|
X QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
__ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
INDEX
|
|||
PART
I. FINANCIAL INFORMATION
|
Page No
|
||
Item
1.
|
Financial
Statements (Unaudited)
|
||
a)
|
Consolidated
balance sheets, September 30, 2008 and December 31, 2007
|
3
|
|
b)
|
Consolidated
statements of operations for the three and nine months ended September 30,
2008 and 2007
|
4
|
|
c)
|
Consolidated
statements of cash flows for the nine months ended September 30, 2008 and
2007
|
5
|
|
d)
|
Notes
to consolidated financial statements
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
16
|
|
Item
4T.
|
Controls
and Procedures
|
16
|
|
PART II. OTHER INFORMATION | |||
Item
1.
|
Legal
Proceedings
|
16
|
|
Item
1A.
|
Risk
Factors
|
16
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
16
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
16
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
17
|
|
Item
5.
|
Other
Information
|
17
|
|
Item
6.
|
Exhibits
|
17
|
|
Signatures
|
18
|
SERVOTRONICS,
INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
($000’s
omitted except share and per share data)
|
||||||||
September
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Unaudited)
|
||||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 4,088 | $ | 4,879 | ||||
Accounts
receivable
|
4,975 | 4,570 | ||||||
Inventories
|
9,284 | 8,011 | ||||||
Deferred
income taxes
|
411 | 411 | ||||||
Other
assets
|
874 | 572 | ||||||
Total
current assets
|
19,632 | 18,443 | ||||||
Property,
plant and equipment, net
|
5,752 | 5,870 | ||||||
Other
non-current assets
|
211 | 218 | ||||||
$ | 25,595 | $ | 24,531 | |||||
Liabilities
and Shareholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 387 | $ | 387 | ||||
Accounts
payable
|
1,621 | 1,419 | ||||||
Accrued
employee compensation and benefit costs
|
1,560 | 1,278 | ||||||
Accrued
income taxes
|
535 | 489 | ||||||
Other
accrued liabilities
|
298 | 298 | ||||||
Total
current liabilities
|
4,401 | 3,871 | ||||||
Long-term
debt
|
4,080 | 4,242 | ||||||
Deferred
income taxes
|
412 | 412 | ||||||
Shareholders’
equity:
|
||||||||
Common
stock, par value $.20; authorized
|
||||||||
4,000,000
shares; issued 2,614,506 shares;
|
||||||||
outstanding
1,905,797 (1,933,797 – 2007) shares
|
523 | 523 | ||||||
Capital
in excess of par value
|
13,033 | 13,033 | ||||||
Retained
earnings
|
7,673 | 6,753 | ||||||
Accumulated
other comprehensive loss
|
(67) | (67) | ||||||
21,162 | 20,242 | |||||||
Employee
stock ownership trust commitment
|
(1,832) | (1,832) | ||||||
Treasury
stock, at cost 363,404 (335,404 – 2007) shares
|
(2,628) | (2,404) | ||||||
Total
shareholders’ equity
|
16,702 | 16,006 | ||||||
$ | 25,595 | $ | 24,531 |
Three
Months Ended
|
Nine Months Ended | |||||||||||||||
September
30,
|
September 30, | |||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Revenues
|
$
|
7,818 |
$
|
8,464 |
$
|
24,535 |
$
|
23,368 | ||||||||
Costs,
expenses and other income:
|
||||||||||||||||
Cost
of goods sold, exclusive
|
||||||||||||||||
of
depreciation
|
5,568 | 6,565 | 17,653 | 18,159 | ||||||||||||
Selling,
general and administrative
|
