<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 March 31, 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 April 30, 1995
---------------------------- ----------------------------------
Common Stock, $.20 par value 2,059,931
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INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheet, March 31, 1995 3
b) Consolidated Statement of Income, Three Months Ended
March 31, 1995 and 1994 4
c) Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 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
</TABLE>
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PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
($000's omitted except per share data)
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 421
Accounts receivable 2,857
Inventories 6,398
Prepaid income taxes 309
Deferred tax asset 498
Other 1,304
-----------
Total current assets 11,787
Property, plant and equipment, net 8,237
Other assets 481
-----------
$ 20,505
===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 164
Demand loan 775
Accounts payable 1,591
Accrued employee compensation and benefit cost 461
Other accrued liabilities 483
-----------
Total current liabilities 3,474
-----------
Long-term debt 6,418
Non-current deferred tax liability 602
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,317,248 shares 463
Capital in excess of par value 11,982
Retained earnings 1,951
-----------
14,396
Employee stock ownership trust commitment (3,145)
Treasury stock, at cost, 257,317 shares (1,240)
-----------
Total shareholders' equity 10,011
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$ 20,505
===========
<FN>
See notes to consolidated financial statements
</TABLE>
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SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(000's omitted except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Net sales $ 3,937 $ 3,414
Costs and expenses:
Cost of goods sold 2,658 2,234
Selling, general and administrative 735 679
Interest 76 74
Depreciation and amortization 163 97
---------- ---------
3,632 3,084
---------- ---------
Income before income taxes 305 330
Income tax provision 116 128
---------- ----------
Net income $ 189 $ 202
========== ==========
Net income per share $ 0.14 $ 0.15
========== ==========
<FN>
See notes to consolidated financial statements
</TABLE>
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SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C>
Cash flows from operating activities:
Net income $ 189 $ 202
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 163 97
Deferred taxes 1 0
Change in assets and liabilities -
Accounts receivable 204 35
Inventories (284) (539)
Prepaid income taxes (25) 58
Other current assets (195) 4
Other assets 4 0
Accounts payable (199) (458)
Accrued employee compensation & benefit costs (207) 68
Other accrued liabilities 70 (35)
---------- ----------
Net cash used in operating activities (279) (568)
---------- ----------
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment - net (128) (151)
---------- ----------
Net cash used in investing activities (128) (151)
---------- ----------
Cash flows related to financing activities:
Acquisition of long-term debt 0 1,004
Increase in demand loan 375 0
Payments on long-term debt (37) (34)
Purchase of treasury stock 0 (2)
---------- ----------
Net cash provided by financing activities 338 968
---------- ----------
Net (decrease) increase in cash (69) 249
Cash at beginning of period 490 562
---------- ----------
Cash at end of period $ 421 $ 811
========== ==========
<FN>
See notes to consolidated financial statements
</TABLE>
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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 accounts receivable is $115,000 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. Included
in other accrued liabilities is $240,000 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.
2. Inventories
-----------
<TABLE>
<CAPTION>
March 31, 1995
--------------
<S> <C>
Raw materials and common parts $ 1,496
Work-in-process (including engineering and other
support costs) 4,751
Finished goods 387
---------
6,634
Less common parts expected to be used after one year (236)
---------
$ 6,398
=========
</TABLE>
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<PAGE> 7
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.
3. Property, plant and equipment
-----------------------------
<TABLE>
<CAPTION>
March 31, 1995
--------------
<S> <C>
Land $ 19
Buildings 6,616
Machinery, equipment and tooling 6,895
---------
13,530
Less accumulated depreciation (5,293)
---------
$ 8,237
=========
</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>
March 31, 1995
--------------
<S> <C>
Industrial Development Revenue Bonds; secured by a
letter of credit from a bank with interest payable monthly
at a floating rate (4.55% at March 31, 1995) $ 5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (9.25% at
March 31, 1995); quarterly principal
payments of $34,439 through November 1, 2000 758
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 400
Various other secured term notes payable to government agencies 424
--------
6,582
Less current portion (164)
--------
$ 6,418
========
</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
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credit if there are draws on that letter of credit. The Company pays the
letter of credit bank an annual fee of 1% of the amount secured thereby and
pays the remarketing agent for the bonds an annual fee of .25% of the
principal amount outstanding. The Company's interest under the facility
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)
Net income -- -- -- 189 -- --
--------- -------- -------- -------- ------- -------
Balance
March 31, 1995 2,317,248 $ 463 $ 11,982 $ 1,951 ($3,145) ($1,240)
========= ======== ======== ======== ======= =======
</TABLE>
Per share data is based on weighted average outstanding shares of
1,393,832 and 1,361,604 for the first quarter ended March 31, 1995 and
1994.
