UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
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 Identification No.)
233 Ballston Avenue, Saratoga Springs, New York 12866
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 518-584-4100
---------------------------
Number of shares outstanding of issuer's class of common stock $.33-1/3 par
value as of November 15, 1999: 1,048,631.
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:
Consolidated Balance Sheets -
September 30, 1999 and June 30, 1999 1
Consolidated Statements of Income -
Three Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows -
Three Months September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations.
PART II OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
September 30, 1999 and June 30, 1999
------------------------------------
A S S E T S
<TABLE>
<CAPTION>
Unaudited
1999 1999
September 30 June 30
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,158,245 $ 2,364,335
Investments securities 707,008 3,674,169
Trade accounts receivable net of
$3,000 allowance at September 30, 1999
and June 30, 1999 3,259,003 4,440,177
Other receivables 10,175 10,941
----------- -----------
Total Receivables 3,269,178 4,451,118
----------- -----------
Inventories:
Raw materials and supplies 528,578 546,007
Work-in-process 2,558,044 2,639,330
Costs relating to contracts in
process 8,572,608 7,856,607
----------- -----------
Total Inventories 11,659,230 11,041,944
----------- -----------
Deferred income taxes 346,217 327,497
Prepaid expenses and other current assets 84,313 232,051
----------- -----------
Total Current Assets 22,224,191 22,091,114
----------- -----------
Deferred Income Taxes 42,367 42,367
Net Property, Plant and Equipment 3,410,037 3,261,631
----------- -----------
Total Assets $25,676,595 $25,394,712
=========== ===========
</TABLE>
See accompanying notes to the financial statements
(Continued)
- 1 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
September 30, 1999 and June 30, 1999
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited
1999 1999
September 30 June 30
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 840,282 $ 285,281
Accrued expenses:
Salaries, wages and commissions 380,453 498,695
Employees' insurance costs 57,149 58,539
Vacation 189,712 211,162
ESOP payable 138,352 -
Other 13,015 41,251
Payroll and other taxes withheld
and accrued 93,793 116,211
Income taxes payable 82,595 62,987
------------ ------------
TOTAL CURRENT LIABILITIES 1,795,351 1,274,126
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 2,250,000 shares;
issued 1,514,937 shares September 30, 1999
and June 30, 1999. Outstanding 1,048,631 and
1,063,658 on September 30, 1999 and June 30, 1999,
respectively 504,979 504,979
Accumulated other comprehensive income net of income tax benefit of
$18,720 and $25,557 at September 30,1999 and June 30,1999,
respectively (71,455) (38,175)
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 23,180,458 23,193,297
------------ ------------
34,110,269 34,156,388
Less: Common stock subscribed (2,793,312) (2,793,312)
Cost of 466,306 shares and 451,279
on September 30, 1999 and June 30,
1999 respectively of common stock
in treasury (7,435,713) (7,242,490)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 23,881,244 24,120,586
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,676,595 $ 25,394,712
============ ============
</TABLE>
See accompanying notes to the financial statements
- 2 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998
----------------------------------------------
<TABLE>
<CAPTION>
Unaudited
Three Months
September 1999 September 1998
----------- -----------
<S> <C> <C>
Net Sales $ 3,298,980 $ 2,523,984
Cost of sales 2,884,391 2,125,279
----------- -----------
GROSS PROFIT 414,589 398,705
Selling, general and administrative
expenses 493,600 416,781
----------- -----------
OPERATING LOSS (79,011) (18,076)
----------- -----------
Other Income:
Interest and dividend income 90,666 149,103
Other 52,941 15
----------- -----------
TOTAL OTHER INCOME 143,607 149,118
----------- -----------
Income before income taxes 64,596 131,042
Provision for income taxes 25,000 47,000
----------- -----------
NET INCOME $ 39,596 $ 84,042
----------- -----------
Income per Share:
Basic and diluted income per share $ .04 $ .08
===== =====
Weighted average number of
shares outstanding 1,052,884 1,110,474
========= =========
</TABLE>