1,139 | 1,018 | 3,183 | 2,940 | ||||||||||||
Interest
|
42 | 62 | 129 | 188 | ||||||||||||
Depreciation
and amortization
|
129 | 129 | 410 | 409 | ||||||||||||
Other
income, net
|
(14) | (33) | (67) | (104) | ||||||||||||
6,864 | 7,741 | 21,308 | 21,592 | |||||||||||||
Income
before income tax provision
|
954 | 723 | 3,227 | 1,776 | ||||||||||||
Income
tax provision
|
349 | 247 | 1,181 | 657 | ||||||||||||
Net
income
|
$
|
605 |
$
|
476 |
$
|
2,046 |
$
|
1,119 | ||||||||
Income
per share:
|
||||||||||||||||
Basic
|
||||||||||||||||
Net
income per share
|
$
|
0.31 |
$
|
0.25 |
$
|
1.06 |
$
|
0.58 | ||||||||
Diluted
|
||||||||||||||||
Net
income per share
|
$
|
0.29 |
$
|
0.22 |
$
|
0.96 |
$
|
0.53 |
Nine
Months Ended
|
||||||||
September
30,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows related to operating activities:
|
||||||||
Net
income
|
$ | 2,046 | $ | 1,119 | ||||
Adjustments
to reconcile net income to net
|
||||||||
cash
provided by operating activities -
|
||||||||
Depreciation
and amortization
|
410 | 409 | ||||||
Change
in assets and liabilities -
|
||||||||
Accounts
receivable
|
(405) | (271) | ||||||
Inventories
|
(1,273) | (718) | ||||||
Other
assets
|
(302) | (243) | ||||||
Other
non-current assets
|
7 | 134 | ||||||
Accounts
payable
|
202 | 188 | ||||||
Accrued
employee compensation and benefit costs
|
282 | 622 | ||||||
Accrued
income taxes
|
46 | (26) | ||||||
Other
accrued liabilities
|
- | 1 | ||||||
Net
cash provided by operating activities
|
1,013 | 1,215 | ||||||
Cash
flows related to investing activities:
|
||||||||
Capital
expenditures - property, plant and
|
||||||||
equipment
|
(287) | (207) | ||||||
Net
cash used in investing activities
|
(287) | (207) | ||||||
Cash
flows related to financing activities:
|
||||||||
Principal
payments on long-term debt
|
(165) | (161) | ||||||
Purchase
of treasury shares
|
(239) | (804 | ) | |||||
Cash
dividend
|
(348) |
-
|
||||||
Purchase
of stock options
|
(772) | - | ||||||
Proceeds
from exercise of stock options
|
7 | - | ||||||
Net
cash used in financing activities
|
(1,517) | (965) | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(791) | 43 | ||||||
Cash
and cash equivalents at beginning of period
|
4,879 | 4,104 | ||||||
Cash
and cash equivalents at end of period
|
$ | 4,088 | $ | 4,147 |
Buildings
and improvements
|
5-39
years
|
Machinery
and equipment
|
5-15
years
|
Tooling
|
3-5
years
|
3.
|
Inventories
|
||||||||||
September
30,
|
December
31,
|
||||||||||
|
2008
|
2007
|
|||||||||
($000’s
omitted)
|
|||||||||||
Raw materials and common parts, net of reserve |
$
|
2,789 |
$
|
2,361 | |||||||
Work-in-process | 5,269 | 4,532 | |||||||||
Finished goods | 1,226 | 1,118 | |||||||||
$
|
9,284 |
$
|
8,011 | ||||||||
4. |
Property,
plant and equipment
|
||||||||||
September
30,
|
December
31,
|
||||||||||
2008
|
2007
|
||||||||||
($000’s
omitted)
|
|||||||||||
Land |
$
|
25 |
$
|
25 | |||||||
Buildings | 6,679 | 6,638 | |||||||||
Machinery, equipment and tooling | 11,582 | 11,336 | |||||||||
18,286 | 17,999 | ||||||||||
Less accumulated depreciation and amortization | (12,534) | (12,129) | |||||||||
$
|
5,752 |
$
|
5,870 |
5.
