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, 1998 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 - March 31, 1998 1
and June 30, 1997
Statements of Earnings - Three Months 3
and Nine Months Ended March 31, 1998
and 1997
Statements of Cash Flows - Nine Months 4
Ended March 31, 1998 and 1997
Notes to Financial Statements 5
March 31, 1998 and 1997
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
March 31, 1998 and June 30, 1997
A S S E T S
Unaudited
1998 1997
March 31 June 30
CURRENT ASSETS:
<S> <C> <S>
Cash $ 2,382,969 $ 1,416,801
Short-term investments at cost
(market value March 31, 1998,
$7,883,661 and June 30, 1997,
$10,746,731) 7,843,128 10,706,782
Total Cash and Short-term
Investments 10,226,097 12,123,583
Trade accounts receivable net of
$3,000 allowance March 31, 1998
and June 30, 1997 1,677,546 1,142,599
Other receivables 500 21,231
NET RECEIVABLES 1,668,046 1,163,830
Inventories:
Raw materials and supplies 554,480 449,416
Work-in-process 3,666,023 3,225,657
Costs relating to contracts in
process 4,331,779 4,526,802
NET INVENTORIES 8,552,282 8,201,875
Deferred Income taxes 366,086 137,758
Prepaid expenses and other current assets 359,368 192,853
TOTAL CURRENT ASSETS 21,171,880 21,819,899
Deferred income taxes 78,313 74,671
PROPERTY, PLANT AND EQUIPMENT AT COST 12,314,421 12,043,850
Less: Accumulated depreciation and
amortization ( 9,053,529) (8,738,469)
NET PROPERTY, PLANT AND EQUIPMENT 3,260,892 3,305,381
TOTAL $ 24,511,085 $ 25,199,951
- 1 - (Continued)
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
March 31, 1998 and June 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
1998 1997
March 31 June 30
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 348,958 $ 245,803
Accrued expenses:
Salaries, wages and commissions 264,793 107,640
Employees' insurance costs 36,309 40,573
ESOP payable 341,778 -
Other 10,744 8,994
Payroll and other taxes withheld
and accrued 83,964 47,564
Dividends payable - -
Deferred income taxes - -
Income tax payable - 148,606
TOTAL CURRENT LIABILITIES 1,086,546 599,180
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,164,937 shares March 31, 1998
and June 30, 1997. 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 22,972,173 24,148,405
33,973,439 35,149,671
Less: Common stock subscribed ( 3,910,636) ( 3,910,636)
Cost of 403,717 shares on March
31, 1998 and June 30, 1997 of common
stock in treasury ( 6,638,264) ( 6,638,264)
TOTAL STOCKHOLDERS' EQUITY 23,424,539 24,600,771
TOTAL $ 24,511,085 $ 25,199,951
<FN>
See accompanying notes to financial statements
</FN>
- 2 -
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
STATEMENTS OF EARNINGS
Three and Nine Months Ended March 31, 1998 and 1997
Unaudited Unaudited
Three Months Nine Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 2,240,347 $ 3,805,569 $ 8,293,629 $12,458,847
Cost of sales 2,697,955 3,261,532 7,921,334 10,487,571
Gross profit (loss) ( 457,608) 544,037 372,295 1,971,276
Selling, general and administrative expenses 468,375 467,407 1,476,201 1,374,285
Operating income (Loss) ( 925,983) 76,630 ( 1,103,906) 596,991
Other income
Interest income 137,595 130,072 427,892 378,595
Sundry income 11,603 668 13,192 3,629
149,198 130,740 441,085 382,224
Earnings(loss)before income taxes ( 776,785) 207,370 ( 662,821) 979,215
Provision(benefit)for income taxes ( 269,359) 80,000 ( 225,359) 379,000
Net earnings (loss) ($ 507,426) $ 127,370 ($ 437,462) $ 600,215
Net earnings(loss)per share ($ .46) $ .12 ($ .39) $ .54
Average number of shares outstanding 1,111,220 1,111,220 1,111,220 1,112,358
<FN>
See accompanying notes to Financical Statements
</FN>
- 3 -
<PAGE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Nine Months Ended March 31, 1998 and 1997
Unaudited
March 31
1998 1997
Cash Flows From Operating Activities:
<S> <C> <C>
Net (loss) earnings ($ 437,462) $ 600,215
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Tax effect of dividends on unallocated ESOP shares 39,084 46,732
Depreciation 315,059 399,926
Changes in assets and liabilities:
Decrease (increase) in receivables, net ( 504,216) ( 325,642)
Decrease (increase) in inventories, net ( 350,407) 2,907,234
Decrease (increase) in other current assets ( 166,515) ( 19,717)
Increase (decrease) in accounts payable 103,155 180,957
Increase (decrease) in accrued salaries, 157,153 159,543
wages and commissions
Increase (decrease) in accrued employee ( 4,264) ( 17,565)
