UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[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, 1997
[ ] 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)
233 Ballston Avenue, 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 $.33-1/3 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 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $13,175,490.71 as of September 19, 1997 based upon the closing
sale price of $16 5/8 on the American Stock Exchange on September 19, 1997.
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, 1997
Common Stock, $.33-1/3 par value 1,111,220
<PAGE>
PART I
Item 1. Business.
General
Espey Mfg. & Electronics Corp. (the "Company") was incorporated in 1928.
The Company presently operates a one segment business. A significant portion of
the Company's business is the production of military and industrial electronic
equipment for use by the United States Government, its agencies, and certain
industrial customers.
In fiscal year ended June 30, 1997 (referred to herein as "1997"), the
Company's total sales were $15,166,075. Sales made to the United States
Government and its agencies are primarily on a subcontract basis. Sales to two
domestic customers accounted for 19.9% and 61.4%, respectively, of total sales
in 1997. Sales to two domestic customers and one foreign customer accounted for
28.9%, 22.8% and 17.8%, respectively, of total sales in 1996. Sales to two
domestic customers and one foreign customer accounted for 31.5%, 24.2% and
16.2%, respectively, of total sales in 1995.
Export sales in 1997 were not significant. Export sales in 1996 and 1995
aggregated approximately $3,073,000 and $2,602,000, respectively.
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. In other cases, the
Company is responsible for both the overall design and manufacture of the
product. The Company does not generally manufacture standardized components.
The electronic power supplies and components manufactured by the Company
find application principally in (i) computers, (ii) aircraft, shipboard and land
based radar, (iii) missile guidance and control systems, (iv) short, medium
range and global communication systems, (v) navigation systems for aircraft,
(vi) nuclear submarine control systems, (vii) locomotives, and (viii) land-based
military vehicles. The electronic systems manufactured by the Company include
antenna systems and high power radar transmitters. These systems utilize the
Company's own electronic power supplies, transformers, and other iron-core
components and mechanical assemblies. The Company's iron-core components
include (i) transformers of the audio, power and pulse types, (ii) magnetic
amplifiers, and (iii) audio filters.
2
<PAGE>
The following tabulation shows the percentage of the Company's total sales
represented by sales of each class of similar products during one or more of the
last three fiscal years.
Fiscal Year Ended June 30
1997 1996 1995
Electronic Power Supplies 82% 81% 84%
Iron-Core Components 11% 15% 11%
Electronic Systems and Assemblies 7% 4% 5%
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, 1997
was approximately $9,037,000 as compared to approximately $16,297,000 as of
June 30, 1996. This decrease resulted primarily from the consolidation and
relocation of the facilities and personnel of one of the Company's major
customers. The transition stage of this consolidation has caused delays in both
ongoing and newly proposed programs. At the present time, the Company does not
know what effect, if any, this will have on the receipt of currently pending new
business from this customer. The Company is hopeful that any further delays
will be minimal.
It is presently anticipated that a minimum of $8,000,000 of orders
comprising the June 30, 1997 backlog will be filled during the fiscal year
ending June 30, 1998. This is in addition to any shipments which may be made
against orders subsequently received during the fiscal year ending June 30,
1998. The forward-looking estimate of the firmness of the 1997 backlog to be
shipped is subject to future events which may cause the amount of the backlog
actually shipped to change.
3
<PAGE>
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.
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 United States 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 and
sales representatives.
There is competition in all classes of products manufactured by the
Company, 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 Company. The principal methods of competition for electronic products of
both a military and industrial nature 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 has increased its expenditures for research and development
over the past three fiscal years. In 1997, approximately $223,000 was expended
for this type of effort. In 1996 and 1995, the Company spent $205,000 and
$141,000, respectively, on research and development. 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, 1997 was
166.
4
<PAGE>
Government Regulations
Compliance with federal, state and local provisions that have been enacted or
adopted to regulate the discharge of materials into the environment, or
otherwise relating to the protection of the environment, did not in 1997, and
the Company believes will not in fiscal year ending June 30, 1998 or the
succeeding fiscal year, have a material effect upon the capital expenditures,
earnings or competitive position of the Company.
Item 2. Properties.
The Company's principal manufacturing and all of its engineering facilities
are at its plant in Saratoga Springs, New York, which the Company owns. 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, New York.
The Saratoga Springs plant was originally constructed about 1900 and
consists of various closely adjoining one-story buildings. The plant has a
sprinkler system throughout and contains 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 area 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 fiscal year 1995,
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 Automatic
Data Processing Center is also 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 9, 2001.
5
<PAGE>
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Price Range of Common Stock
The table below shows the range of high and low prices for the Company's
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:
1997 High Low
First Quarter 15 7/8 15 5/8
Second Quarter 17 7/8 14 5/8
Third Quarter 19 1/4 15 1/2
Fourth Quarter 18 1/8 17
1996 High Low
First Quarter 16 1/4 14 1/4
Second Quarter 14 1/2 13 3/8
Third Quarter 14 1/4 12 7/8
Fourth Quarter 14 1/4 13 3/4
Holders
The approximate number of holders of the common stock was 209 on
September 19, 1997. 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.
6
<PAGE>
Dividends
On September 19, 1997 the Board of Directors declared a cash dividend of $.70
per share to be paid on November 21, 1997 to shareholders of record on October
24, 1997. The Company paid a cash dividend on the common stock of $.70 per
share for its fiscal year ended June 30, 1996 and $.70 per share for its fiscal
year ended June 30, 1995.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
ESPEY MFG. & ELECTRONICS CORP.
Five Years Ended June 30, 1997
Selected Income Statement Data
Year ended June 30,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ 15,166,075 16,800,200 14,574,097 14,678,303 15,206,921
Operating income 342,177 209,226 24,064 1,502,470 2,234,782
Other income, net 525,046 575,006 726,073 435,238 396,891
Cumulative effect of change in
accounting principle -- -- -- 201,653 --
Net earnings 563,128 522,737 491,767 1,343,877 1,594,290
Earnings per common share:
Earnings before cumulative
effect of change in
accounting principle $ .51 .41 .37 .85 1.18
Cumulative effect of change in
accounting principle -- -- -- .15 --
Net earnings $ .51 .41 .37 1.00 1.18
Selected Balance Sheet Data
Year ended June 30,
1997 1996 1995 1994 1993
Current assets $ 21,819,899 21,499,805 25,243,909 25,364,435 24,160,510
Current liabilities 599,180 623,908 983,401 722,170 681,101
Working capital 21,220,719 20,875,897 24,260,508 24,642,265 23,479,409
Total assets 25,199,951 24,950,043 28,839,718 28,474,536 27,608,660
Long-term liabilities (deferred
income taxes) -- -- 30,697 124,619 446,934
Stockholders' equity 24,600,771 24,326,135 27,825,620 27,627,747 26,480,625
Cash dividends declared and
paid per common share $ .70 .70 .60 .60 .60
7
<PAGE>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
The Company presently operates a one segment manufacturing business. It
principally manufactures power supplies and components for military and
industrial use. Sales volume is primarily dependent 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, 1997, 1996, and 1995 were $15,166,075,
$16,800,200, and $14,574,097, respectively. This decrease in sales resulted
primarily from the consolidation and relocation of the facilities and personnel
of one of the Company's major customers. This consolidation has caused delays
in both ongoing and newly proposed programs.
