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 September 30, 1997 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 - September 30, 1997 1
and June 30, 1997
Statements of Earnings - Three Months 3
Ended September 30, 1997 and 1996
Statements of Cash Flows - Three Months 4
Ended September 30, 1997 and 1996
Notes to Financial Statements 5
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
September 30, 1997 and June 30, 1997
A S S E T S
Unaudited
1997 1997
September 30 June 30
CURRENT ASSETS:
<S> <C> <C>
Cash $ 700,963 $ 1,416,801
Short-term investments at cost
(market value September 30, 1997,
$10,761,793 and June 30, 1997,
$10,746,731) 10,720,225 10,706,782
Total Cash and Short-term
Investments 11,421,188 12,123,583
Trade accounts receivable net of
$3,000 allowance at September 30, 1997
and June 30, 1997 1,675,805 1,142,599
Other receivables 500 21,231
Net Receivables 1,676,305 1,163,830
Inventories:
Raw materials and supplies 513,550 449,416
Work-in-process 3,418,774 3,225,657
Costs relating to contracts in
process 4,832,185 4,526,802
Net Inventories 8,764,509 8,201,875
Deferred income taxes 144,036 137,758
Prepaid expenses and other current assets 130,938 192,853
Total Current Assets 22,136,976 21,819,899
DEFERRED INCOME TAXES 69,616 74,671
PROPERTY, PLANT AND EQUIPMENT AT COST 12,071,216 12,043,850
Less: Accumulated depreciation and
amortization (8,843,903) (8,738,469)
Net Property, Plant and Equipment 3,227,313 3,305,381
Total $ 25,433,905 $ 25,199,951
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
September 30, 1997 and June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
1997 1997
September 30 June 30
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 305,495 $ 245,803
Accrued expenses:
Salaries, wages and commissions 155,310 107,640
Employees' insurance costs 33,198 40,573
ESOP payable 113,926 -
Other 9,887 8,994
Payroll and other taxes withheld
and accrued 63,479 47,564
Dividends payable 777,854 -
Income taxes payable 67,745 148,606
TOTAL CURRENT LIABILITIES 1,526,894 599,180
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,514,937 shares September 30, 1997
and June 30, 1997. 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 23,454,645 24,148,405
34,455,911 35,149,671
Less: Common stock subscribed ( 3,910,636) ( 3,910,636)
Cost of 403,717 shares on September
30, 1997 and June 30, 1997 of common
stock in treasury ( 6,638,264) ( 6,638,264)
TOTAL STOCKHOLDERS' EQUITY 23,907,011 24,600,771
TOTAL $ 25,433,905 $ 25,199,951
<FN>
See accompanying notes to financial statements
</FN>
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Earnings
Three Months Ended September 30, 1997 and 1996
Unaudited
Three Months
September 1997 September 1996
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Net Sales $ 2,503,584 $4,586,892
Cost of sales 2,074,981 3,888,874
GROSS PROFIT 428,603 698,018
Selling, general and administrative
expenses 507,165 447,335
OPERATING INCOME (LOSS) ( 78,562) 250,683
Other Income:
Interest income 149,364 124,661
Sundry income 1,207 375
150,571 125,036
Earnings before income taxes 72,009 375,719
Provision for income taxes 27,000 147,000
NET EARNINGS $ 45,009 $228,719
Earnings per Share:
Net earnings $ .04 $ .21
Average number of shares outstanding 1,111,220 1,114,610
<FN>
See accompanying notes to financial statements
</FN>
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Three Months Ended September 30, 1997 and 1996
Unaudited
September 30
1997 1996
Cash Flows From Operating Activities:
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Net earnings $ 45,009 $ 228,719
Adjustments to reconcile net earnings to net
cash used in operating activities:
Tax effect of dividends on unallocated ESOP shares 39,084 46,732
Depreciation 105,434 167,012
Changes in assets and liabilities:
Increase in receivables, net ( 512,475) ( 2,252,686)
Decrease (increase) in inventories, net ( 562,634) 1,379,054
Decrease in other current assets 61,915 100,658
Increase (decrease) in accounts payable 59,692 ( 25,481)
Increase in accrued salaries, wages and commissions 47,670 52,533
Decrease in accrued employee insurance costs ( 7,375) ( 6,429)
Increase (decrease) in other accrued expenses 893 ( 6,043)
Increase (decrease) in payroll & other taxes withheld
and accrued 15,915 ( 85,905)
Decrease (increase) in deferred income taxes ( 1,223) ( 34,832)
Increase (decrease) in income taxes payable ( 80,861) 132,440
Increase in accrued ESOP contributions 113,926 110,249
Net cash used in
operating activities ( 675,030) ( 193,979)
Cash Flows From Investing Activities:
Additions to property, plant & equipment ( 27,366) ( 110,677)
Proceeds from maturity of marketable investment securities - 2,921,195
Purchases of marketable investment securities - ( 973,403)
Net cash provided by (used in)
investing activities ( 27,366) 1,837,115
Cash Flows From Financing Activities:
Purchase of treasury stock - ( 116,032)
Net cash used in
financing activities - ( 116,032)
Increase (decrease) in cash and short-term investments ( 702,396) 1,527,104
Cash and short-term investments, beginning of period 12,123,583 5,597,079
Cash and short-term investments, end of period $11,421,187 $ 7,124,183
Income Taxes Paid $ 70,000 $ 2,660
<FN>
See accompanying notes to financial statements.