insurance costs
Increase (decrease) in other accrued expenses 1,749 ( 5,121)
Increase (decrease) in payroll & other 36,400 ( 46,374)
taxes withheld and accrued
Increase (decrease) in income tax payable ( 148,606) 150
Decrease (increase) in deferred income taxes ( 231,970) ( 38,042)
Increase in accrued ESOP contributions 341,778 330,746
Net cash provided by (used in)
operating activities ( 849,062) 4,173,042
Cash Flows From Investing Activities:
Additions to property, plant & equipment ( 270,570) ( 299,752)
Proceeds from maturity of marketable investment securities - 4,880,073
Purchases of marketable investment securities - ( 1,958,878)
Net cash provided by(used in)
investing activities ( 270,570) 2,621,443
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 ( 1,897,486) 5,900,599
Cash and short-term investments, beginning of period 12,123,583 5,597,079
Cash and short-term investments, end of period $ 10,226,097 $ 11,497,678
Income Taxes Paid $ 195,000 $ 367,000
<FN>
See accompanying notes to financial statements.
</FN>
- 4 -
<PAGE>
</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 March 31, 1998, and the results of operations for each
of the three and nine month periods ended March 31, 1998 and 1997 and cash
flows for each of the three and nine month periods ended March 31, 1998 and
1997. The operating results for the three and nine 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 March 31, 1998 were based on
1,111,220 shares and on 1,112,358 shares for March 31,1997. 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.
- 5 -
<PAGE>
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 1933(the "Act")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 March 31, 1998 there were 144,126 shares
allocated to participants.
- 6 -
<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 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.
- 7 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Sales for the nine months ended March 31, 1998 were $8,293,629 as compared to
$12,458,847 for the same period in fiscal 1997. The Company's sales volume has
been directly affected by significant delays in the awarding of contracts on
several major programs which the Company had anticipated receiving in prior
periods. The orders which were booked during the six months ended December 31,
1997, particularly the $7,000,000 reported for the three months ended December
31, 1997 did not allow enough lead time to materially effect the sales volume
for the three months ended March 31, 1998. Additionally, since customer delivery
schedules are constantly fluctuating due to their changing requirements and
funding restraints, our own shipments are difficult to predict.
Sales for the three months ended March 31, 1998 were $2,240,347 as compared to
$3,805,569 for the three months ended March 31, 1997. As noted above, the sales
volume of the Company has been affected by delays in the awarding of several
major contracts. As a result of this decrease in sales volume, in conjunction
with our expenditures for the three months as disclosed below, the Company
sustained a net loss for the three month period ended March 31, 1998 of
$507,426, or $.46 per outstanding share of common stock.
The cost of sales, as a percentage of sales, rose to 96% for the nine months
ended March 31, 1998 as compared to the 84% reflected for the same period in
fiscal 1997. The substantial increase was caused by the operations of the
current quarter, during which the Company expended and wrote off costs
associated with the development of several new products. The Company feels that
given the current competitive environment of its industry, the expenditures
were justified, in order that it might establish a broader base of high
technology items for future revenues. The initial order for the prototypes of
one of these items contains an option clause which enables the customer to
substantially increase the quantities on order, and by so doing, increase the
monetary value of the order by approximately $7,000,000. Due to both the
increase in the cost of sales percentage and the decrease in sales volume for
the three months ended March 31, 1998, the Company sustained a net loss for
the nine month period of $437,462, or $.39 per outstanding share of common
stock. This compares to last year's net profit of $600,215 and earnings per
share of $.54.