|
Long-term
debt
|
||||||
September
30,
|
December
31,
|
||||||
2008
|
2007
|
||||||
($000’s
omitted)
|
|||||||
Industrial
Development Revenue Bonds; secured by an equivalent
|
|||||||
letter
of credit from a bank with interest payable monthly
|
|||||||
at
a floating rate (8.16% at September 30, 2008, 2.02%
|
|||||||
at
10/31/08)(A)
|
$
|
3,640
|
$
|
3,640
|
|||
Term
loan payable to a financial institution;
|
|||||||
interest
at LIBOR plus 2%, (4.79% at September 30, 2008);
|
|||||||
quarterly
principal payments of $26,786 through the
|
|||||||
fourth
quarter of 2011
|
348
|
428
|
|||||
Term
loan payable to a financial institution;
|
|||||||
interest
at LIBOR plus 2%, not to exceed 6.00% (5.88% at
|
|||||||
September
30, 2008); quarterly principal payments
|
|||||||
of
$17,500; payable in full in the fourth quarter
|
|||||||
of
2009; partially secured by equipment
|
238
|
290
|
|||||
Secured
term loan payable to a government agency;
|
|||||||
monthly
payments of $1,950 including interest
|
|||||||
fixed
at 3% payable through fourth quarter of 2015
|
151
|
165
|
|||||
Secured
term loan payable to a government agency;
|
|||||||
monthly
principal payments of approximately $1,800 with
|
|||||||
interest
waived payable through second quarter of 2012
|
90
|
106
|
|||||
4,467
|
4,629
|
||||||
Less
current portion
|
(387)
|
(387)
|
|||||
$
|
4,080
|
$
|
4,242
|
Common
stock
|
($000’s
omitted)
|
|||||||||||||||||||||||||||||||||||
Number
|
Capital
in
|
Other
|
Total
|
|||||||||||||||||||||||||||||||||
of
shares
|
excess
of
|
Retained
|
Treasury
|
comprehensive
|
shareholders’
|
|||||||||||||||||||||||||||||||
issued
|
Amount
|
par
value
|
earnings
|
ESOP
|
stock
|
loss
|
equity
|
|||||||||||||||||||||||||||||
Balance
December 31, 2007
|
2,614,506 |
$
|
523 |
$
|
13,033 |
$
|
6,753 |
($
|
1,832 | ) | ($ | 2,404 | ) |
($
|
67 | ) |
$
|
16,006 | ||||||||||||||||||
Net
income
|
- | - | - | 2,046 | - | - | - | 2,046 | ||||||||||||||||||||||||||||
Cash
dividend
|
- | - | - | (348) | - | - | - | (348) | ||||||||||||||||||||||||||||
Purchase
of stock options
|
- | - | - | (772) | - | - | - | (772) | ||||||||||||||||||||||||||||
Exercise
of stock options
|
- | - | - | (8) | - | 15 | - | 7 | ||||||||||||||||||||||||||||
Purchase
of treasury shares
|
- | - | - | - | - | (239) | - | (239) | ||||||||||||||||||||||||||||
Other
|
- | - | - | 2 | - | - | - | 2 | ||||||||||||||||||||||||||||
Balance
September 30, 2008
|
2,614,506 |
$
|
523 |
$
|
13,033 |
$
|
7,673 |
($
|
1,832 | ) | ($ | 2,628 | ) |
($
|
$67 | ) |
$
|
16,702 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
($000’s
omitted except per share data)
|
||||||||||||||||
Net
income
|
$ | 605 | $ | 476 | $ | 2,046 | $ | 1,119 | ||||||||
Weighted
average common shares
|
||||||||||||||||
outstanding
(basic)
|
1,926 | 1,908 | 1,932 | 1,943 | ||||||||||||
Incremental
shares from assumed
|
||||||||||||||||