The corresponding cost of sales during these fiscal years were 86%, 89%,
and 90%, respectively. Although sales in 1997 decreased by approximately 10%
over the previous year, the gross profit percentage increased. Many of the
contracts shipped in the fiscal year called for a somewhat higher gross profit
margin than those shipped in the prior year. As a result, cost of sales for the
current period dropped to 86% compared to the 89% reflected last year. This
factor was the primary reason for the increase in net profits, although there
was a decrease in sales. A pretax write-off of $385,000 relating to
inventory was taken in the fourth quarter. This write-off caused the net
loss per share during the current fourth quarter.
Selling, general and administrative expenses increased approximately
12% for the 1997 fiscal year. This is primarily due to the transfer of a high
level employee from a manufacturing position to an administrative position, in
addition to an increase in legal expenses through the Company's efforts to
obtain patents on a number of its products. Earnings before income taxes
increased in 1997 to $867,223 from $784,237 in 1996. Net earnings per share
increased to $.51 from $.41.
8
<PAGE>
The Company's inventories have decreased from $11,033,346 to $8,201,875. As
noted above, this decrease resulted primarily from the reduction of the
Company's backlog. The change in the ratio of work-in-process to costs relating
to contracts in process is primarily attributable to the allocation of
approximately $2,300,000 to a project for one customer in contemplation of the
execution of a contract. The execution of a firm contract with this customer
would bring the ratio to its fiscal year 1996 level.
Negotiations with the customer are in progress; however, there is no guarantee
that the contract will be signed.
Business Outlook
Customer order patterns are inherently difficult to predict. As previously
disclosed, one of the Company's major customers has announced the consolidation
and relocation of several of its facilities and various personnel. The
transition stage of this consolidation has caused delays in both ongoing and
newly proposed programs. At the present time, the Company does not know what
effect, this will have on the receipt of currently pending new business from
this customer. The Company is hopeful that any further delays will be minimal.
The Company believes that in the long term it will continue to obtain contracts
consistent with its past experience as a result of the Company's projected
customer base. The Company currently has outstanding quotations
well in excess of $30,000,000 for both repeat and new programs, in addition to
increase option clauses in various existing contracts. Whether these quotations
and options will result in firm contracts will depend on the outcome of the
consolidation mentioned above and certain competitive factors. There can be no
assurance that the Company will acquire contracts consistent with past
experience since such a forward-looking statement is subject to future events
and market conditions which may affect the number of firm contracts acquired.
As was the case in fiscal 1996, the Company has been accepting orders with
reduced profit margins because of the increasingly competitive nature of the
marketplace. The Company is making efforts to resolve this situation by
expanding its efforts to develop technologies and products of a more proprietary
nature for sale in the commercial and military marketplace. The Company's
efforts and investment in the advancement and refinement of both military and
industrial technologies has resulted in the Company receiving notices of
allowability for the following three patents: (i) Dental Implant for promoting
bone growth, (ii) "Quiet" transformer for Naval application, and (iii) Dual
Dipole Antenna for military communications applications. Current demographics
indicate a need for the products for which the Company has received patents,
particularly in the military marketplace, as well as a worldwide need for the
Company's long-range radar transmitters and components for high power AC
locomotives. The management currently anticipates that the course of action the
Company has taken will enhance the Company's revenues and profitability in
future periods based on these indicated needs.
9
<PAGE>
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 currently anticipate that
it will borrow any funds during fiscal year 1998.
The Company's working capital for fiscal years ended June 30, 1997, 1996, and
1995 was $21,220,719, $20,875,897, and $24,260,508, respectively. The principal
reason for the decrease in working capital between 1996 and 1995 was the
repurchase by the Company of its common stock during 1996 in the total amount of
$3,696,340. On March 7, 1996, the Company purchased a combined total of 219,400
shares of common stock from the Entwistle Company and Global Securities at a
total cost of $3,620,100. In addition, the Company purchased 7,426 shares of
common stock from the Company's ESOP during 1997 for a total purchase price of
$116,031. Under existing authorizations, as of August 31, 1997, funds in the
amount of $1,884,000 were available for the continuing repurchase of the
Company's shares of common stock.
In the statement of cash flows, the increasein net cash provided by operating
activities between fiscal years 1996 and 1997 was due primarily to a decrease in
material purchases in keeping with the reduction in the Company's current
backlog. The decrease in net cash provided by investing activities between
fiscal years 1996 and 1997 was a result of the decrease in the investment base
for the purchase of the Company's common stock as set forth in paragraph above.
The Company's combined investment in both short-term investments and
marketable investment securities was (i) $12,226,531 as of June 30, 1993,
(ii) $13,290,888 as of June 30, 1994, (iii) $12,022,004 as of June 30, 1995,
(iv) $7,505,507 as of June 30, 1996, and (v) $10,706,782 as of June 30, 1997.
The short-term investments consisted of Certificates of Deposit and United
States Treasury Bills. During fiscal years 1993 through 1997, interest rates on
short-term investments ranged from 6.00% to 2.10%.
This factor accounts, along with the changes in the overall balances of
short-term investments and marketable investment securities, for the fluctuation
of interest income during much of the five-year period. Interest income was
$718,785 in fiscal 1995, $556,565 in fiscal 1996, and $514,822 in fiscal 1997.
Interest income in fiscal 1996 and 1997, however, was affected by the decrease
in the Company's investment base arising from the capital expenditures of
$1,080,000 in 1995 and purchase of the Company's common stock in the amount of
$3,696,340 during fiscal 1996 as set forth above. A majority of the Company's
investment base is represented by Certificates of Deposit, United States
Government Treasury Securities and a Money Market account. Consequently, the
Company does not feel that there is any significant risk associated with its
investment policy.
10
<PAGE>
Management feels that the Company's reserve for bad debts of $3,000 is
adequate, since given the customers with whom the Company deals, particularly
the United States Government and its agencies, the amount of bad debts over the
years has been minimal.
The Company does not currently offer, nor does management currently
contemplate offering in the future, any post-retirement or employment benefits.
Consequently, no accruals or liabilities have been provided for in the financial
statements.
During fiscal year 1997, the Company expended approximately $353,000 for plant
improvements and new equipment. The Company plans to expend approximately
$400,000 for new equipment and plant improvements in fiscal 1998. Management
presently anticipates that the funds required will be available from current
operations.
Changes in Accounting Principles and Policies
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 set forth in Item 8 of this
Annual Report.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", as of July 1, 1995, the effects of
which are described in the Notes to the Financial Statements set forth in Item 8
of this Annual Report. The adoption of this accounting standard had no effect
on the financial position or results of operations of the Company.
Other Matters
An Employee Retirement Plan and Trust ("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, 1997, there were 152,451 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.
