<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, 1996
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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1110 Maple Street, Elma, New York 14059-0300
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(Address of principal executive offices)
716-655-5990
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(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, 1996
----------------------------- -----------------------------
Common Stock, $.20 par value 2,357,738
(Including shares to be issued for
stock dividend; see Note 5 to
Consolidated Financial Statements)
<PAGE> 2
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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<S> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheet, March 31, 1996 3
b) Consolidated Statement of Income, Three Months Ended
March 31, 1996 and 1995 4
c) Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 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
</TABLE>
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<PAGE> 3
PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
($000's omitted except per share data)
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 612
Accounts receivable 2,253
Inventories 7,258
Prepaid income taxes 253
Deferred tax asset 501
Other 943
--------
Total current assets 11,820
Property, plant and equipment, net 7,649
Other assets 466
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$ 19,935
========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 226
Accounts payable 1,021
Accrued employee compensation and benefit
costs 817
Other accrued liabilities 208
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Total current liabilities 2,272
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Long-term debt 6,837
Non-current deferred tax liability 635
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,615,055 shares 523
(including 174,647 shares to be issued for
Stock Dividend; see Note 5 to Consolidated
Financial Statements)
Capital in excess of par value 13,269
Retained earnings 683
--------
14,475
Employee stock ownership trust commitment (3,044)
Treasury stock, at cost, 257,317 shares (1,240)
--------
Total shareholders' equity 10,191
--------
$ 19,935
========
</TABLE>
See notes to consolidated financial statements
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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,
1996 1995
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<S> <C> <C>
Net sales $ 3,486 $ 3,937
Costs and expenses:
Cost of goods sold 2,416 2,658
Selling, general and administrative 729 735
Interest 80 76
Depreciation and amortization 156 163
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3,381 3,632
------- -------
Income before income taxes 105 305
Income tax provision 35 116
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Net income $ 70 $ 189
======= =======
Net income per share $ 0.04 * $ 0.12 **
======= =======
<FN>
*Consideration given to effect for shares issued in conjunction with the 8%
stock dividend declared in May 1996 (See Note 5 to Consolidated Financial
Statements).
**Restated to give effect for shares issued in conjunction with the 8% stock
dividend declared in May 1996 and 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>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows related to operating activites:
Net income $ 70 $ 189
Adjustments to reconcile net income to net
cash provided by (used in) operating activites -
Depreciation and amortization 156 163
Deferred taxes 0 1
Change in assets and liabilities -
Accounts receivable 242 204
Inventories (590) (284)
Prepaid income taxes 8 (25)
Other current assets 7 (195)
Other assets 4 4
Accounts payable 123 (199)
Accrued employee compensation & benefit costs 130 (207)
Other accrued liabilities 0 70
------ ------
Net cash provided by (used in) operating activities 150 (279)
Cash flows related to investing activites:
Capital expenditures - property, plant &
equipment (97) (128)
------ ------
Net cash used in investing activities (97) (128)
Cash flows related to financing activities:
Increase in demand loan 0 375
Principal payments on long-term debt (53) (37)
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Net cash (used in) provided by financing activities (53) 338
------ ------
Net decrease in cash 0 (69)
Cash at beginning of period 612 490
------ ------
$ 612 $ 421
====== ======
</TABLE>
See notes to consolidated financial statements
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<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000's omitted in tables except for per 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 $93,000 of deferred revenue which
represents billings under the terms of the contracts in excess of revenue
earned under the percentage of completion method.
Reclassification of prior year balances
---------------------------------------
Certain prior year balances have been reclassified to conform with the
current year presentation.
<TABLE>
<CAPTION>
2. Inventories March 31, 1996
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<S> <C>
Raw materials and common parts $ 1,223
Work-in-process (including engineering and other
support costs) 5,768
Finished goods 503
-------
7,494
Less common parts expected to be used after one year (236)
-------
$ 7,258
=======
</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>
<CAPTION>
3. Property, plant and equipment March 31, 1996
----------------------------- --------------
<S> <C>
Land $ 19
Buildings 6,358
Machinery, equipment and tooling 7,251
-------
13,628
Less accumulated depreciation (5,979)
-------
$ 7,649
=======
</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 March 31, 1996
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<S> <C>
Industrial Development Revenue Bonds; secured by a
letter of credit from a bank with interest payable
monthly at a floating rate 3.65% at March 31, 1996) $5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (8.5% at
March 31, 1996); quarterly principal
payments of $34,439 through November 1, 2000 620
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 375
Various other secured term notes payable to government agencies 1,068
------
7,063
Less current portion (226)
------
$6,837
======
</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, 1995 2,440,408 $ 488 $ 12,495 $ 1,422 ($3,044) ($ 1,240)
Stock dividend 174,647 35 774 (809) -- --
Net income -- -- -- 70 -- --
---------- -------- --------- -------- ------- --------
Balance
March 31, 1996 2,615,055 $ 523 $ 13,269 $ 683 ($3,044) ($ 1,240)
========= ======== ========= ======== ======= ========
</TABLE>
Per share data is based on weighted average outstanding shares of
1,662,364 and 1,629,393 for the first quarter ended March 31, 1996 and 1995.
