<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
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1934 For the quarterly period ended September 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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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
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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 October 31, 1996
---------------------------- -------------------------------
Common Stock, $.20 par value 2,357,189
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INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheet, September 30, 1996 3
b) Consolidated Statement of Income, Three and Nine Months Ended
September 30, 1996 and 1995 4
c) Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 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
</TABLE>
PART II. OTHER INFORMATION
Item 6(a). Exhibits
27 Financial Data Schedule
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<PAGE> 3
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996
($000's omitted except per share data)
(Unaudited)
<S> <C>
Assets
Current assets:
Cash $ 1,566
Accounts receivable 2,127
Inventories 7,037
Deferred tax asset 501
Other 1,336
--------
Total current assets 12,567
Property, plant and equipment, net 7,432
Other assets 710
--------
$ 20,709
========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 243
Accounts payable 813
Accrued employee compensation and benefit costs 905
Other accrued liabilities 296
--------
Total current liabilities 2,257
--------
Long-term debt 6,698
Non-current deferred tax liability 635
Other non-current liability 251
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 1,360
--------
15,152
Employee stock ownership trust commitment (3,044)
Treasury stock, at cost, 257,317 shares (1,240)
--------
Total shareholders' equity 10,868
$ 20,709
========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 3,643 $ 3,906 $ 11,543 $ 12,324
Costs and expenses:
Cost of goods sold 2,511 2,698 7,963 8,501
Selling, general and administrative 730 790 2,294 2,323
Interest 85 89 250 275
Depreciation and amortization 160 157 473 455
Charges related to sale of assets 477 0 477 0
Gain on sale of assets (1,116) 0 (1,116) 0
-------- -------- --------- ---------
2,847 3,734 10,341 11,554
-------- -------- --------- ---------
Income before income taxes 796 172 1,202 770
Income tax provision 307 64 453 294
-------- -------- --------- ---------
Net income $ 489 $ 108 $ 749 $ 476
======== ======== ========= =========
Net income per share $ 0.29 $ 0.07* $ 0.45 $ 0.29*
======== ======== ========= =========
<FN>
* Restated to give effect to shares issued pursuant to the 8% stock dividend
declared in May 1996 (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,
1996 1995
---- ----
<S> <C> <C>
Cash flows related to operating activities:
Net income $ 749 $ 476
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation and amortization 473 455
Gain on sale of assets (exclusive of related charges) (1,116) 0
Change in assets and liabilities -
Accounts receivable 368 361
Inventories (369) (593)
Prepaid income taxes 261 169
Other current assets (386) (503)
Other assets (241) 11
Accounts payable (85) (356)
Accrued employee compensation & benefit costs 218 (237)
Other accrued liabilities 88 130
Other non-current liability 251 0
Change in current portion of long-term debt 17 0
-------- --------
Net cash provided by (used in) operating activities 228 (87)
-------- --------
Cash flows related to investing activities:
Sale of Assets 1,255 0
Capital expenditures - property, plant &
equipment (337) (292)
-------- --------
Net cash provided by (used in) investing activities 918 (292)
-------- --------
Cash flows related to financing activities:
Acquisition of long-term debt 0 302
Increase in demand loan 0 475
Principal payments on long-term debt (192) (123)
Payments on demand loan 0 (425)
-------- --------
Net cash (used in) provided by financing activities (192) 229
-------- --------
Net increase (decrease) in cash 954 (150)
Cash at beginning of period 612 490
-------- --------
Cash at end of period $ 1,566 $ 340
======== ========
</TABLE>
See notes to consolidated financial statements
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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 $455,000 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.
Reclassification of prior year balances
---------------------------------------
Certain prior year balances have been reclassified to conform with the
current year presentation.
2. Inventories
-----------
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Raw materials and common parts $ 1,240
Work-in-process (including engineering and other
support costs) 5,676
Finished goods 358
----------
7,273
Less common parts expected to be used after one year (236)
----------
$ 7,037
==========
</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
3. Property, plant and equipment
-----------------------------
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Land $ 11
Buildings 6,052
Machinery, equipment and tooling 7,322
----------
13,385
Less accumulated depreciation (5,953)
----------
$ 7,432
==========
</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, 1996
------------------
<S> <C>
Industrial Development Revenue Bonds; secured by a
letter of credit from a bank with interest payable monthly
at a floating rate (4.30% at September 30, 1996) $ 5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (8.50% at
September 30, 1996); quarterly principal
payments of $34,439 through November 1, 2000 551
Secured term note; payable to a government agency
with interest at 6%; monthly principal payments of
$2,778 commencing on July 1, 1996 through May 1, 2004,
with a final principal payment of $102,754 due June 1, 2004 358
Various other secured term notes payable to government agencies 1,032
---------
6,941
Less current portion (243)
---------
$ 6,698
=========
</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.
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 174,098 35 774 (811) -- --
Net income -- -- -- 749 -- --
--------- -------- ---------- --------- --------- ----------
Balance
September 30, 1996 2,614,506 $ 523 $ 13,269 $ 1,360 ($ 3,044) ($ 1,240)
========= ======== ========== ========= ========= ==========
</TABLE>
Per share data is based on weighted average outstanding shares of 1,661,815
and 1,628,844 for the third quarter ended September 30, 1996 and 1995 and
1,661,815 and 1,628,844 for the nine month period ended September 30, 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 was July 1, 1996. 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 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 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.
