<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1995
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ____________________ to ____________________
Commission File No. 1 - 7109
SERVOTRONICS, INC.
- -----------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 16-0837866
- -------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1110 Maple Street, Elma, New York 14059-0300
--------------------------------------------
(Address of principal executive offices)
716-655-5990
------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X . No .
------ ------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at October 31, 1995
---------------------------- -------------------------------
Common Stock, $.20 par value 2,183,091
<PAGE> 2
INDEX
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PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements _______
a) Consolidated Balance Sheet, September 30, 1995 3
b) Consolidated Statement of Income, Three and Nine
Months Ended September 30, 1995 and 1994 4
c) Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994 5
d) Notes to Consolidated Financial Statements 6
e) Signatures 9
Item 2. Management's Discussion and Analysis or Plan of
Operation 10
PART II. OTHER INFORMATION
Item 6(a). Exhibits
27 Financial Data Schedule
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<PAGE> 3
PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
($000's omitted except per share data)
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 340
Accounts receivable 2,700
Inventories 6,707
Prepaid income taxes 115
Deferred tax asset 497
Other 1,612
----------
Total current assets 11,971
Property, plant and equipment, net 8,109
Other assets 474
----------
$ 20,554
Liabilities and Shareholders' Equity ============
Current liabilities:
Current portion of long-term debt $ 200
Demand loan 450
Accounts payable 1,434
Accrued employee compensation and benefit costs 431
Other accrued liabilities 543
------------
Total current liabilities 3,058
------------
Long-term debt 6,598
Non-current deferred tax liability 602
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,440,408 shares 488
Capital in excess of par value 12,496
Retained earnings 1,697
------------
14,681
Employee stock ownership trust commitment (3,145)
Treasury stock, at cost, 257,317 (1,240)
------------
Total shareholders' equity 10,296
------------
$ 20,554
============
</TABLE>
See notes to consolidated financial statements
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<PAGE> 4
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($000's omitted except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 3,906 $ 3,345 $ 12,324 $ 10,677
Costs and expenses:
Cost of goods sold 2,698 2,269 8,501 7,090
Selling, general and administrative 790 823 2,323 2,238
Interest 89 87 275 291
Depreciation and amortization 157 137 455 326
---------- ---------- ----------- -----------
3,734 3,316 11,554 9,945
---------- ---------- ----------- -----------
Income before income taxes 172 29 770 732
Income tax provision 64 13 294 290
---------- ---------- ----------- -----------
Net income $ 108 $ 16 $ 476 $ 442
========== ========== =========== ===========
Net income per share* $ 0.07 $ 0.01 $ 0.31 $ 0.30
========== ========== =========== ===========
<FN>
*Restated to give effect for shares issued in conjunction with the 6% stock
dividend declared in June 1995 (See Note 5 to Consolidated Financial Statements).
</TABLE>
See notes to consolidated financial statements
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<PAGE> 5
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
----- ----
<S> <C> <C>
Cash flows related to operating activities:
Net income $ 476 $ 442
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 455 326
Change in assets and liabilities -
Accounts receivable 361 (515)
Inventories (593) (887)
Prepaid income taxes 169 (34)
Other current assets (503) 10
Other assets 11 742
Accounts payable (356) (637)
Accrued employee compensation & benefit costs (237) 18
Other accrued liabilities 130 (244)
---------- ----------
Net cash used in operating activities (87) (779)
---------- ----------
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment (292) (1,104)
---------- ----------
Net cash used in investing activities (292) (1,104)
---------- ----------
Cash flows related to financing activities:
Acquisition of long-term debt 302 2,325
Increase in demand loan 475 0
Payments on long-term debt (123) (300)
Payments on demand loan (425) 0
Purchase of treasury stock 0 (2)
---------- ----------
Net cash provided by financing activities 229 2,023
---------- ----------
Net (decrease) increase in cash (150) 140
Cash at beginning of period 490 562
---------- ----------
Cash at end of period $ 340 $ 702
========== ==========
</TABLE>
See notes to consolidated financial statements
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<PAGE> 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 accrued liabilities is $49,000 of deferred revenue which
represents billings under the terms of the contracts in excess of revenue
earned under the percentage of completion method.
During 1994, the Company suffered damages caused by a fire at one of its
subsidiaries. The Company maintains property and business interruption
insurance.
RECLASSIFICATION OF PRIOR YEAR BALANCES
Certain prior year balances have been reclassified to conform with the
current year presentation.
<TABLE>
2. INVENTORIES September 30, 1995
------------------
<S> <C>
Raw materials and common parts $ 1,405
Work-in-process (including engineering and other
support costs) 5,207
Finished goods 331
---------
6,943
Less common parts expected to be used after one year (236)
---------
$ 6,707
=========
</TABLE>
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.
