UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934[Fee Required]
For the fiscal year ended June 30, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from ________________ to ______________
Commission File No. 1-4383
ESPEY MFG. & ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
New York 14-1387171
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Congress and Ballston Avenues, Saratoga Springs, NY 12866
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 584-4100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock $.333 par value American Stock Exchange
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing requirements
for the past 90 days [X] Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $12,482,022 as at September 19, 1995.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
Class Outstanding at September 19, 1995
Common Stock, $.333 par value 1,338,741
<PAGE>
PART I
Item 1. Business.
General
The Company operates a one segment business. A significant portion of the
Company's business is the production of electronic equipment for military use
with the United States Government and its agencies being the largest customer
and user. Sales were made to the United States Government and its agencies
on both a prime and subcontract basis. Sales on a subcontract basis were
made to both domestic and foreign customers. Of the total sales,
approximately $7,816,000 in 1995, $13,578,000 in 1994 and $14,845,000 in 1993
represented sales made on both a prime and subcontract basis to the United
States Government and its agencies. Sales of this nature on a subcontract basis
to two domestic customers and one foreign customer accounted for 31.5%, 24.2%
and 16.2% respectively, of total sales in 1995. Sales of this nature on a
subcontract basis to one domestic customer accounted for 66.8% of total sales
in 1994. Sales of this nature on a subcontract basis to two domestic customers
accounted for 59.7% and 15.8%, respectively, of total sales in 1993.
Export sales in 1995 aggregated approximately $2,602,000. Export sales in
1994 and 1993 were not significant.
A significant portion of the Company's business is conducted with Loral
and General Electric, the loss of either of which would have a material adverse
effect.
Products
The Company has been and intends to continue to be engaged principally in
the development, design, production and sales of specialized electronic power
conditioning apparatus (electronic power supplies), a wide variety of
transformers and other types of iron-core components, and electronic systems.
In some cases, the Company manufactures such products in accordance with
pre-developed mechanical and electrical requirements not requiring
environmental testing. The Company does not generally manufacture standardized
components.
The electronic power supplies and components manufactured by the Company
find application principally in computers; aircraft, shipboard and land based
radar; missile guidance and control systems; short, medium range and global
communication systems; navigation systems for aircraft; and nuclear submarine
control systems, and more recently in locomotives. The electronics systems
manufactured by the Company include optical aircraft landing systems for
carrier and land based airstrips, and antenna systems. These systems utilize
the Company's own electronic power supplies, transformers and other iron-core
components. The Company's iron-core components include transformers of the
audio, power and pulse types; magnetic amplifiers; and audio filters.
I-1
<PAGE>
The following tabulation shows the percentage of the Company's total sales
represented by sales of each class of similar products which contributed at
least 15% of total sales during one or more of the last three fiscal years.
Fiscal Year Ended June 30
1995 1994 1993
Electronic Power Supplies 84% 85% 75%
Iron-Core Components 11% 11% 14%
Electronic Systems & Assemblies 5% 4% 11%
Raw Materials
The Company has never experienced any significant delay or shortage with
respect to the purchase of raw materials and components used in the manufacture
of its products, and has at least two potential sources of supply for all raw
materials used by it.
Sales Backlog
The total amount of backlog orders believed to be firm as of June 30, 1995
was approximately $20,878,000 as compared to approximately $19,209,000 as of
June 30, 1994. It is anticipated that a minimum of $13,000,000 of orders
comprising the June 30, 1995 backlog will be filled during the fiscal year
ending June 30, 1996. This is in addition to any shipments which may be made
against orders subsequently received during the fiscal year ending June 30,
1996.
From June 30, 1995 to mid-September 1995, the Company booked approximately
$1,032,000 in new business.
Military Contracts
The Company, as well as other companies primarily engaged in supplying
equipment for military use, is subject to various risks, including, without
limitation, dependence on government appropriations and program allocations,
the competition for available military business, and termination of orders
for convenience.
I-2
<PAGE>
Marketing and Competition
The Company is on the eligible list of contractors of many agencies of the
Department of Defense and generally is automatically solicited by such agencies
for procurement needs falling within the major classes of products produced
by the Company. In addition, the
Company directly solicits bids from both the Department of Defense and other
U.S. Government agencies for prime contracts. Subcontract work for government
end use is solicited from major electronic and aircraft companies, primarily by
the Company's own employees.
There is competition in all classes of products manufactured by the Comp
any, from divisions of the largest electronic companies in the country as well
as many small companies. The Company's sales do not represent a significant
portion of the industry's production of any class of products made by the Comp
any. The principal methods of competition for electronic products for the
United States Government military use include, among other factors, price and
product performance and the experience of the particular company and history of
its dealings in such products.
The Company's business is not considered to be of a seasonal nature.
Research and Development
The Company does not expend monies in material amount for independent
research or development. In fiscal year 1995, approximately $141,000 was
expended for this type of effort. Some of the Company's professional employees
spend varying degrees of time in either development of new products or
improvement of existing products.
Employees
The number of persons employed by the Company as of September 19, 1995
was 199.
Item 2. Properties.
The Company's principal manufacturing and all of its engineering
facilities are at its plant, which it owns, in Saratoga Springs, New York. The
Company initially occupied the plant in 1952, and in 1955 consolidated all of
its manufacturing operations at the plant when it terminated its manufacturing
operations in New York City.
The Saratoga Springs plant was originally constructed about 1900 and
consists of various closely adjoining one-story buildings. The plant is fully
sprinklered and contains
I-3
<PAGE>
approximately 138,000 square feet of floor space, of which 60,000 is used for
manufacturing, 23,000 for engineering, 33,000 for shipping and climatically
secured storage, and 3,000 for offices. The offices and engineering are air
conditioned and approximately 1,000 square feet of "white rooms" are completely
climatically controlled. In addition to assembly and wiring operations, the
plant includes facilities for varnishing, potting, impregnation, and spray
painting operations, in addition to complete machine shop and sheet metal
fabrication facilities adequate for substantially all of the Company's current
operations. During the year the Company expended about $800,000 for the
upgrading of its plating department to more uniformly conform to the
environmental standards set by the Federal Government and established a new
plating division, called Saratoga Electro-Finishing. Besides normal test
equipment, the Company maintains a sophisticated on-site environmental test
facility. A fully staffed ADP Center is on-site.
The Company maintains additional manufacturing facilities in a
three-story, fully sprinklered building of approximately 4,000 square feet at
146 Fulton Street, Gloversville, New York. The facility is used primarily for
subcomponent wiring and assembly.
The Company maintains a sales office in a modern office building at 445
Northern Boulevard, Great Neck, New York. This space, comprising approximately
750 square feet, is leased from a non-affiliated person for a term expiring on
September 30, 1996.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
I-4
<PAGE>
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters.
(a) Price Range of Common Stock
The table below shows the range of high and low prices for the
common stock on the American Stock Exchange, the principal market for trading
in the common stock, for each quarterly period for the last two fiscal years
ended June 30:
1995 High Low
First Quarter 14 7/8 13 3/8
Second Quarter 14 1/4 12 1/2
Third Quarter 13 1/4 11 5/8
Fourth Quarter 13 5/8 12 1/4
1994 High Low
First Quarter 14 5/8 13 3/8
Second Quarter 15 13 5/8
Third Quarter 15 1/4 13 5/8
Fourth Quarter 14 1/4 13 3/8
(b) Holders
The approximate number of holders of the common stock
was 251 at September 19, 1995. Included in this number are shares held in
"nominee" or "street" name and, therefore, the number of beneficial owners of
the common stock are believed to be substantially in excess of the foregoing
number.
