-----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, RdDMUAcJkuDSdZhpRKZmeCbgbc/u1jeGy8VgPt7Nux7NDkOD14POzgz0VE9Mh8Sd 2eZXdyzQr5o+nQ+gtL7jXw== 0000950152-98-004296.txt : 19980513 0000950152-98-004296.hdr.sgml : 19980513 ACCESSION NUMBER: 0000950152-98-004296 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 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: SEC FILE NUMBER: 001-07109 FILM NUMBER: 98615997 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. FORM 10QSB 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 March 31, 1998 _ 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 April 30, 1998 - ---------------------------------- ----------------------------- 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, March 31, 1998 3 b) Consolidated Statement of Income, Three Months Ended March 31, 1998 and 1997 4 c) Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1998 and 1997 5 d) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 8 Signatures 11 Item 6(a). Exhibits 27 Financial Data Schedule
-2- 3 PART I FINANCIAL INFORMATION SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET MARCH 31, 1998 ($000's omitted except per share data) (Unaudited) Assets Current assets: Cash $ 963 Accounts receivable 2,334 Inventories 8,103 Prepaid income taxes 143 Deferred tax asset 640 Other 1,654 ------------ Total current assets 13,837 Property, plant and equipment, net 7,400 Other assets 436 ------------ $ 21,673 ============ Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 248 Demand loan 200 Accounts payable 1,112 Accrued employee compensation and benefit costs 989 Other accrued liabilities 323 ------------ Total current liabilities 2,872 ------------ Long-term debt 6,340 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 2,217 ------------ 16,009 Employee stock ownership trust commitment (2,842) Treasury stock, at cost 259,028 shares (1,240) ------------ Total shareholders' equity 11,927 ------------ $ 21,673 ============
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, 1998 1997 ---- ---- Net sales $ 4,438 $ 3,473 Costs and expenses: Cost of goods sold 3,201 2,402 Selling, general and administrative 806 721 Interest 79 79 Depreciation and amortization 158 158 --------- ---------- 4,244 3,360 --------- ---------- Income before income taxes 194 113 Income tax provision 81 38 --------- ---------- Net income $ 113 $ 75 ========= ========== Net income per share - Basic $ 0.07 $ 0.04 ========= ========== Net income per share - Diluted $ 0.06 $ 0.04 ========= ==========
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, 1998 1997 ---- ---- Cash flows related to operating activities: Net income $ 113 $ 75 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 158 158 Change in assets and liabilities - Accounts receivable (132) 670 Inventories (75) (614) Prepaid income taxes (105) (102) Other current assets (268) 57 Other assets 4 4 Accounts payable 82 300 Accrued employee compensation & benefit costs 180 36 Other accrued liabilities 64 (58) Accrued income taxes 0 (200) --------- ---------- Net cash provided by operating activities 21 326 --------- --------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (187) (395) ---------- ---------- Net cash used in investing activities (187) (395) ---------- ---------- Cash flows related to financing activities: Increase in demand loan 150 0 Payments on demand loan (150) 0 Principal payments on long-term debt (56) (59) ---------- ---------- Net cash used in financing activities (56) (59) ---------- ---------- Net decrease in cash (222) (128) Cash at beginning of period 1,185 1,389 --------- --------- Cash at end of period $ 963 $ 1,261 ========= =========
See Notes to Consolidated Financial Statements -5- 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($000's 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 $910,000 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. Reclassification of prior year balances --------------------------------------- Certain prior year balances have been reclassified to conform with the current year presentation.