See accompanying notes to the financial statements
- 3 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Unaudited
September 30
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 39,596 $ 84,042
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 111,751 106,295
Changes in assets and liabilities:
Decrease (increase) in receivables 1,181,939 (107,589)
Increase in inventories (617,286) (376,074)
Decrease in prepaid expenses and other
current assets 147,738 109,563
Increase in accounts payable 555,001 38,284
(Decrease)increase in accrued salaries,
wages and commissions (118,242) 8,885
(Decrease)increase in accrued employee insurance costs (1,391) 9,205
(Decrease)increase in other accrued expenses (28,235) 5,415
Decrease in vacation accrual (21,450) -
(Decrease)increase in payroll & other taxes withheld
and accrued (22,418) 39,231
Decrease in deferred income taxes - 10,800
Increase in income taxes payable 19,608 -
Increase in ESOP contributions 138,352 139,666
----------- -----------
Net cash provided by
operating activities 1,384,963 67,723
----------- -----------
Cash Flows From Investing Activities:
Proceeds from muturity of investment securities 2,915,161 -
Additions to property, plant & equipment (260,559) (46,231)
----------- -----------
Net cash provided by (used in)
investing activities 2,654,602 (46,231)
----------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (52,432) -
Purchase of treasury stock (193,223) (87,402)
----------- -----------
Net cash used in
financing activities (245,655) (87,402)
----------- -----------
Increase (decrease) in cash and cash equivalents 3,793,910 (65,910)
Cash and cash equivalents, beginning of period 2,364,335 2,591,739
----------- -----------
Cash and cash equivalents, end of period $ 6,158,245 $ 2,525,829
----------- -----------
Income Taxes Paid $ - $ -
=========== ===========
</TABLE>
See accompanying notes to the financial statements
- 4 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements
-------------------
1. In the opinion of management the accompanying unaudited consolidated
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 1999 Form 10-K.
2. The earnings per share computations for September 30, 1999 were based on
1,052,884 shares and on 1,110,474 shares for September 30, 1998. 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, money market accounts and dividend 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.
The loan from the Company to the ESOP is repayable in annual
- 5 -
<PAGE>
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, 1999 there were 165,139
shares allocated to participants.
6. Total comprehensive income consists of:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Net income $ 39,596 84,042
Accumulated other comprehensive income:
Unrealized gain (loss) on
available for sale securities (33,280) 7,260
-------- --------
Total comprehensive income (loss) 6,316 91,302
======== ========
</TABLE>
- 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
Net sales for the three months ended September 30, 1999 were $3,298,980 as
compared to $2,523,984 for the same period in 1998. The $774,996 increase in net
sales for the three month period is mainly due to increased commercial power
supply sales and radar test equipment. Due to successful marketing efforts with
new and existing customers the Company should continue to see increased net
sales levels as backlog orders are completed and shipped.
During the first quarter of fiscal 2000 gross profits as a percentage of sales
decreased approximately 3% as compared with the first quarter of fiscal 1999.
Net income for the three months ended September 30, 1999 was $39,596 or $.04 per
share compared to $84,042 or $.08 per share for the corresponding period ended
September 30, 1998.
The primary reason for the decrease in gross profit and net income was higher
employee related expenses and an overall increase in selling, general and
administrative expenses. Management continues to expand the Company's workforce
to insure that production and overall execution of the large increase in backlog
orders and additional anticipated orders are successfully performed. Present
employment has exceeded 200 people as compared to September 30, 1998 when 163
people were employed. Several of these employees require on the job training
prior to working at maximum efficiency. The benefits of this training should
begin to positively impact operations in the fourth quarter of fiscal 2000.
