SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20459
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1996 Commission File Number I-4383
ESPEY MFG. & ELECTRONICS CORP.
(Exact name of registrant as specified in charter)
NEW YORK 14-1387171
(State of Incorporation) (I.R.S. Employer's Ident No.)
233 Ballston Avenue, Saratoga Springs, New York 12866
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code 518-584-4100
Number of shares outstanding of issuer's class of common stock
$.33-1/3 par value as at the end of the period covered by this
report 1,111,220 .
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statments:
Balance Sheets - December 31, 1996 1
and June 30, 1996
Statements of Earnings - Three Months 3
and Six Months Ended December 31, 1996
and 1995
Statements of Cash Flows - Six Months 4
Months Ended December 31, 1996 and 1995
Notes to Financial Statements 5
December 31, 1996 and 1995
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations.
PART II OTHER INFORMATION 9
SIGNATURES 10
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<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
December 31, 1996 and June 30, 1996
A S S E T S
Unaudited
1996 1996
December 31 June 30
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivelents $ 829,011 $ 1,112,767
Short-term investments at cost
(market value December 31, 1996,
$9,350,608 and June 30, 1996,
$4,577,305) 9,304,552 4,484,312
Total Cash and Short-term
Investments 10,196,563 5,597,079
Marketable investment securities - current 1,085,475 3,021,195
Trade accounts receivable net of
$3,000 allowance December 31, 1996
and June 30, 1996 1,208,309 1,556,404
Other receivables 500 18,177
Net Receivables 1,208,809 1,574,581
Inventories:
Raw materials and supplies 529,108 499,900
Work-in-process 2,157,275 1,561,742
Costs relating to contracts in
process 6,216,336 8,971,704
Net Inventories 8,902,719 11,033,346
Deferred income taxes 796 796
Prepaid expenses and other current assets 361,794 272,808
Total Current Assets 21,756,156 21,499,805
Deferred income taxes 63,198 9,088
PROPERTY, PLANT AND EQUIPMENT AT COST 11,980,884 11,813,137
Less: Accumulated depreciation and
amortization (8,665,622) (8,371,987)
Net Property, Plant and Equipment 3,315,262 3,441,150
Total $ 25,134,616 $ 24,950,043
- 1 - CONTINUED
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
December 31, 1996 and June 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
1996 1996
December 31 June 30
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 462,032 $ 158,631
Accrued expenses:
Salaries, wages and commissions 222,686 116,351
Employees' insurance costs 38,860 54,739
ESOP payable 220,498 -
Other 18,295 17,440
Payroll and other taxes withheld
and accrued 38,343 156,890
Dividends payable - -
Deferred income taxes - current 182,075 119,857
TOTAL CURRENT LIABILITIES 1,182,789 623,908
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,514,937 shares December 31, 1996
and June 30, 1996. 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 24,058,124 24,316,400
35,059,390 35,317,666
Less: Common stock subscribed ( 4,469,299) ( 4,469,299)
Cost of 403,717 shares on December
31, 1996 and 396,291 shares on
June 30, 1996 of common stock in
treasury ( 6,638,264) ( 6,522,232)
TOTAL STOCKHOLDERS' EQUITY 23,951,827 24,326,135
TOTAL $ 25,134,616 $ 24,950,043
<FN>
See accompanying notes to financial statements
</FN>
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
STATEMENTS OF EARNINGS
Three and Six Months Ended December 31, 1996 and 1995
Unaudited Unaudited
Three Months Six Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $ 4,066,386 $ 4,434,896 $ 8,653,278 $ 8,435,701
Cost of sales 3,337,165 3,947,980 7,226,039 7,544,110
Gross profit 729,221 486,916 1,427,239 891,591
Selling, general and administrative expenses 459,543 443,195 906,878 854,730
Operating income 269,678 43,721 520,361 36,861
Other income
Interest income 123,862 166,748 248,523 326,210
Sundry income 2,586 437 2,961 7,275
126,448 167,185 251,484 333,485
Earnings before income taxes 396,126 210,906 771,845 370,346
Provision for income taxes 152,000 85,000 299,000 146,000
Net earnings $ 244,126 $ 125,906 $ 472,845 $ 224,346
Earnings per share:
Net earnings $ .21 $ .10 $ .42 $ .17
Average number of shares outstanding 1,111,220 1,338,552 1,112,915 1,339,951
<FN>
See accompanying notes to Financial Statements
</FN>
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Six Months Ended December 31, 1996 and 1995
Unaudited
December 31
1996 1995
Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $ 472,845 $ 224,346
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Tax effect of dividends on unallocated ESOP shares 46,732 45,063
Depreciation 293,635 211,694
Changes in assets and liabilities:
Decrease (increase) in receivables, net 365,772 ( 742,813)
Decrease (increase) in inventories, net 2,130,627 ( 898,688)
Decrease (increase) in other current assets ( 88,986) 44,677
Decrease (increase) in income tax refund receivable - 132,903
Increase (decrease) in accounts payable 303,401 159,563
Increase (decrease) in accrued salaries, 106,335 209,873
wages and commissions