conversions
of stock options
|
188 | 219 | 201 | 184 | ||||||||||||
Weighted
average common
|
||||||||||||||||
shares
outstanding (diluted)
|
2,114 | 2,127 | 2,133 | 2,127 | ||||||||||||
Basic
|
||||||||||||||||
Net
income per share
|
$ | 0.31 | $ | 0.25 | $ | 1.06 | $ | 0.58 | ||||||||
Diluted
|
||||||||||||||||
Net
income per share
|
$ | 0.29 | $ | 0.22 | $ | 0.96 | $ | 0.53 | ||||||||
Advanced
Technology
|
Consumer
Products
|
|||||||||||||||||||||||
Group
|
Group
|
Consolidated
|
||||||||||||||||||||||
Nine
months ended
|
Nine
months ended
|
Nine
months ended
|
||||||||||||||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||
Revenues
from unaffiliated customers
|
$ | 15,313 | $ | 12,501 | $ | 9,222 | $ | 10,867 | $ | 24,535 | $ | 23,368 | ||||||||||||
Profit
|
$ | 4,217 | $ | 2,629 | $ | 191 | $ | 139 | $ | 4,408 | $ | 2,768 | ||||||||||||
Interest
expense
|
$ | (117) | $ | (170) | $ | (12) | $ | (18) | (129) | (188) | ||||||||||||||
Depreciation
and amortization
|
$ | (287) | $ | (285) | $ | (123) | $ | (124) | (410) | (409) | ||||||||||||||
Other
income, net
|
$ | 47 | $ | 82 | $ | 20 | $ | 22 | 67 | 104 | ||||||||||||||
General
corporate expense
|
(709) | (499) | ||||||||||||||||||||||
Income
before income tax provision
|
$ | 3,227 | $ | 1,776 | ||||||||||||||||||||
Capital
expenditures
|
$ | 249 | $ | 115 | $ | 38 | $ | 92 | $ | 287 | $ | 207 |
September
30,
|
December
31,
|
September
30,
|
December
31,
|
September
30,
|
December
31,
|
|||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||
Identifiable
assets
|
$ |
16,032
|
$ |
15,685
|
$ |
9,563
|
$ |
8,846
|
$ |
25,595
|
$ |
24,531
|
Advanced
Technology
|
Consumer
Products
|
|||||||||||||||||||||||
Group
|
Group
|
Consolidated
|
||||||||||||||||||||||
Three
months ended
|
Three months
ended
|
Three
months ended
|
||||||||||||||||||||||
September
30,
|
September
30,
|
September
30,
|
||||||||||||||||||||||
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||
Revenues
from unaffiliated customers
|
$ | 5,419 | $ | 4,115 | $ | 2,399 | $ | 4,349 | $ | 7,818 | $ | 8,464 | ||||||||||||
Profit
(loss)
|
$ | 1,476 | $ | 758 | $ | (129) | $ | 290 | $ | 1,347 | $ | 1,048 | ||||||||||||
Interest
expense
|
$ | (39) | $ | (56) | $ | (3) | $ | (6) | (42) | (62) | ||||||||||||||
Depreciation
and amortization
|
$ | (92) | $ | (92) | $ | (37) | $ | (37) | (129) | (129) | ||||||||||||||
Other
income, net
|
$ | 11 | $ | 25 | $ | 3 | $ | 8 | 14 | 33 | ||||||||||||||
General
corporate expense
|
(236) | (167) | ||||||||||||||||||||||
Income
before income tax provision
|
$ | 954 | $ | 723 | ||||||||||||||||||||
Capital
expenditures
|
$ | 81 | $ | 49 | $ | 20 | $ | 28 | $ | 101 | $ | 77 |
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Management
Discussion
|
Relationship
to
|
Period
to
|
Period
to
|
Relationship
to
|
Period
to
|
Period
to
|
|||||||||||||||||||||||||||
net
revenues
|
period$
