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 March 31, 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 12866-4755
(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 - March 31, 1997 1
and June 30, 1996
Statements of Earnings - Three Months 3
and Nine Months Ended March 31, 1997
and 1996
Statements of Cash Flows - Nine Months 4
Ended March 31, 1997 and 1996
Notes to Financial Statements 5
March 31, 1997 and 1996
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations.
PART II OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
March 31, 1997 and June 30, 1996
A S S E T S
Unaudited
1997 1996
March 31 June 30
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivelents $ 659,198 $ 1,112,767
Short-term investments at cost
(market value March 31, 1997,
$10,891,321 and June 30, 1996,
$4,577,305) 10,838,480 4,484,312
Total Cash and Short-term
Investments 11,497,678 5,597,079
Marketable investment securities - current 100,000 3,021,195
Trade accounts receivable net of
$3000 allowance March 31, 1997
and June 30, 1996 1,899,723 1,556,404
Other receivables 500 18,177
NET RECEIVABLES 1,900,223 1,574,581
Inventories:
Raw materials and supplies 530,934 499,900
Work-in-process 1,785,343 1,561,742
Costs relating to contracts in
process 5,809,835 8,971,704
NET INVENTORIES 8,126,112 11,033,346
Deferred Income taxes - 796
Prepaid expenses and other current assets 292,525 272,808
TOTAL CURRENT ASSETS 21,916,538 21,499,805
Deferred income taxes 86,844 9,088
PROPERTY, PLANT AND EQUIPMENT AT COST 12,112,889 11,813,137
Less: Accumulated depreciation and
amortization (8,771,913) (8,371,987)
NET PROPERTY, PLANT AND EQUIPMENT 3,340,976 3,441,150
TOTAL $ 25,344,358 $ 24,950,043
- 1 - (Continued)
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
March 31, 1997 and June 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
1997 1996
March 31 June 30
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 339,588 $ 158,631
Accrued expenses:
Salaries, wages and commissions 275,894 116,351
Employees' insurance costs 37,174 54,739
ESOP payable 330,746 -
Other 12,319 17,440
Payroll and other taxes withheld
and accrued 110,516 156,890
Dividends payable - -
Deferred income taxes 38,918 -
Income tax payable 120,007 119,857
TOTAL CURRENT LIABILITIES 1,265,162 623,908
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,514,937 shares March 31, 1997
and June 30, 1996. 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 24,185,493 24,316,400
35,186,759 35,317,666
Less: Common stock subscribed ( 4,469,299) ( 4,469,299)
Cost of 403,717 shares on March
31, 1997 and 396,291 shares on
June 30, 1996 of common stock in
treasury ( 6,638,264) ( 6,522,232)
TOTAL STOCKHOLDERS' EQUITY 24,079,196 24,326,135
TOTAL $ 25,344,358 $ 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 Nine Months Ended March 31, 1997 and 1996
Unaudited Unaudited
Three Months Nine Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $ 3,805,569 $ 4,352,275 $ 12,458,847 $ 12,787,976
Cost of sales 3,261,532 3,818,718 10,487,571 11,362,828
Gross profit 544,037 533,557 1,971,276 1,425,148
Selling, general and administrative expenses 467,407 397,074 1,374,285 1,251,804
Operating income 76,630 136,483 596,991 173,344
Other income
Interest income 130,072 133,329 378,595 459,539
Sundry income 668 667 3,629 7,942
130,740 133,996 382,224 467,481
Earnings before income taxes 207,370 270,479 979,215 640,825
Provision for income taxes 80,000 101,000 379,000 247,000
Net earnings $ 127,370 $ 169,479 $ 600,215 $ 393,825
Earnings per share:
Net earnings $ .12 $ .13 $ .54 $ .30
Average number of shares outstanding 1,111,220 1,264,912 1,112,358 1,319,375
<FN>
See accompanying notes to Financical Statements
</FN>
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<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Nine Months Ended March 31, 1997 and 1996
Unaudited
March 31
1997 1996
Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $ 600,215 $ 393,825
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 399,926 392,542
Changes in assets and liabilities:
Decrease (increase) in receivables, net ( 325,642) ( 1,213,125)
Decrease (increase) in inventories, net 2,907,234 ( 1,519,639)
Decrease (increase) in other current assets ( 19,717) 128,898
Decrease (increase) in income tax refund receivable - 249,886
Increase (decrease) in accounts payable 180,957 21,340
Increase (decrease) in accrued salaries, 159,543 185,622
wages and commissions
Increase (decrease) in accrued employee ( 17,565) 1,653
insurance costs
Increase (decrease) in other accrued expenses ( 5,121) ( 100)
Increase (decrease) in payroll & other ( 46,374) ( 4,191)
taxes withheld and accrued
Increase (decrease) in income tax payable 150 -
Decrease (increase) in deferred income taxes ( 38,042) ( 47,949)
Increase (decrease) in accrued ESOP contributions 330,746 319,715
Net cash provided by (used in)
operating activities 4,173,042 ( 1,046,460)
Cash Flows From Investing Activities:
Additions to property, plant & equipment ( 299,752) ( 311,623)
Proceeds from maturity of marketable investment securities 4,880,073 11,445,421
Purchases of marketable investment securities ( 1,958,878) ( 6,706,726)
Net cash provided by(used in)
investing activities 2,621,443 4,427,072
Cash Flows From Financing Activities:
