UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

or

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 1-07109

 

SERVOTRONICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	16-0837866
(State or other jurisdiction of	(I. R. S. Employer
incorporation or organization)	Identification No.)

 

1110 Maple Street

Elma, New York 14059

(Address of principal executive offices) (zip code)

 

(716) 655-5990

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes   x    No   ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act.

 

Large accelerated filer ¨     Accelerated filer ¨     Non-accelerated filer x     Smaller reporting company  x     Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   ¨    No   x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at October 31, 2018
Common Stock, $.20 par value		2,582,773

 

 

 

INDEX

 

		Page No.
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	a)   Condensed Consolidated Balance Sheets, September 30, 2018 and December 31, 2017 (Audited)	3
	b)   Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017	4
	c)   Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	5
	d)   Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Forward-Looking Statement		25
Signatures		26

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

($000’s omitted except share and per share data)

 

		September 30,				December 31,
		2018				2017
		(Unaudited)
Current assets:
Cash		$	2,379			$	4,707
Accounts receivable, net			10,780				8,424
Inventories, net			14,651				12,791
Other current assets			495				249
Total current assets			28,305				26,171
Property, plant and equipment, net			11,713				11,021
Deferred income taxes			409				409
Other non-current assets			376				385
Total Assets		$	40,803			$	37,986
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt		$	548			$	548
Current portion of capitalized lease obligations			175				133
Dividend payable			13				-
Accounts payable			2,579				1,377
Accrued employee compensation and benefits costs			1,746				1,784
Accrued income taxes			121				414
Other accrued liabilities			924				872
Total current liabilities			6,106				5,128
Long-term debt			2,589				2,950
Post retirement obligation			1,828				1,743
Shareholders' equity:
Common stock, par value $0.20; authorized 4,000,000 shares; issued 2,614,506 shares; outstanding  2,498,870 (2,308,315 - 2017) shares			523				523
Capital in excess of par value			14,226				14,171
Retained earnings			17,785				15,709
Accumulated other comprehensive loss			(26	)			(32	)
Employee stock ownership trust commitment			(662	)			(662	)
Treasury stock, at cost 115,636 (183,983 - 2017) shares			(1,566	)			(1,544	)
Total shareholders' equity			30,280				28,165
Total Liabilities and Shareholders' Equity		$	40,803			$	37,986

 

See notes to condensed consolidated financial statements

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

($000’s omitted except per share data)

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Revenue		$	12,768			$	11,325			$	35,273			$	30,044
Costs and expenses:
Costs of goods sold, inclusive of depreciation and amortization			8,828				8,234				26,359				23,307
Gross margin			3,940				3,091				8,914				6,737
Gross margin %			30.9	%			27.3	%			25.3	%			22.4	%
Selling, general and administrative			2,074				2,085				5,715				5,548
Interest expense			28				18				80				56
Total expenses			10,930				10,337				32,154				28,911
Income before income tax provision			1,838				988				3,119				1,133
Income tax provision			381				317				624				331
Net income		$	1,457			$	671			$	2,495			$	802
Income per share:
Basic
Net Income per share		$	0.63			$	0.30			$	1.10			$	0.35
Diluted
Net income per share		$	0.61			$	0.29			$	1.07			$	0.35

 

See notes to condensed consolidated financial statements

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($000’s omitted)

(Unaudited)

 

		Nine Months Ended
		September 30,
		2018				2017
Cash flows related to operating activities:
Net Income		$	2,495			$	802
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation and amortization			761				637
Loss on disposal of property			1				16
Stock based compensation			183				176
Increase in allowance for doubtful accounts			49				72
Increase in inventory reserve			54				43
Increase in warranty reserve			369				-
Change in assets and liabilities:
Accounts receivable			(2,405	)			(1,733	)
Inventories			(1,914	)			257
Prepaid income taxes			-				(181	)
Other current assets			(246	)			24
Other non-current assets			9				(9	)
Accounts payable			1,202				(88	)
Accrued employee compensation and benefit costs			(38	)			469
Other accrued liabilities and post retirement obligation			(231	)			254
Accrued income taxes			(293	)			-
Net cash (used) provided by operating activities			(4	)			739
Cash flows related to investing activities:
Capital expenditures - property, plant and equipment			(1,452	)			(1,401	)
Proceeds from sale of assets			-				180
Net cash (used) by investing activities			(1,452	)			(1,221	)
Cash flows related to financing activities:
Principal payments on long-term debt			(410	)			(409	)
Principal payments on capital lease obligations			(119	)			-
Proceeds from capital leases			210				-
Purchase of treasury shares			(150	)			(203	)
Cash dividend			(403	)			(376	)
Net cash (used) by financing activities			(872	)			(988	)
Net decrease in cash			(2,328	)			(1,470	)
Cash at beginning of period			4,707				3,515
Cash at end of period		$	2,379			$	2,045

 

See notes to condensed consolidated financial statements

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

 

The accompanying consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The consolidated financial statements should be read in conjunction with the 2017 annual report and the notes thereto.

 

2.