</FN>
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ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements
___________________
1. The unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission. 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 September 30, 1997, and the results of operations
for each of the three months ended September 30, 1997 and 1996
and cash flows for each of the three months ended September 30,
1997 and 1996. The operating results for the three months ended
September 30, 1997 are not necessarily indicative of the
operating results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principals have been condensed or omitted
pursuant to such rules and regulations applicable to interim
financial statements, although management believes the
disclosures are adequate to make the information presented not
misleading. These financial statements should be read in
conjunction with the Company's most recent audited financial
statements included in its 1997 Annual Report to Stockholders
and its 1997 Form 10-K.
2. The earnings per share computations for September 30, 1997 were
based on 1,111,220 shares and on 1,114,610 shares for September
30, 1996. 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.
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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.
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 September
30, 1997 there were 152,214 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
Results of Operations
Sales for the three months ended September 30, 1997
were $2,503,584 as compared to $4,586,892 for the same
period in 1996. This decrease in sales resulted
primarily from the consolidation and relocation of the
facilities and personnel of one of the Company's major
customers.
The cost of sales, as a percentage of sales, dropped
slightly to 83% for the first quarter of fiscal 1998 as
compared to the 85% reflected for the same period last
year. The resulting increase in the gross profit margin
can be attributed to many of the contracts shipped in
the current quarter calling for a somewhat higher gross
profit margin than those shipped in the corresponding
quarter in the prior year: however, this was partially
offset by an increase in selling and general &
administrative expenses of 13%. The increase in
selling and general & administrative expenses cannot
be attributed to any specific factor.
The 20% increase in interest income, between the first
quarter of fiscal 1998 and the corresponding quarter of
fiscal 1997, was directly related to the net increase
in cash and short-term investments. The increase in
short-term investments was explained in detail in the
most recently filed Form 10-K in Item 7, "Management"s
Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital
Expenditures." The Company does not feel that there is
any risk associated with its investment policy, since
the majority of our investments are represented by
Certificates of Deposit, United States Government
Treasury Securities and a Money Market account.
Net earnings for the three month period ended
September 30, 1997 were $45,009 or $.04 per share
compared to $228,719 or $.21 per share for the
corresponding period of last year. The net earnings
decrease was due to reduced sales and the increase in
selling, general & administrative expenses.
Liquidity and Capital Expenditures
As of September 30, 1997 the total cash and short-term
investments was $11,421,188 as compared to $12,123,583
as of June 30, 1997. This decrease in cash and short-
term investments at the end of the period is
substantially attributable to the increases in
inventories and accounts receivable. Most of these
receivables have already been paid, and the Company
feels that its reserve is adequate.
The Company, in the first quarter, funded its
operations with cash flows from operating activities
and investing activities. Management currently feels
that during the balance of the fiscal year, funds from
operating activities will be adequate to meet funding
requirements. For the first quarter capital
expenditures were approximately $27,366.
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 eliminated the offsetting
accruals from the Balance Sheets.
Under existing authorizations, as of September 30,
1997, funds in the amount of $1,884,000 were available
for the continuing repurchase of the Company's shares.
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
-7-
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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 backlog as of September 30, 1996 was $12,218,320.
The backlog as of September 30, 1997 was $7,661,378.
The Company believes that it will continue to obtain
contracts consistent with our past experience. We are
currently anticipating a new contract for our high
power radar transmitters, which, if received, along
with our other anticipated new business will result in
substantially increasing our backlog. Despite the
significant sales decrease in this period, management
anticipates that sales for the final three quarters of
fiscal 1998 will approximate or exceed those for the
final three quarters of fiscal 1997.
The Company is continuing to expand its Sales and
Marketing departments. Various specifics concerning the
products we are concentrating on are addressed in both
the President's message accompanying our 1997 Annual
Report and in our most recently filed Form 10-K in Item
7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Business
Outlook. "Management currently anticipates that the
course of action the Company has taken will enhance the
Company's revenues and profitability in future periods.
Other Matters
A dividend in the amount of $.70 per share was declared
payable November 21, 1997 to shareholders of record on
October 24, 1997.
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.
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ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter.
Item 5. Other Information
None during the quarter.
Item 6. Exhibits and Reports on Form 8-K
None during the quarter.
- 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
12 September 1997
Date
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1ST
QUARTER 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS,
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 11,421,188
<SECURITIES> 0
<RECEIVABLES> 1,676,305
<ALLOWANCES> 0
<INVENTORY> 8,764,509
<CURRENT-ASSETS> 22,136,976
<PP&E> 12,071,216
<DEPRECIATION> (8,843,903)
<TOTAL-ASSETS> 25,433,905
<CURRENT-LIABILITIES> 1,526,894
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 23,907,011
<TOTAL-LIABILITY-AND-EQUITY> 25,433,905
<SALES> 2,503,584
<TOTAL-REVENUES> 2,503,584
<CGS> 2,074,981
<TOTAL-COSTS> 2,074,981
<OTHER-EXPENSES> 507,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 72,009
<INCOME-TAX> 27,000
<INCOME-CONTINUING> 45,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,009
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
