-----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, N6Yj26hFYkcdCN4ris+PYiRW98pEQUR3CfH0lSr5YwruY5uGyxy6CU36rH69sdl+ VLJhZNMdDlwn6KNQ4hSgFA== 0000950152-98-002718.txt : 19980331 0000950152-98-002718.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950152-98-002718 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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: 10KSB SEC ACT: SEC FILE NUMBER: 001-07109 FILM NUMBER: 98578396 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 10KSB 1 SERVOTRONICS, INC. FORM 10KSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - -- For the fiscal year ended December 31, 1997 __ TRANSITION REPORT UNDER 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. ----------------------------------------------------------- (Name of small business issuer as specified in its charter) Delaware 16-0837866 - ------------------------------- ------------------ (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 1110 Maple Street, Elma, New York 14059 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: 716-655-5990 ------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, $.20 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 . --- --- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. Issuer's revenues for its most recent fiscal year: $15,892,000. As of February 28, 1998 the aggregate market value of the voting common stock held by non-affiliates of the registrant was $8,341,917.43 based on the average of sales prices reported by the American Stock Exchange on that day. As of February 28, 1998 the number of $.20 par value common shares outstanding was 2,355,478. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-KSB -------- ------------------- 1998 Proxy Statement Part III Transitional Small Business Disclosure Format. Yes . No x . --- --- 2 PART I ------ Item 1. Description of Business - ------- ----------------------- General - ------- Servotronics, Inc. and its subsidiaries (collectively the "Registrant" or the "Company") design, manufacture and market advanced technology products consisting primarily of control components and consumer products consisting of knives and various types of cutlery. The Registrant was incorporated in New York in 1959. In 1972, the Registrant was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Registrant's state of incorporation from New York to Delaware. Products - -------- Advanced Technology Products ---------------------------- The Registrant designs, manufactures and markets a variety of servo-control components which convert an electrical current into a mechanical force or movement and other related products. The principal servo-control components produced include torque motors, electromagnetic actuators, proportional solenoids, hydraulic valves, pneumatic valves and similar devices, all of which perform the same general function. These are sold principally to the commercial, aerospace, missile, aircraft and government related industries. To fill most of its orders for components, the Registrant must either modify a catalog model or design a new item in order to satisfy the customer's particular requirements. The Registrant also produces unique products based on specifications provided by its' customers. The Registrant produces under long-term contracts and otherwise. The Registrant also produces metallic seals of various cross-sectional configurations. These seals fit between two surfaces, usually metal, to produce a more secure and leak-proof joint. They are generally designed for use under circumstances in which more conventional seals and gaskets do not perform adequately, such as exposure to extremes of temperature, high pressures, vacuums, radiation or corrosive atmospheres. The Registrant manufactures these seals to close tolerances from standard and special alloy steels. Ductile coatings are often applied to the seals in order to increase their effectiveness. -2- 3 From time to time, the Registrant has also produced other products of its own and/or of a given design to meet customers' requirements. The Registrant also designs and/or manufactures for its own use custom precision metal stampings. These stampings are produced from precision single stage and/or progressive dies which are also designed and manufactured by the Registrant. The progressive die performs, in a series of stages in one die, the stamping of a metal piece which could otherwise require stamping by a number of separate dies. Consumer Products ----------------- The Registrant designs, manufactures and sells a variety of cutlery products. These products include a wide range of knives such as steak, carving, bread, butcher and paring knives for household use and for use in restaurants, government installations, institutions and private industry and pocket and other types of knives for hunting, fishing and camping. The Registrant also produces and markets other cutlery items such as carving forks, sharpeners and various specialty tools such as putty knives, linoleum sheet cutters and field knives. The Registrant manufactures its cutlery products from stainless or high carbon steel in numerous styles, designs, models and sizes. Substantially all of the Registrant's cutlery and cutlery related products are intended for the medium to premium priced markets. The Registrant sells many of its cutlery products under its own brand names including "Old Hickory" and "Queen." Sales, Marketing and Distribution - --------------------------------- Advanced Technology Products ---------------------------- The Registrant's advanced technology products are marketed throughout the United States and are essentially non-seasonal in nature. These products are sold to the United States Government, government prime contractors and commercial manufacturers and end users. Sales are made primarily by the Registrant's professional staff. During the Registrant's last fiscal year, sales of advanced technology products pursuant to subcontracts with prime or subcontractors for various branches of the United States Government or pursuant to prime contracts directly with the government accounted for approximately 18% of the -3- 4 Registrant's total sales. If the Registrant were deemed to be unqualified by the United States Government as a contractor or subcontractor, it would lose approximately 29% of its sales of advanced technology products. In 1997 and 1996 sales of advanced technology products to each of the AlliedSignal Corporation and United Technologies, through several of their respective subsidiaries and/or divisions, exceeded 10% of Registrant's