Business Description and Summary of Significant Accounting Policies

 

Business Description

 

Servotronics, Inc. and its subsidiaries design, manufacture and market advanced technology products consisting primarily of control components, and consumer products consisting of knives and various types of cutlery and other edged products.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated upon consolidation.

 

Cash

 

The Company considers cash to include all checking, savings and money market accounts.

 

Accounts Receivable

 

The Company grants credit to substantially all of its customers and carries its accounts receivable at original invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on history of past write-offs, collections, and current credit conditions. The allowance for doubtful accounts amounted to approximately $198,000 at September 30, 2018 and $149,000 at December 31, 2017. The Company does not accrue interest on past due receivables.

 

Revenue Recognition

 

Revenues are recognized at the time of shipment of goods, transfer of title and customer acceptance, as required. Our revenue transactions generally consist of a single performance obligation to transfer contracted goods and are not accounted for under industry-specific guidance. Purchase orders generally include specific terms relative to quantity, item description, specifications, price, customer responsibility for in-process costs, delivery schedule, shipping point, payment and other standard terms and conditions of purchase. Service sales, principally representing repair, are recognized at the time of shipment of goods.

 

The costs incurred for nonrecurring engineering, development and repair activities of our products under agreements with commercial customers are expensed as incurred. Subsequently, the revenue is recognized as products are delivered to the customers with the approval by the customers.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue is recognized at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods and services to a customer. The Company determines revenue recognition using the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the company satisfies a performance obligation.

 

Revenue excludes taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g., sales and use taxes). Revenue includes payments for shipping activities that are reimbursed by the customer to the Company.

 

Revenue on a significant portion of our contracts is currently recognized at the time of shipment of goods, transfer of title and customer acceptance, as required. Our revenue transactions generally consist of a single performance obligation to transfer contracted goods and are not accounted for under industry-specific guidance.

 

Performance obligations are satisfied as of a point in time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. As a significant portion of the Company’s revenue are recognized at the time of shipment, transfer of title and customer acceptance, there is no significant judgment applied to determine the timing of the satisfaction of performance obligations or transaction price.

 

The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment. The Company generally receives payment for these contracts within the payment terms negotiated and agreed upon by each customer contract.

 

Warranty and repair obligations are assessed on all returns. Revenue is not recorded on any warranty returns. The Company warrants its products against design, materials and workmanship based on an average of twenty-seven months. The Company determines warranty reserves needed based on actual average costs of warranty units shipped and current facts and circumstances. As of September 30, 2018 and December 31, 2017 the Company has recorded a warranty reserve of approximately $408,000 and $39,000, respectively. Revenue is recognized on repair returns, covered under a customer contract, at the contractual price upon shipment to the customer.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred to bring each product to its present location and condition. Market provisions in respect of lower of cost or market adjustments and inventory expected to be used in greater than one year are applied to the gross value of the inventory through a reserve of approximately $1,492,000 and $1,438,000 at September 30, 2018 and December 31, 2017, respectively. Pre-production and start-up costs are expensed as incurred.

 

The purchase of suppliers’ minimum economic quantities of material such as steel, etc. may result in a purchase of quantities exceeding one year of customer requirements. Also, in order to maintain a reasonable and/or agreed to lead time, certain larger quantities of other product support items may have to be purchased and may result in over one year’s supply. These amounts are not included in the inventory reserve discussed above.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Shipping and Handling Costs

 

Shipping and handling costs are classified as a component of cost of goods sold.

 

Property, Plant and Equipment

 

Property, plant and equipment is carried at cost; expenditures for new facilities and equipment and expenditures which substantially increase the useful lives of existing plant and equipment are capitalized; expenditures for maintenance and repairs are expensed as incurred. Upon disposal of properties, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is included in income.

 

Depreciation is provided on the basis of estimated useful lives of depreciable properties, primarily by the straight-line method for financial statement purposes and by accelerated methods for income tax purposes. Depreciation expense includes the amortization of capital lease assets. The estimated useful lives of depreciable properties are generally as follows:

 

Buildings and improvements		5-40 years
Machinery and equipment		5-20 years
Tooling		3-5 years

 

Income Taxes

 

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, as well as operating loss and credit carryforwards. The Company and its subsidiaries file a consolidated federal income tax return, combined New York and Texas state income tax returns and separate Pennsylvania and Arkansas income tax returns.

 

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at September 30, 2018 or December 31, 2017, and did not recognize any interest and/or penalties in its consolidated statements of income during the nine months ended September 30, 2018 and 2017. The Company did not have any material uncertain tax positions or unrecognized tax benefits or obligations as of September 30, 2018 and December 31, 2017. The 2015 through 2017 federal and state tax returns remain subject to examination.

 

Supplemental Cash Flow Information

 

Income taxes paid during the nine months ended September 30, 2018 and 2017 amounted to approximately $875,000 and $165,000, respectively. Interest paid amounted to approximately $80,000 and $56,000, respectively, during the nine months ended September 30, 2018 and 2017. Equipment received but not placed in service and included in accounts payable at September 30, 2017 amounted to approximately $508,000.