11
<PAGE>
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. In 1997 and 1996,
7,426 and 5,402 shares of the Company's common stock, respectively, was
purchased from the ESOP, representing distributions taken by participants.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
It should be noted that certain statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements represent the
Company's current expectations or beliefs concerning future events. The matters
covered by these statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those set forth in the
forward-looking statements, including the Company's dependence on timely
development, introduction and customer acceptance of new products, the impact of
competition and price erosion, as well as supply and manufacturing constraints
and other risks and uncertainties. The foregoing list should
not be construed as exhaustive, and the Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made.
12
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . 14
Balance Sheets at June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . 15
Statements of Earnings for the years ended June 30, 1997, 1996 and 1995 . . 17
Statements of Changes in Stockholders' Equity for the years ended June 30,
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . ....... . . . . . 18
Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 . 19
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 20
13
<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 schedule 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, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1997, 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.
/s/ KPMG Peat Marwick LLP
Albany, New York
August 29, 1997
14
<PAGE>
[CAPTION]
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
June 30, 1997 and 1996
<TABLE>
Assets 1997 1996
<S> <C> <C>
Current assets:
Cash $1,416,801 1,112,767
Short-term investments, at cost (market value -
$10,746,731 in 1997 and $4,577,305 in 1996) 10,706,782 4,484,312
Total cash and short-term investments 12,123,583 5,597,079
Marketable investment securities (note 2) -- 3,021,195
Trade accounts receivable, net of $3,000 allowance
in 1997 and 1996 1,142,599 1,556,404
Other receivables 21,231 18,177
Net receivables 1,163,830 1,574,581
Inventories:
Raw materials and supplies 449,416 499,900
Work in process 3,225,657 1,561,742
Costs relating to contracts in process
(notes 3 and 4) 4,526,802 8,971,704
Net inventories 8,201,875 11,033,346
Deferred income taxes (note 8) 137,758 796
Prepaid expenses and other current assets 192,853 272,808
Total current assets 21,819,899 21,499,805
Deferred income taxes (note 8) 74,671 9,088
Property, plant and equipment, at cost (note 5) 12,043,850 11,813,137
Less accumulated depreciation (8,738,469) (8,371,987)
Net property, plant and equipment 3,305,381 3,441,150
$ 25,199,951 24,950,043
</TABLE>
15
(Continued)
<PAGE>
[CAPTION]
<TABLE>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
June 30, 1997 and 1996
<S> <C> <C>
Liabilities and Stockholders' Equity 1997 1996
Current liabilities:
Accounts payable $ 245,803 158,631
Accrued expenses:
Salaries, wages and commissions 107,640 116,351
Employee insurance costs 40,573 54,739
Other 8,994 17,440
Payroll and other taxes withheld and accrued 47,564 156,890
Income taxes payable 148,606 119,857
Total current liabilities 599,180 623,908
Stockholders' equity:
Common stock, par value $.33-1/3 per share
(note 11) Authorized 2,250,000 shares;
issued 1,514,937 shares in 1997 and 1996 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 24,148,405 24,316,400
35,149,671 35,317,666
Less:
Common stock subscribed (note 12) (3,910,636) (4,469,299)
Cost of 403,717 shares in 1997
and 396,291 shares in 1996 of common
stock in treasury (6,638,264) (6,522,232)
Total stockholders' equity 24,600,771 24,326,135
Commitments (note 14)
$ 25,199,951 24,950,043
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Earnings
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 15,166,075 16,800,200 14,574,097
Cost of sales 13,015,436 14,973,018 13,074,247
Gross profit 2,150,639 1,827,182 1,499,850
selling,general and
administrative expenses 1,808,462 1,617,956 1,475,786
Operating income 342,177 209,226 24,064
Other income:
Interest income 514,822 556,565 718,785
Sundry income 10,224 18,441 7,288
525,046 575,006 726,073
Earnings before income taxes 867,223 784,232 750,137
Provision for income taxes (note 8) 304,095 261,495 258,370
Net earnings $ 563,128 522,737 491,767
Earnings per common share (note 9):
Net earnings per common share $ .51 .41 .37
See accompanying notes to financial statements.
17
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Changes in Stockholders' Equity
Years ended June 30, 1997, 1996 and 1995
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, 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(note 8) -- -- 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
Dividends paid on common stock $.70 per share -- -- (937,119) -- -- (937,119)
Net earnings - 1996 -- -- 522,737 -- -- 522,737
Tax effect of dividends on unallocated
ESOP shares(note 8) -- -- 52,574 -- -- 52,574
Purchase of treasury stock (224,802 shares) -- -- -- -- (3,696,340) (3,696,340)
Reduction of common stock subscribed -- -- -- 558,663 -- 558,663
Balance at June 30, 1996 504,979 10,496,287 24,316,400 (4,469,299) (6,522,232) 24,326,135
Dividends paid on common stock $.70 per share -- -- (777,855) -- -- (777,855)
Net earnings - 1997 -- -- 563,128 -- -- 563,128
Tax effect of dividends on unallocated
ESOP shares(note 8) -- -- 46,732 -- -- 46,732
Purchase of treasury stock (7,426 shares) -- -- -- -- (116,032) (116,032)
Reduction of common stock subscribed -- -- -- 558,663 -- 558,663
Balance at June 30, 1997 $ 504,979 10,496,287 24,148,405 (3,910,636) (6,638,264) 24,600,771
see accompanying notes to financial statements
18
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 563,128 522,737 491,767
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Tax effect of dividends on unallocated ESOP shares 46,732 52,574 50,070
Depreciation 488,617 503,160 493,735
Gain on sale of marketable investment securities -- (5,796) --
Deferred income tax benefit (202,545) (116,496) (87,651)
Change in assets and liabilities:
Decrease (increase) in receivables, net 410,751 371,824 (774,451)
Decrease (increase) in inventories, net 2,831,471 (785,021) (69,763)
Decrease (increase) in income tax refund receivable -- 410,467 (52,049)
Decrease (increase) in prepaid expenses and other current assets 79,955 112,225 (199,116)
Increase (decrease) in accounts payable 87,172 (438,192) 259,941
Increase (decrease) in accrued salaries, wages and commissions (8,711) 12,082 4,717
Increase (decrease) in accrued employee insurance costs (14,166) 4,446 (7,979)
Increase (decrease) in other accrued expenses (8,446) 2,852 (2,430)
Increase (decrease) in payroll and other taxes withheld and accrued (109,326) 15,377 711
Increase in income taxes payable 28,749 119,857 --
Net cash provided by operating activities 4,193,381 782,096 107,502
Cash flows from investing activities:
Proceeds from maturity of marketable investment securities 27,695,753 10,454,464 3,887,307
Additions to property, plant and equipment (352,848) (348,501) (1,079,443)
Reduction of common stock subscribed 558,663 558,663 558,662
Proceeds from sale of marketable investment securities -- 3,866,542 --
Purchases of marketable investment securities (24,674,558) (6,781,941) (14,341,771)
Net cash provided by (used in) investing activities 3,227,010 7,749,227 (10,975,245)
Cash flows from financing activities:
Dividends on common stock (777,855) (937,119) (809,041)
Purchase of treasury stock (116,032) (3,696,340) ( 93,585)
Net cash used in financing activities (893,887) (4,633,459) (902,626)
Increase (decrease) in cash and short-term investments 6,526,504 3,897,864 (11,770,369)
Cash and short-term investments, beginning of year 5,597,079 1,699,215 13,469,584
Cash and short-term investments, end of year $ 12,123,583 5,597,079 1,699,215
Supplemental disclosures of cash flow information:
Income taxes paid (refund) $ 431,160 (204,907) 348,000
<FN>
<F1>
See accompanying notes to financial statements.See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements
June 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
Espey Mfg. & Electronics Corp. (the Company) is a manufacturer of
electronic equipment used primarily in military applications. The
principal markets for the Company's products have been the United States
and Israel.
