<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
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, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER: (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, 2000
----------------------------------------- ---------------------------------
COMMON STOCK, $.20 PAR VALUE 2,405,488
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES ; NO X
--- ---
-1-
<PAGE> 2
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. FINANCIAL STATEMENTS
A) CONSOLIDATED BALANCE SHEET, SEPTEMBER 30, 2000 3
B) CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 4
C) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 5
D) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
SIGNATURES 12
ITEM 6(a). EXHIBITS
27 FINANCIAL DATA SCHEDULE
-2-
<PAGE> 3
PART I FINANCIAL INFORMATION
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
($000'S OMITTED EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH $ 889
ACCOUNTS RECEIVABLE 2,353
INVENTORIES 6,883
DEFERRED INCOME TAXES 1,443
OTHER 1,273
------------
TOTAL CURRENT ASSETS 12,841
------------
PROPERTY, PLANT AND EQUIPMENT, NET 6,844
OTHER ASSETS 613
------------
$ 20,298
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 392
ACCOUNTS PAYABLE 694
ACCRUED EMPLOYEE COMPENSATION AND BENEFIT COSTS 923
OTHER ACCRUED LIABILITIES 164
ACCRUED INCOME TAX 159
------------
TOTAL CURRENT LIABILITIES 2,332
------------
LONG-TERM DEBT 6,324
DEFERRED INCOME TAXES 518
OTHER NON-CURRENT LIABILITY 227
SHAREHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.20; AUTHORIZED
4,000,000 SHARES; ISSUED 2,614,506 SHARES 523
CAPITAL IN EXCESS OF PAR VALUE 13,358
RETAINED EARNINGS 697
ACCUMULATED OTHER COMPREHENSIVE INCOME (24)
-------------
14,554
EMPLOYEE STOCK OWNERSHIP TRUST COMMITMENT (2,640)
TREASURY STOCK, AT COST 209,018 SHARES (1,017)
-------------
TOTAL SHAREHOLDERS' EQUITY 10,897
------------
$ 20,298
============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE> 4
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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES $ 4,129 $ 3,862 $ 12,855 $ 12,067
COSTS AND EXPENSES:
COST OF GOODS SOLD 3,047 2,755 9,389 8,604
SELLING, GENERAL AND ADMINISTRATIVE 757 799 2,317 2,368
INTEREST 99 90 295 249
DEPRECIATION AND AMORTIZATION 125 157 389 470
--------- --------- --------- ----------
4,028 3,801 12,390 11,691
--------- --------- --------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 101 61 465 376
INCOME TAXES 39 25 179 151
--------- --------- --------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE; NET OF TAXES (BENEFIT) 62 36 286 225
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE - - - ( 1,727)
--------- --------- --------- ----------
NET INCOME $ 62 $ 36 $ 286 ($ 1,502)
========= ========= ========= ==========
INCOME (LOSS) PER SHARE:
BASIC
-----
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $ 0.03 $ 0.02 $ 0.16 $ 0.12
CUMULATIVE EFFECT PER SHARE OF A CHANGE IN
ACCOUNTING PRINCIPLE 0.00 0.00 0.00 ( 0.96)
--------- --------- --------- ----------
NET INCOME PER SHARE $ 0.03 $ 0.02 $ 0.16 ($ 0.84)
========= ========= ========= ==========
DILUTED
-------
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $ 0.03 $ 0.02 $ 0.15 0.12
CUMULATIVE EFFECT PER SHARE OF A CHANGE IN
ACCOUNTING PRINCIPLE 0.00 0.00 0.00 ( 0.96)
--------- --------- --------- ----------
NET INCOME PER SHARE $ 0.03 $ 0.02 $ 0.15 ($ 0.84)
========= ========= ========= ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMEMTS
-4-
<PAGE> 5