|
period%
|
net
revenues
|
period
$
|
period
%
|
|||||||||||||||||||||||||||
three
months ended
|
increase
|
increase
|
nine
months ended
|
increase
|
increase
|
|||||||||||||||||||||||||||
September
30,
|
(decrease)
|
(decrease)
|
September
30,
|
(decrease)
|
(decrease)
|
|||||||||||||||||||||||||||
2008
|
2007
|
08-07
|
08-07
|
2008
|
2007
|
08-07
|
08-07
|
|||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||||||
Advanced
Technology Group
|
69.3 | % | 48.6 | % | $ | 1,304 | 31.7 | % | 62.4 | % | 53.5 | % | $ | 2,812 | 22.5 | % | ||||||||||||||||
Consumer
Products Group
|
30.7 | 51.4 | (1,950) | (44.8) | 37.6 | 46.5 | (1,645) | (15.1) | ||||||||||||||||||||||||
100.0 | 100.0 | (646) | (7.6) | 100.0 | 100.0 | 1,167 | 5 | |||||||||||||||||||||||||
Cost
of goods sold, exclusive of
|
||||||||||||||||||||||||||||||||
depreciation
|
71.2 | 77.6 | (997) | (15.2) | 72.0 | 77.7 | (506) | (2.8) | ||||||||||||||||||||||||
Gross
profit
|
28.8 | 22.4 | 351 | 18.5 | 28.0 | 22.3 | 1,673 | 32.1 | ||||||||||||||||||||||||
Selling,
general and administrative
|
14.6 | 12.0 | 121 | 11.9 | 13.0 | 12.6 | 243 | 8.3 | ||||||||||||||||||||||||
Interest
|
0.5 | 0.7 | (20) | (32.3) | 0.5 | 0.8 | (59) | (31.4) | ||||||||||||||||||||||||
Depreciation
and amortization
|
1.7 | 1.5 | 0 | 0.0 | 1.7 | 1.8 | 1 | 0.2 | ||||||||||||||||||||||||
Other
income, net
|
(0.2) | (0.4) | 19 | (57.6) | (0.3) | (0.4) | 37 | (35.6) | ||||||||||||||||||||||||
16.6 | 13.8 | 120 | 10.2 | 14.9 | 14.8 | 222 | 6.5 | |||||||||||||||||||||||||
Income
before income tax provision
|
12.2 | 8.6 | 231 | 32.0 | 13.1 | 7.5 | 1,451 | 81.7 | ||||||||||||||||||||||||
Income
tax provision
|
4.5 | 3.0 | 102 | 41.3 | 4.8 | 2.7 | 524 | 79.8 | ||||||||||||||||||||||||
Net
income
|
7.7 | % | 5.6 | % | $ | 129 | 27.1 | % | 8.3 | % | 4.8 | % | $ | 927 | 82.8 | % |
Period
|
Total
Number of Shares Purchased
|
Average
Price $ Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that may yet be Purchased under the Plans or
Programs
|
July
1 – July 31, 2008
|
-
|
-
|
-
|
55,643
|
August
1 – August 31, 2008
|
-
|
-
|
-
|
55,643
|
September
1 – September 30, 2008
|
30,000
|
7.88
|
30,000
|
25,643
|
Total
|
30,000
|
7.88
|
30,000
|
25,643
|
Item
4.
|
SUBMISSION OF MATTERS
TO A VOTE OF SECURITY
HOLDERS
|
Withheld
|
||
Name
of Nominee
|
For
|
Authority
|
Dr.
Nicholas D. Trbovich
|
1,989,403
|
107,839
|
Nicholas
D. Trbovich, Jr.
|
1,989,857
|
107,385
|
Dr.
William H. Duerig.
|
2,089,348
|
7,894
|
Donald
W. Hedges
|
2,089,802
|
7,440
|
Item
5.
|
OTHER
INFORMATION
|
None.
|
Item
6.
|
EXHIBITS
|
|
31.1
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SERVOTRONICS, INC. | |||
|
By:
|
/s/ Cari L. Jaroslawsky, Chief Financial Officer | |
Cari L. Jaroslawsky | |||
Chief Financial Officer | |||
|
By:
|
/s/ Dr. Nicholas D. Trbovich, Chief Executive Officer | |
Dr. Nicholas D. Trbovich | |||
Chief Executive Officer | |||