(c) Dividends
The Company paid in the next following November a cash
dividend on the common stock of 60 cents per share for its fiscal years ended
June 30, 1993 and 1994. On September 18, 1995, the Board of Directors declared
a cash dividend of 70 cents per share to be paid on November 21, 1995 to share
holders of record on October 27, 1995.
II-1
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Five Years Ended June 30, 1995
ITEM 6. SELECTED FINANCIAL DATA
Selected Income Statement Data
Year ended June 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $14,574,097 14,678,303 15,206,921 15,985,621 15,450,235
Operating income 24,064 1,502,470 2,234,782 2,068,330 3,311,062
Other income, net 726,073 435,238 396,891 866,096 788,995
Cumulative effect
of change in
accounting principle - 201,653 - - -
Net earnings 491,767 1,343,877 1,594,290 1,885,208 2,534,250
Earnings per common share:
Earnings before
cumulative effect of
change in accounting
principle $ .37 .85 1.18 1.35 1.80
Cumulative effect of
change in accounting
principle - .15 - - -
Net earnings $ .37 1.00 1.18 1.35 1.80
<CAPTION>
Selected Balance Sheet Data
Year ended June 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Current assets $25,143,909 25,364,435 24,160,510 23,281,654 23,104,788
Current liabilities 983,401 722,170 681,101 814,143 1,668,743
Working capital 24,160,508 24,642,265 23,479,409 22,467,511 21,436,045
Total assets 28,839,718 28,474,536 27,608,660 26,985,274 26,473,232
Long-term liabilities
(deferred income taxes) 30,697 124,619 446,934 457,761 465,088
Stockholders'
equity 27,825,620 27,627,747 26,480,625 25,713,370 24,339,401
Cash dividends
declared and
paid per
common share $ .60 .60 .60 .60 .60
</TABLE>
II-2
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operation
Net Sales and Operating Income. The Company operates a one segment
business. It principally manufactures power supplies and components for
military use pursuant to specifications. Sales volume is dependent to a large
extent on product mix in any given fiscal period. This mix is in turn subject
to the dictates of customer needs and delivery requirements. These factors
principally account for any variation in sales and operating income from year
to year.
Sales for fiscal years ended June 30, 1995, 1994, and 1993 were
$14,574,097, $14,678,303, and $15,206,921, respectively. The corresponding cost
of sales were 90%, 80%, and 77% respectively. The increase in cost of sales for
1995 resulted in a decrease in our gross profit as compared to 1994. The
decrease in gross profits resulted from an overrun on one foreign contract, but
more importantly from the increasingly competitive nature of our business. This
factor has forced us to temporarily accept business with reduced profit margins.
We are attempting to alleviate this situation by expanding our efforts to
develop items of a more proprietary nature in both the commercial and military
marketplace. In line with this, we have made an investment in one domestic
military order for the refinement and advancement of new technology for the
advanced generation of Patriot missiles. This same technology will be used for
the propulsion systems of the next generation of Naval ships throughout the
world. We are actively pursuing additional business in this area, and feel that
the experience gained on this order, although costly, will enable us to
successfully accomplish our goal. This will hopefully enable us to enhance our
earnings in future periods.
Selling and general & administrative expenses increased by approximately
$112,000 in 1995 as compared to 1994. This increase was principally due to the
addition of one Vice President to our corporate structure. Interest and
dividend income increased by $288,289 in 1995 due partly to an increase in
short term interest rates and partly due to a more sophisticated money
management program instituted this year. Earnings before income taxes decreased
in 1995 to $750,137 from $1,937,708 in 1994. Earnings per share after taxes
decreased to $.37 from $1.00. However, the net earnings per share of $1.00
reported for 1994 reflected an additional $ .15, which arose as the result of a
cumulative effect of a change in accounting principle. This was caused by the
implementation of SFAS 109.
Currently approximately 90% of our investment base is represented by U.S.
Government short term T-Bills, with the balance being represented by short term
Certificates of Deposit and 1000 shares of GTE Florida preferred stock.
Consequently the Company does not feel that there is any significant risk
associated with its investment policy.
Other Income And Expense
The Company's combined investment in both short-term investments and
marketable investment securities on June 30th was:$10,883,324 in 1991;
$11,754,564 in 1992; $12,226,531 in 1993; $13,290,888 in 1994; and $12,022,004
in 1995. Of this investment in both 1995 and 1994, $100,000 was in preferred
stock. The short-term investments consisted of Certificates of Deposit and
U. S. Treasury Bills. During fiscal years 1991 through 1995, interest rates on
short-term investments ranged from 8.16% to 2.10%. This factor accounts for the
fluctuation of interest and dividend income during the five-year period.
II-3
<PAGE>
In 1993, 1994, and 1995 "Sundry" items consisted of various miscellaneous
items. In 1993 there is included an amount of $12,471 capital gain
attributable to the redemption of 1,500 shares of Philadelphia Electric Co.
9.5% preferred stock. Interest income and dividends were $367,445 and $430,496
for fiscal years 1993 and 1994 respectively, and $718,785 for 1995.
Changes in Accounting Principles and Policies
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", as of July 1, 1993 on
a prospective basis. The cumulative effect of the change in accounting for
income taxes as of July 1, 1993 was $201,653 and is separately identified in
the statement of earnings for the year ended June 30, 1994. Prior years'
financial statements have not been restated to apply the provisions of SFAS
No. 109.
Under the provisions of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. In addition, SFAS No. 109 requires that the tax benefit of the tax
deductible dividends on unallocated ESOP shares be recorded as a direct
addition to contributed capital rather than as a reduction of income tax
expense. The actual amount for fiscal 1994 which was a direct addition to
capital was $55,007, and the estimated amount for fiscal 1995 will be
approximately $50,000.
The Company has adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", as of July 1, 1994, the effects of which are
described in the notes to the financial statements.
Dividends & Rights
On September 18, 1995 the Board of Directors declared a dividend of $.70
per common share payable November 21, 1995 to holders of record on October 27,
1995.
Post Retirement or Employment Benefits
The Company does not currently offer, nor does management contemplate
offering in the future, any post-retirement or employment benefits.
Consequently, no accruals or liabilities have been provided for in the
financial statements.
II-4
Liquidity and Capital Expenditures
The Company's working capital is an appropriate indicator of the
liquidity of its business, and during the past three fiscal years, the Company,
when possible, has funded all of its operations, including financing
activities, with cash flows resulting from operating activities. The Company
did not borrow any funds during the last three fiscal years and does not
anticipate that it will borrow during fiscal year 1996. During fiscal year
1995, the Company expended approximately $1,080,000 for plant improvements and
new equipment. The Company plans to expend approximately $250,000 for new
equipment and plant improvements in fiscal 1996. It is anticipated that the
funds required will be available from current operations.
Other Events
An ESOP was established for the eligible non-union employees of the
Company and was effective as of July 1, 1988. The ESOP used the proceeds of a
loan from the Company to purchase 316,224 shares of the Company's common stock
for approximately $8.4 million, and the Company contributed approximately
$400,000 to the ESOP, which was used by the ESOP to purchase an additional
15,000 shares of the Company's common stock. Each year the Company makes
contributions to the ESOP which are used to make loan interest and principal
payments. With each loan and interest payment, a portion of the common stock
will be allocated to participating employees. As of June 30, 1995, there were
124,388 shares allocated to participants. Dividends attributable to allocated
shares were likewise allocated to the participants' accounts, whereas the
dividends on unallocated shares were used as part of the loan repayment, thus
reducing the Company's required contribution. The loan from the Company to the
ESOP is repayable in annual installments of $1,039,605, including interest
through June 30, 2004. Interest is payable at a rate of 9% per annum. The
Company's receivable from the ESOP is recorded as common stock subscribed in the
accompanying balance sheets.
