-----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, J7b/P0LOjbwm8UKL+sh22CNiWE7DUwydMds88Yksm4xHX5F+1H16s2eK1fw2WQKo pM61RrroIBdokPi4ktW26A== 0000950152-98-006419.txt : 19980810 0000950152-98-006419.hdr.sgml : 19980810 ACCESSION NUMBER: 0000950152-98-006419 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980807 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: 98678829 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. 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 June 30, 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, IAC) 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 July 31, 1998 ---------------------------- ---------------------------- Common Stock, $.20 par value 2,368,071 (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, June 30, 1998 3 b) Consolidated Statement of Income for the Three and Six Months Ended June 30, 1998 and 1997 4 c) Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1998 and 1997 5 d) Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 10 Signatures 12 Item 6(a). Exhibits 3(i) Certificate of Amendment of the Company's Certificate of Incorporation filed June 30, 1998 27 Financial Data Schedule
- 2 - 3 PART I FINANCIAL INFORMATION SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, 1998 ($000's omitted except per share data) (Unaudited)
Assets Current assets: Cash $ 702 Accounts receivable 3,034 Inventories 8,311 Deferred tax asset 639 Other 1,464 ------------ Total current assets 14,150 Property, plant and equipment, net 7,332 Other assets 432 ------------ $ 21,914 ============ Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 248 Accounts payable 1,367 Accrued employee compensation and benefit costs 976 Accrued income taxes 8 Other accrued liabilities 302 ------------ Total current liabilities 2,901 ------------ Long-term debt 6,285 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 2,426 ------------ 16,218 Employee stock ownership trust commitment (2,842) Treasury stock, at cost 246,435 shares (1,182) ------------ Total shareholders' equity 12,194 ------------ $ 21,914 ============
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 Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net sales $ 4,492 $ 4,228 $ 8,930 $ 7,701 Costs and expenses: Cost of goods sold 2,973 2,792 6,174 5,194 Selling, general and administrative 859 855 1,665 1,576 Interest 84 82 163 161 Depreciation and amortization 160 158 318 316 --------- --------- --------- ---------- 4,076 3,887 8,320 7,247 --------- --------- --------- ---------- Income before income taxes 416 341 610 454 Income tax provision 175 130 256 168 --------- --------- --------- ---------- Net income $ 241 $ 211 $ 354 $ 286 ========= ========= ========= ========== Net income per share - Basic $ 0.14 $ 0.12 $ 0.20 $ 0.17 ========= ========= ========= ========== Net income per share - Diluted $ 0.13 $ 0.12 $ 0.20 $ 0.17 ========= ========= ========= ==========
See notes to consolidated financial statements - 4 - 5 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($000's omitted) (Unaudited)
Six Months Ended June 30, 1998 1997 ---- ---- Cash flows related to operating activities: Net income $ 354 $ 286 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 318 316 Change in assets and liabilities - Accounts receivable (832) 337 Inventories (283) (848) Prepaid income taxes 38 0 Other current assets (78) (3) Other assets 8 6 Accounts payable 337 317 Accrued employee compensation & benefit costs 168 115 Other accrued liabilities 43 (85) Accrued income taxes 8 (184) --------- ---------- Net cash provided by operating activities 81 257 --------- --------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (279) (510) ---------- ---------- Net cash used in investing activities (279) (510) ---------- ---------- Cash flows related to financing activities: Increase in demand loan 150 150 Principal payments on long-term debt (111) (107) Payments on demand loan (350) (150) Issuance of common stock 26 0 --------- --------- Net cash used in financing activities (285) (107) ---------- ---------- Net decrease in cash (483) (360) Cash at beginning of period 1,185 1,389 --------- --------- Cash at end of period $ 702 $ 1,029 ========= =========
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 are $741,000 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 June 30, 1998 ----------- ------------- Raw materials and common parts $ 1,208 Work-in-process (including engineering and other support costs) 6,464 Finished goods 875 ---------- 8,547 Less common parts expected to be used after one year (236) ---------- $ 8,311 ==========
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 -----------------------------
June 30, 1998 ------------- Land $ 11 Buildings 6,140 Machinery, equipment and tooling 8,283 ---------- 14,434 Less accumulated depreciation (7,102) ---------- $ 7,332 ==========
- 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 -------------- June 30, 1998 ------------- Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (3.90% at June 30, 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 June 30, 1998); quarterly principal payments of $34,439 through November 1, 2000 310 Various other secured term notes payable to government agencies 1,223 --------- 6,533 Less current portion (248) --------- $ 6,285 =========
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 no amount outstanding at June 30, 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) Issuance of common stock -- -- -- (32) -- 58 Net income -- -- -- 354 -- -- --------- ------- ----------- -------- --------- ---------- Balance June 30, 1998 2,614,506 $ 523 $ 13,269 $ 2,426 ($ 2,842) ($ 1,182) ========= ======== =========== ======== ======== ==========
- 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. 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 Six months ended June 30, June 30, ($000's omitted, except per share data) 1998 1997 1998 1997 - --------------------------------------- ---- ---- ---- ---- Net earnings $241 $211 $354 $286 Weighted average common shares outstanding (basic) 1,739 1,693 1,733 1,693 Incremental shares from assumed conversions of stock options 62 24 62 24 Weighted average common shares outstanding (diluted) 1,801 1,717 1,795 1,717 Earnings per share: Basic $0.14 $0.12 $0.20 $0.17 Diluted $0.13 $0.12 $0.20 $0.17
