UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
--------------
Commission File Number I-4383
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ESPEY MFG. & ELECTRONICS CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
NEW YORK 14-1387171
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(State of Incorporation) (I.R.S. Employer's Identification 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 of May 4, 1999: 1,101,308 .
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 Statements:
Balance Sheets - March 31, 1999 1
and June 30, 1998
Statements of Income - Three Months 3
and Nine Months Ended March 31, 1999
and 1998
Statements of Cash Flows - Nine Months 4
Ended March 31, 1999 and 1998
Notes to Financial Statements 5
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations.
PART II OTHER INFORMATION 12
SIGNATURES 13
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
March 31, 1999 and June 30, 1998
A S S E T S
Unaudited
March 31, 1999 June 30,1998
-------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 1,084,530 $ 191,739
Short-term investments ............................. 200,000 2,400,000
----------- -----------
Total Cash and Short-term
Investments ............. 1,284,530 2,591,739
Investments securities ............................. 6,653,634 7,235,749
Trade accounts receivable net of
$3,000 allowance March 31, 1999
and June 30, 1998 ............................... 2,613,306 1,866,336
Other receivables .................................. 99,449 289,050
----------- -----------
Net Receivables .................. 2,712,755 2,155,386
Inventories:
Raw materials and supplies ...................... 526,507 558,951
Work-in-process ................................. 2,443,844 2,905,269
Costs relating to contracts in
process ................................... 8,533,718 5,324,491
----------- -----------
Total Inventories ................ 11,504,069 8,788,711
---------- -----------
Deferred income taxes .............................. 357,154 348,514
Prepaid expenses and other current assets .......... 261,259 189,559
----------- -----------
Total Current Assets ............. 22,773,401 21,309,658
----------- -----------
Deferred income taxes ....................................... 80,793 80,793
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
March 31, 1999 and June 30, 1998
A S S E T S
Unaudited
March 31, 1999 June 30,1998
-------------- ------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT AT COST ....................... 12,651,942 12,344,139
Less: Accumulated depreciation and
amortization ................................. (9,488,811) (9,160,482)
----------- -----------
Net Property, Plant, and Equipment 3,163,131 3,183,657
----------- -----------
TOTAL ASSETS ..................... $26,017,325 $24,574,108
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- 1 - (Continued)
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets, Continued
March 31, 1999 and June 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
March 31, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .......................................... $ 605,675 207,886
Accrued expenses:
Salaries, wages and commissions ........................ 701,402 583,058
Employees' insurance costs ............................. 55,304 37,472
ESOP payable ........................................... 406,390 --
Other .................................................. 22,128 12,204
Payroll and other taxes ................................ 336,553 43,360
Dividends payable ...................................... 110,246 --
------------ ------------
TOTAL CURRENT LIABILITIES ............... 2,237,698 883,980
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,514,937 shares March 31, 1999
and June 30, 1998 ........................................ 504,979 504,979
Unrealized gain (loss) on available-for-sale
securities, net of income tax ............................. (8,100) 7,260
Capital in excess of par value ............................ 10,496,287 10,496,287
Retained earnings ......................................... 22,911,288 22,671,840
------------ ------------
33,904,454 33,680,366
Less: Common stock subscribed ............................ (3,351,974) (3,351,974)
Cost of 413,629 shares on March
31, 1999 and 403,717 on June 30, 1998 of common
stock in treasury .............................. (6,772,853) (6,638,264)
TOTAL STOCKHOLDERS' EQUITY ............. 23,779,627 23,690,128
------------ ------------
TOTAL .......................... $ 26,017,325 $ 24,574,108
============ ============
</TABLE>
See accompanying notes to financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
STATEMENTS OF INCOME
Three and Nine Months Ended March 31, 1999 and 1998
Unaudited Unaudited
Three Months Nine Months
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales .................................. $ 3,089,547 $ 2,240,347 $ 8,747,908 $ 8,293,629
Cost of sales .............................. 2,637,732 2,697,955 7,271,935 7,921,334
----------- ----------- ----------- -----------
Gross profit (loss) ...... 451,815 (457,608) 1,475,973 372,295
Selling, general and administrative expenses 421,456 468,375 1,370,974 1,476,201
----------- ----------- ----------- -----------