total sales. No other single customer represented more than 10% of the Company's sales in any of these years. The Registrant's prime contracts and subcontracts with the Government are subject to termination for the convenience of the Government. In the event of such termination, the Registrant is ordinarily entitled to receive payment for its costs and profits on work done prior to termination. Since the inception of the Registrant's business, less than 1% of its government contracts have been terminated for convenience. Consumer Products ----------------- The Registrant's consumer products are marketed throughout the United States. Consumer sales are moderately seasonal. Sales are to hardware, supermarket, variety, department, discount, gift and drug stores. The Registrant also sells its cutlery products (principally machetes, survival knives and kitchen knives) to various branches of the United States Government. The Registrant sells its products through its own sales personnel and through independent manufacturers' representatives. Business Segments - ----------------- Business segment information is presented in Note 11 of the accompanying consolidated financial statements. Patents - ------- In the view of management, the Registrant's competitive position is not dependent on patent protection. The Registrant has rights under a number of patents. -4- 5 Research Activities - ------------------- The amount spent by the Registrant in research and development activities during its 1997 and 1996 fiscal years was not significant. Environmental Compliance - ------------------------ The Registrant does not anticipate that the cost of compliance with current environmental laws will be material. Manufacturing - ------------- The Registrant manufactures its consumer products in Franklinville, New York and Titusville, Pennsylvania and its advanced technology products in Elma, New York. Raw Materials and Other Supplies - -------------------------------- The Registrant purchases raw materials and certain components for its products from outside vendors. The Registrant is not generally dependent upon a single source of supply for any raw material or component used in its operations. Competition - ----------- Although no reliable industry statistics are available to enable the Registrant to determine accurately its relative competitive position with respect to any of its products, the Registrant believes that it is a significant factor with respect to certain of its servo-control components. The Registrant's share of the overall cutlery market is not significant. The Registrant encounters active competition with respect to its products from numerous companies, many of which are larger than it in terms of manufacturing capacity, financial resources and marketing organization. Its principal competitors vary depending upon the customer and/or the products involved. The Registrant believes that it competes primarily with more than 20 companies with respect to its consumer products, in addition to foreign imports. To the Registrant's knowledge, its principal competitors with regard to cutlery include ECKO Housewares, Inc., Russell Harrington Cutlery, Inc., W. R. Case & Sons Cutlery Company, Imperial Schrade Corporation and Camillus Cutlery Company. -5- 6 The Registrant has many different competitors with respect to servo-control components because of the nature of that business and the fact that these products also face competition from other types of control components which, at times, can accomplish the desired result. The Registrant markets most of its products throughout the United States. The Registrant believes that it competes in marketing its consumer products primarily on the basis of price, quality and delivery, and its control products primarily on the basis of operating performance, adherence to rigid specifications, quality, price and delivery. Employees - --------- The Registrant at February 28, 1998 had approximately 254 employees of which approximately 243 are full time. In excess of 86% of its employees are engaged in design, production, inspection, packaging or shipping activities. The balance are engaged in executive, engineering, administrative, clerical or sales capacities. The Registrant considers its relationship with its employees to be good and the Registrant has never experienced a significant labor work stoppage. Item 2. Description of Properties - ------- ------------------------- The Registrant's executive offices are located on premises leased by the Registrant at 1110 Maple Street, Elma, a suburb of Buffalo, New York. The Registrant owns and/or leases real property as set forth in the following table:
Number of Principal buildings and Approx. Approx. product type of floor area Location acreage manufactured construction (sq. feet) ------------------------------------------------------------------------------------------------------ Elma, New York 38.4 Advanced 1-concrete block 82,000 technology and steel products Franklinville, 7.7 Cutlery products 1-tile and New York wood 85,000 Titusville, Pennsylvania .4 Cutlery products 2-brick 25,000
-6- 7 The Registrant leases approximately 38.4 acres of land and a facility from a local industrial development agency. The lease is accounted for as a capital lease and entitles the Registrant to purchase the property at a nominal amount at the end of the lease term. See the consolidated financial statements, including Note 8 thereto, for further information with respect to the Registrant's lease commitments. The Registrant possesses modern precision manufacturing and testing equipment suitable for the development, manufacture, assembly and testing of its high technology products. The Registrant designs and makes substantially all of the tools, dies, jigs and specialized testing equipment necessary for the production of the high technology products. The Registrant also possesses automatic and semi-automatic grinders, tumblers, presses and miscellaneous metal and wood finishing machinery and equipment for use in the manufacture of consumer products. Item 3. Legal Proceedings - ------- ----------------- There are no legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- Not applicable. -7- 8 PART II ------- Item 5. Market for Common Equity and Related Stockholder Matters - ------- -------------------------------------------------------- (a) Price range of common stock --------------------------- The following table shows the range of high and low prices for the Registrant's common stock as reported by the American Stock Exchange for 1997 and 1996.
