<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, 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
------------------------------- -------------
(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, 1996
- ------------------------------------ ----------------------------
Common Stock, $.20 par value 2,357,189
(Including shares issued for
Stock Dividend; see Note 5 to
Consolidated Financial
Statements)
<PAGE> 2
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheet, June 30, 1996 3
b) Consolidated Statement of Income, Three and Six Months Ended
June 30, 1996 and 1995 4
c) Consolidated Statement of Cash Flows for the Six Months Ended
June 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
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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<PAGE> 3
PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
($000's omitted except per share data)
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 675
Accounts receivable 2,047
Inventories 6,938
Prepaid income taxes 139
Deferred tax asset 501
Other 1,499
--------
Total current assets 11,799
Property, plant and equipment, net 7,636
Other assets 463
--------
$ 19,898
========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 226
Accounts payable 1,029
Accrued employee compensation and benefit costs 736
Other accrued liabilities 108
--------
Total current liabilities 2,099
--------
Long-term debt 6,785
Non-current deferred tax liability 635
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,614,506 shares 523
(including 174,098 shares issued for Stock
Dividend)
Capital in excess of par value 13,269
Retained earnings 871
--------
14,663
Employee stock ownership trust commitment (3,044)
Treasury stock, at cost, 257,317 shares (1,240)
--------
Total shareholders' equity 10,379
--------
$ 19,898
========
</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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $4,414 $4,481 $7,900 $8,418
Costs and expenses:
Cost of goods sold 3,036 3,145 5,452 5,803
Selling, general and administrative 835 798 1,564 1,533
Interest 85 110 165 186
Depreciation and amortization 157 135 313 298
------ ------ ------ ------
4,113 4,188 7,494 7,820
------ ------ ------ ------
Income before income taxes 301 293 406 598
Income tax provision 111 114 146 230
------ ------ ------ ------
Net income $ 190 $ 179 $ 260 $ 368
====== ====== ====== ======
Net income per share $ 0.11 $ 0.11* $ 0.16 $ 0.23*
====== ====== ====== ======
<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
- 4 -
<PAGE> 5
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000's omitted)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows related to operating activities:
Net income $ 260 $ 368
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation and amortization 313 298
Deferred taxes
Change in assets and liabilities -
Accounts receivable 448 617
Inventories (270) (835)
Prepaid income taxes 122 (29)
Other current assets (549) (591)
Other assets 7 7
Accounts payable 131 (72)
Accrued employee compensation & benefit costs 49 (63)
Other accrued liabilities (101) 17
----- -----
Net cash provided by (used in) operating activities 410 (283)
----- -----
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment (242) (195)
----- -----
Net cash used in investing activities (242) (195)
----- -----
Cash flows related to financing activities:
Acquisition of long-term debt 0 31
Increase in demand loan 0 475
Principal payments on long-term debt (105) (74)
Payments on demand loan 0 (300)
----- -----
Net cash (used in) provided by financing activities (105) 132
----- -----
Net increase (decrease) in cash 63 (346)
Cash at beginning of period 612 490
----- -----
Cash at end of period $ 675 $ 144
===== =====
</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 current assets is $664,000 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.
<TABLE>
<CAPTION>
2. Inventories June 30, 1996
----------- -------------
<S> <C>
Raw materials and common parts $ 1,210
Work-in-process (including engineering and other
support costs) 5,450
Finished goods 514
-------
7,174
Less common parts expected to be used after one year (236)
-------
$ 6,938
=======
</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 June 30, 1996
----------------------------- -------------
<S> <C>
Land $ 19
Buildings 6,363
Machinery, equipment and tooling 7,389
--------
13,771
Less accumulated depreciation (6,135)
--------
$ 7,636
========
</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>
June 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 (3.80% at June 30, 1996) $ 5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (8.50% at
June 30, 1996); quarterly principal
payments of $34,439 through November 1, 2000 585
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 366
Various other secured term notes payable to government agencies 1,060
-------
7,011
Less current portion (226)
-------
$ 6,785
=======
</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 to 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 174,098 35 774 (811) -- --