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<PAGE> 7
<TABLE>
3. PROPERTY, PLANT AND EQUIPMENT September 30, 1995
------------------
<S> <C>
Land $ 19
Buildings 6,588
Machinery, equipment and tooling 7,087
---------
13,694
Less accumulated depreciation (5,585)
--------
$ 8,109
=========
</TABLE>
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
<TABLE>
<CAPTION>
September 30, 1995
------------------
<S> <C>
Industrial Development Revenue Bonds; secured by a
letter of credit from a bank with interest payable monthly
at a floating rate (4.95% at September 30, 1995) $ 5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (9% at
September 30, 1995); quarterly principal
payments of $34,439 through November 1, 2000 689
Secured term note; payable to a government agency
with interest at 6%; monthly principal payments of
$2,778 commencing on July 1, 1995 through May 1, 2004,
with a final principal payment of $102,754 due June 1, 2004 392
Various other secured term notes payable to government agencies 717
--------
6,798
Less current portion (200)
--------
$ 6,598
========
</TABLE>
Industrial Development Revenue Bonds were issued by a government
agency in 1994 to replace an interim construction loan related to the
construction of the Company's new headquarters/Advanced Technology facility.
Annual sinking fund payments of $170,000 commence December 1, 2000 and continue
through 2013, with a final payment of $2,620,000 due December 1, 2014. The
Company has agreed to reimburse the issuer of the letter of credit if there are
draws on that letter of credit. The Company pays the letter of credit bank an
annual fee of 1% of the amount secured thereby and pays the remarketing agent
for the bonds an annual fee of .25% of the principal amount outstanding. The
Company's interest
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<PAGE> 8
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
secured term notes are secured by certain property and equipment and contain,
among other things, covenants restricting loan proceeds for use in the
construction of the Company's new headquarters/Advanced Technology facility.
5. Common shareholders' equity
---------------------------
<TABLE>
<CAPTION>
Common stock
------------
Number Capital in
of shares excess of Retained Treasury
issued Amount par value earnings ESOP stock
------ ------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance December
31, 1994 2,317,248 $ 463 $ 11,982 $ 1,762 ($3,145) ($ 1,240)
Stock dividend 123,160 25 514 (541) -- --
Net income -- -- -- 476 -- --
------------- -------- ----------- --------- ---------- -----------
Balance
September 30, 1995 2,440,408 $ 488 $ 12,496 $ 1,697 ($3,145) ($ 1,240)
============= ======== ========= ======== ======= ===========
</TABLE>
Per share data is based on weighted average outstanding shares of 1,544,566
and 1,484,755 for the third quarter ended September 30, 1995 and 1994 and
1,544,566 and 1,484,758 for the nine month period ended September 30, 1995 and
1994.
On June 30, 1995 the Company's Board of Directors declared a 6% stock
dividend payable to shareholders of record on July 21, 1995. The payment date
for the stock dividend was August 11, 1995. Accordingly, per share data for all
periods presented in the accompanying income statement has been restated to
give effect to the issuance of these shares.
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<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1995
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
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<PAGE> 10
SERVOTRONICS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following table sets forth for the period indicated the
percentage relationship of certain items in the consolidated statement of
income to net sales and the percentage increase or decrease of such items as
compared to the indicated prior period.
<TABLE>
<CAPTION>
Relationship to Period to Relationship to Period to
net sales period $ net sales period $
quarter ended increase nine months ended increase
September 30, (decrease) September 30, (decrease)
1995 1994 95-94 1995 1994 95-94
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales
Advanced technology products 51.4% 37.9% 22.9% 49.6% 43.4% 14.8%
Consumer products 48.6% 62.1% -5.0% 50.4% 56.6% 2.2%
------ ------ ------ ------ ------ -----
100.0% 100.0% 16.8% 100.0% 100.0% 15.4%
Cost of goods sold, exclusive of
depreciation 69.1% 67.8% 18.9% 69.0% 66.4% 19.9%
------ ------ ------ ------ ------ ------
Gross profit 30.9% 32.2% 2.3% 31.0% 33.6% -5.5%
------ ------ ------ ------ ------ ------
Selling, general and administrative 20.2% 24.6% -4.0% 18.8% 21.0% 3.8%
Interest 2.3% 2.6% 2.3% 2.2% 2.7% -5.5%
Depreciation and amortization 4.0% 4.1% 14.6% 3.7% 3.1% 39.6%
------ ------ ------ ------ ------ ------
26.5% 31.3% 12.9% 24.7% 26.8% 37.9%
------ ------ ------ ------ ------ -----
Income before provision forincome taxes 4.4% 0.9% 493.1% 6.3% 6.8% 5.2%
Income tax provision 1.6% 0.4% 392.3% 2.4% 2.7% 1.4%
----- ------ ------ ------ ------ -----
Net income 2.8% 0.5% 575.0% 3.9% 4.1% 7.7%
----- ------ ------ ------ ------ -----
</TABLE>
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<PAGE> 11
MANAGEMENT DISCUSSION
During the nine month period ended September 30, 1995 and for the
comparable period ended September 30, 1994, approximately 40% and 25%
respectively, of the Company's revenues were derived from contracts with
agencies of the US Government or their prime contractors. For the third quarter
of 1995 and 1994, approximately 46% and 20% respectively, of the Company's
revenues were derived from comparable sources. The Company's business is
performed under fixed price contracts. It is noted that, the many uncertainties
in today's global economy, the national deficit and defense cutbacks (both
actual and proposed) preclude any guarantees or even assurances that current
programs will be continued or that programs in the prototype stages will
ultimately result in production applications. It is because of such
uncertainties and because such adverse occurrences may not be counterbalanced
with new programs or otherwise that cyclical downturns in operational
performances are realistic expectations.