High Low ---- --- 1997 Fourth Quarter $ 13-3/8 $ 7-7/8 Third Quarter 9-3/8 6 Second Quarter 6 4-1/8 First Quarter 6-7/16 5-1/4 1996 Fourth Quarter $ 5-7/8 $ 4 Third Quarter 4-3/4 4-1/8 Second Quarter 5-1/2 3-13/16 First Quarter 4-7/8 4
(b) Approximate number of holders of common stock ---------------------------------------------
Title Approximate number of of record holders (as of class December 31, 1997) ----- ------------------ Common Stock, $.20 par value 723
(c) Dividends on common stock ------------------------- No cash dividends were paid in 1997 or 1996. -8- 9 Item 6. Management's Discussion and Analysis or Plan of Operation - ------- --------------------------------------------------------- Summary - ------- 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:
PERIOD to RELATIONSHIP to PERIOD net sales year increase ended (decrease) DECEMBER 31, year ended 1997 1996 1997-96 ------ ------ ------ Net sales: Advanced technology products 60.0% 52.5% 16.3% Consumer products 40.0 47.5 -14.1 ------ ------ ------ 100.0 100.0 1.9 Cost of goods sold 68.0 69.2 0.0 ------ ------ ------ Gross profit 32.0 30.8 6.0 ------ ------ ------ Selling, general and administrative 19.3 19.3 2.0 Interest 2.1 2.1 0.6 Depreciation 4.2 4.1 5.8 Gain on sale of assets - -7.2 - Charges related to sale of assets - 3.1 - ------ ------ ------ 25.6 21.4 8.4 ------ ------ ------ Income before income taxes 6.4 9.4 -30.9 Income tax provision 2.5 3.8 -33.4 ------ ------ ------ Net income 3.9% 5.6% -29.2% ====== ====== ======
-9- 10 Management Discussion - --------------------- During the year ended December 31, 1997 and for the comparable period ended December 31, 1996, approximately 20% and 22% respectively of the Company's revenues were derived from contracts with agencies of the U.S. 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 and the difficulty in predicting defense appropriations (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 volatile uncertainties and because such adverse occurrences may not be counterbalanced with new programs or otherwise that cyclical downturns in operational performances are realistic expectations. See also Note 11 to the consolidated financial statements for information concerning business segment operating results. Results of Operations - Year 1997 as Compared to 1996 - ----------------------------------------------------- The Company's consolidated results of operations for the year ended December 31, 1997 showed an approximate 2% increase in net sales with an increase in operating income as a percentage of net sales from approximately 11.5% to 12.7% when compared to the same period in 1996. The increase in sales is attributable to a 16% increase in sales at the Advanced Technology Group as the result of past and current engineering, marketing and other support efforts and new programs and applications, offset by a 14% decrease in sales at the Consumer Products Group due to a decrease in customer demand and the phasing out of low margin product lines. The respective amounts of the funded and unfunded sales backlog at December 31, 1997 and 1996 for the Advanced Technology Group were approximately $59,192,000 and $46,462,000, a year to year increase of 27%, of which $51,235,000 and $38,075,000 was unfunded in the respective comparable periods. Approximately $38,000,000 of the December 31, 1997 backlog is for product deliveries beyond 2000. 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. Income before income taxes increased $188,000 or 23% to $1,010,000 for the year ended December 31, 1997 from $822,000 for the year ended December 31, 1996 when comparing net -10- 11 income before income taxes and the net gain on sale of assets. The net gain on the sale of assets of $639,000 was recognized in the year ended December 31, 1996 and no similar gain occurred in 1997. Selling, general and administrative costs increased by approximately 2% for the year ended December 31, 1997 when compared to the same period 1996. This is primarily attributable to the increase in net sales. Interest expense remained relatively consistent for the same comparable periods while depreciation expense increased due to an increase in capital expenditures. Income taxes for the year ended December 31, 1997, as a percentage of income before taxes, decreased when compared to the same period in 1996 due to variable state income tax rates. Results of Operations - Year 1996 as Compared to 1995 - ----------------------------------------------------- The Company's consolidated results of operations for the year ended December 31, 1996 showed an approximate 4.6% decrease in net sales with an increase in operating income as a percentage of net sales from approximately 8.5% to 11.5% when compared to the same year ended December 31, 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 increase in operating profit as a percentage of net sales is a result of differences in product mix. The respective amounts of the funded and unfunded sales backlog at December 31, 1996 and 1995 for the Advanced Technology Group (ATG) were approximately $46,462,000 and $31,628,000 of which $38,075,000 and $25,809,000 was unfunded in the respective comparable periods. Approximately $30,000,000 of the December 31, 1996 unfunded 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. Income before income taxes exclusive of $639,000 gain on sale of assets net of related charges for the year ended December 31, 1996 increased 150.7% when compared to the same year ended December 31, 1995. The gain of sale of assets was for the previously reported sale of the former headquarters which was located at 3901 Union Road, Buffalo, New York. This sale was completed in the third quarter of 1996 and is reflected in the accompanying financial statements as a gain on sale of assets and related charges, which include certain environmental and compensation costs. -11- 12 Selling, general and administrative costs remained relatively consistent for the year ended December 31, 1996 when compared to the same year ended December 31, 1995. Interest expense decreased because of lower long-term debt and lower interest rates. Depreciation expense for the period decreased primarily as a result of the sale of the former headquarters. Income taxes for the year ended December 31, 1996, as a percentage of income before taxes, remained consistent when compared to the year ended December 31, 1995. 