During the fiscal year ended June 30, 1993 the Company repurchased 38,618
shares of its common stock at a total cost of $572,273. 33,618 shares were
purchased from the estate of Frieda Pinsley, a former director and officer, and
5,000 shares were purchased on the open market. No shares were repurchased in
fiscal 1994. In 1995 7,260 shares were repurchased from the ESOP representing
distributions taken by participants. Under existing authorizations, as of June
30, 1995, funds in the amount of $1,083,317 were available for the continuing
repurchase of the Company's shares.
At the Annual Meeting of Shareholders held on December 10, 1993, an
amendment, approved and recommended by the Board of Directors, was adopted by
the Shareholders to the Company's certificate of incorporation to increase the
maximum number of directors from seven to nine and to classify the Board into
three classes of three directors each, with directors after the election of the
first classified Board at such 1993 Annual Meeting to be elected for a term of
three years. The Board of Directors currently has eight members following the
death of Albert K. Braim,a Class A Director, on October 20, 1994.
II-5
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:
We have audited the financial statements of Espey Mfg. & Electronics Corp. as
listed in the accompanying index. In connection with our audits of the
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Espey Mfg. & Electronics Corp.
as of June 30, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1995, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein. As discussed in
note 1(g) to the financial statements, the Company changed its method of
accounting for investments to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
on July 1, 1994. Also, as discussed in note 1(d) to the financial
statements, the Company changed its method of accounting for income taxes to
adopt the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes on
July 1, 1993."
Albany, New York /s/ KPMG Peat Marwick LLP
August 24, 1995
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
June 30, 1995 and 1994
ASSETS
1995 1994
<S> <C> <C>
Current assets:
Cash $ 231,675 $ 178,696
Short-term investments, at cost (market value -
$1,497,681 in 1995 and $13,335,488 in 1994) 1,467,540 13,290,888
Total cash and short-term investments 1,699,215 13,469,584
Marketable investment securities - current (note 2) 10,454,464 -
Trade accounts receivable, net of $3,000 allowance in
1995 and 1994 1,925,778 1,156,093
Other receivables 20,627 15,861
Net receivables 1,946,405 1,171,954
Inventories:
Raw materials and supplies 400,778 501,337
Work in process 1,078,169 1,599,148
Costs relating to contracts in process, net of
progress payments of $2,121,800 in 1995 and
$1,991,300 in 1994 (notes 3 and 4) 8,769,378 8,078,077
Net inventories 10,248,325 10,178,562
Income tax refund receivable 410,467 358,418
Prepaid expenses and other current assets 385,033 185,917
Total current assets 25,143,909 25,364,435
Marketable investment securities (note 2) 100,000 100,000
Property, plant and equipment, at cost (note 5) 11,464,636 10,385,193
Less accumulated depreciation (7,868,827) (7,375,092)
Net property, plant and equipment 3,595,809 3,010,101
TOTAL $ 28,839,718 28,474,536
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
June 30, 1995 and 1994
LIABILITIES AND STOCKHOLDERS EQUITY
1995 1994
<S> <C> <C>
Current liabilities:
Accounts payable $ 596,823 $ 336,882
Accrued expenses:
Salaries, wages and commissions 104,269 99,552
Employee insurance costs 50,293 58,272
Other 14,588 17,018
Payroll and other taxes withheld and accrued 141,513 140,802
Deferred income taxes - current (note 8) 75,915 69,644
Total current liabilities 983,401 722,170
Deferred income taxes (note 8) 30,697 124,619
Total liabilities 1,014,098 846,789
Stockholders' equity:
Common stock, par value $.33-1/3 per share (notes 9
and 12)
Authorized 2,250,000 shares; issued
1,514,937 shares in 1995 and 1994 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 24,678,208 24,945,412
35,679,474 35,946,678
Less:
Common stock subscribed (note 13) (5,027,962) (5,586,624)
Cost of 171,489 shares in 1995 and 164,229
shares in 1994 of common stock in treasury (2,825,892) (2,732,307)
Total stockholders' equity 27,825,620 27,627,747
$ 28,839,718 $ 28,474,536
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Earnings
Years ended June 30, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Net sales $ 14,574,097 $ 14,678,303 $ 15,206,921
Cost of sales 13,074,247 11,812,195 11,707,848
Gross profit 1,499,850 2,866,108 3,499,073
Selling, general and administrative expenses 1,475,786 1,363,638 1,264,291
Operating income 24,064 1,502,470 2,234,782
Other income:
Interest income and dividends 718,785 430,496 367,445
Sundry income 7,288 4,742 29,446
726,073 435,238 396,891
Earnings before income taxes and
cumulative effect of change in
accounting principle 750,137 1,937,708 2,631,673
Provision for income taxes (note 8) 258,370 795,484 1,037,383
Earnings before cumulative effect of change
in accounting principle 491,767 1,142,224 1,594,290
Cumulative effect of change in accounting principle
(note 1(d)) - 201,653 -
Net earnings $ 491,767 1,343,877 1,594,290
Earnings per common share (note 9):
Earnings before cumulative effect of change in
accounting principle $ .37 .85 1.18
Cumulative effect of change in accounting
principle - .15 -
Net earnings per common share $ .37 1.00 1.18
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Changes in Stockholders' Equity
Years ended June 30, 1995, 1994 and 1993
Capital Common Total
Common in excess Retained stock Treasury Stockholders'
stock of par value earnings subscribed stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $504,979 10,496,287 23,576,087 (6,703,949) (2,160,034) 25,713,370
Dividends paid on common stock $.60 per share - - (813,425) - - (813,425)
Net earnings - 1993 - - 1,594,290 - - 1,594,290
Purchase of treasury stock (38,618 shares) - - - - (572,273) (572,273)
Reduction of common stock subscribed - - - 558,663 - 558,663
Balance at June 30, 1993 504,979 10,496,287 24,356,952 (6,145,286) (2,732,307) 26,480,625
Dividends paid on common stock $.60 per share - - (810,424) - - (810,424)
Net earnings - 1994 - - 1,343,877 - - 1,343,877
Tax effect of dividends on unallocated ESOP shares - - 55,007 - - 55,007
Reduction of common stock subscribed - - - 558,662 - 558,662
Balance at June 30, 1994 504,979 10,496,287 24,945,412 (5,586,624) (2,732,307) 27,627,747
Dividends paid on common stock $.60 per share - - (809,041) - - (809 041)
Net earnings- 1995 - - 491,767 - - 491,767
Tax effect of dividends on unallocated ESOP shares - - 50,070 - - 50,070
Purchase of treasury stock (7,260 shares) - - - - (93,585) (93,585)
Reduction of common stock subscribed - - - 558,662 - 558,662
Balance at June 30, 1995 $504,979 10,496,287 24,678,208 (5,027,962) 2,825,892 27,825,620
<FN>
<F1>
See accompanying notes to financial statements
</FN>
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Years ended June 30, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 491,767 1,343,877 1,594,290
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Cumulative effect of change
in accounting principle - (201,653) -
Tax effect of dividends on
unallocated ESOP shares 50,070 55,007 -
Depreciation 493,735 490,987 423,322
Loss on disposal of
fixed assets - - 4,645
Gain on call of marketable
securities - - (12,471)
Deferred income taxes (benefit) (87,651) (72,364) 5,099
Change in assets and liabilities:
Decrease (increase) in
receivables, net (774,451) 905,972 (1,718,675)
Decrease (increase) in
inventories, net (69,763) (583,697) 829,789
Decrease (increase) in
income tax refund receivable (52,049) (358,418) 749,005
Decrease (increase) in
prepaid expenses and
other current assets (199,116) 39,335 (24,142)
Increase (decrease) in
accounts payable 259,941 101,093 (338,321)
Increase (decrease) in
accrued salaries, wages
and commissions 4,717 (68,167) 50,626
Increase (decrease) in
accrued employee
insurance costs (7,979) (9,275) 14,114
Increase (decrease) in
payroll and other taxes
withheld and accrued 711 (17,922) 109,572
Increase (decrease) in
other accrued expenses (2,430) (4,679) 6,762
Increase (decrease) in
income taxes payable - (8,279) 8,279
Net cash provided by
operating activities 107,502 1,611,817 1,701,894
Cash flows from investing activities:
Proceeds from call of
marketable securities - - 151,500
Additions to property, plant
and equipment (1,079,443) (152,938) (311,526)
Reduction of common stock
subscribed 558,662 558,662 558,663
Proceeds from sale of
marketable investment securities 3,887,307 - -
Purchases of marketable
investment securities (14,341,771) - -
Net cash provided by
(used in) investing
activities (10,975,245) 405,724 398,637
Cash flows from financing activities:
Dividends on common stock (809,041) (810,424) (813,425)
Purchase of treasury stock (93,585) - (572,273)
Net cash used in
financing activities (902,626) (810,424) (1,385,698)
Increase (decrease) in cash and
short-term investments (11,770,369) 1,207,117 714,833
Cash and short-term investments,
beginning of year 13,469,584 12,262,467 11,547,634
Cash and short-term investments,
end of year $1,699,215 13,469,584 12,262,467
Supplemental disclosures of
cash flow information:
Income taxes paid $ 348,000 1,179,538 275,000
<FN>
<F1>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements
June 30, 1995, 1994 and 1993
(1)Summary of Significant Accounting Policies
(a)Inventory Valuation and Income Recognition
Raw materials are valued at cost, principally on the first-in, first-out
method.