Dividends on common stock ( 777,854) ( 937,119)
Purchase of treasury stock ( 116,032) ( 3,696,340)
Net cash used in
financing activities ( 893,886) ( 4,633,459)
Increase (decrease) in cash and short-term investments 5,900,599 ( 1,252,847)
Cash and short-term investments, beginning of period 5,597,079 1,699,215
Cash and short-term investments, end of period $ 11,497,678 $ 446,368
Income Taxes Paid $ 367,000 $ -
<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 March 31, 1997, and the results of operations for each of the
nine months ended March 31, 1997 and 1996 and cash flows for the nine months
ended March 31, 1997 and 1996. The operating results for the nine months
ended March 31, 1997 are not necessarily indicative of the operating results
to be expected for the full fiscal year. These statements should be read in
conjunction with the Company's most recent Annual Report to Stockholders and
Annual Report on Form 10-K.
2. The earnings per share computations for March 31, 1997 were based on
1,112,358 shares and on 1,319,375 shares for March 31, 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.
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.
- 5 -
<PAGE>
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 March 31, 1997 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.
- 6 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Sales for the nine months ended March 31, 1997 were $12,458,847 as compared to
$12,787,976 for the same period in 1996. 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 current nine month period were $600,215 compared to
$393,825 for the corresponding period last year. This is an increase of
approximately 52%. Current earnings per common share rose to $.54 per share
from $.30 per common share last year. This increase reflects not only the
increase in net earnings but the decrease in the average number of common shares
outstanding during the comparable nine month periods from 1,319,375 to
1,112,358.
Similar to the first half 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 half of last year. As a result, Cost of Sales for the
current nine month period dropped to 84% 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 of nearly 3%. The Company is still
striving 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
accompanying our 1996 Annual Report to Stockholders and in our most recently
filed Form 10K.
Selling and General & Administrative expenses show an increase of approximately
18% for the current nine month period. This is primarily 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 for the most
part to a decrease in material purchases in keeping with the reduction in our
current backlog.
Investment income declined by approximately 22% for the current nine 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.
- 7 -
<PAGE>
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.
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 nine month period capital expenditures were approximately $300,000.
During the nine month period ended March 31, 1997 the Company repurchased 7,426
shares of its common stock.
Under existing authorizations, as of March 31, 1997, funds in the amount of
$1,883,969 were available for the continuing repurchase of the Company's shares.
The backlog as of March 31, 1996 was $18,666,969. The backlog as of March 31,
1997 was $9,404,756. As indicated in prior reports 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, if any, this will have
on the receipt of currently pending new business from this customer. The
Company is hopeful that any further delay will be minimal. In spite of this,
in light of our projected expanding customer base, the Company believes that in
the long term it will continue to obtain contracts consistent with our past
experience. The Company conservatively estimates that it currently has
outstanding quotations well in excess of $35,000,000 for both repeat and new
programs, in addition to increase option clauses in various existing contracts.
The Company 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 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
- 8 -
<PAGE>
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.
-9-
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
None during this quarter.
Item 5. Other Information
None during this quarter.
Item 6. Exhibits and Reports on Form 8-K
27 Financial Data Schedule (for electronic filing only)
- 10 -
<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
07 May 1997
Date
- 11 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 3RD
QUARTER 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,497,678
<SECURITIES> 100,000
<RECEIVABLES> 1,900,223
<ALLOWANCES> 0
<INVENTORY> 8,126,112
<CURRENT-ASSETS> 21,916,538
<PP&E> 12,112,889
<DEPRECIATION> ( 8,771,913)
<TOTAL-ASSETS> 25,344,358
<CURRENT-LIABILITIES> 1,265,162
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 24,079,196
<TOTAL-LIABILITY-AND-EQUITY> 25,344,358
<SALES> 12,458,847
<TOTAL-REVENUES> 12,458,847
<CGS> 10,487,571
<TOTAL-COSTS> 10,487,571
<OTHER-EXPENSES> 1,374,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 979,215
<INCOME-TAX> 379,000
<INCOME-CONTINUING> 600,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 600,215
<EPS-PRIMARY> .54
<EPS-DILUTED> 0