 

Employee Stock Ownership Plan

 

Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula.

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable based on undiscounted future operating cash flow analyses. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. The Company has determined that no impairment of long-lived assets existed at September 30, 2018 and December 31, 2017.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain balances, as previously reported, were reclassified to conform with classifications adopted in the current period.

 

Research and Development Costs

 

Research and development costs are expensed as incurred.

 

Concentration of Credit Risks

 

Financial instruments that potentially subject the Company to concentration of credit risks principally consist of cash accounts in financial institutions. Although the accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions.

 

Fair Value of Financial Instruments

 

Accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value due to their short maturity. Based on variable interest rates and the borrowing rates currently available to the Company for loans similar to its long-term debt, the fair value approximates its carrying amount.

 

Recent Accounting Pronouncements Adopted

 

Effective January 1, 2018 the Company adopted ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” issued by the Financial Accounting Standards Board (FASB) which requires employers to present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. The other components of net periodic benefit cost will be presented separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. ASU 2017-07 allows a practical expedient that permits an entity to use amounts disclosed in its pension and other post retirement requirements. The Company adopted this guidance during the reporting period. The reporting of the annual service costs is expected to be immaterial.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Effective January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" using the modified retrospective method. The new revenue recognition standard outlines a comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Topic 606 also requires significantly expanded disclosure requirements and applied the standard to all contracts that were not completed as of January 1, 2018. There was no cumulative effect of the adoption recognized. We have obtained an understanding of the new standard and determined that there is no material change in our revenue recognition after implementation of the standard. See above for the Company’s updated revenue recognition accounting policy.

 

Effective January 1, 2018, the Company adopted ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. tax reform legislation commonly known as the Tax Cuts and Jobs Act of 2017. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company applied the guidance as of the beginning of the period of adoption and reclassified approximately $6,000 from accumulated other comprehensive loss to retained earnings due to the change in the federal corporate tax rate.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” There are elements of the new standard that could impact almost all entities to some extent, although the lessees will likely see the most significant changes. Lessee will need to recognize virtually all of their leases on the balance sheet, by recording the right-of-use asset and a lease liability. Public business entities are required to adopt the new leasing standard for fiscal years, and interim period within those fiscal years, beginning December 15, 2018. For calendar year-end public companies, this means an adoption date of January 1, 2019. Early adoption is permitted. The Company does not believe the adoption will have a material impact on the financial statements and disclosures.

 

3.

Inventories

 

		September 30,				December 31,
		2018				2017
		($000's omitted)
Raw material and common parts		$	8,641			$	8,375
Work-in-process			4,937				2,940
Finished goods			2,565				2,914
			16,143				14,229
Less inventory reserve			(1,492	)			(1,438	)
Total inventories		$	14,651			$	12,791

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4.

Property, Plant and Equipment

 

		September 30,				December 31,
		2018				2017
		($000's ommitted)
Land		$	7			$	7
Buildings			10,887				10,288
Machinery, equipment and tooling			17,815				17,249
Construction in progress			931				665
			29,640				28,209
Less accumulated depreciation			(17,927	)			(17,188	)
		$	11,713			$	11,021

 

Depreciation and amortization expense amounted to approximately $259,000 and $209,000 for the three months ended September 30, 2018 and 2017, respectively. Depreciation expense amounted to approximately $704,000 and $628,000 for the nine months ended September 30, 2018 and 2017, respectively. Depreciation expense amounted to approximately $239,000 and $206,000 for the three months ended September 30, 2018 and 2017, respectively. Amortization expense primarily related to capital leases amounted to approximately $57,000 and $9,000 for the nine months ended September 30, 2018 and September 30, 2017, respectively. Amortization expense amounted to approximately $20,000 and $3,000 for the three months ended September 30, 2018 and September 30, 2017, respectively. The Company 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.

 

As of September 30, 2018, there is approximately $931,000 ($665,000 – 2017) of construction in progress (CIP) included in property, plant and equipment all of which is related to capital projects. There is approximately $556,000 in CIP for the implementation costs for the enterprise resource planning software that will be used as an integral part of the product process at the Advanced Technology Group (“ATG”) and the Consumer Products Group (“CPG”) and approximately $240,000 for machinery received but not placed in service at both the ATG and CPG with the remainder of approximately $135,000 of self-constructed assets not yet put into service. See Note 7, Commitments and Contingencies, for more information on anticipated capital expenditures.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

5.

Long-Term Debt

 

		September 30,				December 31,
		2018				2017
		($000's omitted)
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (3.513% as of September 30, 2018), monthly prinicipal payments of $21,833 through 2021 with a balloon payment of $786,000 due December 1, 2021		$	1,638			$	1,835
Term loan payable to a financial institution; Interest rate option of bank prime or Libor plus 1.4% (3.513% as of September 30, 2018), monthly prinicipal payments of $23,810 through December 1, 2021			929				1,142
Capital lease obligations; Interest rate fixed for term of each funding based upon the Lender's lease pricing at time of funding.  (Interest rate/factor 1.822758% - 1.869304% at time of funding with pricipal payments made over 60 months)			745				654
			3,312				3,631
Less current portion			(723	)			(681	)
		$	2,589			$	2,950

 

The Company has a $2,000,000 line of credit on which there was no balance outstanding at September 30, 2018 and December 31, 2017.