Inventoried work relating to contracts and other work in process is
valued at actual production cost, including factory overhead and
initial set-up costs incurred to date, reduced by amounts identified
with revenue recognized on units shipped and billed. Provision for
losses on contracts is made when existence of such losses becomes
evident. The costs attributed to units delivered under contracts are
based on the estimated average cost of all units expected to be
produced. Certain contracts are expected to extend beyond twelve months.
Revenue is recognized on contracts and orders in the period in which the
units are shipped and billed (unit-of-delivery method).
(b)Progress Payments
The Company receives progress payments on certain sales contracts. Such
payments are recorded as a reduction of inventory and are liquidated
when customers are billed for completed items shipped.
(c)Depreciation
Depreciation of plant and equipment is computed generally on a
straight-line basis over the estimated useful lives of the assets for
book purposes and on an accelerated method for tax purposes.
(d)Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", as of
July 1, 1993 on a prospective basis. The cumulative effect of the
change in accounting for income taxes as of July 1, 1993 was
$201,653 and is separately identified in the statement of earnings
for the year ended June 30, 1994. Prior years' financial statements
have not been restated to apply the provisions of SFAS No. 109.
Under the provisions of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
In 1993 and prior years, the Company accounted for income taxes in
accordance with Statement of Financial Accounting Standards No. 96.
(e)Investment Tax Credits
Investment tax credits are accounted for as a reduction of income tax
expense in the year taxes payable are reduced. Such credits amounted to
approximately $0 in 1995, $7,000 in 1994 and $15,000 in 1993 for
state tax purposes.
<PAGE>
(f)Short-Term Investments and Cash Equivalents
All short-term investments consisting of certificates of deposit, money
market accounts, and U.S. treasury bills, maturing within three
months, are considered cash equivalents for purposes of the
statements of cash flows.
(g)Marketable Investment Securities
Marketable investment securities at June 30, 1995 consist of U.S.
Treasury securities and corporate equity securities. The Company
adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at July 1, 1994. Upon adoption of SFAS No. 115,
at July 1, 1994, all amounts included in short-term investments
matured within three months of the adoption date. Therefore no amounts
were transferred to marketable investment securities upon adoption and
there was no cumulative effect from this change. Under SFAS No. 115, the
Company classifies its U.S. Treasury securities as held-to-maturity.
Held-to-maturity securities are those securities in which the Company
has the ability and intent to hold until maturity. Held-to-maturity
securities are recorded at cost.
A decline in the market value of any held-to-maturity security below
cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized
when earned. Realized gains and losses for securities classified as
held-to-maturity are included in earnings and are derived using the
specific identification method for determining the cost of securities
sold.
(2)Marketable Investment Securities
Marketable investment securities at June 30, 1995, consist of:
Held-to-maturity, at amortized cost(current) $10,454,464
Corporate equity securities, at amortized cost (long-
term) 100,000
TOTAL $10,554,464
The held-to-maturity securities at June 30, 1995 included U.S. Treasury
securities and corporate equity securities. The cost and fair market
value of the U.S. Treasury securities at June 30, 1995 were $10,454,464
and $10,627,469, respectively. There were no gross unrealized gains
or losses on U.S. Treasury securities at June 30, 1995. The difference
between cost and fair market value for the U.S. Treasury securities
represents interest income which has been recognized during 1995 and
is included in accrued interest receivable at June 30, 1995. The cost
and fair market value of the corporate equity securities at June 30,
1995 were $100,000 and $104,000, respectively. As of June 30, 1995,
there were gross unrealized gains of $4,000 and no gross unrealized
losses on the corporate equity securities.
<PAGE>
Maturities of investment securities classified as held-to-maturity
were as follows at June 30, 1995:
Amortized Fair
Cost Value
Due after three months through 1 year $ 10,454,464 10,627,469
Corporate equity securities 100,000 104,000
TOTAL $ 10,554,464 10,731,469
Marketable investment securities, at June 30, 1994, consist of equity
securities which are recorded at the lower of aggregate cost or market.
As of June 30, 1994, there were gross unrealized gains of $4,000 and
no gross unrealized losses.
(3)Inventories and Cost of Sales
Included in costs relating to contracts in process at June 30, 1995, 1994
and 1993 are costs of $1,023,945, $835,056, and $1,263,221,
respectively, relative to contracts that may not be completed within the
ensuing year. Under the unit-of-delivery method, the related sale and
cost of sales will not be reflected in the statement of earnings until the
units under contract are shipped.
The cost elements of contracts in process consist of production costs
of goods and services currently in process and overhead relative to
those contracts where such costs are reimbursable under the terms
of the contracts. General and administrative expenses are charged to
operations in the period in which they are incurred.
(4)Contracts in Process
Contracts in process at June 30, 1995 and 1994 are as follows:
1995 1994
Gross contract value $ 20,878,002 19,208,657
Carrying value of contracts in process 10,891,178 10,069,377
Less progress payments 2,121,800 1,991,300
Included in current assets as contracts
in process, net of progress payments $ 8,769,378 8,078,077
(5)Property, Plant and Equipment
A summary of property, plant and equipment at June 30, 1995 and
1994 is as follows:
1995 1994
Land $ 50,000 50,000
Buildings and improvements 3,812,594 3,001,329
Machinery and equipment 7,288,397 7,021,481
Furniture, fixtures and office
equipment 313,645 312,383
TOTAL $ 11,464,636 10,385,193
Amounts provided for depreciation for the years ended June 30, 1995,
1994 and 1993 were $493,735, $490,987 and $423,322, respectively.
<PAGE>
The estimated useful lives of depreciable assets are as follows:
Buildings and improvements 20 - 25 years
Machinery and equipment 10 years
Furniture, fixtures and office equipment 10 years
Autos and trucks 5 years
(6)Research and Development Costs
Research and development costs charged to operations during the
years ended June 30, 1995, 1994 and 1993 were approximately
$141,000, $119,000 and $114,000, respectively.
(7)Pension Expense
Under terms of a negotiated union contract, the Company is obligated
to make contributions to a union sponsored defined benefit pension
plan covering eligible employees. Such contributions are based upon
hours worked at a specified rate and amounted to $65,500 in 1995,
$57,300 in 1994 and $60,419 in 1993.
