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The continued slump in its commercial aviation markets, coupled with start-up costs stemming from a new $4 million Marine Corps bayonet contract, caused Servotronics Inc. to lose $71,000 during the first quarter, the Elma servovalve manufacturer said Thursday.

Servotronics' loss, which equaled 4 cents per share, came entirely from a $174,000 operating loss at its cutlery business, which had "significant" development costs associated with the Marine Corps contract, the company said.

Servotronics officials also said declining sales at its aerospace business contributed to the loss, as the weak economy and slumping aviation market caused some programs to be cut back or stretched out over longer periods of time. The company's Advanced Technology Group still reported an operating profit of $409,000 during the quarter, according to a filing with the Securities and Exchange Commission.

The company's overall loss compared with a profit of $106,000, or 6 cents per share, a year ago.

Sales were flat at $3.83 million. Revenues from Servotronics' aerospace business slid by 5 percent to $2.5 million, while sales from its cutlery unit grew by 11 percent to $1.3 million. Development costs associated with programs in its aerospace business, as well as its cutlery unit, also contributed to the loss, since new accounting rules limit the company's ability to expense start-up costs for new products, Servotronics officials said.

While Servotronics is incurring "significant" costs during the first half of this year from developing the new combination combat knife and bayonet for the Marine Corps., the first sales from the $3.7 million, two-year contract aren't expected to begin flowing until this summer and will continue into 2005.


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