(b) Inventory Valuation and Income Recognition
Raw materials are valued at cost, principally on the first-in,
first-out method.
Inventoried work relating to contracts in process and 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. Work in process represents spare units and parts and other
inventory items acquired or produced to service units previously
sold or to meet anticipated future orders. 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.
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.
Revenue is recognized on contracts and orders in the period in
which the units are shipped and billed (unit-of-delivery method).
(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 follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109,"Accounting for Income Taxes".
<PAGE>
(1), Continued
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 tax deductible dividends on
unallocated ESOP shares be recorded as a direct addition to
retained earnings rather than as a reduction of income tax
expense.
(e) 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.
(f) Marketable Investment Securities
Marketable investment securities at June 30, 1996 consist of U.S.
Treasury securities. The Company classifies Marketable Investment
Securities as held-to-maturity. Held-to-maturity securities are
those securities that the Company has the ability and intent to
hold until their maturity. Held-to-maturity securities are
recorded at amortized 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. Interest income is recognized
when earned.
(g) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(h) Investment Tax Credits
Investment tax credits are accounted for as a reduction of income
tax expense in the year taxes payable are reduced.
<PAGE>
(1), Continued
(i) Accounting for the Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", as of July 1, 1995. This accounting standard
requires that certain long-lived assets reviewed for impairment
when events or circumstances indicate that the carrying amount of
the assets may not be recoverable. If such review indicates that
the carrying amount of an asset exceeds the sum of its expected
future cash flows, the asset's carrying value is written down to
fair value. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell. The
adoption of this accounting standard had no effect on the
financial position or results of operations of the Company.
(2) Marketable Investment Securities
Marketable investment securities at June 30, 1996, consist of U.S.
Treasury securities, which are classified as held-to-maturity securities,
and recorded at amortized cost. There were no gross unrealized gains or
losses on U.S. Treasury securities at June 30, 1997 or 1996. The
difference between cost and fair market value for the U.S. Treasury
securities represents interest income, which has been recognized and is
included in accrued interest receivable.
Maturities of investment securities classified as held-to-maturity were
as follows:
<TABLE>
Amortized Fair
Cost Value
<S> <C> <C>
At June 30, 1997:
Due after three months through 1 year $ - -
At June 30, 1996:
Due after three months through 1 year $ 3,021,195 3,134,458
</TABLE>
(3) Inventories and Cost of Sales
Included in costs relating to contracts in process at June 30, 1997, 1996
and 1995 are costs of $368,687,$1,504,409, and $1,023,945, 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.
<PAGE>
(4) Contracts in Process
Contracts in process at June 30, 1997 and 1996 are as follows:
<TABLE>
1997 1996
<S> <C> <C>
Gross contract value $ 9,037,572 16,297,193
Carrying value of contracts in process included in
current assets $ 4,526,802 8,971,704
</TABLE>
(5) Property, Plant and Equipment
A summary of property, plant and equipment at June 30, 1997 and 1996 is
as follows:
<TABLE>
1997 1996
<S> <C> <C>
Land $ 50,000 50,000
Buildings and improvements 3,863,413 3,828,650
Machinery and equipment 7,807,631 7,614,027
Furniture, fixtures and office equipment 322,806 320,460
$ 12,043,850 11,813,137
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
</TABLE>
(6) Research and Development Costs
Research and development costs charged to operations during the years
ended June 30, 1997, 1996 and 1995 were approximately $223,000, $205,000
and $141,000, 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 $66,642 in 1997, $79,282 in
1996 and $65,500 in 1995.
<PAGE>
(8) Provision for Income Taxes
A summary of the components of the provision for income taxes for the
years ended June 30, 1997, 1996 and 1995 is as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Current tax expense - Federal $ 481,729 366,108 324,021
Current tax expense - State 24,911 11,883 22,000
Deferred tax benefit (202,545) (116,496) (87,651)
$ 304,095 261,495 258,370
Total income tax expense for the years ended June 30, 1997, 1996 and 1995
was allocated as follows:
1997 1996 1995
Earnings from operations $ 304,095 261,495 258,370
Stockholders' equity, for tax effect of dividends on unallocated ESOP
shares (46,732) (52,574) (50,070)
$ 257,363 208,921 208,300
</TABLE>
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 SFAS No. 109.
The combined U.S. Federal and state effective income tax rates of 35.1%,
33.3% and 34.4% for 1997, 1996 and 1995, respectively, differed from the
statutory U.S. Federal income tax rate for the following reasons:
<TABLE>
1997 1996 1995
<S> <C> <C>
U.S. statutory tax rate 34.0% 34.0% 34.0%
Increase (reduction) in rate resulting from:
Dividends received deduction (.3) (.3) (.3)
State franchise tax, net of Federal income tax benefit 1.9 1.0 1.9
Other (.5) (1.4) (1.2)
Effective tax rate 35.1% 33.3% 34.4%(8), Continued
</TABLE>
<PAGE>
For the year ended June 30, 1997 deferred income tax benefit of $202,545
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, 1997 and 1996 are presented
below:
<TABLE>
1997 1996
<S> <C> <C>
Deferred tax assets:
Inventory - differences in valuation methods 179,533 180,421
Common stock subscribed-due to difference in interest recognition 475,493 510,198
Total gross deferred tax assets 655,026 690,619
Deferred tax liabilities:
Property, plant and equipment - principally due to differences in
depreciation methods $ 400,822 501,110
Inventory - effect of uniform capitalization 41,775 179,625
Total gross deferred tax liabilities 442,597 680,735
Net deferred tax asset $ 212,429 9,884
</TABLE>
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 in which
the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these
temporary differences without consideration of a valuation allowance.
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 1,112,074 in 1997,
1,269,467 in 1996, and 1,346,757 in 1995.
<PAGE>
(10) Segment Reporting
A significant portion of the Company's business is the production of
military and industrial electronic equipment for use by the U.S.
Government and its agencies and certain industrial customers. Sales made
to the U.S. Government and its agencies are primarily on a subcontract
basis. Sales to two domestic customers accounted for 19.9%, and 61.4%,
respectively, of total sales in 1997. Sales to two domestic customers
and one foreign customer accounted for 28.9%, 22.8% and 17.8%,
respectively, of total sales in 1996. Sales to two domestic customers and
one foreign customer accounted for 31.5%, 24.2%, and 16.2%, respectively,
of total sales in 1995.
Export sales in 1997 were not significant. Export sales in 1996 and 1995
aggregated approximately $3,073,000 and $2,602,000, respectively.