(8)Provision for Income Taxes
A summary of the components of the provision for income taxes for
the years ended June 30, 1995, 1994 and 1993 is as follows:
1995 1994 1993
Current tax expense - Federal $ 324,021 646,448 837,044
Current tax expense - State 22,000 221,400 195,240
Deferred tax expense (benefit) (87,651) (72,364) 5,099
TOTAL $ 258,370 795,484 1,037,383
Total income tax expense for the year ended June 30, 1995 and 1994
was allocated as follows:
1995 1994
Earnings from operations $ 258,370 795,484
Stockholders' equity, for tax effect of
dividends on unallocated ESOP shares (50,070) (55,007)
TOTAL $ 208,300 740,477
Deferred income taxes reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting
purposes and such amounts measured by tax laws and regulations.
These "temporary differences" are determined in accordance with
Statement of Financial Accounting Standards No. 109 (see note 1(d)).
<PAGE>
The combined U.S. Federal and state effective income tax rates of
34.4%, 41.1% and 39.4% for 1995, 1994 and 1993, respectively,
differed from the statutory U.S. Federal income tax rate for the
following reasons:
1995 1994 1993
U.S. statutory tax rate 34.0% 34.0% 34.0%
Increase (reduction) in rate resulting from:
Dividends received deduction (.3) (.1) (.2)
State franchise tax, net of Federal income
tax benefit 1.9 7.6 4.9
Tax benefit of dividends paid to unallocated
ESOP shares - - (1.9)
Effect of limitation of deferred tax assets - - 3.0
Other (1.2) (.4) (.4)
Effective tax rate 34.4% 41.1% 39.4%
For the year ended June 30, 1995, deferred income tax benefit of
$87,651 results from the changes in temporary differences for the year.
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of June 30, 1995 and 1994 are
presented below:
1995 1994
Deferred tax liabilities:
Property, plant and equipment -
principally due to differences in
depreciation methods $ 543,396 593,091
Inventory - effect of uniform
capitalization 41,682 32,169
Total gross deferred tax liabilities 585,078 625,260
Deferred tax assets:
Common stock subscribed - due to
difference in interest recognition 478,466 430,997
Total gross deferred tax assets 478,466 430,997
Net deferred tax liability $ 106,612 194,263
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projection for future taxable income over
the period which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits
of these temporary differences without consideration of a valuation
allowance.
<PAGE>
The sources of deferred income taxes charged (credited) to earnings
in 1993 are as follows:
1993
Effect of uniform capitalization and inventory adjustments $ (18,750)
Accelerated depreciation for tax purposes 43,458
Interest income from ESOP for tax purposes (19,609)
TOTAL $ 5,099
The Company's Federal income tax returns have been audited and
accepted without change through June 30, 1989.
(9)Common Stock and Earnings Per Share
Earnings per share information is based on the weighted average
number of common shares outstanding during the respective periods.
The weighted average number of shares used in the computation was
1,346,757 in 1995, 1,350,708 in 1994 and 1,355,040 in 1993.
(10)Segment Reporting
A significant portion of the Company's business is the production of
electronic equipment for military use, with the U.S. Government and
its agencies being the largest customer and user. Sales were made to
the U.S. Government and its agencies on both a prime and subcontract
basis. Sales on a subcontract basis were made to both domestic and
foreign customers. Of the total sales approximately $7,816,000
in 1995, $13,578,000 in 1994, and $14,845,000 in 1993 represented
sales made on both a prime and subcontract basis to the U.S.
Government and its agencies. Sales of this nature on a subcontract
basis to two domestic customers and one foreign customer accounted
for 31.5%, 24.2%, and 16.2%, respectively, of total sales in 1995. Sales
of this nature on a subcontract basis to one domestic customer account
for 66.8% of total sales in 1994. Sales of this nature on a subcontract
basis to two domestic customers accounted for 59.7% and 15.8%,
respectively, of total sales in 1993.
Export sales in 1995 aggregated approximately $2,602,000. Export
sales in 1994 and 1993 were not significant.
(11)Related Transactions
Barry Pinsley, son of the Company's president, Sol Pinsley, received
from the Company approximately $54,000 in 1994 and $120,000 in
1993 for consulting services. On March 28, 1994, the arrangement for
consulting services was terminated and Barry Pinsley is now employed
as a vice-president of the Company.
(12)Stock Rights Plan
During 1989, the Company adopted a Shareholder Rights Plan in
which common stock purchase rights were distributed as a dividend at
the rate of one right for each share of common stock outstanding as
of or issued subsequent to April 14, 1989. Each right entitles the
holder thereof to buy one-half share of common stock of the Company
at an exercise price of $75 per share subject to adjustment. The rights
are exercisable only if a person or group acquires beneficial ownership
of 25% or more of the Company's common stock or commences a
tender or exchange offer which, if consummated, would result in the
offeror, together with all affiliates and associates thereof, being the
beneficial owner of 30% or more of the Company's common stock.
<PAGE>
If a 25% or larger shareholder should engage in certain self-dealing
transactions or a merger with the Company in which the Company is
the surviving corporation and its shares of common stock are not
changed or converted into equity securities of any other person, or
if any person were to become the beneficial owner of 30% or more
of the Company's common stock, then each right not owned by such
shareholder or related parties of such shareholder (all of which will be
void) will entitle its holder to purchase, at the right's then current
exercise price, shares of the Company's common stock having a value of
twice the right's exercise price. In addition, if the Company is involved
in any other merger or consolidation with, or sells 50% or more of its
assets or earning power to, another person, each right will entitle its
holder To purchase, at the right's then current exercise price, shares of
common stock of such other person having a value of twice the right's
exercise price.
The Company generally is entitled to redeem the rights at one cent
per right at any time until the 15th day (or 25th day if extended by
the Company's Board of Directors) following public announcement
that a 25% position has been acquired or the commencement of a
tender or exchange offer which, if consummated, would result in the
offeror, together with all affiliates and associates thereof, being the
beneficial owner of 30% or more of the Company's common stock.
(13)Employee Stock Ownership Plan
In 1989, the Company established an Employee Stock Ownership Plan
(ESOP) for eligible non-union employees. The ESOP used the
proceeds of a loan from the Company to purchase 316,224 shares of
the Company's common stock for approximately $8.4 million and the
Company contributed approximately $400,000 in 1989 to the ESOP
which was used by the ESOP to purchase an additional 15,000 shares
of the Company's common stock. Since inception of the Plan, the
ESOP has sold or distributed 17,729 shares of the Company's common
stock to pay benefits to participants. At June 30, 1995, the ESOP held
a total of 321,200 shares of the Company's common stock, of which
142,116 shares were allocated to participants in the Plan.
The loan from the Company to the ESOP is repayable in annual
installments of $1,039,605, including interest, through June 30, 2004.
Interest is payable at a rate of 9% per annum. The Company's
receivable from the ESOP is recorded as common stock subscribed
in the accompanying balance sheets.
Each year, the Company makes contributions to the ESOP which
are used to make loan payments. With each loan payment, a
portion of the common stock is allocated to participating employees.
In 1995, the Company's required contribution of $1,039,605 was
reduced by $126,072 which represents the dividends paid to the
unallocated ESOP shares. The resulting payment of $913,533
includes $432,590 classified as compensation expense. In 1994, the
Company's required contribution of $1,039,605 was reduced by
$138,679 which represents the dividends paid to the unallocated
ESOP shares. The resulting payment of $900,926 includes $419,983
classified as compensation expense. In 1993, the Company's
required contribution of $1,039,605 was reduced by $151,286 which
represents the dividends paid to the unallocated ESOP shares. The
resulting payment of $888,319 includes $407,376 classified as
compensation expense.