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 286 ($1,502)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - 1,727
DEPRECIATION AND AMORTIZATION 389 470
CHANGE IN ASSETS AND LIABILITIES -
ACCOUNTS RECEIVABLE 454 (406)
INVENTORIES (715) (846)
PREPAID INCOME TAXES 766 (22)
OTHER CURRENT ASSETS 22 (81)
OTHER ASSETS 6 11
ACCOUNTS PAYABLE (452) 241
ACCRUED EMPLOYEE COMPENSATION & BENEFIT COSTS 97 (50)
OTHER ACCRUED LIABILITIES (141) (71)
ACCRUED INCOME TAX 159 -
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 871 (529)
--------- ----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES:
CAPITAL EXPENDITURES - PROPERTY, PLANT &
EQUIPMENT (110) (647)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (110) (647)
---------- ----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES:
INCREASE IN DEMAND LOAN 600 600
PAYMENTS ON DEMAND LOAN (1,050) (300)
ACQUISITION OF LONG-TERM DEBT - 1,000
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (216) (369)
NET CASH PROCEEDS FROM EXERCISE OF STOCK OPTIONS - 55
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (666) 986
---------- ---------
NET INCREASE (DECREASE) IN CASH 95 (190)
CASH AT BEGINNING OF PERIOD 794 1,009
--------- ---------
CASH AT END OF PERIOD $ 889 $ 819
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-5-
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($000 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 CURRENT ASSETS ARE $827,000 OF UNBILLED REVENUES
WHICH REPRESENT 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 SEPTEMBER 30, 2000
----------- ------------------
RAW MATERIALS AND COMMON PARTS $ 1,035
WORK-IN-PROCESS 5,827
FINISHED GOODS 257
----------
7,119
LESS COMMON PARTS EXPECTED TO BE USED AFTER ONE YEAR (236)
-----------
$ 6,883
===========
ENGINEERING AND OTHER SUPPORT COSTS ARE INCURRED IN FULFILLING CERTAIN
CONTRACTS WHICH HAVE A PRODUCTION CYCLE LONGER THAN ONE YEAR. THESE COSTS ARE
PROPERLY ACCOUNTED FOR IN ACCORDANCE WITH EMERGING ISSUES TASK FORCE ("EITF")
99-5, "ACCOUNTING FOR PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY
ARRANGEMENTS". SEE NOTE 4 TO THE CONSOLIDATED FINANCIAL STATEMENTS.
3. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
SEPTEMBER 30, 2000
LAND $ 11
BUILDINGS 6,170
MACHINERY, EQUIPMENT AND TOOLING 9,146
----------
15,327
LESS ACCUMULATED DEPRECIATION (8,483)
-----------
$ 6,844
===========
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. THE COMPANY BELIEVES THAT IT MAINTAINS PROPERTY AND CASUALTY
INSURANCE IN AMOUNTS ADEQUATE FOR THE RISK AND NATURE OF ITS ASSETS AND
OPERATIONS AND WHICH ARE GENERALLY CUSTOMARY IN ITS INDUSTRY.
-6-
<PAGE> 7
4. CHANGES IN ACCOUNTING PRINCIPLES
--------------------------------
ON JANUARY 1, 1999, THE COMPANY ELECTED EARLY ADOPTION OF EMERGING
ISSUES TASK FORCE ("EITF") 99-5, "ACCOUNTING FOR PRE-PRODUCTION COSTS RELATED TO
LONG-TERM SUPPLY ARRANGEMENTS". EITF 99-5 STATES THAT DEVELOPMENT AND
PRE-PRODUCTION COSTS FOR PRODUCTS SOLD UNDER LONG-TERM SUPPLY ARRANGEMENTS BE
EXPENSED AS INCURRED. ON JANUARY 1, 1999, AS REQUIRED BY THE ACCOUNTING
STANDARDS EXECUTIVE COMMITTEE, THE COMPANY ALSO ADOPTED THE STATEMENT OF
POSITION NO. 98-5 "REPORTING ON THE COST OF START-UP ACTIVITIES" (SOP 98-5). AS
A RESULT OF THE EARLY ADOPTION OF EITF 99-5 AND ADOPTION OF SOP 98-5, THE
COMPANY WROTE OFF $1,727,000 OF COSTS WHICH WERE APPROPRIATELY CAPITALIZED IN
PRIOR YEARS. THESE CHARGES WERE RECORDED NET OF TAX OF $1,013,000 AS A
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE ON JANUARY 1, 1999.