(11) 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 offer or, together with all affiliates
and associates thereof, being the beneficial owner of 30% or more of the
Company's common stock.
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, than 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 offer or, together with
all affiliates and associates thereof, being the beneficial owner of 30%
or more of the Company's common stock.
<PAGE>
(12) 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 31,690 shares of the
Company's common stock to pay benefits to participants. At June 30,1997,
the ESOP held a total of 299,534 shares of the Company's common stock,of
which 152,450 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. The company recognizes the principal payments of the ESOP debt,
on a straight-line basis over the term of the note, as compensation
expense.
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 1997, the Company's required
contribution of $1,039,605 was reduced by $117,667, which represents the
dividends paid on the unallocated ESOP shares. The resulting payment of
$921,938 includes $440,996 classified as compensation expense. In 1996,
the Company's required contribution of $1,039,605 was reduced by
$132,376, which represents the dividends paid on the unallocated ESOP
shares. The resulting payment of $907,229 includes $426,287 classified as
compensation expense. In 1995, the Company's required contribution of
$1,039,605 was reduced by $126,072, which represents the dividends paid
on the unallocated ESOP shares. The resulting payment of $913,533
includes $432,590 classified as compensation expense.
(13) Financial Instruments/Concentration of Credit Risk
The carrying amounts of financial instruments, including cash, short-term
investments, marketable investment securities, accounts receivable and
accounts payable, approximated fair value as of June 30, 1997 and 1996
because of the relatively short maturity of these instruments.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and short-term
investments and accounts receivable. The Company maintains cash and
short-term investments with various financial institutions. At times
such investments may be in excess of FDIC insurance limits. As
disclosed in note 10,a significant portion of the Company's sales are
made to the U.S. Government and its agencies and certain industrial
customers. The related accounts receivable balance represented 66.7% and
54% of the Company's total trade accounts receivable balance at June 30,
1997 and 1996, respectively.
<PAGE>
(13), Continued
Although the Company's exposure to credit risk associated with nonpayment
of these balances is affected by conditions or occurrences within the
U.S. Government, the Company believes that its trade accounts receivable
credit risk exposure is limited . The Company performs ongoing credit
evaluations of its customers' financial conditions and requires
collateral, such as progress payments, in certain circumstances. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
(14) Commitments
The Company under an operating lease agreement rents a sales office in
Great Neck, New York. This lease, which expires on September 9, 2001,
requires future minimum lease payments of $50,792 payable as follows:
Year ending June 30,
1998 $ 12,190
1999 12,190
2000 12,190
2001 12,190
2002 2,032
$ 50,792
Rent expense for the years ended June 30, 1997, 1996 and 1995 was
$14,156, $22,624, and $22,235, respectively.
<PAGE>
<TABLE>
(15) Quarterly Financial Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C>
1997:
Net sales $ 4,586,892 4,066,386 3,805,569 2,707,228
Gross profit 698,018 729,221 544,037 179,363
Net earnings 228,719 244,126 127,370 (37,087)
Net earnings per share $ .21 .21 .12 (.03)
1996:
Net sales $ 4,000,805 4,434,896 4,352,275 4,012,224
Gross profit 404,675 486,916 533,557 402,034
Net earnings 98,440 125,906 169,479 128,912
Net earnings per share $ .07 .09 .13 .12
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
</TABLE>
Financial information for the fourth quarter of 1997 reflects a pre-tax
write off of approximately $385,000 related to inventory for which the
Company expected to receive orders during the year.In the fourth quarter
of 1997, management's assessment of this inventory resulted in the
aforementioned write-off as previously anticipated orders did not
materialize.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Identification of Directors
<TABLE>
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
<S> <C> <C> <C>
Joseph Canterino Annual Meeting in President and 72
December 1998 Chief Executive
Director since Officer
December 11, 1992
Paul J. Corr Annual Meeting in None 53
December 1999
Director since
April 3, 1992
William P. Greene Annual Meeting in None 67
December 1998
Director since
April 3, 1992
Barry Pinsley Annual Meeting in Vice President- 55
December 1999 Investor Relations
Director since and Human Resources
March 25, 1994
Howard Pinsley Annual Meeting in Executive Vice President 57
December 1997
Director since
December 11, 1992
Sol Pinsley Annual Meeting in Chairman of 84
December 1997 the Board
Director since 1950
(continued)
</TABLE>
<PAGE>
<TABLE>
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
<S> <C> <C> <C>
Seymour Saslow Annual Meeting in Senior Vice President 76
December 1998
Director since
December 11, 1992
Michael W. Wool Annual Meeting in None 51
December 1999
Director since 1990
Identification of Executive Officers
Positions and
Offices Held Period Served As
Name With Company Executive Officer Age
Sol Pinsley Chairman of the President and Chief 84
Board and Executive Officer for
Director more than the past five
years prior to taking
present position on
August, 1996; Treasurer
from August 4, 1988 to
September 10, 1993
Seymour Saslow Senior Vice President Served as Vice 76
and Director President from April 3,
1992 until being elected
to present position on
December 6, 1997
Joseph Canterino President and Chief Since April 3, 1992; 72
Executive Officer and Vice President-
Director Manufacturing prior
to present position
</TABLE>
<PAGE>
(continued)
<TABLE>
Positions and
Offices Held Period Served As
Name With Company Executive Officer Age
<S> <C> <C> <C>
Howard Pinsley Executive Vice President Served as Vice President- 57
and Director Special Power Supplies
from April 3, 1992 until
being elected to present
position on December 6,
1997
Barry Pinsley Vice President- Served as Vice President- 55
Investor Relations Special Projects from
and Human Resources March 25, 1994 until
and Director being elected to present
position on December 6,
1997
John J. Pompay, Jr. Vice President- Since December 6, 1996 62
Marketing and Sales
Herbert Potoker Treasurer and Principal Since September 10, 68
Financial Officer 1993
Garry M. Jones Assistant Treasurer Since August 4, 1988; 57
and Principal Accounting Principal Financial
Officer Officer from August 4,
1988 to September 10,
1993
Reita Wojtowecz Secretary Since June 27, 1994 68
</TABLE>
Each officer's term is at the will of the Board of Directors, except for
Sol Pinsley and John J. Pompay, Jr. The term of Mr. Pinsley's employment
is subject to the provisions of an Employment Agreement, dated January 1,
1995. The term of Mr. Pompay's employment is subject to the provision of
an Employment Agreement, dated December 6, 1996. See "Executive
Compensation-Employment Contracts and Termination of Employment and Change
in Control Agreements."
<PAGE>
Family Relationships
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.
Business Experience of Directors and Officers
Joseph Canterino has been President and Chief Executive Officer since Sol
Pinsley retired from these positions on August 1, 1996. Prior to his
election to his present position, Mr. Canterino served as Vice President-
Manufacturing since April 3, 1992 and Plant Manager for more than five
years prior to being elected Vice President-Manufacturing.