<PAGE>
(14)Quarterly Financial Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1995:
Net sales $4,161,569 2,814,595 3,496,584 4,101,349
Gross profit 614,354 293,631 267,462 324,403
Net earnings 174,765 33,407 74,149 209,446
Net earnings per share $ .13 .02 .06 .16
1994:
Net sales $4,500,088 4,371,411 1,989,770 3,817,034
Gross profit 970,794 751,934 587,038 556,342
Cumulative effect
of change in
accounting principle 201,653 - - -
Net earnings 645,254 257,737 223,401 217,485
Net earnings per share $ .48 .19 .17 .16
1993:
Net sales $3,839,887 3,671,476 4,079,151 3,616,407
Gross profit 1,341,527 771,270 703,802 682,474
Net earnings 719,996 322,747 327,173 224,374
Net earnings per share $ .53 .24 .24 .17
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors
Date Present Term Other Positions
expires and Period and Offices Held
Name Served as Director With Registrant Age
Joseph Canterino Annual Meeting in Vice President-
December 1995 Manufacturing 70
Director since
December 11, 1992
Paul J . Corr Annual Meeting in None 51
December 1996
Director since
April 3, 1992
William P. Greene Annual Meeting in None 65
December 1995
Director since
April 3, 1992
Barry Pinsley Annual Meeting in Vice President - 53
December 1996 Special Projects
Director since
March 25, 1994
Howard Pinsley Annual Meeting in Vice President-
December 1997 Special Power
Director since Supplies 55
December 11, 1992
Sol Pinsley Annual Meeting in President and Chief
December 1997 Executive Officer 82
Director since 1950
III-1
<PAGE>
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
Seymour Saslow Annual Meeting in Vice President- 74
December 1995 Engineering
Director since
December 11, 1992
Michael W. Wool Annual Meeting in None 49
December 1996
Director since 1990
(b) Identification of Executive Officers
Positions and
Offices Held Period Served As
Name With Company Executive Officer Age
Sol Pinsley President and President and Chief 82
Chief Executive Executive Officer for
Officer and more than the past five
Director years; Treasurer from
August 4, 1988 to
September 10, 1993
Seymour Saslow Vice President- Since April 3, 1992 74
Engineering and Director
Joseph Canterino Vice President - Manu- Since April 3, 1992 70
facturing and Director
Howard Pinsley Vice President - Special Since April 3, 1992 55
Power Supplies and Director
Barry Pinsley Vice President-Special Since March 25, 1994 53
Projects and Director
Herbert Potoker Treasurer and Principal Since September 10, 66
Financial Officer 1993
Garry M. Jones Assistant Treasurer Since August 4, 1988 55
and Principal Accounting Principal Financial
Officer Officer from August 4,
1988 to September 10,
1993
III-2
<PAGE>
Each officer's term of office is at the will of the Board of
Directors, subject to the employment contract rights of Sol Pinsley. See
Item 11(a).
(c) Not applicable.
(d) Sol Pinsley is the father of Barry Pinsley and uncle of
Howard Pinsley. Barry Pinsley and Howard Pinsley are cousins. Howard Pinsley
and Herbert Potoker are cousins.
(e) Sol Pinsley has been for more than the past five years
engaged on a full time basis as the President and Chief Executive Officer of
the Company. For more than the past five years, Seymour Saslow was employed by
the Company on a full time basis as Director of Engineering prior to being
elected Vice President-Engineering on April 3, 1992. Joseph Canterino for more
than the past five years was employed by the Company on a full-time basis as
Plant Manager prior to being elected Vice President-Manufacturing on April 3,
1992. Howard Pinsley for more than the past five years was employed by the
Company on a full time basis as Program Director prior to being elected Vice
President - Special Power Supplies, on April 3, 1992. Herbert Potoker for more
than the past five years was employed by the Company on a full time basis in a
senior financial management position prior to being elected Treasurer and
Principal Financial Officer on September 10, 1993. Mr. Potoker previously had
been the Treasurer and Principal Financial and Accounting Officer of the
Company until August 4, 1988. Garry M. Jones for more than the past five years
was employed by the Company on a full time basis as Senior Accountant prior to
being elected Assistant Treasurer and Principal Financial and Accounting
Officer on August 4, 1988. Barry Pinsley is a Certified Public Accountant who
for five years acted as a consultant to the Company prior to his election as a
Vice President-Special Projects on March 25, 1994. Since 1975 to date, he has
been a practicing Certified Public Accountant in Saratoga Springs, New York.
Paul J. Corr is a Certified Public Accountant, who, from 1982 to 1993, was the
managing partner of Corr & Company, a diversified public accounting firm in
Latham, New York. He is currently the senior partner. Since 1981 to date, he
has been Assistant Professor of Business at Skidmore College in Saratoga
Springs, New York. William P. Greene from 1994 to present, employed as Vice
President of Operations, Bulk Materials International Co., Newton, Conn.; from
1991 to 1994 was Associate Professor of Finance and International Business at
Pennsylvania State University, Kutztown, Pennsylvania. From 1985 to 1990, he
was Associate Dean at the School of Business, United States International
University in San Diego, California; from 1982 to 1985, he was Chairman,
Department of Business, Skidmore College, Saratoga Springs, New York; prior to
that time, he had been employed as an officer with financial institutions.
Michael W. Wool has been an attorney in private practice and a partner in the
law firm presently known as Langrock, Sperry & Wool in Burlington, Vermont.
None of the directors holds a directorship in any other
company with a class of securities registered pursuant to Section 12 of the Ex
change Act or subject to the requirements of Section 15(d) of that Act or any
company registered as an Investment company under the Investment Company Act of
1940.
(f) None of the directors or executive officers of the
Company were involved during the past five years in any of the legal
proceedings specified under Item 401(f) of Regulation S-K.
III-3
<PAGE>
Item 11. Executive Compensation.
(a) Executive Compensation Table. The following table
summarizes the annual compensation of the Company's Chief Executive Officer for
fiscal years 1995, 1994 and 1993 and of the other five highest paid executive
officers of the Company who were such as of June 30, 1995 and for each of the
two prior fiscal years that they were executive officers for any part of such
years:
SUMMARY COMPENSATION TABLE
Name and Fiscal Annual Compensation All Other
Principal Position Year Salary Bonus Compensation(1)
Sol Pinsley 1995 $189,000 $25,000 $ 9,968
President and Chief 1994 $189,000 $25,000 $11,661
Executive Officer 1993 $192,100 $25,000 $10,416
Seymour Saslow 1995 $108,000 $25,000 $10,393
Vice President- 1994 $108,000 $25,000 $12,553
Engineering 1993 $109,600 $25,000 $ 9,817
Joseph Canterino 1995 $ 98,280 $25,000 $11,320
Vice President - 1994 $ 98,280 $25,000 $12,780
Manufacturing 1993 $ 99,700 $25,000 $ 9,945
Howard Pinsley 1995 $ 90,450 $12,000 $11,042
Vice President - 1994 $ 90,450 $12,000 $12,544
Special Power 1993 $ 91,725 $10,000 $ 6,229
Supplies
Herbert Potoker 1995 $100,280 $25,000 $ 9,320
Treasurer and 1994 $101,280 $25,000 $10,280
Principal Financial Officer
Barry Pinsley 1995 $ 79,500 $10,000 $ 8,083
Vice President
Special Projects
The executive officers of the Company are covered under group life and
medical and health plans which do not discriminate in favor of the officers or
directors of the Company and which are available generally to all salaried
employees.
(1) Represents (a) the cash and market value of the shares allocated
for the respective fiscal years under the Company's Employee Retirement Plan
and Trust ("ESOP") to the extent to which each named executive officer is
vested, and (b) directors' fees except for Mr. Potoker.