5. LONG-TERM DEBT
--------------
<TABLE>
SEPTEMBER 30, 2000
<S> <C>
INDUSTRIAL DEVELOPMENT REVENUE BONDS; SECURED BY A
LETTER OF CREDIT FROM A BANK WITH INTEREST PAYABLE MONTHLY
AT A FLOATING RATE (5.85% AT SEPTEMBER 30, 2000) $ 5,000
UNSECURED TERM NOTE; PAYABLE TO A FINANCIAL INSTITUTION WITH INTEREST
ON $286,000 AT LIBOR PLUS 2% (8.16% AT SEPTEMBER 30, 2000) AND
INTEREST ON THE REMAINING $500,000 AT A CURRENT RATE OF 5.86%;
QUARTERLY PRINCIPAL PAYMENTS OF $35,714 THROUGH FEBRUARY 1, 2006 786
VARIOUS OTHER SECURED TERM NOTES PAYABLE TO GOVERNMENT AGENCIES 930
---------
6,716
LESS CURRENT PORTION (392)
----------
$ 6,324
=========
</TABLE>
INDUSTRIAL DEVELOPMENT REVENUE BONDS WERE ISSUED BY A
GOVERNMENT AGENCY TO FINANCE 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 UNDER THE
FACILITY CAPITAL LEASE HAS BEEN PLEDGED TO SECURE ITS OBLIGATIONS TO THE
GOVERNMENT AGENCY, THE BANK AND THE BONDHOLDERS.
ON FEBRUARY 26, 1999, THE COMPANY RECEIVED A $1,000,000 LOAN
FROM A FINANCIAL INSTITUTION PAYABLE IN EQUAL QUARTERLY INSTALLMENTS, MATURING
IN 2006. THE PROCEEDS WERE USED TO PAY OFF AN UNSECURED TERM NOTE AND TO FINANCE
PURCHASES OF EQUIPMENT AND WORKING CAPITAL. THE LOAN IS COLLATERALIZED BY ANY
AND ALL EQUIPMENT PURCHASED WITH THE PROCEEDS OF THE TERM LOAN. THE LETTER OF
CREDIT REIMBURSEMENT AGREEMENT, THE UNSECURED TERM NOTE AGREEMENT AND THE
SECURED TERM NOTES 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 COMPANY ALSO HAS A $1,000,000 LINE OF CREDIT ON WHICH THERE WAS NO
OUTSTANDING BALANCE AT SEPTEMBER 30, 2000.
-7-
<PAGE> 8
6. COMMON SHAREHOLDERS' EQUITY
---------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------ ACCUMULATED
NUMBER CAPITAL IN OTHER
OF SHARES EXCESS OF RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE
ISSUED AMOUNT PAR VALUE EARNINGS ESOP STOCK INCOME INCOME
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER
31, 1999 2,614,506 $523 $13,358 $ 411 ($ 2,640) ($ 1,017) ($ 24)
========= ==== ======= ===== ======= ======= =========
COMPREHENSIVE INCOME
NET INCOME - - - $ 286 - - $ 286 -
OTHER COMPREHENSIVE INCOME,
NET OF TAX - - - - - - - -
MINIMUM PENSION LIABILITY
ADJUSTMENT - - - - - - - -
OTHER COMPREHENSIVE INCOME - - - - - - - -
-------
COMPREHENSIVE INCOME - - - - - - $ 286 -
=======
ISSUANCE OF COMMON STOCK - - - - - - -
COMPENSATION EXPENSE - - - - - - -
TREASURY STOCK - - - - - - -
EXERCISE OF STOCK OPTIONS - - - - - - -
--------- ---- ------- ------ -------- -------- ------