RESULTS OF OPERATIONS
The Company's consolidated results of operations for the nine month period
ended September 30, 1995 showed an approximate 15.4% increase in net sales and
an increase in net income of approximately 7.7% when compared to the same nine
month period of 1994. For the third quarter of 1995, net sales increased
approximately 16.8% with an increase in net income of 575.0% compared to the
same period in 1994. The increase in sales occurred in both the Advanced
Technology and Consumer operations. Increased sales at the Advanced Technology
operations is primarily due to revenue recognized under long-term contracts and
increased shipments. Increased sales at the Consumer operations is due to
increased shipments and price increases.
The respective amounts of funded and total sales backlog (including the
funded and unfunded) at September 30, 1995 and 1994 for the Advanced Technology
Group (ATG) were approximately $5,500,000 for the funded sales backlog and in
excess of $25,500,000 for the total sales backlog and approximately $6,000,000
for the funded sales backlog and in excess
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<PAGE> 12
of $21,900,000 for the total sales backlog. Approximately $13,100,000 of the
September 30, 1995 backlog is for product deliveries beyond 1997. The
increasing industry-wide pressures to shorten lead time and the recognition, by
the Company, of the percentage of completion method for recognition of revenue
(cost to cost method) results in a reported lower funded backlog than otherwise
would be reported if these factors were not present. The unfunded portion of
the backlog is based on the Company's customers' estimated quantities for long
term arrangements for which the Company has not received firm orders.
Operating profit as a percentage of net sales for the nine month period
ended September 30, 1995 decreased to 6.3% from 6.8% when compared to the same
nine month period of 1994. For the third quarter of 1995 operating profit as a
percent of net sales increased to 4.4% from 0.9% when compared to the same
period in 1994. The fluctuations in operating profit as a percentage of net
sales is a result of differences in the product mix in combination with higher
depreciation and interest associated with the acquisition of the new Advanced
Technology facility as previously reported.
Selling, general and administrative costs increased for the nine month
period ended September 30, 1995 when compared to the comparable periods of 1994
due to an increase in sales, professional costs and financing costs. For the
quarter ended September 30, 1995 these costs showed a decrease compared to the
comparable period of 1994 as the prior year amount included certain
non-recurring expenses associated with the move of the Advanced Technology
Group to its new facility which was partially offset by increased sales costs,
professional costs and financing costs. Further, depreciation expense for the
same period increased as a result of the acquisition of the new Advanced
Technology facility as previously reported while interest expense decreased for
the nine month period and increased in the three month comparable period due to
fluctuation in interest rate which is partially offset by an increase in
institutional debt.
Income taxes for the nine month period and quarter ended September 30, 1995
decreased as a percentage of income before taxes when compared to the
comparable periods of 1994 primarily because of variable state income tax
rates.
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<PAGE> 13
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 September 30, 1995, include costs
associated with the initiation and maintenance of certain programs and costs in
anticipation of increased demands upon the Company to support new programs and
the request of customers' for shorter production lead time.
During the nine month period ended September 30, 1995, the Company expended
$292,000 on capital expenditures. As previously reported, the Company moved
into its new corporate headquarters/Advanced Technology facility during 1994.
The financing of certain construction and related costs of the new facility was
government assisted. Nonetheless, the new facility has resulted in an increase
in long-term debt and substantial increase in related depreciation expense. The
Company has received an Industrial Development Revenue Bond backed by a letter
of credit from a financial institution to finance the construction and certain
equipment for the new corporate headquarters/Advanced Technology facility. The
Company has agreed to reimburse the financial institution if there are any
draws under the letter of credit. The Company also has a $1,000,000 line of
credit at September 30, 1995 of which $450,000 is outstanding at September 30,
1995.
There are no material commitments for capital expenditures at September 30,
1995.
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 257,317 shares have been purchased. In 1995, through
October 31, the Company has not purchased any of its shares.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 340
<SECURITIES> 0
<RECEIVABLES> 2,700
<ALLOWANCES> 0
<INVENTORY> 6,707
<CURRENT-ASSETS> 11,971
<PP&E> 13,694
<DEPRECIATION> 5,585
<TOTAL-ASSETS> 20,554
<CURRENT-LIABILITIES> 3,058
<BONDS> 6,598
<COMMON> 488
0
0
<OTHER-SE> 9,808
<TOTAL-LIABILITY-AND-EQUITY> 20,554
<SALES> 12,324
<TOTAL-REVENUES> 12,324
<CGS> 8,501
<TOTAL-COSTS> 11,554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 275
<INCOME-PRETAX> 770
<INCOME-TAX> 294
<INCOME-CONTINUING> 476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 476
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