 

The term loans are secured by all personal property of the Company with the exception of certain equipment that was purchased from proceeds of government grants.

 

Certain lenders require the Company to comply with debt covenants as described in the specific loan documents, including a debt service ratio. At September 30, 2018 and December 31, 2017 the Company was in compliance with these covenants.

 

The Company established a lease line of credit for equipment financing in the amount of $1,000,000 with initial borrowings available until June 28, 2018. This line is non-revolving and non-renewable. The lease term for equipment covered by the lease line of credit is 60 months, with a $1 buy out at the end of the term. Monthly payments will be fixed for the term of each funding based upon the Lender’s lease pricing in effect at the time of such funding. Principal payments for the capital lease obligations at September 30, 2018 and December 31, 2017 was approximately $119,000 and $14,000, respectively.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Remaining principal payments for the capital lease obligations are expected for 2018 and for each of the next five years:

 

		September 30,
		2018
		($000's omitted)
2018		$	47
2019			193
2020			193
2021			193
2022			193
2023			2
Total minimum lease payments			821
Less amount representing interest			(76	)
Present value of net minimum lease payments			745
Less current portion			(175	)
Long term principle payments		$	570

 

Each lease is secured by the underlying equipment. There was approximately $822,000 outstanding payments, principal including interest, at September 30, 2018.

 

6.

Shareholders’ Equity

 

		Common Stock								($000's omitted except for share data)
																										Accumulated
		Number								Capital in																Other				Total
		of shares								excess of				Retained								Treasury				Comprehensive				shareholders'
		issued				Amount				par value				earnings				ESOT				stock				Loss				equity
Balance at December 31, 2017			2,614,506			$	523			$	14,171			$	15,709			$	(662	)		$	(1,544	)		$	(32	)		$	28,165
Net income			-				-				-				2,495				-				-				-				2,495
Purchase of treasury shares			-				-				-				-				-				(150	)			-				(150	)
Cash dividend			-				-				-				(413	)			-				-				-				(413	)
Stock based compensation, net of tax benefit			-				-				55				(6	)			-				128				6				183
Balance at September 30, 2018			2,614,506			$	523			$	14,226			$	17,785			$	(662	)		$	(1,566	)		$	(26	)		$	30,280

 

The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of September 30, 2018, the Company has purchased 352,680 shares and there remains 97,320 shares available to purchase under this program. There were 3,350 shares purchased by the Company during the nine month period ended September 30, 2018.

 

On January 1, 2018, 28,500 shares of restricted stock vested of which 11,341 shares were withheld and repurchased by the Company for approximately $117,000 to satisfy statutory minimum withholding tax requirements for those participants who elected this option as permitted under the Company’s 2012 Long-Term Incentive Plan.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

On May 25, 2018, the Company issued 78,750 shares of restricted stock to Executive Officers and certain key management of the Company under the Company’s 2012 Long-Term Incentive Plan. The restricted share awards have varying vesting periods between January 2019 and January 2021; however, these shares have voting rights and accrue dividends prior to vesting. The accrued dividends are paid upon vesting of the restricted shares. The aggregate amount of expense to the Company, measured based on grant date fair value is expected to be approximately $735,000 and will be recognized over the requisite service period.

 

On May 25, 2018, the Company revised its director compensation policy pursuant to which non-employee directors receive a portion of their annual retainer in the form of restricted stock under the Company’s 2012 Long-Term Incentive Plan. An aggregate of 4,288 restricted shares were issued that vest quarterly over a twelve month service period. These shares have voting rights and accrue dividends that are paid upon vesting. The aggregate amount of expense to the Company, measured based on the grant date fair value is expected to be approximately $40,000 and will be recognized over the requisite service period.

 

Included in the nine months ended September 30, 2018 and 2017 is approximately $183,000 and $176,000, respectively, of stock-based compensation expense related to the restrictive share awards.

 

On May 18, 2018 the Company announced that its Board of Directors declared a $0.16 per share cash dividend. The dividend was subsequently paid on July 16, 2018 to shareholders of record on June 30, 2018 and was approximately $413,000 in the aggregate. These dividends do not represent that the Company will pay dividends on a regular or scheduled basis. The amount is recorded in dividends payable and as a reduction to retained earnings on the accompanying consolidated balance sheet.