BALANCE SEPTEMBER 30, 2000 2,614,506 $523 $13,358 $ 697 ($ 2,640) ($ 1,017) ($ 24)
========= ==== ======= ===== ======= ======= =========
</TABLE>
EARNINGS PER SHARE
------------------
BASIC EARNINGS PER SHARE IS COMPUTED BY DIVIDING NET EARNINGS BY THE
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING DURING THE PERIOD. DILUTED
EARNINGS PER SHARE IS COMPUTED BY DIVIDING NET EARNINGS BY THE WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING DURING THE PERIOD PLUS THE NUMBER OF SHARES OF
COMMON STOCK THAT WOULD BE ISSUED ASSUMING ALL CONTINGENTLY ISSUABLE SHARES
HAVING A DILUTIVE EFFECT ON EARNINGS PER SHARE WERE OUTSTANDING FOR THE PERIOD.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $ 62 $ 36 $ 286 $ 225
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE - - - ( 1,727)
------ ------ ------ ---------
NET EARNINGS $ 62 $ 36 $ 286 ($ 1,502)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC) 1,844 1,811 1,844 1,804
INCREMENTAL SHARES FROM ASSUMED
CONVERSIONS OF STOCK OPTIONS 3 5 3 5
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (DILUTED) 1,847 1,816 1,847 1,809
BASIC
-----
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $0.03 $ 0.02 $ 0.16 $ 0.12
CUMULATIVE EFFECT PER SHARE OF A CHANGE IN
ACCOUNTING PRINCIPLE 0.00 0.00 0.00 ( 0.96)
---- ------ ---- --------
NET INCOME PER SHARE $0.03 $ 0.02 $ 0.16 ($ 0.84)
===== ====== ====== =========
DILUTED
-------
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $0.03 $ 0.02 $ 0.15 $ 0.12
CUMULATIVE EFFECT PER SHARE OF A CHANGE IN
ACCOUNTING PRINCIPLE 0.00 0.00 0.00 ( 0.96)
---- ------ ---- --------
NET INCOME PER SHARE $0.03 $ 0.02 $ 0.15 ($ 0.84)
===== ====== ====== ========
</TABLE>
-8-
<PAGE> 9
7. BUSINESS SEGMENTS
-----------------
THE COMPANY OPERATES IN TWO BUSINESS SEGMENTS, ADVANCED TECHNOLOGY
PRODUCTS AND CONSUMER PRODUCTS. THE COMPANY'S REPORTABLE SEGMENTS ARE STRATEGIC
BUSINESS UNITS THAT OFFER DIFFERENT PRODUCTS AND SERVICES. THE SEGMENTS ARE
SEPARATE CORPORATIONS AND ARE MANAGED SEPARATELY. OPERATIONS IN ADVANCED
TECHNOLOGY PRODUCTS INVOLVE THE DESIGN, MANUFACTURE, AND MARKETING OF
SERVO-CONTROL COMPONENTS FOR GOVERNMENT AND COMMERCIAL INDUSTRIAL APPLICATIONS.
CONSUMER PRODUCTS OPERATIONS INVOLVE THE DESIGN, MANUFACTURE AND MARKETING OF A
VARIETY OF CUTLERY PRODUCTS FOR USE BY CONSUMER AND GOVERNMENT AGENCIES. THE
COMPANY DERIVES SUBSTANTIALLY ALL OF ITS SALES REVENUE FROM DOMESTIC CUSTOMERS.