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 December 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. Also included in inventory are $295,000 capitalized costs associated with the introduction of new product lines. See also Note 2 to the Consolidated Financial Statements for information concerning engineering and other support costs. During the year ended December 31, 1997, the Company expended $685,000 on capital expenditures. During the year ended December 31, 1996, the Company expended $422,000. The Company also has a $1,000,000 line of credit at December 31, 1997 on which $200,000 is outstanding at December 31, 1997. There are no material commitments for capital expenditures at December 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 256,045 shares have been purchased. -12- 13 Year 2000 Initiatives - --------------------- The Company is currently working to resolve the potential impact of "Year 2000" issues on the processing of date-sensitive information by the Company's computer systems. The Year 2000 problem relates to the ability of computer systems to be able to distinguish date data between the twentieth and twenty-first centuries. The Company does not currently expect that these "Year 2000" issues will have a material adverse impact on the Company's financial position, results or cash flows in the future. The Company is also taking steps to assess the Year 2000 status of its significant product and service suppliers. Item 7. Financial Statements - ------- -------------------- The financial statements of the Registrant which are included in this Form 10-KSB Annual Report are described in the accompanying Index to Consolidated Financial Statements on Page F1. Item 8. Changes in and Disagreements with Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure -------------------- None. -13- 14 PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; - ------- ------------------------------------------------------------- Compliance with Section 16(a) of the Exchange Act ------------------------------------------------- Information regarding directors and executive officers of the Registrant is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1997 fiscal year or such information will be included by amendment. Item 10. Executive Compensation - -------- ---------------------- Information regarding executive compensation is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1997 fiscal year or such information will be included by amendment. Item 11. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1997 fiscal year or such information will be included by amendment. Item 12. Certain Relationships and Related Transactions - -------- ---------------------------------------------- Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1997 fiscal year or such information will be included by amendment. -14- 15 Item 13. Exhibits and Reports on Form 8-K - -------- -------------------------------- (a) Exhibits --------
Exhibit number Presentation Reference ------ ------------ --------- 3(A)(1) Certificate of Incorporation Exhibit 3(A)(1) to 1996 Form 10-KSB* 3(A)(2) Amendments to Certificate Exhibit 3(A)(2) to 1996 of Incorporation dated Form 10-KSB* August 27, 1984 3(A)(3) Certificate of designation Exhibit 4(A) to 1987 regarding Series I Form 10-K* preferred stock 3(B) By-laws Exhibit 3(B) to 1986 Form 10-K* 4(A) First amended and restated Exhibit 4(A) to 1993 term loan agreement with Form 10-KSB* Fleet Bank of New York dated October 4, 1993 4(B)(1) Letter of Credit Reimbursement Exhibit 4(B)(1) to Agreement with Fleet Bank 1994 10-KSB* dated as of December 1, 1994 4(B)(2) Agency Mortgage and Security Exhibit 4(B)(2) to Agreement dated as of 1994 10-KSB* December 1, 1994 from the Registrant and its subsidiaries 4(B)(3) Guaranty Agreement dated as Exhibit 4(B)(3) to of December 1, 1994 from the 1994 10-KSB* Registrant and its subsidiaries to the Erie County Industrial Development Agency ("ECIDA"), Norwest Bank Minnesota, N.A., as Trustee, and Fleet Bank 4(C) Shareholder Rights Plan Attachment B to Form dated as of August 13, 8-K filed August 17, 1992 1992* -------------------------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
-15- 16
Exhibit number Presentation Reference ------ ------------ --------- 10(A)(1) Employment contract** Exhibit 10(A) to 1986 Form 10-K* 10(A)(2) Amendment to employment Exhibit 10(A)(2) to 1996 contract** Form 10-KSB* 10(A)(3) Amendment to employment Filed herewith contract** 10(B) Form of Indemnification Exhibit 10(E) to 1986 Agreement between the Form 10-K* Registrant and each of its Directors and Officers** 10(C)(1) Loan agreement between Exhibit 10(C)(1) the Company and its to 1991 Form 10-K* employee stock ownership trust, as amended 10(C)(2) Stock purchase agreement Exhibit 10(D)(2) to between the Company 1988 Form 10-K* and its employee stock ownership trust 10(D)(1)(a) 1989 Employees Stock Exhibit A to Form Option Plan** 8: Amendment No. 1 to 1988 Form 10-K* 10(D)(1)(b) Amendment to 1989 Exhibit 10(D)(1)(b) Employees Stock Option to 1990 Form 10-K* Plan** 10(D)(1)(c) Amendment No. 2 to Exhibit 10(D)(1)(d) to 1989 Employees Stock 1991 Form 10-K* Option Plan** 10(D)(2) Stock Option Agreement Exhibit B to Form for Donald W. Hedges 8: Amendment dated April 28, 1989** No. 1 to 1988 Form 10-K* -------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
-16- 17
Exhibit number Presentation Reference ------ ------------ --------- 10(D)(3) Stock Option Agreement Exhibit D to Form for Nicholas D. 8: Amendment Trbovich, Sr. dated No. 1 to 1988 March 29, 1989** Form 10-K* 10(D)(4) Stock Option Agreement Exhibit 10(D)(4) to 1990 for William H. Duerig Form 10-K* dated December 21, 1990** 10(D)(5) Stock Option Agreement Exhibit 10(D)(5) to 1990 for Nicholas D. Form 10-K* Trbovich, Jr. dated December 21, 1990** 10(D)(6) Stock Option Agreement for Nicholas D. Trbovich, Jr. dated Exhibit 10(D)(6) to 1991 October 17, 1991** Form 10-K* 10(D)(7) Stock Option Agreement Exhibit 10(D)(7) to 1991 for Lee D. Burns dated Form 10-K* October 17, 1991** 10(D)(8) Stock Option Agreement Exhibit 10(D)(8) to 1991 for Raymond C. Zielinski Form 10-K* dated October 17, 1991** 10(D)(9) Land Lease Agreement between Exhibit 10(D)(9) to 1992 TSV, Inc. (wholly-owned Form 10-KSB* subsidiary of the Registrant) and the ECIDA dated as of May 1, 1992, and Corporate Guaranty of the Registrant dated as of May 1, 1992 10(D)(10) Amendment to Land Lease Exhibit 10(D) (11) to 1993 Agreement and Interim Form 10-KSB* Lease Agreement dated November 19, 1992 -------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
-17- 18
Exhibit number Presentation Reference ------ ------------ --------- 10(D)(11) Lease Agreement dated as of Exhibit 10(D)(11) to December 1, 1994 between 1994 10-KSB* the Erie County Industrial Development Agency ("ECIDA") and TSV, Inc. 10(D)(12) Sublease Agreement dated as Exhibit 10(D)(12) to of December 1, 1994 between 1994 10-KSB* TSV, Inc. and the Registrant 21 Subsidiaries of the Exhibit 22 to 1992 Registrant Form 10-KSB* The Registrant hereby agrees that it will furnish to the Securities and Exchange Commission upon request a copy of any instrument defining the rights of holders of long-term debt not filed herewith. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1997. --------------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