Paul J. Corr is a Certified Public Accountant and currently a partner at
the Latham, New York accounting firm of Richter & Company. Mr. Corr was a
partner of the accounting firm of Corr & Company from 1982 to 1993. Since
1981 to date, Mr. Corr has been professor of Business at Skidmore College
in Saratoga Springs, New York. Mr. Corr currently holds the position of
Associate Professor.
William P. Greene has been employed as Vice President of Operations for
National Library of Music since August, 1997. Prior to his present
position, Mr. Greene was employed as Vice President of Operations for Bulk
Materials International Co., Newton, Connecticut from 1994 to August,1997.
From 1991 to 1994, Mr. Greene 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 several financial institutions.
Garry M. Jones for more than the past five years has been 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. On December 6, 1997, Mr. Pinsley was
elected to his present position of Vice President-Investor Relations and
Human Resources. Mr. Pinsley has been a practicing Certified Public
Accountant in Saratoga Springs, New York since 1975.
Howard Pinsley for more than the past five years has been 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. On December 6,
1996, Mr. Pinsley was elected to his present position of Executive Vice
President.
<PAGE>
Sol Pinsley has been for more than the past five years employed on a full
time basis as the President and Chief Executive Officer of the Company.
Mr. Pinsley retired from these positions effective August 1, 1996. He has
remained with the Company as Chairman of the Board.
Herbert Potoker for more than the past five years has been 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.
Seymour Saslow has been Senior Vice President since December 6, 1996.
Prior to being elected to his present position, Mr. Saslow served as Vice
President-Engineering since April 3, 1992.
Reita Wojtowecz has been Secretary of the Company since June 27, 1994.
She has been employed by the Company as Director of Human Resources for
more than the past five years.
Michael W. Wool has been an attorney in private practice and a partner in
the law firm of Langrock, Sperry & Wool in Burlington, Vermont for more
than the past five years.
John J. Pompay, Jr. for more than the past five years has been employed by
the Company on a full-time basis as Director of Marketing and Sales prior
to being elected Vice President-Marketing and Sales on December 6, 1996.
Directorships
None of the directors holds a directorship in any other company with a
class of securities registered pursuant to Section 12 of the Exchange 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.
Legal Proceedings
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.
<PAGE>
Item 11. Executive Compensation.
Executive Compensation Table
The following table summarizes the annual compensation for each of the
fiscal years ended June 30, 1997, June 30, 1996 and June 30, 1997 received
by the Company's Chief Executive Officer, the other five highest paid
executive officers of the Company who were such as of June 30, 1997, and
Sol Pinsley, for whom disclosure would have been required but for the fact
Mr. Pinsley resigned as President and Chief Executive Officer in August,
1996:
<TABLE>
SUMMARY COMPENSATION TABLE
Name and Fiscal Annual All Other
Principal Position Year Salary Bonus Compensation(1)
<S> <C> <C> <C>
Sol Pinsley (2) 1997 $156,670 $25,000 $14,969
Chairman of 1996 $193,900 $25,000 $14,129
the Board 1995 $189,000 $25,000 $ 9,968
Seymour Saslow 1997 $117,075 $25,000 $15,353
Senior Vice President 1996 $112,900 $25,000 $15,063
1995 $108,000 $25,000 $10,393
Joseph Canterino 1997 $133,880 $25,000 $16,536
President and Chief 1996 $103,180 $25,000 $15,819
Executive Officer 1995 $ 98,280 $25,000 $11,320
Howard Pinsley 1997 $109,600 $25,000 $16,455
Executive Vice 1996 $ 93,350 $20,000 $15,567
President 1995 $ 90,450 $12,000 $11,042
Herbert Potoker 1997 $109,855 $25,000 $13,289
Treasurer and 1996 $107,680 $25,000 $11,892
Principal Financial Officer 1995 $101,280 $25,000 $ 9,320
Barry Pinsley 1997 $ 85,050 $12,000 $13,338
Vice President- 1996 $ 84,675 $10,000 $12,389
Investor Relations and 1995 $ 79,500 $10,000 $ 8,083
Human Resources
John J. Pompay, Jr. 1997 $172,963(3) $ 0 $13,289
Vice President-Sales
</TABLE>
<PAGE>
_______________
(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 and Mr. Pompay.
(2) Effective August 1, 1996, Mr. Pinsley retired from the positions of
President and Chief Executive Officer. In accordance with the terms of his
Employment Agreement,Mr. Pinsley has remained as Chairman of the Board and as a
non-executive officer of the Company at a reduced salary. See "Executive
Compensation - Employment Contracts and Termination of Employment and Change in
Control Agreements."
(3) Represents wages as an executive officer and non-executive officer
during fiscal year ending June 30, 1997.
Insurance
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.
The Company maintains insurance coverage, as authorized by Section 727
of the New York Business Corporation Law, providing for(a)reimbursement of the
Company for payments it makes to indemnify officers and directors of the
Company, and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by them in actions.
Employee Retirement Plan and Trust
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 also 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 152,451 shares of common stock of the Company allocated to
participants
<PAGE>
of the ESOP as of June 30, 1997, 2,816.19 shares were allocated to Sol Pinsley,
4,921.19 shares were allocated to each Joseph Canterino, Herbert Potoker and
John J. Pompay, Jr., 4,602.21 shares were allocated to Howard Pinsley, 4,620.19
shares were allocated to Seymour Saslow and 1,499.21 shares were allocated to
Barry Pinsley.
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.Each member of the Audit Committee is compensated in the
amount of $500 for each Committee meeting attended. Michael W. Wool, Paul J.
Corr and William P. Greene were paid $1,000, $3,170 and $3,600, respectively,
for additional services in connection with their duties as directors for the
fiscal year ended June 30, 1997.
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, who was President, Chief Executive Officer and a
director of the Company until August 1, 1996. 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 provided a minimum base annual
compensation of $182,000 for each calendar year commencing 1995 and the Board of
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.
Effective August 1, 1996, Mr. Pinsley retired from the positions of
President and Chief Executive Officer. In accordance with the terms of the
above agreement, Mr.
<PAGE>
Pinsley has remained as Chairman of the Board and as a non-executive officer of
the Company at a reduced salary.
The Company has entered into an employment contract with John J.
Pompay, Jr. in connection with his duties as Vice President-Marketing and Sales.
The contract is dated and effective as of December 6, 1996 and terminates on
December 31, 1998. The contract provides for a minimum base annual salary of
$10,400 plus commissions at the rate of 3% on all payments received by the
Company against Mr. Pompay's open orders as of the date of the contract and
those orders booked up to and including December 31, 1996,and 1% on all payments
received against orders booked by the Company between January 1, 1997 and
December 31, 1998. The contract further provides that if Mr. Pompay's employment
is terminated by the Company prior to the expiration date, other than for cause,
he will continue to receive his full salary for one year after the termination
date and the Company will pay him commissions on all orders received during the
year after termination whenever shipped and paid. The contract also provides
for a restrictive covenant of non-competition by Mr. Pompay for a period of two
years upon termination for cause or termination of the contract by Mr. Pompay.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
The following information is furnished as of September 19, 1997 (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:
<TABLE>
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
<S> <C> <C> <C>
Common Stock Sol Pinsley 80,261.00 -Direct 7.4762%
$.33-1/3 p.v. P.O. Box 422 2,816.19 -Indirect (1)
Saratoga Springs,
NY 12866
" Dimensional Fund 74,400.00 -Direct (2) 6.6953%
Advisors Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
" Franklin Resources, Inc. 96,300.00 -Direct (3) 8.6662%
</TABLE>
<PAGE>
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777 (continued)
<TABLE>
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
<S> <S> <S>
Common Stock The Adirondack Trust 299,297.00 -Direct (4) 26.9340%
$.33-1/3 p.v. Company, as Trustee of
the Company's Employee
Retirement Plan and Trust
473 Broadway
Saratoga Springs,
NY 12866
</TABLE>
(1) Does not include 4,200 shares of common stock of the Company owned by
the testamentary trust of the deceased spouse of Sol Pinsley, Ruth
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, 1997 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 Trustee.