III-4
<PAGE>
Under the Company's Employee Retirement Plan and Trust ("ESOP"),
approved by the Board of Directors on June 2, 1989, effective July 1, 1988, all
non-union employees of the Company, including the Company's executive officers,
five of whom, Sol Pinsley, Seymour Saslow, Joseph Canterino, Barry Pinsley and
Howard Pinsley, are directors of the Company, are eligible to participate. The
ESOP is a non-contributory plan which is designed to invest primarily in shares
of common stock of the Company. Reference is made to, and there is
incorporated by reference, the description of the ESOP, its implementation and
pertinent documents attached as exhibits in the Company's Form 8-K dated
June 16, 1989, filed with the Commission on June 20, 1989, and to the
amendments thereto filed as an Exhibit to the 10-K Report for the fiscal year
ended June 30, 1991. Certain technical amendments not considered material were
adopted during the year effective as of June 30, 1994.
Of the 124,387.55 shares of common stock of the Company
allocated to participants of the ESOP as of June 30, 1995, 2,140.12 shares were
allocated to Sol Pinsley, 3,845.12 each were allocated to Joseph Canterino and
Herbert Potoker, 3,526.14 shares were allocated to Howard Pinsley, 3,655.12 sha
res were allocated to Seymour Saslow and 467.94 shares were allocated to Barry
Pinsley.
(b) Compensation of Directors. The Company's standard
arrangement compensates each director of the Company a fee in the amount of
$500 for each meeting of the Board of Directors attended by such director. No
amount in excess of such fee per meeting of the Board of Directors was paid to
any director during the last fiscal year for services as a director. However,
three directors, Michael Wool, Paul J. Corr and William P. Greene were each
paid an additional $500 per meeting for services on the Audit Committee, for
which there were three meetings. Albert Braim, who was a director until his
death on October 20, 1994, was paid $19,000 for legal services rendered to the
Company for the fiscal year ended June 30, 1995. Paul J. Corr was paid $500
for consulting services for the fiscal year ended June 30, 1995. William P.
Greene was paid $1,000 for services as an additional plan administrator of the
Company's ESOP for the fiscal year ended June 30, 1995. Langrock, Sperry &
Wool, of which Michael W. Wool is a partner, was paid $51,300 for legal services
for the fiscal year ended June 30, 1995. The Summary Compensation Table under
Item 11(a) includes under "All Other Compensation" for Sol Pinsley, Seymour
Saslow, Joseph Canterino and Howard Pinsley and Barry Pinsley, the above
mentioned fee per meeting of the Board paid to such named executive officers.
(c) Employment Contracts and Termination of Employment and
Change in Control Agreements. There has been in effect since July 1, 1973 a
full time employment contract with Sol Pinsley, President, Chief Executive
Officer and a Director.
The most recent employment contract was entered into by the Company with Mr.
Pinsley on June 12, 1995 pursuant to prior authorization given by the Board of
Directors on March 24, 1995. This employment contract which was approved and
ratified by the Board of Directors on June 17, 1995 is dated and effective as
of January 1, 1995 for a term expiring December 31, 1998, and covers Mr.
Pinsley's employment as President (or Chairman of the Board) and Chief
Executive Officer and also as a non-executive officer employee should Mr.
Pinsley elect to become a non-executive officer employee. The agreement
provides a minimum base annual compensation of $182,000 for each calendar year
commencing 1995 and the Board of
III-5
<PAGE>
Directors in its discretion may increase such compensation for any calendar
year and/or award Mr. Pinsley a bonus for any calendar year. The foregoing
compensation is to be reduced by $40,000 per annum in the event Mr. Pinsley
elects to become a non-executive officer employee. The employment agreement
further provides that in the event of his disability the foregoing compensation
shall continue to be paid to Mr. Pinsley until the expiration date of the
agreement, and, in the event of his death, such compensation shall be paid to
his estate until the expiration date of the agreement or 187 days after his
death, whichever is later. The agreement provides for (i) a restrictive
covenant of non-competition by Mr. Pinsley and (ii) his covenant not to divulge
or use other than for the registrant confidential information concerning the
registrant, during and for 18 months after the expiration date of the agreement.
III-6
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners. The
following information is furnished as of September 19, 1995 (unless otherwise
indicated) with respect to any person (including any "group" as that term is
used in Section 13(d)(3) of the Act) who is known to the Company to be the
beneficial owner of more than five percent of any class of the Company's voting
securities:
(1) (2) (3) (4)
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
Common Stock Sol Pinsley 80,261 -Direct (a) 5.995%
$.333p.v. P.O. Box 422 2,140.12 -Indirect (a) .1598%
Saratoga Springs,
NY 12866
" The Entwistle Co. 151,400 -Direct (b) 11.309%
Bigelow Street
Hudson, MA 01749
" Tweedy Browne Company L.P.
52 Vanderbilt Avenue
New York, NY 10017 85,500 -Direct (c) 6.386%
" Dimensional Fund 75,100 -Direct (d) 5.609%
Advisors Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
III-7
<PAGE>
(1) (2) (3) (4)
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
Common Stock The Adirondack Trust 308,788 -Direct (e) 23.065%
$.333 p.v. Company, as Trustee
473 Broadway
Saratoga Springs,
NY 12866
(a) Does not include 4,200 shares of common stock of the Company owned by
the Estate of the spouse of Sol Pinsley, beneficial ownership of which is
disclaimed by Mr. Pinsley. The shares listed as indirectly owned by Sol Pinsley
are the shares allocated to him as of June 30, 1995 as a participant in the
Company's ESOP. Mr. Pinsley has the right under the ESOP to direct the
manner in which such shares allocated to him are to be voted by the ESOP Trust.
(b) This information is from Amendment No. 10 to Schedule 13D Report dated
September 11, 1990 filed with the Commission by The Entwistle Company.
According to Form 3 dated April 30, 1991 filed with the Commission on behalf of
Herbert I. Corkin, Mr. Corkin is a controlling person of the Entwistle Company
and thus indirectly beneficially owns such 151,4000 shares, and Mr. Corkin also
owns 24% of the stock of Global Securities which is reported to own 68,000
shares of the Company, beneficial ownership of which is disclaimed by Mr.
Corkin.
(c) This information is from the Amendment No. 1, dated March 24, 1995 to
Form 13D, dated March 14, 1995 both of which were filed with the Commission by
Tweedy Browne Company L.P.
(d) This information is from the Schedule 13G Report dated January 30, 1995
filed with the Commission by Dimensional Fund Advisors Inc. has informed the
Company by letter dated February 9, 1995 that it disclaims beneficial ownership
of all such shares.
(e) This information is from the Form 4 dated August 24, 1995, filed with the
Commission by said Trustee on behalf of the Company's Employee Retirement Plan
and Trust ("ESOP"). The ESOP Trustee has sole voting power with respect to un
allocated common shares owned by the Trust, 189,108 shares as of August 24, 19
95, as directed by the Plan Administrator appointed by the Company's Board of
Directors. As to the common shares allocated to participants, 119,680 shares
as of August 24, 1995, the ESOP Trustee has the power to vote such shares as
directed by such Plan Administrator to the extent the participants do not
direct the manner in which such shares are to be voted.