FORWARD-LOOKING STATEMENTS In addition to historical information, certain sections of this Form 10-KSB 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 -18- 19 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-KSB. 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. -19- 20 SERVOTRONICS, INC. AND SUBSIDIARIES ----------------------------------- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
Page ---- Report of independent accountants F2 Consolidated balance sheet at December 31, 1997 F3 Consolidated statement of income for the years ended December 31, 1997 and 1996 F4 Consolidated statement of cash flows for the years ended December 31, 1997 and 1996 F5 Notes to consolidated financial statements F6-F18
Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. F1 21 Report of Independent Accountants --------------------------------- To the Board of Directors and Shareholders of Servotronics, Inc. In our opinion, the consolidated financial statements listed in the accompanying index on page F1 present fairly, in all material respects, the financial position of Servotronics, Inc. and its subsidiaries at December 31, 1997 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Buffalo, New York March 24, 1998 F2 22 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1997 ($000's omitted except per share data) Assets Current assets: Cash $ 1,185 Accounts receivable 2,202 Inventories 8,028 Prepaid income taxes 38 Deferred tax asset 640 Other 1,386 ------- Total current assets 13,479 Property, plant and equipment, net 7,371 Other assets 440 ------- $21,290 ======= Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 246 Demand loan 200 Accounts payable 1,030 Accrued employee compensation and benefit costs 809 Other accrued liabilities 259 ------- Total current liabilities 2,544 ------- Long-term debt 6,398 Non-current deferred tax liability 534 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 2,104 ------- 15,896 Employee stock ownership trust commitment (2,842) Treasury stock, at cost, 259,028 shares (1,240) ------- Total shareholders' equity 11,814 ------- $21,290 =======
See notes to consolidated financial statements F3 23 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME ($000's omitted except per share data)
Year Ended December 31, 1997 1996 ---- ---- Net sales $ 15,892 $ 15,600 Costs and expenses: Cost of goods sold 10,800 10,796 Selling, general and administrative 3,071 3,010 Interest 337 335 Depreciation and amortization 674 637 Gain on sale of assets - (1,116) Charges related to sale of assets - 477 -------- -------- 14,882 14,139 -------- -------- Income before income taxes 1,010 1,461 Income tax provision 391 587 -------- -------- Net income $ 619 $ 874 ======== ======== Net income per share - Basic $ 0.37 $ 0.52 ======== ======== Net income per share - Diluted $ 0.36 $ 0.52 ======== ========
See notes to consolidated financial statements F4 24 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($000's omitted)
Year Ended December 31, 1997 1996 ---- ---- Cash flows related to operating activities: Net Income $ 619 $ 874 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 674 637 Deferred taxes (85) (155) Gain on sale of assets (exclusive of related charges) - (1,116) Change in assets and liabilities - Accounts receivable 512 (219) Inventories (821) (539) Prepaid income taxes (38) 261 Other current assets (257) (179) Other assets 15 15 Accounts payable 39 93 Accrued employee compensation and benefit costs (65) 187 Other accrued liabilities 39 12 Accrued income tax (200) 200 Employee stock ownership trust payment 101 101 ------- ------- Net cash provided by operating activities 533 172 ------- ------- Cash flows related to investing activities: Sale of assets - 1,255 Capital expenditures - property, plant and equipment (685) (422) ------- ------- Net cash (used in) provided by investing activities (685) 833 ------- ------- Cash flows related to financing activities: Increase in demand loan 500 100 Payments on demand loan (300) (100) Principal payments on long-term debt (252) (228) ------- ------- Net cash used in financing activities (52) (228) ------- ------- Net (decrease) increase in cash (204) 777 Cash at beginning of period 1,389 612 ------- ------- Cash at end of period $ 1,185 $ 1,389 ======= ======= Supplemental disclosures: Income taxes paid $ 697 $ 294 Interest paid $ 334 $ 339
See notes to consolidated financial statements F5 25 SERVOTRONICS, INC. AND SUBSIDIARIES ----------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. Summary of significant accounting policies ------------------------------------------ The principal accounting policies of Servotronics, Inc. (the Company) and subsidiaries are as follows: Principles of consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 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 $636,000 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. Inventories ----------- Inventories are stated generally at the lower of standard cost, which approximates actual cost (first-in, first-out), or market. Property, plant and equipment ----------------------------- Property, plant and equipment is carried at cost; expenditures for new facilities and equipment and expenditures which substantially increase the useful lives of existing plant and equipment are capitalized; expenditures for maintenance and repairs are charged directly to cost or expenses as incurred. Upon retirement or disposal of properties, the related cost and accumulated F6 26 depreciation are removed from the respective accounts and any profit or loss on disposition is included in income. Depreciation is provided on the basis of estimated useful lives of depreciable properties, primarily by the straight-line method for financial statement purposes and by accelerated methods for tax purposes. Depreciation expense includes the amortization of capital lease assets. The estimated useful lives of depreciable properties are generally as follows: Buildings and improvements 5-39 years Machinery and equipment 5-15 years Tooling 3-5 years
Income taxes ------------ The Company and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The Company follows the asset and liability approach to account for income taxes. This approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Employee stock ownership plan ----------------------------- Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula. Use of estimates ---------------- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates employed by management include those used in revenue F7 27 recognition, amortization of engineering and other support costs included in inventory (See Note 2 to the Consolidated Financial Statements). 2. Inventories -----------
December 31, 1997 ----------------- ($000's omitted) Raw materials and common parts $ 1,168 Work-in-process (including engineering and other support costs of $3,000,000) 6,666 Finished goods 430 ---------- 8,264 Less common parts expected to be used after one year (236) ---------- $ 8,028 ==========