(2) The information as to the number of shares of common stock of the
Company that may be deemed beneficially owned by Dimensional Fund
Advisors Inc.("Dimensional") is from the Schedule 13G dated February 5,
1997 filed with the Securities and Exchange Commission. Dimensional, a
registered investment advisor, is deemed to have beneficial ownership
of 74,400 shares of Espey Mfg. & Electronics Corp. stock as of December
31, 1996, all of which shares are held in portfolios of DFA Investment
Dimensions Group, Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares. Dimensional reported sole
voting power with respect to 49,500 shares.
(3) The information as to the number of shares of common stock of the
Company that may be deemed beneficially owned by Franklin Resources,
Inc. ("Franklin") is from the Schedule 13G, dated February 12, 1997
filed with the Securities and Exchange Commission. The Franklin
statement indicated that Franklin's investment advisory subsidiary,
Franklin Advisory Services, Inc. ("Franklin
<PAGE>
Advisory") has sole voting and dispositive power with respect to all of
the shares of common stock shown in the table above for Franklin. The
Franklin statement indicates that the common stock set forth in the
table is beneficially owned by one or more open or closed-end
investment companies or other managed accounts which are advised by
direct and indirect Franklin investment advisory subsidiaries,including
Franklin Advisory. The statement also indicated that it filed the
Schedule 13G on behalf of itself, Franklin Advisory, and Franklin's
principal shareholders, Charles B. Johnson and Rupert H. Johnson, Jr.
(the "Principal Shareholders"), all of which are deemed beneficial
owners of the shares of common stock shown in the above table for
Franklin. Franklin, the Principal Shareholders and Franklin Advisory
disclaim any economic interest or beneficial ownership in any of the
common stock shown in the table for Franklin.
(4) This information is from the Form 4 dated August 29, 1997, filed with
the Securities and Exchange Commission by the Trustee on behalf of the
Company's Employee Retirement Plan and Trust ("ESOP"). The ESOP Trustee
has sole voting power with respect to unallocated common shares owned
by the Trust, 147,083 shares as of August 28, 1997, as directed by the
Plan Administrator appointed by the Company's Board of Directors. As to
the common shares allocated to participants,152,214 shares as of August
28,1997, 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.
Security Ownership of Management
The following information is furnished as of September 19, 1997 (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:
<TABLE>
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
<S> <S> <S> <S>
Common Stock
$.33-1/3 p.v. Paul J. Corr 500.00 -Direct .0450%
" William P. Greene 100.00 -Direct .0090%
" Michael W. Wool 100.00 -Direct .0090%
" Sol Pinsley 80,261.00 -Direct 7.4762%
2,816.19 -Indirect (1)(2)
</TABLE>
(continued)
<PAGE>
<TABLE>
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
<S> <C> <C> <C>
Common Stock Seymour Saslow 301.00 -Direct .4429%
$.33-1/3 p.v. 4,620.19 -Indirect (2)
" Joseph Canterino 7,500.00 -Direct 1.1178%
4,921.19 -Indirect (2)
" John J. Pompay, Jr. 4,921.19 -Indirect (2) .4429%
" Howard Pinsley 39,134.00 -Direct 3.9359%
4,602.21 -Indirect (2)
" Barry Pinsley 1,000.00 -Direct .6029%
5,699.21 -Indirect (2)(3)(4)
" Herbert Potoker 6,490.00 -Direct 1.0270%
4,921.19 -Indirect (2)(5)
" Garry M. Jones 2,279.94 -Indirect (2) .2052%
" Reita Wojtowecz 1,558.97 -Indirect (2) .1403%
" Officers and Directors 135,286.00 -Direct 15.4449%
as a Group 36,340.28 -Indirect (6)
</TABLE>
_____________
(1) Excludes 4,200 shares owned by a testamentary trust of Ruth Pinsley,
the deceased spouse of Sol Pinsley. Beneficial ownership of the shares
owned by the trust is disclaimed by Mr. Pinsley.
(2) Shares allocated to named officer as of June 30, 1997 as a participant
in the Company's ESOP. Each such person has the right to direct the
manner in which such shares allocated to him or her are to be voted by
the ESOP Trustee.
(3) Excludes 1,300 shares owned by Barry Pinsley's spouse, as to which
beneficial ownership is disclaimed by Mr. Pinsley.
(4) Includes 4,200 shares owned by a testamentary trust of Ruth Pinsley,
the deceased
<PAGE>
spouse of Sol Pinsley. As trustee of the trust, Barry Pinsley is deemed
the beneficial owner, as defined in Rule 13d-3, of the shares held by
the trust.
(5) Excludes 300 shares owned by Herbert Potoker's spouse, as to which
beneficial ownership is disclaimed by Mr. Potoker.
(6) Shares allocated to all officers as a group as of June 30, 1997 who
participate in the Company's ESOP. Each such person has the right to
direct the manner in which such shares allocated to him or her are to
be voted by the ESOP Trustee.
There are no arrangements known to the Company the operation of which
may at a subsequent date result in change of control of the Company.
Item 13. Certain Relationships and Related Transactions.
For the fiscal year ended June 30, 1997, Christopher Canterino, who is
a full time employee of the Company and the son of Joseph Canterino,
President and Chief Executive Officer of the Company, received
compensation as such employee of $84,650.00, as well as an ESOP
allocation of Company Stock and dividends thereon totaling $10,626.00.
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, 1997, there were 152,451 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 also directors, are eligible to participate in the ESOP
and to have shares and cash allocated to their accounts and distributed
to them in accordance with the terms of the ESOP.
The Company paid the law firm of Langrock, Sperry & Wool, of which
Michael W. Wool, a director of the Company, is a partner, a total of
$42,000 for legal services during the fiscal year ended June 30, 1997.
The Company believes the services provided to it by Langrock, Sperry &
Wool were provided to it at a cost comparable to that which the Company
would have been required to pay for comparable services from an
unaffiliated third party.
<PAGE>
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, 1997 and 1996
Statements of Earnings for the years ended June 30,
1997, 1996 and 1995
Statements of Changes in Stockholders' Equity for the
years ended June 30, 1997, 1996 and 1995
Statements of Cash Flows for the years ended June 30,
1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Included in Part IV of this report: Page
Schedule II - Valuation and Qualifying Accounts 46
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
Page
10.1 Employment Agreement dated December 6, 1996 48
between John J. Pompay, Jr. and Espey Mfg. &
Electronics Corp.
