<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 June 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.
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(Exact name of small business issuer as specified in its charter)
Delaware 16-0837866
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(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 July 31, 1995
---------------------------- ----------------------------
Common Stock, $.20 par value 2,183,091
(Including shares to be issued for
Stock Dividend; see Note 5 to
Consolidated Financial Statements)
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<TABLE>
<CAPTION>
INDEX
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PART I. FINANCIAL INFORMATION
Page No.
--------
<S> <C> <C> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheet, June 30, 1995 3
b) Consolidated Statement of Income, Three and Six Months Ended
June 30, 1995 and 1994 4
c) Consolidated Statement of Cash Flows for the Six Months Ended
June 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 4. Submission of matters to a Vote of Security Holders 13
Item 6(a). Exhibits
27 Financial Data Schedule
</TABLE>
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<TABLE>
PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
($000's omitted except per share data)
(Unaudited)
<S> <C>
Assets
Current assets:
Cash $ 144
Accounts receivable 2,444
Inventories 6,949
Prepaid income taxes 313
Deferred tax asset 499
Other 1,700
----------
Total current assets 12,049
Property, plant and equipment, net 8,169
Other assets 477
----------
$ 20,695
==========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 165
Demand loan 575
Accounts payable 1,718
Accrued employee compensation and benefit cost 605
Other accrued liabilities 430
----------
Total current liabilities 3,493
----------
Long-term debt 6,412
Non-current deferred tax liability 602
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,440,408 shares 488
(including 123,160 shares to be issued for Stock
Dividend; see Note 5 to Consolidated Financial
Statements)
Capital in excess of par value 12,496
Retained earnings 1,589
----------
14,573
Employee stock ownership trust commitment (3,145)
Treasury stock, at cost, 257,317 shares (1,240)
----------
Total shareholders' equity 10,188
----------
$ 20,695
==========
<FN>
See notes to consolidated financial statements
</TABLE>
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<PAGE> 4
<TABLE>
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($000's omitted except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,481 $ 3,918 $ 8,418 $ 7,332
Costs and expenses:
Cost of goods sold 3,145 2,587 5,803 4,821
Selling, general and administrative 798 736 1,533 1,415
Interest 110 130 186 204
Depreciation and amortization 135 92 298 189
-------- -------- -------- --------
4,188 3,545 7,820 6,629
-------- -------- -------- --------
Income before income taxes 293 373 598 703
Income tax provision 114 149 230 277
-------- -------- -------- --------
Net income $ 179 $ 224 $ 368 $ 426
======== ======== ======== ========
Net income per share* $ 0.12 $ 0.15 $ 0.24 $ 0.28
======== ======== ======== ========
<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).
See notes to consolidated financial statements
</TABLE>
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<PAGE> 5
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows related to operating activities:
Net income $ 368 $ 426
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 298 189
Change in assets and liabilities -
Accounts receivable 617 (294)
Inventories (835) (641)
Prepaid income taxes (29) (136)
Other current assets (591) (14)
Other assets 7 8
Accounts payable (72) (209)
Accrued employee compensation & benefit costs (63) (31)
Other accrued liabilities 17 (23)
------- --------
Net cash used in operating activities (283) (725)
------- --------
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment (195) (508)
------- --------
Net cash used in investing activities (195) (508)
------- --------
Cash flows related to financing activities:
Acquisition of long-term debt 31 1,446
Increase in demand loan 475 0
Payments on long-term debt (74) (69)
Payments on demand loan (300) 0
Purchase of treasury stock 0 (2)
------- --------
Net cash provided by financing activities 132 1,375
------- --------
Net (decrease) increase in cash (346) 142
Cash at beginning of period 490 562
------- --------
Cash at end of period $ 144 $ 704
======= ========
<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 other current assets is $206,000 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.
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>
<S> <C> <C>
2. Inventories June 30, 1995
-------------
Raw materials and common parts $ 1,476
Work-in-process (including engineering and other
support costs) 5,311
Finished goods 398
---------
7,185
Less common parts expected to be used after one year (236)
---------
$ 6,949
=========
</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.
-6-
<PAGE> 7
<TABLE>
<CAPTION>
3. Property, plant and equipment June 30, 1995
----------------------------- -------------
<S> <C>
Land $ 19
Buildings 6,578
Machinery, equipment and tooling 7,000
---------
13,597
Less accumulated depreciation (5,428)
---------
$ 8,169
=========
</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.