The Company continues to diversify its customer base and product line. The
backlog at September 30, 1999 was approximately $27,871,000, as compared to
approximately $14,632,000 at September 30, 1998. The Company continues to
increase the backlog while increasing current sales levels. Management presently
anticipates that the Company will realize both an increase in revenues and
income in fiscal 2000, however, there can be no assurance since such a
forward-looking statement is subject to future events.
Selling, general and administrative expenses were $493,600 for the three months
ended September 30, 1999, an increase of $76,819, or 18.4%, as compared to the
three months ended September 30, 1998. This increase was expected as the Company
continues to add employees to increase and manage the continued growth in sales
and order backlog.
Total other income for the three months ended September 30, 1999 remained
relatively the same as compared to the three months ended September 30, 1998.
The Company does not feel that there is any risk associated with its investment
policy, since the majority of its 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 September 30, 1999, the Company had working capital of $20.4 million
compared to $20.8 million at June 30, 1999. 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>
Three Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $1,384,963 $ 67,723
Net cash provided by (used in) investing activities $2,654,602 $(46, 231)
Net cash used in financing activities $ 245,655 $ 87,402
</TABLE>
Net cash provided by 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 increase in net cash provided by (used in) investing
activities is due to the maturity of investment securities with no offsetting
purchase of new investments. The increase in net cash used in financing
activities is due to the quarterly dividend payment and increased treasury stock
purchases.
The Company currently believes that the cash generated from operations and when
necessary, from cash and cash equivalents, will be sufficient to meet its
long-term funding requirements. Management is currently analyzing the need for a
line of credit to help fund further growth. For the first quarter of fiscal 2000
capital expenditures were approximately $261,000.
Since the debt of the Company's ESOP is not to an outside party the Company has
eliminated from the Consolidated Statements of Income the offsetting items of
interest income and interest expenses relating to ESOP. The Company has
eliminated the offsetting accruals from the Consolidated Balance Sheets.
During the three months ended September 30, 1999 the Company repurchased 15,027
shares of its common stock from the Company's ESOP and other public
transactions. Under existing authorizations, as of September 30, 1999, 57,473
shares could be repurchased at a price not to exceed $13.50.
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.
-8-
<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 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.
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 less than $25,000.
With regard to its internal Year 2000 compliance program, the Company has
completed approximately 99% 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 98% of its review. No problems have been identified.
The Company 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.
Due to the general uncertainty inherent in Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, the Company despite its efforts as described in this section, can
give no assurance as to whether the consequences of Year 2000 failures will have
a material impact on the Company's result of operations, liquidity or financial
condition.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
It should be noted that 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. 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.
-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 the quarter.
Item-5. Other Information
-----------------
Effective October 29, 1999 Mr. Alvin Sabo, an attorney and senior
partner of the law firm of Donohue, Sabo, Varley & Armstrong P.C. in
Albany, NY and Mr. Carl Helmetag President and CEO of UVEX Inc. in
Providence, RI were named to the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None during the quarter.
- 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.
/s/ Howard Pinsley,President
-------------------------------
Howard Pinsley, President
Chief Executive Officer and Treasurer
/s/ David O'Neil,Assistant Treasurer
--------------------------------
David O'Neil,Assistant Treasurer
and Controller
Principal Financial Officer
15 November 1999
----------------
Date
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 6,158,245
<SECURITIES> 707,008
<RECEIVABLES> 3,269,178
<ALLOWANCES> 0
<INVENTORY> 11,659,230
<CURRENT-ASSETS> 22,224,191
<PP&E> 3,410,037
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,676,595
<CURRENT-LIABILITIES> 1,795,351
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,676,595
<SALES> 3,298,980
<TOTAL-REVENUES> 3,298,980
<CGS> 2,884,391
<TOTAL-COSTS> 2,884,391
<OTHER-EXPENSES> 493,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 64,596
<INCOME-TAX> 25,000
<INCOME-CONTINUING> 39,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 39,596
<NET-INCOME> 0
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