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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: May 11, 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
net sales period $
three months ended increase
March 31, (decrease)
1995 1994 95-94
---- ---- -----
<S> <C> <C> <C>
Net sales
Advanced technology products 49.0% 48.2% 8.5%
Cutlery products 51.0% 51.8% 7.1%
----- ----- ----
100.0% 100.0% 15.3%
Cost of goods sold, exclusive of
depreciation 67.5% 65.4% 19.0%
----- ----- -----
Gross profit 32.5% 34.6% 2.7%
----- ----- ----
Selling, general and administrative 18.7% 19.9% 8.2%
Interest 1.9% 2.2% 2.7%
Depreciation and amortization 4.1% 2.8% 68.0%
---- ---- -----
24.7% 24.9% 78.9%
----- ----- -----
Income before provision for income taxes 7.8% 9.7% -7.6%
Income tax provision 2.9% 3.7% -9.4%
---- ---- -----
Net income 4.9% 6.0% -6.4%
==== ==== =====
</TABLE>
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<PAGE> 11
Management Discussion
---------------------
During the three month period ended March 31, 1995 and for the
comparable period ended March 31, 1994, approximately 25% and 27%,
respectively, of the Company's revenues were derived from contracts with
agencies of the US 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, 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 three month
period ended March 31, 1995 showed an approximate 15.3% increase in net
sales and a decrease in net income of approximately 6.4% when compared to
the same three month period of 1994. The increase in sales occurred in both
the Advanced Technology and Cutlery 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 Cutlery
operations is due to increased shipments and price increases.
The respective amounts of funded and unfunded sales backlog at March
31, 1995 and 1994 for the Advanced Technology Group (ATG) were
approximately $8,800,000 of funded and $14,600,000 of unfunded and
approximately $6,700,000 of funded and $17,100,000 of unfunded.
Approximately $9,600,000 of the March 31, 1995 backlog is for product
deliveries beyond 1998. 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, 1995 decreased to 7.8% from 9.7% as reported for the
same three month period of 1994. The
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<PAGE> 12
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 three
month period ended March 31, 1995 when compared to the same three month
period of 1994 due to an increase in sales, professional costs and
financing costs. Further, depreciation and interest expense for the same
period increased as a result of an increase in institutional debt and the
acquisition of the new Advanced Technology facility as previously reported.
Income taxes for the three month period ended March 31, 1995 decreased
as a percentage of income before taxes when compared to the same three
month period of 1994 due primarily to variable state income tax rates.
Liquidity and Capital Resources
-------------------------------
Certain contracts of the Advanced Technology Group require development
and engineering costs in addition to hardware and the maintenance of
inventory for replacement and/or overhaul. The replacement and/or overhaul
units are billed at the time of shipment. The inventories at March 31,
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 three month period ended March 31, 1995, the Company
expended $128,000 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 interest and 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
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<PAGE> 13
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 March 31, 1995 of which $775,000 is
outstanding at March 31, 1995.
There are no material commitments for capital expenditures at
March 31, 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 April 30, no additional shares have been purchased.
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089140
<NAME> SERVOTRONICS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 421
<SECURITIES> 0
<RECEIVABLES> 2,857
<ALLOWANCES> 0
<INVENTORY> 6,398
<CURRENT-ASSETS> 11,787
<PP&E> 13,530
<DEPRECIATION> 5,293
<TOTAL-ASSETS> 20,505
<CURRENT-LIABILITIES> 3,474
<BONDS> 6,418
<COMMON> 463
0
0
<OTHER-SE> 9,548
<TOTAL-LIABILITY-AND-EQUITY> 20,505
<SALES> 3,937
<TOTAL-REVENUES> 3,937
<CGS> 2,658
<TOTAL-COSTS> 898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 305
<INCOME-TAX> 116
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