<TABLE>
<CAPTION>
4. Long-term debt
--------------
June 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 (4.40% at June 30, 1995) $ 5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (9.25% at
June 30, 1995); quarterly principal
payments of $34,439 through November 1, 2000 724
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 453
--------
6,577
Less current portion (165)
--------
$ 6,412
========
</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 -- -- -- 368 -- --
--------- ----- --------- ------- ------- -------
Balance
June 30, 1995 2,440,408 $ 488 $ 12,496 $ 1,589 ($ 3,145) ($ 1,240)
========= ===== ========= ======= ======= =======
</TABLE>
Per share data is based on weighted average outstanding shares of
1,544,566 and 1,484,475 for the second quarter ended June 30, 1995 and 1994
and 1,544,566 and 1,484,759 for the six month period ended June 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 is 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: August 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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<TABLE>
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.
<CAPTION>
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)
1995 1994 95-94 1995 1994 95-94
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales
Advanced technology products 48.7% 44.5% 12.1% 48.8% 45.9% 11.1%
Consumer products 51.3% 55.5% 4.2% 51.2% 54.1% 5.6%
------ ------ ----- ------ ------ -----
100.0% 100.0% 14.4% 100.0% 100.0% 14.8%
Cost of goods sold, exclusive of
depreciation 70.2% 66.0% 21.6% 68.9% 65.8% 20.4%
------ ------ ----- ------ ------ -----
Gross profit 29.8% 34.0% -15.4% 31.1% 34.2% -8.8%
------ ------ ----- ------ ------ -----
Selling, general and administrative 17.8% 18.8% 8.4% 18.2% 19.3% 8.3%
Interest 2.5% 3.3% -15.4% 2.2% 2.8% -8.8%
Depreciation and amortization 3.0% 2.3% 46.7% 3.5% 2.6% 57.7%
------ ------ ----- ------ ------ -----
23.3% 24.4% 39.7% 23.9% 24.7% 57.2%
------ ------ ----- ------ ------ -----
Income before provision for income taxes 6.5% 9.6% -21.4% 7.2% 9.5% -14.9%
Income tax provision 2.5% 3.8% -23.5% 2.7% 3.8% -17.0%
------ ------ ----- ------ ------ -----
Net income 4.0% 5.8% -20.1% 4.5% 5.7% -13.6%
------ ------ ----- ------ ------ -----
</TABLE>
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<PAGE> 11
Management Discussion
---------------------
During the six month period ended June 30, 1995 and for the comparable
period ended June 30, 1994, approximately 37% and 30% respectively, of the
Company's revenues were derived from contracts with agencies of the US
Government or their prime contractors. For the second quarter of 1995 and
1994, approximately 36% and 33% 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 six month period
ended June 30, 1995 showed an approximate 14.8% increase in net sales and a
decrease in net income of approximately 13.6% when compared to the same six
month period of 1994. For the second quarter of 1995, net sales increased
approximately 14.4% with a decrease in net income of 20.1% 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 unfunded sales backlog at June 30,
1995 and 1994 for the Advanced Technology Group (ATG) were approximately
$8,300,000 of funded and $12,900,000 of unfunded and approximately $6,000,000
of funded and $16,600,000 of unfunded. Approximately $8,800,000 of the June
30, 1995 backlog is for product deliveries
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<PAGE> 12
beyond 1997. 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, 1995 decreased to 7.2% from 9.5% as reported for the same six
month period of 1994. For the second quarter of 1995 operating profit as a
percent of net sales decreased to 6.5% from 9.6% 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 six month
period and quarter ended June 30, 1995 when compared to the comparable periods
of 1994 due to an increase in sales, 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 due to fluctuation in interest rate which is
partially offset by an increase in institutional debt.
Income taxes for the six month period and quarter ended June 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.
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, 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.
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<PAGE> 13
During the six month period ended June 30, 1995, the Company expended
$195,000 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 June 30, 1995 of which $575,000 is
outstanding at June 30, 1995.
There are no material commitments for capital expenditures at June 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
July 31, no additional shares have been purchased.
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,
1995. 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.
<TABLE>
<S> <C> <C>
Withheld
Name of Nominee For Authority
--------------- --- ---------
Dr. William H. Duerig 1,889,317.475 16,695.662
Donald W. Hedges 1,889,317.475 16,695.662
Nicholas D. Trbovich, Jr. 1,888,509.475 17,503.662
Dr. Nicholas D. Trbovich 1,889,319.475 16,693.662
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 144
<SECURITIES> 0
<RECEIVABLES> 2,444
<ALLOWANCES> 0
<INVENTORY> 6,949
<CURRENT-ASSETS> 12,049
<PP&E> 13,597
<DEPRECIATION> 5,428
<TOTAL-ASSETS> 20,695
<CURRENT-LIABILITIES> 3,493
<BONDS> 6,412
<COMMON> 488
0
0
<OTHER-SE> 9,700
<TOTAL-LIABILITY-AND-EQUITY> 20,695
<SALES> 8,418
<TOTAL-REVENUES> 8,418
<CGS> 5,803
<TOTAL-COSTS> 7,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186
<INCOME-PRETAX> 598
<INCOME-TAX> 230
<INCOME-CONTINUING> 368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 368
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