Operating income (loss) .. 30,359 (925,983) 104,999 (1,103,906)
----------- ----------- ----------- -----------
Other income
Interest income ................... 107,339 137,595 399,400 427,892
Sundry income ..................... 4,025 11,603 4,295 13,192
----------- ----------- ----------- -----------
111,364 149,198 403,695 441,084
----------- ----------- ----------- -----------
Income(loss)before income taxes ............ 141,723 (776,785) 508,694 (662,822)
----------- ----------- ----------- -----------
Provision(benefit)for income taxes ......... 42,000 (269,359) 159,000 (225,359)
----------- ----------- ----------- -----------
Net income(loss) ......... $ 99,723 ($ 507,426) $ 349,694 ($ 437,463)
----------- ----------- ----------- -----------
Basic and dilutive income(loss)per share ... $ .09 ($ .46) $ .32 ($ .39)
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding ................................ 1,102,296 1,111,220 1,105,157 1,111,220
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998
Unaudited
March 31
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) .............................................. $ 349,694 $ (437,463)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Tax effect of dividends on unallocated ESOP shares ............. -- 39,085
Depreciation ................................................... 328,329 315,059
Changes in assets and liabilities:
Increase in receivables, net .......................... (557,369) (504,216)
Increase in inventories ............................... (2,715,358) (350,407)
Increase in other current assets ..................... (71,700) (166,515)
Increase in accounts payable ......................... 397,789 103,155
Increase in accrued salaries, wages
commissions .................................. 118,344 157,153
Increase (decrease) in accrued employee ...............
insurance costs 17,832 (4,264)
Increase in other accrued expenses ................... 9,924 1,749
Increase in payroll and other
taxes withheld and accrued ...................
Decrease in income tax payable ........................ 293,193 36,400
Decrease in deferred income taxes ..................... -- (148,606)
Increase in accrued ESOP contributions ............... -- (231,970)
406,390 341,778
------------ ------------
Net cash used in
operating activities ........
(1,422,932) (849,062)
------------ ------------
Cash Flows From Investing Activities:
Additions to property, plant and equipment ...................
Proceeds from maturity of investment securities ................ (307,803) (270,570)
Purchases of investment securities ............................. 7,000,000 --
(6,441,885) --
------------ ------------
Net cash provided by(used in)
investing activities ........
250,312 (270,570)
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998
Unaudited
March 31
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Financing Activities:
Purchase of treasury stock ..................................... (134,589) --
Dividends on common stock ...................................... -- (777,854)
------------ ------------
Net cash used in
financing activities ........ (134,589) (777,854)
------------ ------------
Decrease in cash and short-term investments ............................. (1,307,209) (1,897,486)
Cash and short-term investments, beginning of period .................... 2,591,739 12,123,583
------------ ------------
Cash and short-term investments, end of period .......................... $ 1,284,530 $ 10,226,097
============ ============
Supplemental disclosure of cash flows information
Income Taxes Paid ....................................................... $ 110,000 $ 195,000
============ ============
Dividends payable ....................................................... $ 110,246 --
============ ============
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
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
adjustments) necessary for a fair presentation for results for such
periods. The results for any interim period are not necessarily
indicative of the 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 principles have been condensed or omitted. These financial
statements should be read in conjunction with the Company's most recent
audited financial statements included in its 1998 Annual Report to
Stockholders and its 1998 Form 10-K.
2. The income per share computations for the nine months ended March 31,
1999 and 1998 were based on 1,105,157 and 1,111,220 shares,
respectively. These represent the weighted average number of shares
outstanding for each respective period. Pursuant to the Company's Stock
Rights Plan common stock purchase rights under the Plan could
potentially dilute earnings per common share in the future.
3. Other income consists principally of interest on Certificates of
Deposit, Treasury Bills, money market accounts and dividends on equity
securities.
4. 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.
5. 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 March 31, 1999 there were 146,620
shares allocated to participants.
6. The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", as of July 1, 1998.
The adoption of this accounting standard had no material effect on the
financial position or results of operations of the Company.