Increase (decrease) in accrued employee ( 15,879) ( 4,064)
insurance costs
Increase (decrease) in other accrued expenses 856 1,105
Increase (decrease) in payroll & other ( 118,547) 15,237
taxes withheld and accrued
Increase (decrease) in income tax payable 62,218 -
Decrease (increase) in deferred income taxes ( 54,110) ( 31,967)
Increase (decrease) in accrued ESOP contributions 220,498 213,143
Net cash provided by (used in)
operating activities 3,725,397 ( 419,928)
Cash Flows From Investing Activities:
Additions to property, plant & equipment ( 167,747) ( 103,966)
Proceeds from maturity of marketable investment securities 3,894,598 4,796,099
Purchases of marketable investment securities ( 1,958,878) ( 3,811,452)
Net cash provided by (used in)
investing activities 1,767,973 880,681
Cash Flows From Financing Activities:
Dividends on common stock ( 777,854) ( 937,119)
Purchase of treasury stock ( 116,032) ( 76,240)
Net cash used in
financing activities ( 893,886) ( 1,013,359)
Increase (decrease) in cash and short-term investments 4,599,484 ( 552,606)
Cash and short-term investments, beginning of period 5,597,079 1,699,215
Cash and short-term investments, end of period $ 10,196,563 $ 1,146,609
Income Taxes Paid $ 241,500 $ -
<FN>
See accompanying notes to financial statements.
</FN>
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</TABLE>
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements
___________________
1. In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company as of
December 31, 1996, and the results of operations for each of the six months
ended December 31, 1996 and 1995 and cash flows for each of the three months
ended December 30, 1996 and 1995.
2. The earnings per share computations for December 31, 1996 were based on
1,112,915 shares and on 1,339,951 shares for December 31, 1995. These
represent the average number of shares outstanding for each respective
period.
3. Other income consists principally of interest on Certificates of Deposit,
Treasury Bills and money market accounts.
4. There were no material unusual charges or credits to operations or a change
in accountants during the most recently completed quarter which would require
the filing of a Form 8-K.
5. There were no securities sold by the Company during the current quarter which
were not registered under the Securities Act of 1934 in reliance upon an
exemption from registration provided in Section 4 (2) of the Act.
6. For purposes of the statements of cash flows, the Company considers all
liquid debt instruments with original maturities of three months or less to
be cash equivalents.
7. In fiscal 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 to the ESOP which was used by the ESOP to purchase an
additional 15,000 shares of the Company's common stock.
- 5 -
<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.
Each year, the Company will make contributions to the ESOP which will be
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 December 30, 1996 there were 131,439 shares
allocated to participants.
8. 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 required that certain
long-lived assets be 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 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.
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Sales for the six months ended December 31, 1996 were $8,653,278 as compared to
$8,435,701 for the same period in 1995. Sales volume is largely dependent on
both lead times required for new orders and the specific delivery needs of our
customers.
Net earnings for the six month period were $472,845 or $.42 per share compared
to $224,346 or $.17 per share for the corresponding period of last year.
Similar to the first quarter of this year, many of the contracts shipped in the
current quarter carried a somewhat higher gross profit margin than those shipped
during the corresponding quarter of last year. As a result, cost of sales for
the current six month period dropped to 85% compared to the 90% reflected last
year. This factor, together with the increase in sales, are the primary reasons
for the increase in net profits. The Company is continuing to enhance and expand
its Sales and Marketing departments. In this regard the Company has contacted,
and is developing, a number of new customers. As indicated previously, certain
specifics concerning the products that the Company is concentrating on are
addressed in both the President's message acompanying our 1996 Annual Report and
in our most recently filed Form 10K.
Selling and General & Administrative expenses show an increase of approximately
7% during the current period. This is principally due to the reclassification of
certain salaries from manufacturing expenses to general and administrative
expenses, in addition to an increase in legal expenses thru the Company's
efforts to obtain patents on a number of its products.
In the Statements of Cash Flows the decrease in inventories is due in part to
the increase in sales, but to a greater extent it is due to a decrease in
material purchases in keeping with the reduction in our current backlog.