Net income -- -- -- 260 -- --
--------- -------- ---------- --------- --------- ----------
Balance
June 30, 1996 2,614,506 $ 523 $ 13,269 $ 871 ($ 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 second quarter ended June 30, 1996 and 1995 and 1,661,815
and 1,,628,844 for the six month period ended June 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: August 12, 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 six months ended increase
June 30, (decrease) June 30, (decrease)
1996 1995 96-95 1996 1995 96-95
------------------------------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales
Advanced technology products 57.7% 48.7% 7.9% 52.5% 48.8% 0.6%
Consumer products 42.3% 51.3% -10.4% 47.5% 51.2% -6.7%
----- ----- ----- ----- ----- -----
100.0% 100.0% -1.5% 100.0% 100.0% -6.2%
Cost of goods sold, exclusive of
depreciation 68.8% 70.2% -3.5% 69.0% 68.9% -6.0%
----- ----- ----- ----- ----- -----
Gross profit 31.2% 29.8% 3.1% 31.0% 31.1% -6.2%
----- ----- ----- ----- ----- -----
Selling, general and administrative 18.9% 17.8% 4.6% 19.8% 18.2% 2.0%
Interest 1.9% 2.5% -22.7% 2.1% 2.2% -11.3%
Depreciation and amortization 3.6% 3.0% 16.3% 4.0% 3.5% 5.0%
----- ----- ----- ----- ----- -----
24.4% 23.3% -1.8% 25.9% 23.9% -4.3%
----- ----- ----- ----- ----- -----
Income before provision for income taxes 6.8% 6.5% 2.7% 5.1% 7.2% -32.1%
Income tax provision 2.5% 2.5% -2.6% 1.8% 2.8% -36.5%
----- ----- ----- ----- ----- -----
Net income 4.3% 4.0% 6.1% 3.3% 4.4% -29.3%
----- ----- ----- ----- ----- -----
</TABLE>
- 10 -
<PAGE> 11
Management Discussion
- ---------------------
During the six month period ended June 30, 1996 and for the comparable period
ended June 30, 1995, approximately 28% and 37% 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 1996 and 1995, approximately 30%
and 36% 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 six month period
ended June 30, 1996 showed an approximate 6.2% decrease in net sales and a
decrease in net income of approximately 29.3% when compared to the same six
month period of 1995. For the second quarter of 1996, net sales decreased
approximately 1.5% with an increase in net income of 6.1% compared to the same
period in 1995. The decrease in sales is the result of a decrease in sales at
the Consumer Products Group's operations due to a decrease in customer demands
offset by an increase in sales at the Advanced Technology Group operations.
The Advanced Technology Group's total backlog (funded and unfunded) as of
June 30, 1996 increased by approximately 56% from a year earlier. The June 30,
1996 total backlog is approximately $33,000,000 as compared to $21,200,000 of
which $25,500,000 and $12,900,000 were unfunded in each of the respective
comparative periods. Approximately $9,600,000 of the June 30, 1996 backlog is
for product deliveries beyond 1999. The unfunded
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<PAGE> 12
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, 1996 decreased to 5.1% from 7.2% as reported for the same six month
period of 1995. For the second quarter of 1996 operating profit as a percent of
net sales increased to 6.8% from 6.5% when compared to the same period in 1995.
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 increased for the six month period
and quarter ended June 30, 1996 when compared to the comparable periods of 1995
due to an increase in sales and professional costs.
Income taxes for the six month period and quarter ended June 30, 1996
decreased as a percentage of income before taxes when compared to the comparable
periods of 1995 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, 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.
During the six month period ended June 30, 1996, the Company expended
$242,000 on capital expenditures. The Company also has a $1,000,000 line of
credit at June 30, 1996, of which nothing is outstanding at June 30, 1996.
There are no material commitments for capital expenditures at June 30, 1996.
-12-
<PAGE> 13
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
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 28,
1996. 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>
<CAPTION>
Withheld
Name of Nominee For Authority
--------------- --- ---------
<S> <C> <C>
Dr. William H. Duerig 1,933,618.006 8,732
Donald W. Hedges 1,933,618.006 8,732
Nicholas D. Trbovich, Jr. 1,933,614.006 8,736
Dr. Nicholas D. Trbovich 1,933,614.006 8,736
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089140
<NAME> SERVOTRONICS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 675
<SECURITIES> 0
<RECEIVABLES> 2,047
<ALLOWANCES> 0
<INVENTORY> 6,938
<CURRENT-ASSETS> 11,799
<PP&E> 7,636
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,898
<CURRENT-LIABILITIES> 2,099
<BONDS> 6,785
<COMMON> 523
0
0
<OTHER-SE> 9,856
<TOTAL-LIABILITY-AND-EQUITY> 19,898
<SALES> 7,900
<TOTAL-REVENUES> 7,900
<CGS> 5,452
<TOTAL-COSTS> 7,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 406
<INCOME-TAX> 146
<INCOME-CONTINUING> 260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