7. The Company adopted the provisions of SFAS No. 130, "Comprehensive
Income" during the nine months ended March 31, 1999. This statement
establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial
statements.
Total comprehensive income consists of:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ..................... $ 349,694 ($437,463) $ 99,723 ($507,426)
Unrealized loss on available for sale
securities ......................... (8,100) -- (15,360) --
--------- --------- --------- ---------
Total comprehensive income ............ $ 341,594 ($437,463) $ 84,363 ($507,426)
========= ========= ========= =========
</TABLE>
- 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Net sales for the nine months ended March 31, 1999, were $8,747,908 as compared
to $8,293,629 for the same period in 1998. Net sales for the three months ended
March 31, 1999, were $3,089,547 as compared to $2,240,347 for the same period in
1998. The Company's increase in sales for the three and nine month periods ended
March 31, 1999, as compared to March 31, 1998, is a result of the Company
beginning to realize the benefits of the continued increase in the backlog that
has occurred over the last several quarters. The orders taken in earlier
quarters are being completed and shipped as expected. Leading the increase in
sales is the increased demand from foreign customers, and for spare parts and
commercial power supplies.
Net income for the nine months ended March 31, 1999, was $349,694 or $.32 per
share compared to a net loss of $437,463 or ($.39) per share for the
corresponding period ended March 31, 1998. The net income increase was due to
increased Net Sales, favorable product mix and an overall decrease in selling,
general and administrative expenses.
For the three and nine months ended March 31, 1999, gross profits were 451,815
and 1,475,973, respectively. Gross profits were ($457,608) and $372,295 for the
three and nine months ended March 31, 1998, respectively. The increase in gross
profit was predominately due to increased efficiency in manufacturing and
engineering and favorable product mix.
Selling, general and administrative expenses were $1,370,974 for the nine months
ended March 31, 1999, a decrease of $105,227, or 7.1%, as compared to the nine
months ended March 31, 1998. The reduction is primarily due to a decrease in
professional fees and employment related expenses.
Other income for the three and nine months ended March 31, 1999, remained
relatively the same as compared to the three and nine months ended March 31,
1998. The Company does not believe that there is any significant risk associated
with its investment policy, since the majority of it's investments are
represented by United States Government Treasury Securities, preferred equity
securities, and a money market account.
- 7 -
<PAGE>
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999, the Company had working capital of $20.6 million compared
to $20.1 million at March 31, 1998. The Company meets its short-term financing
needs through cash from operations and when necessary, from its existing cash
and short term investments.
The table below presents the summary of cash flow for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
------------------------------------
1999 1998
---------- -----------
<S> <C> <C>
Net cash used in operating activities $1,422,932 $ 849,062
Net cash provided by (used in) investing activities 250,312 (270,570)
Net cash used in financing activities 134,589 777,854
</TABLE>
Net cash used in operating activities fluctuates between periods primarily as a
result of differences in net income, the timing of the collection of accounts
receivable, purchase of inventory, level of sales and payment of accounts
payable. The decrease in cash used in financing activities is due to the
suspension of the 1998 annual dividend by the Company's Board of Directors. The
Board reinstituted the payment of a quarterly dividend at the February Board of
Directors Meeting. A quarterly dividend in the amount of $.10 per share was
declared payable on April 1, 1999 to shareholders of record on March 1, 1999.
The Board of Directors will continue to evaluate the quarterly dividend policy
and declare dividends based on the Company's financial performance.
The Company believes that the cash generated from operations and when necessary,
from cash and cash equivalents, will be sufficient to meets its long-term
funding requirements. For the first nine months of fiscal 1999 capital
expenditures were approximately $308,000.
Since the debt of the Company's ESOP is not to an outside party the Company has
eliminated from the Statements of Income the offsetting items of interest income
and interest expense relating to the ESOP. The Company has eliminated the
offsetting accruals from the Balance Sheets.
During the nine months ended March 31, 1999, the Company repurchased 11,062
shares of its common stock from the Company's ESOP and other private
transactions. Under existing authorizations, as of March 31, 1999, funds in the
amount of $1,749,402 were available for the continuing repurchase of the
Company's shares.
