.5% 31.0% 2.4% ---- ---- ----- ---- ---- ---- Selling, general and administrative 20.8% 20.0% 1.8% 20.6% 19.9% 1.1% Interest 2.6% 2.3% 8.2% 2.2% 2.2% 0.8% Depreciation and amortization 4.4% 4.4% -0.6% 4.2% 4.1% 0.4% Net gain on sale of assets 0.0% -17.5% - 0.0% -5.5% - ---- --- ----- ---- ---- ---- 27.8% 9.2% 195.8% 27.0% 20.6% 28.1% ---- ---- ----- ---- ---- ---- Income before provision for income taxes 4.6% 21.9% -79.1% 5.5% 10.4% -48.4% Income tax provision 1.7% 8.5% -80.1% 2.0% 3.9% -49.4% ---- ---- ----- ---- ---- ---- Net income 2.9% 13.4% -78.5% 3.5% 6.5% -47.8% ===== ===== ===== ===== ===== =====
-9- 10 Management Discussion - --------------------- During the nine month period ended September 30, 1997 and for the comparable period ended September 30, 1996, approximately 20% of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors. For the third quarter of 1997 and 1996, approximately 20% and 23% 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, 1997 showed an approximate increase in operating income (income before interest and the net gain on the sale of assets) of approximately 7.5% from $811,000 to $872,000. For the third quarter of 1997 operating income (income before interest and the net gain on the sale of assets) increased approximately 6.6% from $242,000 to $258,000. The increase in operating income is a result of product mix. The Advanced Technology Group's total backlog (funded and unfunded) as of September 30, 1997 increased by approximately 40% from a year earlier. The September 30, 1997 total backlog is approximately $45,100,000 as compared to $32,000,000 of which $37,000,000 and $25,200,000 were unfunded in each of the respective comparative periods. Approximately $29,300,000 of the September 30, 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 -10- 11 firm orders. Net sales for the three month and nine month periods ended September 30, 1997 showed an approximate 1.8% and 2.3% decrease respectively. The decrease in sales is the result of a decrease in sales by the Consumer Products Group because of a decrease in customer demands and the phase out of certain lower margin products. The approximate 5.5% increase in the nine month sales for the Advanced Technology Group partially offset the lower sales by the Consumer Products Group. The 1996 net income reflects the previously reported sale of the former headquarters. This sale was completed in the third quarter of 1996 and is reflected as a net gain on sale of assets of $639,000 (gain on the sale of the assets of $1,116,000 less charges related thereto of $477,000) as shown in the accompanying financial statements. Selling, general and administrative costs increased for the nine month period and quarter ended September 30, 1997 when compared to the comparable periods of 1996 due to an increase in selling and professional costs. Income taxes for the nine month period and quarter ended September 30, 1997 decreased as a percentage of income before taxes when compared to the comparable periods 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 nine month period ending September 30, 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 September 30, 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 times. During the nine month period ended September 30, 1997, the Company expended -11- 12 $607,000 on capital expenditures. The Company also has a $1,000,000 line of credit at September 30, 1997 of which nothing is outstanding at September 30, 1997. There are no material commitments for capital expenditures at September 30, 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 256,045 shares have been purchased. In 1997, through October 31, no additional shares have been purchased. 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 20% 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. -12- 13 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 11, 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 -13- EX-27 2 EXHIBIT 27
5 0000089140 SERVOTRONICS, INC. 1,000 9-MOS DEC-31-1997 SEP-30-1997 1,000 0 2,188 0 8,118 13,088 7,493 0 21,025 2,511 6,486 0 0 523 10,962 21,025 11,278 11,278 7,612 10,658 0 0 252 620 229 391 0 0 0 391 0.23 0.23
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