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 six months ended increase June 30 (decrease) June 30 (decrease) 1998 1997 98-97 1998 1997 98-97 ---- ---- ----- ---- ---- ----- Net sales Advanced technology products 62.7% 61.7% 6.3% 61.9% 57.8% 22.6% Consumer products 37.3% 38.3% 2.0% 38.1% 42.2% 3.6% ----- ----- ---- ----- ----- ---- 100.0% 100.0% 6.2% 100.0% 100.0% 16.0% Cost of goods sold, exclusive of depreciation 66.2% 66.0% 6.5% 69.1% 67.4% 18.9% ----- ----- ---- ----- ----- ----- Gross profit 33.8% 34.0% 5.8% 30.9% 32.6% 9.9% ----- ----- ---- ----- ----- ---- Selling, general and administrative 19.1% 20.2% 0.5% 18.6% 20.5% 5.6% Interest 1.9% 1.9% 2.4% 1.8% 2.1% 1.2% Depreciation and amortization 3.6% 3.7% 1.3% 3.6% 4.1% 0.6% 24.6% 25.8% 4.2% 24.0% 26.7% 7.4% ----- ----- ---- ----- ----- ---- Income before provision for income taxes 9.2% 8.2% 22.0% 6.9% 5.9% 34.4% Income tax provision 3.8% 3.2% 34.6% 2.9% 2.2% 52.4% ---- ---- ----- ---- ---- ----- Net income 5.4% 5.0% 14.2% 4.0% 3.7% 23.8% ==== ==== ===== ==== ==== =====
- 8 - 9 Management Discussion - --------------------- During the six month period ended June 30, 1998 and for the comparable period ended June 30, 1997, approximately 23% and 20% respectively, of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors. For the second quarter of 1998 and 1997, approximately 26% and 18% 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, 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 six month period ended June 30, 1998 showed an approximate 16% increase in net sales and an increase in net income of approximately 23.8% when compared to the same six month period of 1997. For the second quarter of 1998, net sales increased approximately 6.2% with an increase in net income of 14.2% compared to the same 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 June 30, 1998 increased by approximately 23% from a year earlier. The June 30, 1998 total backlog is approximately $55,500,000 as compared to $45,300,000 of which $48,200,000 and $37,300,000 were unfunded in each of the respective comparative periods. Approximately $35,700,000 of the June 30, 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 six month period ended June 30, 1998 increased to 6.9% from 5.9% as reported for the same six month period of 1997. For the second quarter of 1998 operating profit as a percent of net sales increased to 9.2% from 8.2% when compared to the same period of 1997. The fluctuations in operating profit as a percentage of net sales are a result of differences in product mix in combination with increased sales. Selling, general and administrative costs increased for the six month period and quarter ended June 30, 1998 when compared to the comparable periods of 1997 due to an increase in selling and professional costs. Income taxes for the six month period and quarter ended June 30, 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 June 30, 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. - 9 - 10 During the six month period ended June 30, 1998, the Company expended $279,000 on capital expenditures. The Company also has a $1,000,000 line of credit at June 30, 1998 of which nothing is outstanding at June 30, 1998. There are no material commitments for capital expenditures at June 30, 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. PART II OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- The annual meeting of shareholders of the Registrant was held on June 30, 1998. At the meeting, each of the directors of the Registrant was elected to serve until the next annual meeting of shareholders until his successor is elected and qualified. The following table shows the results of the voting at the meeting.
Withheld Name of Nominee For Authority --------------- --- --------- Dr. William H. Duerig 2,244,950 3,777 Donald W. Hedges 2,244,950 3,777 Nicholas D. Trbovich, Jr. 2,245,747 2,980 Dr. Nicholas D. Trbovich 2,245,747 2,980
At the meeting, the shareholders approved the amendment of the Company's Certificate of Incorporation to limit the personal liability of the directors of the Company for breaches of certain fiduciary duties as provided for by Section 102(b)(7) of the Delaware General Corporation Law. The vote cast at the meeting was 2,231,329 votes for the amendment and 18,985 votes against the amendment. 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 23% 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 - 10 - 11 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 of the date hereof. The Company assumes no obligation to update forward-looking statements. - 11 - 12 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: August 5, 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 - 12 - EX-3.I 2 EXHIBIT 3.I 1 EXHIBIT 3(i) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SERVOTRONICS, INC. PURSUANT TO SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW Lee D. Burns, being the Treasurer of SERVOTRONICS, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Act"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were adopted setting forth a proposed amendment to the Certificate of Incorporation of the Corporation (the "Certificate") declaring said amendment advisable and directing that the proposed amendment be submitted to the Corporation's stockholders for consideration thereof. SECOND: That Article TWELFTH be added to the Certificate, which shall read as follows: "TWELFTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law hereafter is amended to further eliminate or limit the liability of a director, then a director of the Corporation, in addition to the circumstances in which a director is not personally liable as set forth in the preceding sentence, shall not be liable to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification." 2 THIRD: That thereafter, pursuant to a resolution of the Board of Directors, the proposed amendment was submitted to the Corporation's stockholders at the annual meeting duly called and held upon due notice to the stockholders of the Corporation of the proposed amendment, at which meeting the proposed amendment was authorized by the majority vote of all of the Corporation's stockholders entitled to vote thereon. FOURTH: That said amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has subscribed to this Certificate this 30th day of June 1998 and affirms that the statements made herein are true and correct under penalties of perjury. /s/ Lee D. Burns, Treasurer --------------------------- Lee D. Burns, Treasurer EX-27.A 3 EXHIBIT 27.A
5 0000089140 Servotronics, Inc. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 702 0 3,034 0 8,311 14,150 7,332 0 21,914 2,901 6,285 0 0 523 11,671 21,914 8,930 8,930 6,174 8,320 0 0 163 610 256 354 0 0 0 354 $0.20 $0.20
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