<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)
1996 1995 96-95 1996 1995 96-95
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales
Advanced technology products 55.4% 51.4% -0.2% 53.4% 49.6% 0.4%
Consumer products 44.6% 48.6% -7.5% 46.6% 50.4% -7.0%
----- ----- ----- ----- ----- -----
100.0% 100.0% -6.7% 100.0% 100.0% -6.3%
Cost of goods sold, exclusive of
depreciation 68.9% 69.1% -6.9% 69.0% 69.0% -6.3%
Gross profit 31.1% 30.9% -6.3% 31.0% 31.0% -6.3%
----- ----- ----- ----- ----- -----
Selling, general and administrative 20.0% 20.2% -7.6% 19.9% 18.8% -1.2%
Interest 2.3% 2.3% -4.5% 2.2% 2.2% -9.1%
Depreciation and amortization 4.4% 4.0% 1.9% 4.1% 3.7% 4.0%
Charges related to sale of assets 13.1% 0.0% - 4.1% 0.0% -
Gain on sale of assets -30.6% 0.0% - -9.7% 0.0% -
----- ----- ----- ----- ----- -----
9.2% 26.5% -10.2% 20.6% 24.7% -6.3%
----- ----- ----- ----- ----- -----
Income before provision for income taxes 21.9% 4.4% 362.8% 10.4% 6.3% 56.1%
Income tax provision 8.5% 1.6% 379.7% 3.9% 2.4% 54.1%
----- ----- ----- ----- ----- -----
Net income 13.4% 2.8% 352.8% 6.5% 3.9% 57.4%
----- ----- ----- ----- ----- -----
</TABLE>
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<PAGE> 11
Management Discussion
- ---------------------
During the nine month period ended September 30, 1996 and for the
comparable period ended September 30, 1995, approximately 32% and 40%
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 1996 and 1995, approximately 39% and 46% 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. Because of such uncertainties and
because such adverse occurrences may not be counterbalanced with new programs or
otherwise mitigated, 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, 1996 showed an approximate 6.3% decrease in net sales with a
decrease in operating income as a percentage of net sales from approximately
6.2% to 4.9% when compared to the same nine month period of 1995. For the third
quarter of 1996, net sales decreased approximately 6.7% with a decrease in
operating profit as a percentage of net sales from approximately 4.4% to 4.3%
compared to the same period in 1995. The decrease in sales is primarily
attributable to a decrease in sales at the Consumer Products Group's operations
due to a decrease in customer demands while the decrease in operating profit as
a percentage of net sales is a result of differences in product mix.
The Advanced Technology Group's total backlog (funded and unfunded) as of
September 30, 1996 increased by approximately 25% from a year earlier. The
September 30, 1996 total backlog is approximately $32,000,000 as compared to
$25,500,000 of which $25,200,000 and $20,000,000 were unfunded in each of the
respective comparative periods. Approximately
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<PAGE> 12
$9,600,000 of the September 30, 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.
Net income for the nine month period ended September 30, 1996 increased
57.4% when compared to the same period of 1995. The increase in net income
reflects the previously reported sale of the former headquarters which was
located at 3901 Union Road. This sale was completed in the third quarter of 1996
and is reflected as a gain on the sale of assets and the related charges, which
include certain enviornmental and compensation costs, on the aforementioned
sale of assets and resulted in an increase in net income when comparing quarter
to quarter results of 1996 and 1995 as shown in the accompanying financial
statements.
Selling, general and administrative costs decreased for the nine month
period and quarter ended September 30, 1996 when compared to the comparable
periods of 1995 due to a decrease in sales and professional costs.
Income taxes for the nine month period ended September 30, 1996 decreased
as a percentage of income before taxes when compared to the same period of 1995
while income taxes for the three month period ended September 30, 1996 increased
as a percentage of income before taxes when compared to the same period in 1995.
The fluctuations are primarily attributable 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 September 30, 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 times.
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<PAGE> 13
During the nine month period ended September 30, 1996, the Company expended
$337,000 on capital expenditures. The Company also has a $1,000,000 line of
credit at September 30, 1996, of which nothing is outstanding at September 30,
1996.
There are no material commitments for capital expenditures at September 30,
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
October 31, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,566
<SECURITIES> 0
<RECEIVABLES> 2,127
<ALLOWANCES> 0
<INVENTORY> 7,037
<CURRENT-ASSETS> 12,567
<PP&E> 7,432
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,709
<CURRENT-LIABILITIES> 2,257
<BONDS> 6,698
<COMMON> 523
0
0
<OTHER-SE> 10,345
<TOTAL-LIABILITY-AND-EQUITY> 20,709
<SALES> 11,543
<TOTAL-REVENUES> 11,543
<CGS> 7,963
<TOTAL-COSTS> 10,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 1,202
<INCOME-TAX> 453
<INCOME-CONTINUING> 749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 749
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