11.1 Statement re: Computation of Per Share Earnings 50
27 Financial Data Schedule (for electronic filing N/A
purposes only)
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 1997.
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.
/s/ Joseph Canterino
Joseph Canterino, 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.
President
(Principal Executive Officer)
/s/ Joseph Canterino September 29, 1997
Joseph Canterino
Treasurer (Principal Financial
Officer)
/s/ Herbert Potoker September 29, 1997
Herbert Potoker
Assistant Treasurer
(Principal Accounting Officer)
/s/ Garry M. Jones September 29, 1997
Garry M. Jones
Vice President and Director
/s/ Howard Pinsley September 29, 1997
Howard Pinsley
(signatures continued)
<PAGE>
Vice President and Director
/s/ Barry Pinsley September 29, 1997
Barry Pinsley
Chairman of the Board and Director
/s/ Sol Pinsley September 29, 1997
Sol Pinsley
Vice President and Director
/s/ Seymour Saslow September 29, 1997
Seymour Saslow
Director
/s/ Michael W. Wool September 29, 1997
Michael W. Wool
Director
/s/ Paul J. Corr September 29, 1997
Paul J. Corr
Director
/s/ William P.Greene September 29, 1997
William P. Greene
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
ESPEY MFG. & ELECTRONICS CORP.
Valuation and Qualifying Accounts
Years ended June 30, 1997, 1996 and 1995
Balance at Additions Deductions Balance at
beginning to from end of
Description of period reserve reserve period
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts:
1997 $ 3,000 - - 3,000
1996 $ 3,000 - - 3,000
1995 $ 3,000 - - 3,000
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Page
10.1 Employment Agreement dated December 6, 1996 48
between John J. Pompay, Jr. and Espey Mfg. &
Electronics Corp.
11.1 Statement re: Computation of Per Share Earnings 50
27 Financial Data Schedule (for electronic filing N/A
purposes only)
<PAGE>
EXHIBIT 10.1
The following is an agreement between John J. Pompay, Jr. and Espey Mfg. &
Electronics Corp. (the company).
This agreement supersedes and replaces all previous understandings.
We will pay you a salary of $200.00 a week.
Your job title and duties will be Vice President-Sales. As such you will
have the responsibilities and authority to create an outside sales force of
representatives as needed. You shall establish the terms of remuneration
to these representatives, subject to the prior approval of the President.
You shall also have the authority to establish an internal contracts
department to support your responsibilities. You will receive a commission
at 3% on all payments received by Espey against your current open written
orders and those written orders booked by you thru 12/31/96.
You will receive a commission at 1% on all payments received against
written orders booked by the Company between 12/31/96 and 12/31/98.
The 1% commission shall be in lieu of the prior 3% commission.
Expenses incurred by you in the performance of your duties will be
reimbursed by our company. These expenses must fall under the ethics
guidelines of the U.S. Government.
In the event you voluntarily terminate your employment with the Company, or
we terminate you for cause other than as set forth in the following
paragraph, we will pay you commissions, at the rate then prevailing as
provided herein, on your written orders in the house at the time of such
termination, when such orders are shipped and paid. Your salary will cease
upon leaving our employ.
In the event you voluntarily leave our employ or are terminated for cause,
for a period of two years from the date of termination you will not,
directly or indirectly, compete with Espey or accept employment or
independent contractor status or participate as an owner or otherwise with
any competitor of Espey. If you do, Espey's obligation to make any
payments under this agreement will terminate.
In the event we terminate your employment, for other than cause, we will
pay you commissions, at the rate then prevailing on all your orders then in
the house. We will continue to pay your salary for one year and we will
pay you commissions at the agreed rates on all orders received during the
year after termination whenever shipped and paid.
The same terms as the paragraph above will apply if you die or become
permanently disabled. This agreement shall terminate on 12/31/98.
<PAGE>
Commission, when payable pursuant to this agreement, shall be based on our
net billing price; that is, our billing price less freight, discount,
Federal or State taxes. Commissions are payable only when shipment has
actually been made and full payment received by our company. Payment of
commissions will be made to you, in the month following receipt of full
payment from our customer. Our company will, between the 10th and 20th of
each month, forward to you a statement of each account and each amount
collected for the previous month and, at the same time, a check will be
delivered to you for the amount of commissions to which you are entitled.
It may be or become necessary that our company issue credits to customers
on invoices which have been paid. Such credits are issuable at the sole
discretion of our company and when such credits are issued you agree that
your commission account will be charged back for any commissions previously
paid to you based on paid invoices. Such charge-backs for commissions will
be shown on the statement of account forwarded to you.
We agree to furnish you with data on all orders accepted as above outlined
and data on all invoices in connection with shipments on all such orders.
This agreement shall be strictly personal to and with you, and it is
specifically understood that you shall not sell, assign or encumber the
same or in any way sell, assign or encumber any monies due to you unless
you have the prior written approval of our company, which approval must be
signed by the President of our company. You will work exclusively for our
company.
This agreement may not be modified orally. It may be modified only in
writing, signed by you on your behalf and by the President of our company.
This understanding shall be governed by and interpreted under the Laws of
the State of New York.
If the above is acceptable to you,please sign a copy at the place indicated
below for your signature.
Very truly yours,
Dated: December 6, 1996 ESPEY MFG. & ELECTRONICS CORP.
ACCEPTED: By: /s/ Joseph Canterino, President
JOSEPH CANTERINO, PRESIDENT
/s/ John J. Pompay, Jr.
JOHN J. POMPAY, JR.
<PAGE>
[CAPTION]
EXHIBIT 11.1
ESPEY MFG. & ELECTRONICS CORP.
Computation of per Share Earnings as
Disclosed in Item 14 of Form 10-K
Five years ended June 30, 1997
<TABLE>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
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 (402,863) (245,470) (168,180) (164,229) (159,897)
Weighted average
number of primary
shares outstanding 1,112,074 1,269,467 1,346,757 1,350,708 1,355,040
Net earnings $ 563,128 522,737 491,767 1,343,877 1,594,290
Per share $ .51 .41 .37 1.00 1.18
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the year
ending June-30-1997 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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,416,801
<SECURITIES> 10,706,782
<RECEIVABLES> 1,163,830
<ALLOWANCES> 0
<INVENTORY> 8,201,875
<CURRENT-ASSETS> 21,819,899
<PP&E> 12,043,850
<DEPRECIATION> 8,738,469
<TOTAL-ASSETS> 25,199,951
<CURRENT-LIABILITIES> 599,180
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 24,600,771
<TOTAL-LIABILITY-AND-EQUITY> 25,199,951
<SALES> 15,166,075
<TOTAL-REVENUES> 15,166,075
<CGS> 13,015,436
<TOTAL-COSTS> 13,015,436
<OTHER-EXPENSES> 1,808,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 867,223
<INCOME-TAX> 304,095
<INCOME-CONTINUING> 563,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563,128
<EPS-PRIMARY> .51
<EPS-DILUTED> 0
</TABLE>