III-8
(b) Security Ownership of Management. The following information
is furnished as of September 19, 1995 (unless otherwise indicated), as to each
class of equity securities of the Company beneficially owned by all the
Directors and by Directors and Officers of the Company as a Group:
(1) (2) (3) (4)
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
Common Stock
$.333 p.v. Paul J. Corr 500 -Direct .0373%
" William P. Greene None 0
" Michael W. Wool None 0
" Sol Pinsley 80,261 -Direct (a) 5.995% (a)
2,140.12 -Indirect (b) .1598% (b)
" Seymour Saslow None -Direct 0
3,655.12 -Indirect (b) .273% (b)
" Joseph Canterino 7,500 -Direct .56%
3,845.12 -Indirect (b) .2872% (b)
" Howard Pinsley 39,134 -Direct 2.923%
3,526.14 -Indirect (b) .2633% (b)
" Barry Pinsley 3,000 -Direct (c) .224% (c)
467.94 -Indirect (b) .0349% (b)
" Herbert Potoker 6,490 -Direct (d) .4847% (d)
3,845.12 -Indirect (b) .2872% (b)
" Officers and Directors 134,385 -Direct (e) 10.038% (e)
as a Group 20,361.35 -Indirect (f) 1.5209% (f)
(a) The Estate of Ruth Pinsley, the deceased spouse of Mr. Sol Pinsley,
beneficially owns 4,200 shares of common stock of the Company, beneficial
ownership of which is disclaimed by Mr. Pinsley. Mr. Barry Pinsley is executor
of the estate.
III-9
<PAGE>
(b) Allocated respectively as of June 30, 1995 to Messrs. Sol Pinsley, Barry
Pinsley, Seymour Saslow, Joseph Canterino, Herbert Potoker and Howard Pinsley
as participants in the Company's ESOP and as to which such shares each such
person has the right to direct the manner in which such shares allocated to him
are to be voted by the ESOP Trust.
(c) The spouse of Barry Pinsley and his children, respectively, beneficially
own 1,300 and 900 shares of common stock of the Company, beneficial ownership
of which is disclaimed by Mr. Pinsley.
(d) The spouse of Herbert Potoker beneficially owns 300 shares of common
stock of the Company, beneficial ownership of which is disclaimed by Mr. Potoker
(e) See footnotes (a), (c), and (d).
(f) Allocated as of June 30, 1995 to all officers, five of whom are
directors, as participants in the Company's ESOP, and as to which allocated
shares the respective officers and directors each has the right to direct the
manner in which such shares are to be voted by the ESOP Trustee.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and others. For the fiscal
year ended June 30, 1995, Christopher Canterino, who is a full time employee of
the Company and the son of Joseph Canterino, received compensation as such
employee of $77,100.
As previously reported, the Company established and sold to the ESOP
Trust on June 5, 1989, 331,224 shares of the Company's treasury stock at a
price of $26.50 per share, which purchase price was funded by the Company
making a cash contribution and loan. Each year, the Company makes
contributions to the ESOP which are used to make loan interest and principal
payments to the Company. With each such payment, a portion of the common stock
held by the ESOP is allocated to participating employees. As of June 30, 1995,
there were 124,387.55 shares allocated to participants. The loan from the
Company to the ESOP is repayable in annual installments of $1,039,605,
including interest, through June 30, 2004. Officers of the Company, including
five (Sol Pinsley, Seymour Saslow, Joseph Canterino, Howard Pinsley and Barry
Pinsley) who are directors, are eligible to participate in
III-10
<PAGE>
the ESOP and to have shares and cash allocated to their accounts and
distributed to them in accordance with the terms of the ESOP.
As previously reported in the Company's Report on Form 8-K dated August
18, 1992, the Company purchased on July 29, 1992 in a private transaction at
the negotiated price of $15 per share; all cash, an aggregate of 33,618 shares
of its common stock from the Estate of Frieda Pinsley which was sold by the
Estate on behalf of the grandchildren legatees of such shares bequeathed in
the will of ieda Pinsley. Mrs. Pinsley had been a director and officer of the
Company, and the Executor of her Will, her son, Howard Pinsley, is an executive
officer and director of the Company and a nephew of Sol Pinsley, the Company's
president.
(b), (c) and (d). Not applicable.
III-11
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART IV
Item 14.Exhibits,
Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
Included in Part II of this report:
Independent Auditors' Report
Balance Sheets at June 30, 1995 and 1994
Statements of Earnings for the years ended June 30, 1995, 1994 and 1993
Statements of Changes in Stockholders' Equity for the years ended June 30,
1995, 1994 and 1993
Statements of Cash Flows for the years ended June 30, 1995, 1994 and
1993
Notes to Financial Statements
2. Financial Statement Schedules
Included in Part IV of this report:
Schedule II- Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
3. Exhibits
(i)Statement re: computation of per share earnings
(b)Reports on Form 8-K
The Company filed a report on Form 8-K during the 4th quarter of the period
covered by this report. The report was filed on June 13, 1995. On June 12,
1995, pursuant to authorization by the Board of Directors, the Company
entered into an employment contract with Sol Pinsley, as President and
Chief Executive Officer, dated and effective January 1, 1995 for a term
expiring December 31, 1998.
IV-1
<PAGE>
Schedule II
ESPEY MFG. & ELECTRONICS CORP.
Valuation and Qualifying Accounts
Years ended June 30, 1995, 1994 and 1993
Balance at Additions Deductions Balance at
beginning to from end of
Description of period reserve reserve period
Allowance for
doubtful accounts:
1995 $ 3,000 - - 3,000
1994 $ 3,000 - - 3,000
1993 $ 3,000 - - 3,000
Allowance for unrealized
losses on marketable
equity securities:
1995 $ - - - -
1994 $ - - - -
1993 $ - - - -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Computation of per Share Earnings as
Disclosed in Item 14 of Form 10-K
Five years ended June 30, 1995
1995 1994 1993 1992 1991
Computation of
earnings per share:
Number of shares
issued at
beginning of year 1,514,937 1,514,937 1,514,937 1,514,937 1,514,937
Monthly weighted
average number
of treasury shares (168,180) (164,229) (159,897) (119,786) (104,458)
Weighted average
number of primary
shares outstanding 1,346,757 1,350,708 1,355,040 1,395,151 1,410,479
Net earnings $ 491,767 1,343,877 1,594,290 1,885,208 2,534,250
Per share $ .37 1.00 1.18 1.35 1.80
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of section 13 and 15 (d) 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.
ESPEY MFG. & ELECTRONICS CORP.
Sol Pinsley, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Sol Pinsley
President and Director
(Principal Executive Officer)
20 September 1995
Herbert Potoker
Treasurer
(Principle Financial Officer)
20 September 1995
Garry M. Jones
Assistant Treasurer
(Principle Accounting Officer)
20 September 1995
Howard Pinsley
Vice President and Director
20 September 1995
Barry Pinsley
Vice President and Director
20 September 1995
Joseph Canterino
Vice President and Director
20 September 1995
Seymour Saslow
Vice President and Director
20 September 1995
Michael W. Wool
Director
20 September 1995
Paul J. Corr
Director
20 September 1995
William P. Greene
Director
20 September 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE YEAR ENDING JUNE-30-1995 10-K FILING AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,699,215
<SECURITIES> 10,554,464
<RECEIVABLES> 1,946,405
<ALLOWANCES> 0
<INVENTORY> 10,248,325
<CURRENT-ASSETS> 25,143,909
<PP&E> 11,464,636
<DEPRECIATION> 7,868,827
<TOTAL-ASSETS> 28,839,718
<CURRENT-LIABILITIES> 983,401
<BONDS> 0
<COMMON> 504,979
0
0
<OTHER-SE> 27,320,641
<TOTAL-LIABILITY-AND-EQUITY> 28,408,150
<SALES> 14,574,097
<TOTAL-REVENUES> 14,574,097
<CGS> 13,074,247
<TOTAL-COSTS> 13,074,247
<OTHER-EXPENSES> 1,475,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 750,137
<INCOME-TAX> 258,370
<INCOME-CONTINUING> 491,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 491,767
<EPS-PRIMARY> .37
<EPS-DILUTED> 0
</TABLE>