ADVANCED
PERIOD ENDED TECHNOLOGY CONSUMER
SEPTEMBER 30, 2000 PRODUCTS PRODUCTS CONSOLIDATED
------------------ -------- -------- ------------
REVENUES FROM UNAFFILIATED CUSTOMERS $ 6,948 $ 5,907 $ 12,855
========= ========= =========
PROFIT $ 1,338 $ 105 $ 1,443
========= =========
DEPRECIATION EXPENSE (389)
INTEREST EXPENSE (295)
GENERAL CORPORATE EXPENSE (324)
----------
INCOME BEFORE INCOME TAXES $ 435
=========
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
REVENUES 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 REVENUES PERIOD $ NET REVENUES PERIOD $
THREE MONTHS ENDED INCREASE NINE MONTHS ENDED INCREASE
SEPTEMBER 30 (DECREASE) SEPTEMBER 30 (DECREASE)
2000 1999 00-99 2000 1999 00-99
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES
ADVANCED TECHNOLOGY PRODUCTS 55.8% 63.6% (6.2%) 54.0% 61.6% (6.5%)
CONSUMER PRODUCTS 44.2% 36.4% 29.7% 46.0% 38.4% 27.4%
----- ----- ----- -----
100.0% 100.0% 6.9% 100.0% 100.0% 6.5%
COST OF GOODS SOLD, EXCLUSIVE OF
DEPRECIATION 73.8% 71.3% 10.6% 73.0% 71.3% 9.1%
----- ----- ----- -----
GROSS PROFIT 26.2% 28.7% (2.3%) 27.0% 28.7% 0.1%
----- ----- ----- -----
SELLING, GENERAL AND ADMINISTRATIVE 18.3% 20.7% (5.3%) 18.0% 19.6% (2.2%)
INTEREST 2.4% 2.3% 10.0% 2.3% 2.1% 18.5%
DEPRECIATION AND AMORTIZATION 3.0% 4.1% (20.4%) 3.0% 3.9% (17.2%)
---- ---- ------ ---- ---- -----
23.7% 27.1% (15.7%) 23.3% 25.6% (0.9%)
----- ----- ----- -----
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 2.5% 1.6% 65.6% 3.7% 3.1% 23.7%
INCOME TAX PROVISION 1.0% 0.7% 56.0% 1.5% 1.2% 18.5%
---- ---- ---- ----
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 1.5% 0.9% 72.2% 2.2% 1.9% 27.1%
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 0.0% 0.0% - 0.0% (14.3%) -
---- ---- ---- -----
NET INCOME 1.5% 0.9% 72.2% 2.2% (12.4%) 119.0%
==== ==== ==== =======
</TABLE>
-9-
<PAGE> 10
MANAGEMENT DISCUSSION
DURING THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND FOR THE
COMPARABLE PERIOD ENDED SEPTEMBER 30, 1999, APPROXIMATELY 24% AND 19%
RESPECTIVELY, OF THE COMPANY'S REVENUES WERE DERIVED FROM CONTRACTS WITH
AGENCIES OF THE U.S. 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, AND DIFFICULTY IN PREDICTING DEFENSE
APPROPRIATIONS, GOVERNMENT AND OTHER EXPENDITURES (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 NINE MONTH
PERIOD ENDED SEPTEMBER 30, 2000 SHOWED AN APPROXIMATE 6.5% INCREASE IN NET
REVENUES AND AN INCREASE IN NET INCOME OF APPROXIMATELY 27.1% BEFORE THE
$1,727,000 CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, WHEN COMPARED
TO THE SAME NINE MONTH PERIOD OF 1999. THE INCREASE IN REVENUES FOR THE NINE
MONTH PERIOD IS PRIMARILY THE RESULT OF INCREASED SALES AND SHIPMENTS FROM BOTH
THE ADVANCED TECHNOLOGY AND CONSUMER PRODUCTS GROUPS. FOR THE THIRD QUARTER OF
1999, NET SALES INCREASED APPROXIMATELY 6.9% WITH AN INCREASE IN NET INCOME OF
APPROXIMATELY 72.2%. OPERATING INCOME AS A PERCENTAGE OF NET REVENUES REMAINED
REASONABLY CONSISTENT FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30,
2000 WHEN COMPARED TO THE COMPARABLE PERIODS OF 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES DECREASED FOR THE NINE AND
THREE MONTH PERIODS ENDED SEPTEMBER 30, 2000 WHEN COMPARED TO THE SAME PERIODS
IN 1999 PRIMARILY BECAUSE OF A DECREASE IN SELLING, COMPENSATION AND
PROFESSIONAL COSTS.
INTEREST EXPENSE FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER
30, 2000 WHEN COMPARED TO THE SAME PERIODS IN 1999 INCREASED BECAUSE OF THE
GENERAL TREND OF INCREASING RATES WITHIN THE LENDING MARKETS.
