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, 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
ESPEY MFG. & ELECTRONICS CORP.
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Balance Sheets - December 31, 1997 1
and June 30, 1997
Statements of Earnings - Three and 3
Six Months ended December 31, 1997
and 1996
Statements of Cash Flows - Six Months 4
Ended December 31, 1997 and 1996
Notes to Financial Statements 5
Item 2 Management's Discussion and Analysis of 8
Financial Condition and Results of Operations.
PART II OTHER INFORMATION 11
SIGNATURES 12
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
December 31, 1997 and June 30, 1997
A S S E T S
Unaudited
1997 1997
December 31 June 30
CURRENT ASSETS:
<S> <C> <C>
Cash $ 467,924 $ 1,416,801
Short-term investments at cost
(market value December 31, 1997,
$9,865,600 and June 30, 1997,
$10,746,731) 9,831,022 10,706,782
Total Cash and Short-term
Investments 10,298,946 12,123,583
Trade accounts receivable net of
$3,000 allowance December 31, 1997
and June 30, 1997 2,582,332 1,142,599
Other receivables 500 21,231
Net Receivables 2,582,832 1,163,830
Inventories:
Raw materials and supplies 542,927 449,416
Work-in-process 3,469,379 3,225,657
Costs relating to contracts in
process 4,227,810 4,526,802
Net Inventories 8,240,116 8,201,875
Deferred income taxes 140,727 137,758
Prepaid expenses and other current assets 430,926 192,853
Total Current Assets 21,693,547 21,819,899
DEFERRED INCOME TAXES 78,313 74,671
PROPERTY, PLANT AND EQUIPMENT AT COST 12,142,706 12,043,850
Less: Accumulated depreciation and
amortization (8,948,509) (8,738,469)
Net Property, Plant and Equipment 3,194,197 3,305,381
Total $ 24,966,057 $ 25,199,951
(Continued)
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<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
December 31, 1997 and June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
1997 1997
December 31 June 30
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 465,662 $ 245,803
Accrued expenses:
Salaries, wages and commissions 215,624 107,640
Employees' insurance costs 37,817 40,573
ESOP payable 227,852 -
Other 13,523 8,994
Payroll and other taxes withheld
and accrued 73,613 47,564
Dividends payable - -
Income taxes payable - 148,606
TOTAL CURRENT LIABILITIES 1,034,091 599,180
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,514,937 shares December 31, 1997
and June 30, 1997. 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 23,479,600 24,148,405
34,480,866 35,149,671
Less: Common stock subscribed ( 3,910,636) ( 3,910,636)
Cost of 403,717 shares on December
31, 1997 and June 30, 1997 of common
stock in treasury ( 6,638,264) ( 6,638,264)
TOTAL STOCKHOLDERS' EQUITY 23,931,966 24,600,771
TOTAL $ 24,966,057 $ 25,199,951
<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, 1997 and 1996
Unaudited Unaudited
Three Months Six Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $ 3,549,697 $ 4,066,386 $ 6,053,281 $ 8,653,278
Cost of sales 3,148,398 3,337,165 5,223,379 7,226,039
Gross profit 401,300 729,221 829,902 1,427,239
Selling, general and administrative
Expenses 500,660 459,543 1,007,825 906,878
Operating income (loss) ( 99,360) 269,678 ( 177,923) 520,361
Other income
Interest income 140,933 123,862 290,298 248,523
Sundry income 382 2,586 1,589 2,961
141,315 126,448 291,887 251,484
Earnings before income taxes 41,955 396,126 113,964 771,845
Provision for income taxes 17,000 152,000 44,000 299,000
Net earnings $ 24,955 $ 244,126 $ 69,964 $ 472,845
Earnings per share:
Net earnings $ .02 $ .21 $ .06 $ .42
Average number of shares
outstanding 1,111,220 1,111,220 1,111,220 1,112,915
<FN>
See accompanying notes to Financial Statements
</FN>
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<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Six Months Ended December 31, 1997 and 1996
Unaudited
December 31
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 69,964 $ 472,845
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Tax effect of dividends on unallocated ESOP shares 39,084 46,732
Depreciation 210,040 293,635
Changes in assets and liabilities:
Decrease (increase) in receivables, net ( 1,419,002) 365,772
Decrease (increase) in inventories, net ( 38,241) 2,130,627
Decrease (increase) in prepaid and
other current assets ( 238,073) ( 88,986)
Increase (decrease) in accounts payable 219,859 303,401
Increase (decrease) in accrued salaries, 107,984 106,335
wages and commissions
Increase (decrease) in accrued employee ( 2,756) ( 15,879)
insurance costs
Increase (decrease) in other accrued expenses 4,530 856
Increase (decrease) in payroll & other 26,049 ( 118,547)
taxes withheld and accrued
Increase (decrease) in income tax payable ( 148,606) 62,218
Decrease (increase) in deferred income taxes ( 6,611) ( 54,110)
Increase (decrease) in accrued ESOP contributions 227,852 220,498
Net cash provided by(used in)
operating activities ( 947,927) 3,725,397
Cash Flows From Investing Activities:
Additions to property, plant & equipment ( 98,856) ( 167,747)
Proceeds from maturity of marketable investment
securities - 3,894,598
Purchases of marketable investment securities - ( 1,958,878)
Net cash provided by (used in)
investing activities ( 98,856) 1,767,973
Cash Flows From Financing Activities:
Dividends on common stock ( 777,854) ( 777,854)
Purchase of treasury stock - ( 116,032)
Net cash used in
financing activities ( 777,854) ( 893,886)
Increase (decrease) in cash and short-term
investments ( 1,824,637) 4,599,484
Cash and short-term investments,
beginning of period 12,123,583 5,597,079
Cash and short-term investments, end of period $ 10,298,946 $ 10,196,563
Income Taxes Paid $ 195,000 $ 241,500
<FN>
See accompanying notes to financial statements.