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. The Company's Consumer Products Group (CPG) defers the costs associated with the introduction of new product lines and amortizes that balance over three years. As of December 31, 1997, $295,000 of product introduction costs were capitalized in inventory of which $250,000 were incurred in 1997. During 1997, the Accounting Standards Executive Committee (AsSEC) of the AICPA released a Statement of Position on Reporting on the Costs of Start-Up Activities (the SoP) which is effective for fiscal years beginning after December 15, 1998. The SoP would require that these costs associated with the introduction of a new product line be expensed in the period incurred. As a result, the Company will be required to write-off the unamortized balances relating to start-up activities on January 1, 1999, which is estimated to be approximately $151,000. The Company will adopt the provisions of the SoP when required. F8 28 3. Property, plant and equipment -----------------------------
December 31, 1997 ----------------- ($000's omitted) Land $ 11 Buildings and improvements 6,129 Machinery, equipment and tooling 8,015 ---------- 14,155 Less accumulated depreciation (6,784) ---------- $ 7,371 ==========
4. Long-term debt --------------
December 31, 1997 ----------------- ($000's omitted) Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (4.40% at December 31, 1997 convertible to a fixed rate at the option of the Company) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (8.75% at December 31, 1997); quarterly principal payments of $34,439 through November 1, 2000 379 Various other secured term notes payable to government agencies 1,265 ------- 6,644 Less current portion (246) ------- $ 6,398 =======
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 letter of credit is for the full amount of the Industrial Development Revenue Bonds. The Company pays the letter of credit bank an annual fee of 1% of the amount secured thereby and pays the remarketing F9 29 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. The letter of credit reimbursement agreement, the unsecured term note agreement and the secured term notes contain, among other things, covenants relative to maintenance of working capital and tangible net worth and restrictions on capital expenditures, leases and additional borrowings. Principal maturities of long-term debt are as follows: 1999 - $249,000; 2000 - $404,000; 2001 - $250,000; 2002 - $405,000, 2003 and thereafter $5,090,000. The Company also has a $1,000,000 line of credit on which there was $200,000 outstanding at December 31, 1997. 5. Employee benefit plans ---------------------- Employee stock ownership plan (ESOP) ------------------------------------ Under the Company's ESOP adopted in 1985, participating employees are awarded shares of the Company's common stock based upon salary levels and minimum service requirements. Upon inception of the ESOP, the Company borrowed $2,000,000 from a bank and lent the proceeds to the trust established under the ESOP to purchase shares of the Company's common stock. The Company's loan to the trust is at an interest rate approximating the prime rate and is repayable to the Company over a 40-year term ending in December 2024. During 1987 and 1988, the Company loaned an additional $1,942,000 to the trust under terms similar to the Company's original loan. Each year the Company makes contributions to the trust which the plan's trustees use to repay the principal and interest due the Company under the trust loan agreement. Shares held by the trust are allocated in the aggregate to participating employees in proportion to the amount of the loan repayment made by the trust to the Company. Since inception of the ESOP, approximately 293,000 shares have been allocated, exclusive of shares distributed to ESOP participants. At December 31, 1997 and 1996, approximately 629,000 and 662,000 shares, respectively, purchased by the ESOP remain unallocated. F10 30 Related compensation expense associated with the Company's ESOP, which is equal to the principal reduction on the loans receivable from the trust, amounted to $101,000 in 1997 and 1996. Included as a reduction to shareholders' equity is the employee stock ownership trust commitment which represents the remaining indebtedness of the trust to the Company. Employees are entitled to vote allocated shares and the ESOP trustees are entitled to vote unallocated shares and those allocated shares not voted by the employees. Defined benefit plan -------------------- A Consumer Products division subsidiary of the Company maintains a non-contributory defined benefit pension plan covering substantially all its employees. Plan benefits are based on stated amounts for each year of service; funding is in accordance with statutory requirements. Pension cost of $29,000 and $31,000 was recognized in 1997 and 1996, respectively, calculated using a weighted-average discount rate and weighted-average expected rate of return on plan assets of 8%. The projected benefit obligation under the plan at December 31, 1997 was $107,000, net of $125,000 of plan assets at fair value. Deferred compensation plan -------------------------- The Company maintains a deferred compensation program designed to achieve, among other things, benefit parity for an officer of the Company. During 1997, no amount was accrued under this program. In 1996, $165,000 was accrued under this program. No amounts under this plan have been paid since its inception. Accrued in the December 31, 1997 consolidated balance sheet is $420,000. F11 31 6. Income taxes ------------ The provision for income taxes included in the consolidated statement of income consists of the following:
1997 1996 ---- ---- ($000's omitted) Current: Federal income tax $ 387 $ 611 State income tax 89 131 ----- ----- 476 742 Deferred: ----- ----- Federal income tax (benefit) (72) (131) State income tax (benefit) (13) (24) ----- ----- (85) (155) ----- ----- $ 391 $ 587 ===== =====
The reconciliation of the difference between the Company's effective tax rate based upon the total income tax provision and the federal statutory income tax rate is as follows:
1997 1996 ---- ---- Statutory rate 34% 34% Increase resulting from: State tax (net of federal benefit) 5% 5% Other - 1% ---- ---- 39% 40% ==== ====
F12 32 At December 31, 1997, the deferred tax assets (liabilities) were comprised of the following:
($000's omitted) Inventory $ 289 Accrued pension 159 Accrued vacation 111 State taxes 25 Other 56 ----- Gross deferred tax assets 640 Property, plant and equipment (484) State taxes (31) Other (19) ----- Gross deferred tax liabilities (534) ----- Net deferred tax asset $ 106 =====
7. Common shareholders' equity ---------------------------