On May 3, 1996 the Company's Board of Directors declared an 8% stock
dividend payable to shareholders of record on May 31, 1996. The payment date
for the stock dividend is July 1, 1996. Accordingly, per share data for all
periods presented in the accompanying income statement have been stated to give
effect to the issuance of these shares and shares issued in conjunction with
the 6% stock dividend declared on June 30, 1995 and paid on August 11, 1995.
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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 14, 1996
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)
1996 1995 96-95
---- ---- -----
<S> <C> <C> <C>
Net sales
Advanced technology products 45.4% 49.1% -8.9%
Consumer products 54.6% 50.9% -2.6%
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100.0% 100.0% -11.5%
Cost of goods sold, exclusive of
depreciation 69.3% 67.5% -9.1%
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Gross profit 30.7% 32.5% 5.3%
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Selling, general and administrative 20.9% 18.7% -0.8%
Interest 2.3% 1.9% 5.3%
Depreciation and amortization 4.5% 4.1% -4.3%
----- ----- ------
27.7% 24.7% 0.2%
----- ----- ------
Income before provision for income
taxes 3.0% 7.8% -65.6%
Income tax provision 1.0% 2.9% -69.8%
----- ----- ------
Net income 2.0% 4.9% -63.0%
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</TABLE>
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<PAGE> 11
Management Discussion
- ---------------------
During the three month period ended March 31, 1996 and for the comparable
period ended March 31, 1995, approximately 20% and 25% 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, 1996 showed an approximate 11.5% decrease in net sales and a
decrease in net income of approximately 63.0% when compared to the same three
month period of 1995. The decrease in sales occurred in both the Advanced
Technology and Consumer Products operations. Decreased sales at the Advanced
Technology operations is primarily due to a decrease from 1995 to 1996 in the
number of contracts subject to revenue recognition of revenues under the
percentage of completion method (cost-to-cost), under which revenue is
recognized as work progresses toward completion. Decreased sales at the Consumer
Products operations is due to a decrease in customer demands.
The Advanced Technology Group's total backlog (funded and unfunded) as of
March 31, 1996 increased by approximately 37% from a year earlier. The March
31, 1996 total backlog is approximately $32,100,000 as compared to $23,400,000
of which $24,700,000 and $14,600,000 were unfunded in each of the respective
comparable periods. Approximately $9,600,000 of the March 31, 1996 backlog is
for product deliveries beyond 1999. 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, 1996 decreased to 3.0 % from 7.8% as reported for the same
three month period of 1995.
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<PAGE> 12
The fluctuations in operating profit as a percentage of net sales is a result
of differences in the product mix.
Selling, general and administrative costs decreased for the three month
period ended March 31, 1996 when compared to the same three month period of
1995 due to a decrease in sales and professional costs.
Income taxes for the three month period ended March 31, 1996 decreased as a
percentage of income before taxes when compared to the same three month period
of 1995 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, 1996, 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, 1996, the Company expended
$99,000 on capital expenditures. The Company also has a $1,000,000 line of
credit at March 31, 1996 of which nothing is outstanding at March 31, 1996.
There are no material commitments for capital expenditures at March 31,
1996.
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 1996, through
April 30, no additional shares have been purchased.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 612
<SECURITIES> 0
<RECEIVABLES> 2,253
<ALLOWANCES> 0
<INVENTORY> 7,258
<CURRENT-ASSETS> 11,820
<PP&E> 7,649
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,935
<CURRENT-LIABILITIES> 2,272
<BONDS> 6,837
<COMMON> 523
0
0
<OTHER-SE> 9,668
<TOTAL-LIABILITY-AND-EQUITY> 19,935
<SALES> 3,486
<TOTAL-REVENUES> 3,486
<CGS> 2,416
<TOTAL-COSTS> 3,381
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 105
<INCOME-TAX> 35
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