</FN>
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</TABLE>
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 December 31, 1997, and the results of operations
for each of the three and six month periods ended December
31,1997 and 1996 and cash flows for each of the six month period
ended December 31, 1997 and 1996. The operating results for the
three month and six month periods 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 December 31, 1997 were based
on 1,111,220 shares and on 1,112,915 shares for December 31,1996. These
represent the average number of shares outstanding for each respective
period. Pursuant to the Company's STOCK RIGHTS PLAN
(as described in the 1997 Form 10- K),common stock purchase rights
under the Plan could potentially dilute earnings per common share in
the future. These shares were not included in a computation of diluted
earnings per share because to do so would have been anti-dilutive for
the periods presented.
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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.
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 31, 1997 there were 145,372 shares allocated to
participants.
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<PAGE>
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 Operation
Results of Operations
Sales for the six months ended December 31, 1997 were $6,053,281
as compared to $8,653,278 for the same period in 1996. The Company's
sales volume continues to be effected by 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, rose marginally to 86%
for the first half of fiscal 1998 as compared to the 84% reflected
for the same period last year. Although the gross profit margins
remained about the same, net earnings, and net earnings per share,
were adversely effected by the decrease in sales volume.
The 17% increase in interest income, between the first half of fiscal
1998 and the corresponding period of fiscal 1997, was directly related
to the net increase in cash and short-term investments available during
the course of the current period for the generating of interest income.
There was also a slight increase in the short term interest rates
available to the Company. The reclassification of 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 six month period ended December 31, 1997 were $69,964
or $.06 per share compared to $472,845 or $.42 per share for the
corresponding period of last year. As indicated above, the net earnings
decrease was due mainly to reduced sales. Selling , general and
administrative expenses increased by approximately 16%. No one material
factor accounted for this increase. The increase in accounts receivable
in the Statements of Cash Flows is the result of shipments made toward the
end of the period. The majority of these receivables have already been
collected.
The increase in inventories shown in the Statements of Cash Flows
reflects additional purchasing during the second quarter of the
current year due to an increase in our backlog. However, the net
inventories shown on the Balance Sheets at December 31, and June 30,
1997 were relatively the same.
Liquidity and Capital Expenditures
As of December 31, 1997 the total cash and short-term investments
was $10,298,946 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.
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<PAGE>
The Company, in the first half of fiscal 1998 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 these activities will be adequate to meet funding requirements.
For the first half of fiscal 1998 capital expenditures were approximately
$98,856.
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 likewise eliminated the offsetting accruals from the
Balance Sheets.
Under existing authorizations, as of December 31, 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 transition stage of this consolidation is still causing
delays in both ongoing and newly proposed programs, however based on the
incoming flow of new business this situation shows definite signs of easing.
At the present time, the Company does not know what the final effect this
will have on the receipt of pending new business from this customer.
The backlog as of December 31, 1996 was $10,031,312. The backlog as of
December 31, 1997 was $11,494,387. As a positive sign, for the past
twelve months, the Company has been receiving orders at a faster rate
than those being shipped. This was particularly evident in the quarter
recently ended, during which the Company received in excess of $7,000,000
in new orders. A sizable portion of these orders were connected with the
establishment of a repair site for our high power radar transmitters. The
Company is still anticipating a new contract for additional transmitters.
Despite the significant sales decrease in this period, management
anticipates that sales for the second half of fiscal 1998 will approximate
or exceed those of the second half 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 continues to
anticipate that the course of action 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.
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<PAGE>
The Company is aware of the problems which may arise at the turn
of the century as regards the programming of our computers to
accommodate the year 2000. All necessary steps have been taken
to assure that this transition will be made smoothly. The cost
of these efforts has been, and will continue to be minimal.
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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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
At the 1997 Annual Meeting of Shareholders held on December 5, 1997
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 321,742 210,469 311,387
Against 580,710 690,172 589,254
Abstain 4,150 5,961 5,961
Broker non-votes 156,559 156,559 156,559
Item 5. Other Information
None during the quarter.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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, 1997.
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<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 February 1998
Date
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTION EXTRACTED FROM THE 2ND
QUARTER 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 467,924
<SECURITIES> 9,831,022
<RECEIVABLES> 2,582,832
<ALLOWANCES> 0
<INVENTORY> 8,240,116
<CURRENT-ASSETS> 21,693,547
<PP&E> 12,142,706
<DEPRECIATION> (8,948,509)
<TOTAL-ASSETS> 24,966,057
<CURRENT-LIABILITIES> 1,034,091
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 23,931,966
<TOTAL-LIABILITY-AND-EQUITY> 24,966,057
<SALES> 6,053,281
<TOTAL-REVENUES> 6,053,281
<CGS> 5,223,379
<TOTAL-COSTS> 5,223,379
<OTHER-EXPENSES> 1,007,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 113,964
<INCOME-TAX> 44,000
<INCOME-CONTINUING> 69,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,964
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