COMMON STOCK ------------ NUMBER CAPITAL IN OF SHARES EXCESS OF RETAINED TREASURY ISSUED AMOUNT PAR VALUE EARNINGS ESOP STOCK ------------------------------------------------------------------------------- ($000's omitted) Balance December 31, 1995 2,440,408 $ 448 $ 12,495 $ 1,422 ($ 3,044) ($ 1,240) Compensation expense - - - - 101 - Stock dividend paid 174,098 35 774 (811) - - Net income - - - 874 - - --------- --------- --------- --------- --------- --------- Balance December 31, 1996 2,614,506 $ 523 $ 13,269 $ 1,485 ($ 2,943) ($ 1,240) Compensation expense - - - - 101 - Net income - - - 619 - - --------- --------- --------- --------- --------- --------- Balance December 31, 1997 2,614,506 $ 523 $ 13,269 $ 2,104 ($ 2,842) ($ 1,240) ========= ===== ========= ========= ========= ========
Earnings per share ------------------ All earnings per share amounts reflect the implementation of the Statement of Financial Accounting Standards No. 128 Earnings per Share (SFAS 128). SFAS 128 established new standards for computing and presenting earnings per share and requires all prior period earnings per share data be restated to conform with the provisions of the statement. Basic earnings per share F13 33 is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.
($000's omitted, except share data) 1997 1996 --------------------------------------- ------ ------ Net earnings $ 619 $ 874 Weighted average common shares outstanding (basic) 1,696 1,666 Incremental shares from assumed conversions of stock options 32 22 Weighted average common shares outstanding (diluted) 1,728 1,688 Earnings per share: Basic $ 0.37 $ 0.52 Diluted $ 0.36 $ 0.52
Stock options ------------- Under the Servotronics, Inc. 1989 Employees Stock Option Plan (the Option Plan) and other separate agreements authorized by the Board of Directors, the Company has granted non-qualified options to its Chairman, directors and/or officers. The Company applies APB Opinion No. 25 and related interpretations in accounting for the Option Plan and the separate option agreements. Accordingly, no compensation expense has been recognized as stock options granted have an exercise price equal to the market price on the date of grant. The Company did not grant options under the Option Plan or through separate agreements in either 1997 or 1996. At December 31, 1997, 33,200 shares of common stock were available under the Option Plan. Options granted under the Option Plan have durations of ten years. At December 31, 1997, the number of shares subject to and the exercise price of options granted to its Chairman, directors and/or officers are 37,778 at approximately $2.63 per share, 12,593 at approximately $2.56 per share, 25,186 at approximately $2.07 per share and 17,172 at approximately $5.95 per share. At December 31, 1997, all of the 92,729 shares granted under the Option Plan and through the separate agreements are exercisable and have a weighted average remaining contractual life of 3 years. Subsequent to December 31, 1997 the Company granted approximately 93,000 nonqualified stock options to certain directors and officers of the Company with an exercise price equal to the market price of the common stock at the date of grant. F14 34 Shareholders' rights plan ------------------------- During 1992, the Company's Board of Directors adopted a shareholders' rights plan (the "Rights Plan") and simultaneously declared a dividend of one Right for each outstanding share of the Company's common stock outstanding at August 28, 1992. The Rights do not become exercisable until the earlier of (i) the date of the Company's public announcement that a person or affiliated group other than Dr. Nicholas D. Trbovich or the ESOP trust (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 25% or more of the Company's common stock (excluding shares held by the ESOP trust) or (ii) ten business days following the commencement of a tender offer that would result in a person or affiliated group becoming an Acquiring Person. The exercise price of a Right has been established at $30.00. Once exercisable, each Right would entitle the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock. In the event that any person becomes an Acquiring Person, each Right would entitle any holder other than the Acquiring Person to purchase common stock or other securities of the Company having a value equal to three times the exercise price. The Board of Directors has the discretion in such event to exchange two shares of common stock or two one-hundredths of a share of preferred for each Right held by any holder other than the Acquiring Person. 8. Commitments ----------- The Company leases certain equipment pursuant to operating lease arrangements. Total rental expense in 1997 and 1996 and future minimum payments under such leases are not significant. 9. Litigation ---------- There are no legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company. 10. Gain on sale of assets ---------------------- Included in 1996 income before taxes is $639,000 realized from the sale of the Company's former headquarters, net of charges related to the sale including certain environmental and compensation costs. F15 35 11. Business segments ----------------- The Company operates in two business segments, Advanced Technology Products and Consumer Products. Operations in Advanced Technology Products involve the design, manufacture, and marketing of servo-control components for government and commercial industrial applications. Consumer Products operations involve the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. Information regarding the Company's operations in these segments is summarized as follows: F16 36
Advanced Year ended Technology Consumer December 31, 1997 Products Products Consolidated ----------------- -------- -------- ------------ ($000's omitted) Sales to unaffiliated customers $ 9,533 $ 6,359 $ 15,892 ============ =========== ============ Operating profit $ 2,049 $ (277) $ 1,772 ============ ============ Interest expense (337) General corporate expense (425) ------------ Income before income taxes $ 1,010 ============ Identifiable assets $ 15,097 $ 5,636 $ 20,733 ============ =========== ============ Depreciation expense $ 369 $ 305 $ 674 ============ =========== ============ Capital expenditures $ 456 $ 229 $ 685 ============ =========== ============ Advanced Year ended Technology Consumer December 31, 1996 Products Products Consolidated ----------------- -------- -------- ------------ ($000's omitted) Sales to unaffiliated customers $ 8,197 $ 7,403 $ 15,600 ============ =========== ============ Operating profit $ 2,703 $ (493) $ 2,210 * ============ =========== Interest expense (335) General corporate expense (414) ----------- Income before income taxes $ 1,461 ============ Identifiable assets $ 14,339 $ 5,862 $ 20,201 ============ =========== ============ Depreciation expense $ 336 $ 301 $ 637 ============ =========== ============ Capital expenditures $ 193 $ 229 $ 422 ============ =========== ============ * Includes $639,000 as a net gain from sale of former headquarters. - See Note 10.