INCOME TAXES FOR THE NINE AND THREE MONTH PERIODS ENDED SEPTEMBER 30,
2000 DECREASED AS A PERCENTAGE OF INCOME BEFORE TAXES WHEN COMPARED TO THE SAME
PERIODS IN 1999 BECAUSE OF THE EFFECTS OF VARIABLE STATE INCOME TAXES.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY'S PRIMARY LIQUIDITY AND CAPITAL REQUIREMENTS RELATE TO THE
WORKING CAPITAL NEEDS; PRIMARILY INVENTORY, ACCOUNTS RECEIVABLE, CAPITAL
INVESTMENTS IN FACILITIES, MACHINERY, TOOLS/DIES AND EQUIPMENT AND
PRINCIPAL/INTEREST PAYMENTS ON INDEBTEDNESS. THE COMPANY'S PRIMARY SOURCES OF
LIQUIDITY HAVE BEEN FROM OPERATING CASH FLOWS AND FROM BANK FINANCING.
DURING THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000, THE COMPANY
EXPENDED $110,000 ON CAPITAL EXPENDITURES.
THERE ARE NO MATERIAL COMMITMENTS FOR CAPITAL EXPENDITURES AT SEPTEMBER
30, 2000.
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<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------ ---------------------------------------------------
THE ANNUAL MEETING OF SHAREHOLDERS OF THE REGISTRANT WAS HELD ON JULY
7, 2000. 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.
WITHHELD
NAME OF NOMINEE FOR AUTHORITY
--------------- --- ---------
DR. WILLIAM H. DUERIG 2,141,548 16,525
DONALD W. HEDGES 2,141,548 16,525
NICHOLAS D. TRBOVICH, JR. 2,141,123 16,950
DR. NICHOLAS D. TRBOVICH 2,141,548 16,525
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, CERTAIN SECTIONS OF THIS FORM 10-QSB
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
SUCH AS THOSE PERTAINING TO THE COMPANY'S CAPITAL RESOURCES AND PROFITABILITY.
FORWARD-LOOKING STATEMENTS INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. THE COMPANY
DERIVES A MATERIAL PORTION OF ITS REVENUES FROM CONTRACTS WITH AGENCIES OF THE
U.S. GOVERNMENT OR THEIR PRIME CONTRACTORS. THE COMPANY'S BUSINESS IS PERFORMED
UNDER FIXED PRICE CONTRACTS AND THE FOLLOWING FACTORS, AMONG OTHERS DISCUSSED
HEREIN, COULD CAUSE ACTUAL RESULTS AND FUTURE EVENTS TO DIFFER MATERIALLY FROM
THOSE SET FORTH OR CONTEMPLATED IN THE FORWARD-LOOKING STATEMENTS: UNCERTAINTIES
IN TODAY'S GLOBAL ECONOMY AND GLOBAL COMPETITION, AND DIFFICULTY IN PREDICTING
DEFENSE APPROPRIATIONS, THE VITALITY OF THE COMMERCIAL AVIATION INDUSTRY AND ITS
ABILITY TO PURCHASE NEW AIRCRAFT, THE WILLINGNESS AND ABILITY OF THE COMPANY'S
CUSTOMERS TO FUND LONG-TERM PURCHASE PROGRAMS, AND MARKET DEMAND AND ACCEPTANCE
BOTH FOR THE COMPANY'S PRODUCTS AND ITS CUSTOMERS' PRODUCTS WHICH INCORPORATE
COMPANY- MADE COMPONENTS. THE SUCCESS OF THE COMPANY ALSO DEPENDS UPON THE
TRENDS OF THE ECONOMY, INCLUDING INTEREST RATES, INCOME TAX LAWS, GOVERNMENTAL
REGULATION, LEGISLATION, POPULATION CHANGES AND THOSE RISK FACTORS DISCUSSED
ELSEWHERE IN THIS FORM 10-QSB. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF
THE DATE HEREOF. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE FORWARD-LOOKING
STATEMENTS.
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<PAGE> 12
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 8, 2000
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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