2. Inventories March 31, 1998 ----------- -------------- Raw materials and common parts $ 1,149 Work-in-process (including engineering and other support costs) 6,338 Finished goods 852 ---------- 8,339 Less common parts expected to be used after one year (236) ---------- $ 8,103 ==========
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. 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 which is effective for fiscal years beginning after December 15, 1998. The SoP requires that these one-time costs associated with the introduction of a new product line be expensed in the period incurred. No start-up costs have been capitalized during 1998. Servotronics will be required to write-off any unamortized balances relating to start-up activities on January 1, 1999 which is estimated to be approximately $151,000. 3. Property, plant and equipment -----------------------------
March 31, 1998 -------------- Land $ 11 Buildings 6,129 Machinery, equipment and tooling 8,202 ---------- 14,342 Less accumulated depreciation (6,942) ---------- $ 7,400 ==========
-6- 7 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, 1998 -------------- Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (3.95% at March 31, 1998 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 March 31, 1998); quarterly principal payments of $34,439 through November 1, 2000 344 Various other secured term notes payable to government agencies 1,244 --------- 6,588 Less current portion (248) --------- $ 6,340 =========
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 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 a secured term note contain, among other things, covenants relative to maintenance of working capital and tangible net worth and restrictions on capital expenditures, leases and additional borrowings. The Company also has a $1,000,000 line of credit on which there was $200,000 outstanding at March 31, 1998. 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, 1997 2,614,506 $ 523 $ 13,269 $ 2,104 ($ 2,842) ($ 1,240) Net income -- -- -- 113 -- -- --------- -------- ----------- -------- -------- ---------- Balance March 31, 1998 2,614,506 $ 523 $ 13,269 $ 2,217 ($ 2,842) ($ 1,240) ========= ======== =========== ======== ======== ==========
-7- 8 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"). Basic earnings per share 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.
Three months ended March 31, ($000's omitted, except per 1998 1997 - ---------------------------- ---- ---- share data) - ----------- Net earnings $113 $75 Weighted average common shares outstanding (basic) 1,727 1,693 Incremental shares from assumed conversions of stock options 48 27 Weighted average common shares outstanding (diluted) 1,775 1,720 Earnings per share: Basic $0.07 $0.04 Diluted $0.06 $0.04
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 net sales period $ quarter ended increase March 31, (decrease) 1998 1997 98-97 ---- ---- ----- Net sales Advanced technology products 60.6% 53.2% 45.4% Consumer products 39.4% 46.8% 7.7% ----- ----- ---- 100.0% 100.0% 27.8% Cost of goods sold, exclusive of depreciation 72.1% 69.2% 33.3% ----- ----- ----- Gross profit 27.9% 30.8% 15.5% ----- ----- ----- Selling, general and administrative 18.2% 20.8% 11.8% Interest 1.8% 2.3% 0.0% Depreciation and amortization 3.6% 4.5% 0.0% ---- ---- ---- 23.6% 27.6% 11.8% ----- ----- ----- Income before provision for income taxes 4.3% 3.2% 71.7% Income tax provision 1.8% 1.1% 113.2% ---- ---- ------ Net income 2.5% 2.1% 50.7% ==== ==== =====
-8- 9 Management Discussion - --------------------- For the first quarter of 1998 and 1997, approximately 20% and 21% 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 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 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, 1998 showed an approximate 28% increase in net sales and an increase in net income of approximately 50% when compared to the same three month period of 1997. The increase in sales is the result of increased shipments at both the Advanced Technology and Consumer Products operations. The Advanced Technology Group's total backlog (funded and unfunded) as of March 31, 1998 increased by approximately 25% from a year earlier. The March 31, 1998 total backlog is approximately $57,400,000 as compared to $45,900,000 of which $50,000,000 and $37,700,000 were unfunded in each of the respective comparative periods. Approximately $38,000,000 of the March 31, 1998 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. Operating profit as a percentage of net sales for the three month period ended March 31, 1998 increased to 4.3% from 3.2% for the same three month period of 1997. The fluctuations in operating profit as a percentage of net sales is a result of differences in product mix in combination with increased sales. Selling, general and administrative costs increased for the quarter ended March 31, 1998 when compared to the comparable periods of 1997 due to an increase in selling and professional costs. Income taxes for the quarter ended March 31, 1998 increased as a percentage of income before taxes when compared to the comparable periods of 1997 due to the effects of variable state income taxes. 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 March 31, 1998, 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 three month period ended March 31, 1998, the Company expended $187,000 on capital expenditures. The Company also has a $1,000,000 line of credit at March 31, 1998 of which $200,000 is outstanding at March 31, 1998. -9- 10 There are no material commitments for capital expenditures at March 31, 1998. 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. 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 of the date hereof. The Company assumes no obligation to update forward-looking statements. -10- 11 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 8, 1998 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 -11- EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 963 0 2,334 0 8,103 13,837 7,400 0 21,673 2,872 6,340 0 0 523 11,404 21,673 4,438 4,438 3,201 4,244 0 0 79 194 81 113 0 0 0 113 0.07 0.06
-----END PRIVACY-ENHANCED MESSAGE-----