F17 37 The Company engages in a significant amount of business with the United States Government through sales to its prime contractors and otherwise. Such contracts by the Advanced Technology segment accounted for revenues of approximately $2,784,000 in 1997 and $2,795,000 in 1996. Similar contracts by the Consumer Products segment accounted for revenues of approximately $327,000 in 1997 and $646,000 in 1996. Sales of advanced technology products to one prime contractor, including various divisions and subsidiaries of a common parent company, amounted to approximately 19% and 15% of total sales in 1997 and 1996, respectively. Another customer amounted to approximately 18% of total sales in 1997 and 13% of total 1996 sales respectively. No other single customer represented more than 10% of the Company's sales in any of these years. F18 38 SIGNATURES ---------- In accordance with of Section 13 or 15(d) 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. SERVOTRONICS, INC. March 24, 1998 By /s/ Nicholas D. Trbovich, President ----------------------------------- Nicholas D. Trbovich President, Chief Executive Officer and Chairman of the Board In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Nicholas D. Trbovich President, Chief Executive March 24, 1998 - ------------------------ Officer, Chairman of the Nicholas D. Trbovich Board and Director /s/ Lee D. Burns Treasurer and Secretary March 24, 1998 - ---------------- (Chief Financial Officer) Lee D. Burns /s/ Donald W. Hedges Director March 24, 1998 - -------------------- Donald W. Hedges /s/ William H. Duerig Director March 24, 1998 - --------------------- William H. Duerig /s/ Nicholas D. Trbovich Jr. Director March 24, 1998 - ---------------------------- Nicholas D. Trbovich Jr.
EX-10.A.3 2 EXHIBIT 10(A)(3) 1 SERVOTRONICS, INC. AND SUBSIDIARIES EXHIBIT 10(A)(3) AS OF MAY 1, 1997 DR. NICHOLAS D. TRBOVICH 1110 MAPLE STREET ELMA, NY 14059 DEAR DR. TRBOVICH: YOU AND SERVOTRONICS, INC. (THE "COMPANY") ARE PARTIES TO AN EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED ON AUGUST 8, 1986 AND AS SUBSEQUENTLY AMENDED AS OF OCTOBER 1, 1986, OCTOBER 1, 1987, JULY 20, 1988, OCTOBER 1, 1988, OCTOBER 1, 1989, MAY 1, 1990, MAY 1, 1991, MAY 1, 1992, MAY 1, 1993, MARCH 28, 1994, MAY 1, 1994, MAY 1, 1995 AND MAY 1, 1996 (THE "AGREEMENT"), PURSUANT TO WHICH YOU ARE EMPLOYED BY THE COMPANY. THIS WILL CONFIRM YOUR AGREEMENT AND THAT OF THE COMPANY (PURSUANT TO A RESOLUTION OF THE BOARD OF DIRECTORS PASSED AT A MEETING HELD ON JUNE 30, 1997) TO AMEND PARAGRAPH 3 OF THE AGREEMENT TO DELETE "$271,920.00" AND INSERT IN ITS PLACE "$285,000.00". EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ALL OF THE OTHER TERMS AND CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT. IF THE FOREGOING MEETS WITH YOUR APPROVAL AND YOU ARE WILLING TO BECOME BOUND HEREBY, WILL YOU PLEASE SIGN AND RETURN TO THE UNDERSIGNED THE ENCLOSED COPY OF THIS LETTER. VERY TRULY YOURS, SERVOTRONICS, INC. /S/LEE D. BURNS LEE D. BURNS, TREASURER/SECRETARY ACCEPTED AND AGREED /S/ DR. NICHOLAS D. TRBOVICH - ---------------------------- DR. NICHOLAS D. TRBOVICH EX-27 3 EXHIBIT 27
5 0000089140 SERVOTRONICS 1,000 YEAR DEC-31-1997 DEC-31-1997 1,185 0 2,202 0 8,028 13,479 7,371 0 21,290 2,544 6,398 0 0 523 11,291 21,290 15,892 15,892 10,800 14,882 0 0 337 1,010 391 619 0 0 0 619 0.37 0.36
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