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. The weighted average number of common shares outstanding does not include any potentially dilutive securities or any unvested restricted shares of common stock. These unvested restricted shares, although classified as issued and outstanding, are considered forfeitable until the restrictions lapse and will not be included in the basic EPS calculation until the shares are vested. 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 the earnings per share that were outstanding for the period. Incremental shares from assumed conversions are calculated as the number of shares that would be issued, net of the number of shares that could be purchased in the marketplace with the cash received upon stock option exercise. The dilutive effect of unvested restrictive stock is determined using the treasury stock method.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
		($000's omitted except per share data)
Net Income		$	1,457			$	671			$	2,495			$	802
Weighted average common shares outstanding
(basic)			2,295				2,262				2,259				2,264
Unvested restricted stock			82				29				82				29
Weighted average common shares outstanding
(diluted)			2,377				2,291				2,341				2,293
Basic
Net income per share		$	0.63			$	0.30			$	1.10			$	0.35
Diluted
Net income per share		$	0.61			$	0.29			$	1.07			$	0.35

 

7.

Commitments and Contingencies

 

Post retirement obligation. As previously disclosed in filings with the Securities and Exchange Commission (“SEC”), the Company, under an employment agreement, is expected to pay post-employment health related benefits to a former Executive Officer of the Company (the “Former Employee”), of which approximately $1,007,000 has been accrued as of September 30, 2018 and December 31, 2017, and is reflected as Post Retirement Obligation in the accompanying balance sheet. After termination, the scope of the health related benefits obligation in the agreement became an issue. In June 2016 an Arbitrator was selected by the parties to hear this matter. The Company did not consider the risk of loss to be probable at September 30, 2017 however, a final opinion and award was issued on March 22, 2018 resulting in the increased accrual at September 30, 2018. Additionally, the Company paid approximately $367,000 pursuant to the arbitration award as of September 30, 2018.

 

The Company provides certain post-employment health and life insurance benefits for its Chief Executive Officer and President Kenneth Trbovich. Upon retirement and after attaining at least the age of 65, the Company will pay for the retired Executive’s and dependent’s health benefits and will continue the Company-provided life insurance offered at the time of retirement. The retiree’s health insurance benefits ceases upon the death of the retired executive. Approximately $821,000 and $736,000 has been accrued as of September 30, 2018 and December 31, 2017, respectively, and is reflected as Post Retirement Obligation in the accompanying balance sheet.

 

Facility Expansion. The Company’s Consumer Products Group (“CPG”) was awarded a $300,000 grant from Cattaraugus County Industrial Development Agency (“CCIDA”) on March 13, 2014. The grant was used towards new manufacturing equipment in connection with the proposed expansion project. As part of the terms of the Grant Contract with CCIDA, the Company’s CPG has agreed to maintain certain employment levels for a period of five years from the date of the agreement. If the employment levels are not maintained, the Company will be required to repay the grant proceeds on a prorated basis. The Company has maintained the required employment levels as of September 30, 2018.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

8.

Litigation

 

Litigation. The Company has pending litigation relative to leases of certain equipment and real property with a former related party. Aero, Inc. is suing Servotronics, Inc. and its wholly owned subsidiary and has alleged damages in the amount of $3,000,000. The Company has filed a response to the Aero, Inc. lawsuit and has also filed a counter-claim in the amount of $3,191,000. The Company considers the risk of loss remote, and is unable to reasonably or accurately estimate the likelihood and amount of any liability or benefit that may be realized as a result of this litigation. Accordingly, no gain or loss has been recognized in the accompanying financials statements related to this litigation.

 

There are no other legal proceedings currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to have a material adverse effect on the business or earnings of the Company.

 

9.

Related Party Transactions

 

The Company paid legal fees and disbursements of approximately $117,000 and $188,000 in the nine month period ended September 30, 2018 and 2017, respectively, for services provided by a law firm that is owned by a member of the Company’s Board of Directors. Legal fees paid for the three month period ended September 30, 2018 and 2017 amounted to approximately $23,000 and $44,000, respectively. Additionally, the Company had accrued unbilled legal fees at September 30, 2018 and 2017 of approximately $19,000 and $39,000, respectively, with this firm.

 

10.

Business Segments

 

The Company operates in two business segments, ATG and CPG. The Company’s reportable segments are strategic business units that offer different products and services. The segments are composed of separate corporations and are managed separately. Operations in ATG primarily involve the design, manufacture, and marketing of servo-control components (i.e., torque motors, control valves, actuators, etc.) for government, commercial and industrial applications. CPG’s operations involve the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. The Company derives its primary sales revenue from domestic customers, although a portion of finished products are for foreign end use.

 

As of September 30, 2018, the Company had identifiable assets of approximately $40,803,000 ($37,986,000 – December 31, 2017) of which approximately $29,896,000 ($26,331,000 – December 31, 2017) was for ATG and approximately $10,907,000 ($11,655,000 – December 31, 2017) was for CPG.