The 13% increase in interest income, between the nine months ended March 31,
1998 and the corresponding nine month period of fiscal 1997, was principally
due to our continuing efforts to obtain higher interest rates on our
investments than in the past. 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
believe that there is any risk associated with its investment policy, since the
majority of the Company's investments are represented by Certificates of
Deposit, United States Government Treasury Securities and a Money Market
account.
- 8 -
<PAGE>
There were no material changes in selling, general and administrative expenses
between the nine months ended March 31, 1998 and 1997.
The increase in inventories shown in the Statements of Cash Flows reflects the
purchasing required for the orders received during the nine month period ended
March 31, 1998. However, the net inventories shown on the Balance Sheets at
March 31, 1998, December 31, 1997 and June 30, 1997 were relatively the same,
since the Company's backlog has been keeping pace with the orders being
shipped, although both are at a pace slower than anticipated.
Liquidity and Capital Expenditures
As of March 31, 1998 the total cash and short-term investments was $10,226,097
as compared to $12,123,583 at June 30, 1997. This decrease in cash and
short-term investments for the nine month period ended March 31, 1998 is
principally attributable to the cash used in operating activities.
The Company, during the first nine months of fiscal 1998, funded its operations
with cash flows from operating activities and investing activities. Management
currently believes that during the balance of the fiscal year, funds from these
activities will be adequate to meet funding requirements. For the first nine
months of fiscal 1998 capital expenditures were $270,570.
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 March 31, 1998, funds in the amount of
$1,884,000 were available for the continuing repurchase of the Company's
shares.
Business Outlook
As mentioned above, customer order patterns are inherently difficult to
predict, however the Company has in excess of $30,000,000 in outstanding
quotations, as well increase options as described above, in excess of
$10,000,000 on existing contracts. The Company is not certain what portion of
these quotations and options will materialize during the next twelve months,
nor is the Company certain of the future demand for the new products being
developed.
The backlog as of March 31, 1998 was $11,494,387. The backlog as of March 31,
1997 was $9,404,766. The increase is a result of the Company receiving orders
at a faster rate than those shipped during the past twelve months. This was
particularly evident in the three months ended December 31, 1997, during which
the Company received in excess of $7,000,000 in new orders. Approximately
$2,400,000 of these orders is connected with the establishment of a repair site
in Europe for our high power radar transmitters. The Company is still
anticipating a new contract for additional transmitters. In view of the
disappointing sales volume of the three months ended March 31,1998 the Company's
sales for the second half of fiscal 1998, as compared to fiscal 1997, will be
lower than previously anticipated.
- 9 -
<PAGE>
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." In
addition, as mentioned above, the Company is developing new products for market
penetration. Management currently continues to anticipate that the course of
action that the Company is taking 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.
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.
- 10 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (for electronic
filing only)
- 11 -
<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
14 May 1998
Date
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINACIAL 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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,382,969
<SECURITIES> 7,843,128
<RECEIVABLES> 1,668,046
<ALLOWANCES> 0
<INVENTORY> 8,552,282
<CURRENT-ASSETS> 21,171,880
<PP&E> 12,314,421
<DEPRECIATION> ( 9,053,529)
<TOTAL-ASSETS> 24,511,085
<CURRENT-LIABILITIES> 1,086,546
<BONDS> 0
<COMMON> 504,979
0
0
<OTHER-SE> 23,424,539
<TOTAL-LIABILITY-AND-EQUITY> 24,511,085
<SALES> 8,293,629
<TOTAL-REVENUES> 8,293,629
<CGS> 7,921,334
<TOTAL-COSTS> 7,921,334
<OTHER-EXPENSES> 1,476,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (662,821)
<INCOME-TAX> (225,359)
<INCOME-CONTINUING> (437,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (437,462)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> 0