Investment income declined by approximately 24% for the current six month period
primarily due to a reduction in our investment base brought about by a major
repurchase of our common stock during the latter part of our last fiscal year.
Management presently does not feel that there is any risk associated with its
investment policy, since the majority of our investments are represented by U.S.
Government securities, Certificates of Deposit and money market accounts.
Since the debt of the Company's ESOP is not to an outside party, the Company has
eliminated from the Statements of Earnings the offsetting items of interest
income and interest expense relating to the ESOP. The Company has also
eliminated the offsetting accruals from the Balance Sheets.
-7-
<PAGE>
The Company, when possible, funds all of its operations including Financing
Activities and Investing Activities with cash flows resulting from Operating
Activities. Management currently feels that during the next fiscal year, funds
from Operating Activities will continue to be adequate to meet these needs. For
the current six month period capital expenditures were approximately $167,747.
During the six month period ended December 31, 1996 the Company repurchased
7,426 shares of its common stock.
Under existing authorizations, as of December 31, 1996, funds in the amount of
$1,883,969 were available for the continuing repurchase of the Company's shares.
The backlog as of December 31, 1995 was $18,596,016. The backlog as of December
31, 1996 was $10,031,312. As indicated in prior reports customer order patterns
are inherently difficult to predict. One of the Company's major customers has
recently announced the consolidation and relocation of several of its facilities
and various personnel. The transition stage of this consolidation will possibly
cause delays in both ongoing and newly proposed programs. At the present time
Management does not know what effect, if any, this will have on the receipt of
pending new business from this customer. Management is hopeful that any delay
will be minimal. In spite of this, in light of our projected expanding customer
base, the Company still believes that it will continue to obtain contracts
consistent with our past experience. The Company currently has outstanding in
excess of $35,000,000 in quotations, for both repeat and new programs, in
addition to increase option clauses in various existing contracts. Management is
presently optimistic that a significant portion of these quotations and options
will result in firm contracts.
A dividend in the amount of $.70 per share was paid November 22, 1996 to
shareholders of record on October 28, 1996.
It should be noted that certain statements above are forward- looking and based
on current expectations. The matters covered by those 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.
-8-
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
At the 1996 Annual Meeting of Shareholders held on December 6,
1996 three shareholder proposals, none of which received a
majority of the votes cast, were included in the proxy statement
as follows:
Proposal 1
A recommendation to the Board of Directors that the 1989
Shareholder Rights Plan be redeemed.
Proposal 2
A recommendation to the Board of Directors to amend the corporate
bylaws so that the Board of Directors would consist of a majority
of independent Directors and that each Director be required to be
a shareholder.
Proposal 3
A recommendation to the Board of Directors to declassify the
Board so that all directors are elected each year.
The result of the voting was as follows:
Proposal 1 Proposal 2 Proposal 3
For 261,077 243,925 257,008
Against 614,333 627,810 613,587
Abstain 35,925 39,600 40,740
Broker non-votes 184,237 184,237 184,237
Item 5. Other Information
None during the quarter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment contract of John J. Pompay, Jr., Vice
President - Director of Marketing.
27 Financial Data Schedule (for electronic filing
only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
- 9 -
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESPEY MFG. & ELECTRONICS CORP.
Joseph Canterino, President
Herbert Potoker, Treasurer and
Chief Financial Officer
10 February 1997
Date
- 10 -
<PAGE>
The following is an agreement between John J. Pompay, Jr. and
Espey Mfg. & Electronics Corp. (The company).
This agreement supercedes 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-Director of
Marketing. 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.
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.
Dated: Very truly yours,
ACCEPTED: Espey MFG. & Electronics Corp.
- ------------------------ By_________________________
JOHN J. POMPAY, JR. JOSEPH CANTERINO, PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEULDE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 2ND
QUATER 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 10,196,563
<SECURITIES> 1,085,475
<RECEIVABLES> 1,208,809
<ALLOWANCES> 0
<INVENTORY> 8,902,719
<CURRENT-ASSETS> 21,756,156
<PP&E> 11,980,884
<DEPRECIATION> (8,665,622)
<TOTAL-ASSETS> 25,134,616
<CURRENT-LIABILITIES> 1,182,789
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 23,951,827
<TOTAL-LIABILITY-AND-EQUITY> 25,134,616
<SALES> 8,653,278
<TOTAL-REVENUES> 8,653,278
<CGS> 7,226,039
<TOTAL-COSTS> 7,226,039
<OTHER-EXPENSES> 906,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 771,845
<INCOME-TAX> 299,000
<INCOME-CONTINUING> 472,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 472,845
<EPS-PRIMARY> .42
<EPS-DILUTED> 0
</TABLE>