 

 

SERVOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Information regarding the Company’s operations in these segments is summarized as follows:

 

		($000's omitted)
		ATG								CPG								Consolidated
		Nine Months Ended								Nine Months Ended								Nine Months Ended
		September 30,								September 30,								September 30,
		2018				2017				2018				2017				2018				2017
Revenues from unaffiliated customers		$	30,028			$	23,968			$	5,245			$	6,076			$	35,273			$	30,044
Cost of goods sold, inclusive of depreciation and amortization			(21,600	)			(17,826	)			(4,759	)			(5,481	)			(26,359	)			(23,307	)
Gross margin			8,428				6,142				486				595				8,914				6,737
Gross margin %			28.1	%			25.6	%			9.3	%			9.8	%			25.3	%			22.4	%
Selling, general and administrative			(4,131	)			(4,148	)			(1,584	)			(1,400	)			(5,715	)			(5,548	)
Interest expense			(55	)			(32	)			(25	)			(24	)			(80	)			(56	)
Total expenses			(25,786	)			(22,006	)			(6,368	)			(6,905	)			(32,154	)			(28,911	)
Income (loss) before income tax provision (benefits)			4,242				1,962				(1,123	)			(829	)			3,119				1,133
Income tax provision (benefits)			849				580				(225	)			(249	)			624				331
Net income (loss)		$	3,393			$	1,382			$	(898	)		$	(580	)		$	2,495			$	802
Capital expenditures		$	1,277			$	1,777			$	175			$	124			$	1,452			$	1,901

 

		($000's omitted)
		ATG								CPG								Consolidated
		Three Months Ended								Three Months Ended								Three Months Ended
		September 30,								September 30,								September 30,
		2018				2017				2018				2017				2018				2017
Revenues from unaffiliated customers		$	10,639			$	8,918			$	2,129			$	2,407			$	12,768			$	11,325
Cost of goods sold, inclusive of depreciation and amortization			(6,965	)			(6,198	)			(1,863	)			(2,036	)			(8,828	)			(8,234	)
Gross margin			3,674				2,720				266				371				3,940				3,091
Gross margin %			34.5	%			30.5	%			12.5	%			15.4	%			30.9	%			27.3	%
Selling, general and administrative			(1,476	)			(1,642	)			(598	)			(443	)			(2,074	)			(2,085	)
Interest expense			(20	)			(9	)			(8	)			(9	)			(28	)			(18	)
Total expenses			(8,461	)			(7,849	)			(2,469	)			(2,488	)			(10,930	)			(10,337	)
Income (loss) before income tax provision (benefits)			2,178				1,069				(340	)			(81	)			1,838				988
Income tax provision (benefits)			457				341				(76	)			(24	)			381				317
Net income (loss)		$	1,721			$	728			$	(264	)		$	(57	)		$	1,457			$	671
Capital expenditures		$	432			$	1,282			$	36			$	48			$	468			$	1,330

 

11.

Subsequent Events

 

None.

 

  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview

 

The Company’s commercial business is affected by such factors as uncertainties in today’s global economy, global competition, the vitality and ability of the commercial aviation industry to purchase new aircraft, the effects and threats of terrorism, market demand and acceptance both for the Company’s products and its customers’ products which incorporate Company made components.

 

The ATG engages in business development efforts in its primary markets and is broadening its activities to include new domestic and foreign markets that are consistent with its core competencies. We believe our business remains particularly well positioned in the strong commercial aircraft market driven by the replacement of older aircraft with more fuel efficient alternatives and the increasing demand for air travel in emerging markets. Although the ATG backlog continues to be strong, actual scheduled shipments may be delayed/changed as a function of the Company’s customers’ final delivery determinations based on changes in the global economy and other factors.

 

The CPG consumer products are marketed throughout the United States and in select foreign markets. Consumer sales are moderately seasonal. Sales are direct to consumer, through national and international distributors, and through retailers such as big box, hardware, supermarket, variety, department, discount, gift, drug, outdoors and sporting stores. The CPG also sells knives and tools, principally machetes, bayonets, survival knives and kitchen knives, to various branches of the United States Government which accounted for less than 5% and 7% of the Company’s consolidated revenues in the three and nine months ended September 30, 2018 and 2017, respectively.

 

During the three and nine months ended September 30, 2018 and 2017 approximately 7% and 9% respectively, of the Company’s revenues were derived from contracts with agencies of the U.S. Government or their prime contractors and their subcontractors. The Company believes that government involvement in military operations overseas will continue to have an impact on the financial results in both the Advanced Technology and Consumer Products markets. While the Company is optimistic in relation to these potential opportunities, it recognizes that sales to the government are affected by defense budgets, the foreign policies of the U.S. and other nations, the level of military operations and other factors, and as such, it is difficult to predict the impact on future financial results.

 

See also Note 10, Business Segments, for information concerning business segment operating results.

 

 

Results of Operations

 

The following table compares the Company’s consolidated statements of income data for the nine months and three months ended September 30, 2018 and 2017 ($000’s omitted):

 