- 8 -
<PAGE>
Business Outlook
- ----------------
The Company continues to diversify its customer base and product line. The
backlog at March 31, 1999, was approximately $16,025,000, an increase of 39%
over the prior year. The Company continues to have higher net sales while
maintaining and replenishing the backlog.
Management expects this trend to continue.
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Business Outlook" of our 1998 Form 10-K, and the President's
message accompanying our 1998 Annual Report to Shareholders, describe in detail
the products of the Company and the type of contracts the Company expects to
receive.
Accounting Pronouncements
- -------------------------
In June 1997, Statement of Financial Accounting Standards No. 130,
"Comprehensive Income" was issued. Statement No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Statement No. 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in a financial statement
that is displayed in equal prominence with other financial statements. The
Company adopted Statement No. 130 as of July 1, 1998. See note 7 to the
financial statements.
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information " was issued. Statement
No. 131 establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders but not for interim periods in
the initial year of adoption. Statement No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company believes that it operates as one
segment and Statement No. 131 did not have material effect on its financial
statements.
Year 2000 Issues
- ----------------
The Company's Year 2000 team has the responsibility of identifying and resolving
significant Year 2000 issues in a timely manner. In addition, management
continues to monitor the status of the Company's Year 2000 remediation.
- 9 -
<PAGE>
The process has included an assessment of issues and development of remediation
plans, where necessary, as they relate to internally used software, computer
hardware and use of computer applications in the Company's manufacturing
processes and products. In addition, the Company is engaged in assessing the
Year 2000 issue with significant suppliers. The Company continues to communicate
with its significant suppliers and large customers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. To date no significant issues have been identified
as to internally used software, computer hardware and use of computer
applications in the Company's manufacturing processes and products. In addition,
no issues have been identified regarding significant suppliers and large
customers.
Finally, with regard to products sold by the Company, management has determined
that contingencies related to the Year 2000 Issue will not have a material
adverse effect. Accordingly, the Company has not established a contingency plan
and does not anticipate creating such a plan.
The Company is utilizing both internal and external resources to reprogram, or
replace and test, the software it currently uses for Year 2000 modifications.
The Company has substantially completed its Year 2000 assessment and
remediation. The total project costs to date related to the assessment and
remediation of its Year 2000 issues are not material.
With regard to its internal Year 2000 compliance program, the Company has
completed approximately 98% of its review and, when necessary, 100% of
remediation. With regard to its Year 2000 compliance program addressing the
status of the Company's suppliers and customers, the Company has completed
approximately 95% of its review.
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. The terms "believe," "anticipate," "intend,"
"goal," "expect," and similar expressions may identify forward-looking
statements. These forward-looking statements represent the Company's current
expectations or beliefs concerning future events. Any or all of the Company's
forward looking statements may turn out to be wrong. 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
- 10 -
<PAGE>
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.
- 11 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
EX-27 - Financial Data Schedule (for electronic filing only)
(b) Reports on Form 8-K
Form 8-K, filed February 22, 1999, reporting under Items 5 and 7,
announcing an amendment to certain provisions of the Rights
Agreement dated March 31, 1989 .
- 12 -
<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.
May 11, 1999 /s/ Howard Pinsley
------------------
Howard Pinsley, President and
Chief Executive Officer
May 11, 1999 /s/David O'Neil
---------------
David O'Neil, Controller
and Assistant Treasurer
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,284,530
<SECURITIES> 6,653,634
<RECEIVABLES> 2,712,755
<ALLOWANCES> 0
<INVENTORY> 11,504,069
<CURRENT-ASSETS> 22,773,401
<PP&E> 12,651,942
<DEPRECIATION> (9,488,811)
<TOTAL-ASSETS> 26,017,325
<CURRENT-LIABILITIES> 2,237,698
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,017,325
<SALES> 8,747,908
<TOTAL-REVENUES> 8,747,908
<CGS> 7,271,935
<TOTAL-COSTS> 7,271,935
<OTHER-EXPENSES> 1,370,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 508,694
<INCOME-TAX> 159,000
<INCOME-CONTINUING> 349,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349,694
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