		($000's omitted except per share data)
		Nine Months Ended September 30,
																		2018 vs 2017
		2018								2017								Dollar				% Increase
		Dollars				% of Sales				Dollars				% of Sales				Change				(Decrease)
Revenues:
Advanced Technology		$	30,028				85.1	%		$	23,968				79.8	%		$	6,060				25.3	%
Consumer Products			5,245				14.9	%			6,076				20.2	%			(831	)			(15.1	)%
			35,273				100.0	%			30,044				100.0	%			5,229				17.4	%
Cost of goods sold, inclusive of depreciation and amortization			26,359				74.7	%			23,307				77.6	%			3,052				13.1	%
Gross margin			8,914				25.3	%			6,737				22.4	%			2,177				32.3	%
Gross margin %			25.3	%							22.4	%
Selling, general and administrative			5,715				16.2	%			5,548				18.5	%			167				3.0	%
Interest expense			80				0.2	%			56				0.2	%			24				42.9	%
Total expenses			32,154				91.2	%			28,911				96.2	%			3,243				59.0	%
Income before income tax provision			3,119				8.8	%			1,133				3.8	%			1,986				38.0	%
Income tax provision			624				1.8	%			331				1.1	%			293				88.5	%
Net income		$	2,495				7.1	%		$	802				2.7	%		$	1,693				211.0	%

 

		($000's omitted except per share data)
		Three Months Ended September 30,
																		2018 vs 2017
		2018								2017								Dollar				% Increase
		Dollars				% of Sales				Dollars				% of Sales				Change				(Decrease)
Revenues:
Advanced Technology		$	10,639				83.3	%		$	8,918				78.7	%		$	1,721				19.3	%
Consumer Products			2,129				16.7	%			2,407				21.3	%			(278	)			(15.8	)%
			12,768				100.0	%			11,325				100.0	%			1,443				12.7	%
Cost of goods sold, inclusive of depreciation and amortization			8,828				25.0	%			8,234				27.4	%			594				7.2	%
Gross margin			3,940				11.2	%			3,091				10.3	%			849				27.4	%
Gross margin %			30.9	%							27.3	%
Selling, general and administrative			2,074				5.9	%			2,085				6.9	%			(11	)			-0.5	%
Interest expense			28				0.1	%			18				0.1	%			10				55.6	%
Total expenses			10,930				31.0	%			10,337				34.4	%			593				5.7	%
Income before income tax provision			1,838				5.2	%			988				3.3	%			850				85.9	%
Income tax provision			381				1.1	%			317				1.2	%			64				20.2	%
Net income		$	1,457				11.4	%		$	671				5.9	%		$	786				117.0	%

 

 

Revenue

 

The Company’s consolidated revenue from operations increased approximately $5,229,000 or 17.4% for the nine month period ended September 30, 2018 when compared to the same period in 2017. During this period the ATG increased commercial shipments by approximately $6,507,000 offset by the CPG commercial shipments decrease of approximately $609,000. Both ATG and CPG decreased government shipments by approximately $447,000 and $222,000, respectively, during the nine month period ended September 30, 2018 and 2017.

 

The consolidated revenue increase for the nine month period ended September 30, 2018 when compared to the same period in 2017 is primarily attributed to ATG with increased number of units shipped of approximately $3,091,000 and average price increases of approximately $2,969,000. This is offset by a decrease in revenue at the CPG due to a decrease in the number of units shipped of approximately $456,000 and average price decreases of approximately $375,000 as compared to the same nine month period ended September 30, 2017.

 

The Company’s consolidated revenue from operations increased approximately $1,443,000 or 12.7% for the three month period ended September 30, 2018 when compared to the same period in 2017. During this period the ATG increased commercial shipments by approximately $2,142,000 offset by the CPG commercial shipments decrease of approximately $134,000. Both ATG and CPG decreased government shipments by approximately $421,000 and $144,000, respectively, during the three month period ended September 30, 2018.

 

The consolidated revenue increase for the three month period ended September 30, 2018 when compared to the same period in 2017 is primarily attributed to increased average prices of approximately $1,155,000 and increased number of units shipped of approximately $566,000 at the ATG. This is partially offset by an overall decrease in revenue at the CPG. The decrease in revenue at the CPG is primarily attributed to average price decreases of approximately $352,000 offset slightly by volume increases of approximately $74,000 as compared to the same three month period ended September 30, 2017.

 

Gross Margin

 

The Company’s consolidated gross margin increased approximately $2,177,000 or 32.3% for the nine month period ended September 30, 2018 and increased approximately $849,000 or 27.4% for the three month period ended September 30, 2018 when compared to the same periods in 2017.

 

Gross margin improved in the nine month period ended September 30, 2018 primarily due to the increase in units shipped of approximately $1,256,000 and increased average prices of approximately $1,030,000 at the ATG as compared to the same period in 2017. This is partially offset by a decrease in the number of units shipped of approximately $21,000 and decreased average prices of approximately $88,000 at the CPG as compared to the same period in 2017.

 

Gross margin improved in the three month period ended September 30, 2018 primarily due to the increased number of units shipped of approximately $228,000 and increased average prices of approximately $726,000 at the ATG as compared to the same period in 2017. This is partially offset by a decrease in average prices of approximately $108,000 offset slightly by an increase in units shipped of approximately $3,000 at the CPG as compared to the same period in 2017.

 

 

Selling, General and Administrative Expenses

 

Selling, general and administrative (SG&A) increased approximately $167,000 or 3.0% for the nine month period ended September 30, 2018 and decreased approximately $11,000 or 0.5% for the three month period ended September 30, 2018 when compared to the same period in 2017. This is primarily attributable to the sales and marketing of products including commissions, sales support and expenses related to trade shows at the CPG for the nine month period ended September 30, 2018 as compared to the same period in 2017. SG&A was flat in the three month period ended September 30, 2018 as compared to the same period in 2017. The SG&A expenses at the ATG decreased approximately $166,000 due to non-recurring charges incurred during the third quarter of 2017 offset by increased SG&A expenses of approximately $155,000 at the CPG attributable to the sales and marketing of products including media advertising and administrative support.

 

Interest Expense

 

Interest expense increased by 42.9% and 55.6% in the nine and three month periods ended September 30, 2018, respectively, when compared to the same periods in 2017. This is primarily due to borrowing on the lease line of credit for the production equipment financing at ATG. See also Note 5, Long-Term Debt, for information on the equipment capital leases.

 

Income Taxes

 

The Company’s effective tax rate was approximately 20.0% and 29.2% for the nine month periods ended September 30, 2018 and 2017, respectively. The Company’s effective tax rate was approximately 20.7% and 32.1% for the three month periods ended September 30, 2018 and 2017, respectively.  The reduction in the effective tax rate is primarily due to the reduction in the corporate tax rate to 21% as a result of the Tax and Jobs Act. The effective tax rate in both years reflects federal and state income taxes, permanent non-deductible expenditures and the federal tax credit for research and development expenditures.

 

Net Income

 

Net income for the nine month period ended September 30, 2018 increased approximately $1,693,000 and net income for the three month period ended September 30, 2018 increased approximately $786,000, when compared to the same periods in 2017. This increase is primarily the result of increases in revenue at the ATG business segment offset by a decrease in revenue at the CPG business segment as discussed above.

 

Liquidity and Capital Resources

 

The Company’s liquidity and capital requirements relate to working capital needs; primarily inventory, accounts receivable and accounts payable as well as capital expenditures for property, plant and equipment and principal and interest payments on debt. At September 30, 2018, the Company had working capital of approximately $22,199,000 of which approximately $2,379,000 was comprised of cash.

 

The Company utilized approximately $24,000 in cash from operations during the nine months ended September 30, 2018. The primary use of cash for the Company’s operating activities for the nine month period ended September 30, 2018 includes working capital requirements, increased receivables due to timing of shipments and payments by customers and increase in inventory raw materials for increased production offset by timing differences on payments to vendors. The Company’s primary use of cash in its financing and investing activities in the nine months ended September 30, 2018 included approximately $410,000 of principal payments on long-term debt as well as approximately $150,000 for the purchase of treasury shares. The Company also expended approximately $1,429,000 for capital expenditures during the nine months ended September 30, 2018.

 

 

The Company has a $2,000,000 line of credit available until June 19, 2019.

 

The Company believes its cash generating capability and financial condition, together with available credit facilities will be adequate to meet our operating, investing and financing needs into the future.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

  

Item 4.

Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company carried out an evaluation under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of September 30, 2018. Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in SEC reports under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls

 

During the nine month period ended September 30, 2018, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to affect, the Company’s internal controls over financial reporting.

 

  

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Except as set forth in Note 8, Litigation, there are no other legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

(c) Company Purchases of Company’s Equity Securities

 

2018 Periods		Total Number of Shares Purchased				Weighted Average Price $ Paid Per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)				Maximum Number of Shares that may yet be Purchased under the Plans or Programs (1)
January - March			11,341	(2)		$	10.40				-				100,670
April - June			3,350				9.29				3,350				97,320
July - September			-				-				-				97,320
Total			14,691			$	10.15				3,350				97,320

 

(1)       The Company’s Board of Directors authorized the purchase of up to 450,000 shares of its common stock in the open market or in privately negotiated transactions. As of September 30, 2018, the Company has purchased 352,680 shares and there remains 97,320 shares available to purchase under this program. There were 3,350 shares purchased by the Company during the nine month period ended September 30, 2018.

 

(2)       Includes 11,341 shares withheld/purchased by the Company in January 2018 to satisfy statutory minimum withholding tax requirements for those participants who elected this option as permitted under the Company’s 2012 Long-Term Incentive Plan.

 

Item 3.

Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

Not applicable

 

 

Item 6.

Exhibits

 

31.1		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 (Filed herewith)
31.2		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 (Filed herewith)
32.1		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 (Filed herewith)
32.2		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 (Filed herewith)
101		The following materials from Servotronics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language):  (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows and (v) the notes to the consolidated financial statements.

 

FORWARD-LOOKING STATEMENTS

 

In addition to historical information, certain sections of this Form 10-Q 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, the timing and amount of payment obligation relating to the arbitration award and the Company’s ability to pay these obligations. 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-Q. 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.

.

 

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 13, 2018

 

	SERVOTRONICS, INC.
	By:	/s/ Kenneth D. Trbovich, Chief Executive Officer
		Kenneth D. Trbovich
		Chief Executive Officer
	By:	/s/ Lisa F. Bencel, Chief Financial Officer
		Lisa F. Bencel
		Chief Financial Officer