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 March 31, 2000
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 May 10, 2000: 1,033,631.
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 -
March 31, 2000 and June 30, 1999 1
Consolidated Statements of Income -
Three and Nine Months Ended
March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. 7
PART II OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
March 31, 2000 and June 30, 1999
------------------------------------
A S S E T S
Unaudited
2000 1999
March 31 June 30
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,447,915 $ 2,364,335
Investments securities 648,000 3,674,169
Trade accounts receivable net of
$3,000 allowance at March 31, 2000
and June 30, 1999 2,478,796 4,440,177
Other receivables 10,302 10,941
----------- -----------
Total Receivables 2,489,098 4,451,118
----------- -----------
Inventories:
Raw materials and supplies 811,634 546,007
Work-in-process 3,186,415 2,639,330
Costs relating to contracts in
process, net of advance payments of
$818,300 at March 31, 2000 and $0 at
June 30, 1999 10,237,047 7,856,607
----------- -----------
Total Inventories 14,235,096 11,041,944
----------- -----------
Deferred income taxes 367,460 327,497
Prepaid expenses and other current assets 196,500 232,051
----------- -----------
Total Current Assets 22,384,069 22,091,114
----------- -----------
Deferred Income Taxes 42,367 42,367
Net Property, Plant and Equipment 3,594,390 3,261,231
----------- -----------
Total Assets $26,020,826 $25,394,712
=========== ===========
</TABLE>
See accompanying notes to the financial statements
(Continued)
1
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
March 31,2000 and June 30, 1999
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
2000 1999
March 31 June 30
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 873,638 $ 285,281
Accrued expenses:
Salaries, wages and commissions 282,892 498,695
Employees' insurance costs 70,480 58,539
Vacation 251,571 211,162
ESOP payable 403,238 --
Payroll and other taxes withheld
and accrued 53,245 116,211
Income taxes payable 164,597 62,987
Other 7,563 41,251
------------ -----------
Total Current Liabilities 2,107,224 1,274,126
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per share. Authorized
10,000,000 shares; issued 1,514,937 shares on March 31, 2000
and June 30, 1999. Outstanding 1,038,631 and 1,063,658 on
March 31, 2000 and June 30, 1999, respectively 504,979 504,979
Accumulated other comprehensive income, net of income
tax benefit of $61,780 and $25,557 at March 31, 2000
and June 30,1999, respectively (109,221) (38,175)
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 23,386,582 23,193,297
------------- ------------
34,278,627 34,156,388
Less: Common stock subscribed (2,793,312) (2,793,312)
Cost of 476,306 and 451,279 shares on March 31, 2000 and
June 30, 1999 respectively of common stock in treasury (7,571,713) (7,242,490)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 23,913,602 24,120,586
------------ ------------
Total Liabilities And
Stockholders' Equity $ 26,020,826 $ 25,394,712
============ ============
</TABLE>
See accompanying notes to the financial statements
2
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three and Nine Months Ended March 31, 2000 and 1999
------------------------------------------------------
Unaudited Unaudited
Three Months Nine Months
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 3,289,816 $ 3,089,547 $ 10,001,220 $ 8,747,908
Cost of sales 2,519,259 2,637,732 8,322,049 7,271,935
----------- ----------- ----------- -----------
Gross profit 770,557 451,815 1,679,171 1,475,973
Selling, General and Administrative
Expenses 466,613 421,456 1,493,540 1,370,974
----------- ----------- ----------- -----------
Operating income 303,944 30,359 185,631 104,999
----------- ----------- ----------- -----------
Other income
Interest and Dividend Income 95,717 107,339 298,305 399,400
Other income 6,983 4,025 59,396 4,295
----------- ----------- ----------- -----------
102,700 111,364 357,701 403,695
----------- ----------- ----------- -----------
Income before income taxes 406,644 141,723 543,332 508,694
Provision for income taxes 143,000 42,000 193,000 159,000
----------- ----------- ----------- -----------
Net Income $ 263,644 $ 99,723 $ 350,332 $ 349,694
=========== =========== =========== ===========
Income per share:
Basic and dilutive income per share $ .25 $ .09 $ .33 $ .32
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 1,045,005 1,102,296 1,048,854 1,105,157
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements
3
<PAGE>
<TABLE>
<CAPTION>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999
Unaudited
March 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 350,332 $ 349,694
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation 345,846 328,329
Changes in assets and liabilities:
Decrease (increase) in receivables 1,962,020 (557,369)
Increase in inventories (3,193,152) (2,715,358)
Decrease (increase) in prepaid expenses
and other current assets 35,551 (71,700)
Increase in accounts payable 588,357 397,789
(Decrease) increase in accrued salaries,
wages and commissions (215,803) 118,344
Increase in accrued employee insurance costs 11,941 17,832
(Decrease) increase in other accrued expenses (33,689) 9,924
Increase in vacation accrual 40,409 -
(Decrease)increase in payroll & other
taxes withheld and accrued (62,966) 293,193
Increase in income taxes payable 101,610 -
Increase in ESOP contributions 403,238 406,390
----------- -----------
Net cash provided by (used in)
operating activities 333,694 (1,422,932)
----------- -----------
Cash Flows From Investing Activities:
Proceeds from maturity of investment securities 2,915,161 7,000,000
Purchases of investment securities -- (6,441,885)
Additions to property, plant & equipment (679,008) (307,803)
----------- -----------
Net cash provided by
investing activities 2,236,153 250,312
----------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (157,045) -
Purchase of treasury stock (329,222) (134,589)
----------- -----------
Net cash used in
financing activities (486,267) (134,589)
----------- -----------
Increase (decrease) in cash and cash equivalents 2,083,580 (1,307,209)
Cash and cash equivalents, beginning of period 2,364,335 2,591,739
----------- -----------
Cash and cash equivalents, end of period $ 4,447,915 $ 1,284,530
----------- -----------
Income Taxes Paid $ 91,500 $ 110,000
=========== ===========
</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 the nine months ended March 31,
2000 were based on 1,048,854 shares and on 1,105,157 shares for March
31, 1999. 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 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.
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, 2000 there were 171,125
shares allocated to participants.
6. Total comprehensive income consists of:
5
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Net income $263,644 99,723 350,332 349,694
Accumulated other comprehensive income:
Unrealized loss on
available for sale securities (9,600) (15,360) (71,045) (8,100)
-------- -------- --------- --------
Total comprehensive income $254,004 84,363 279,287 341,594
======== ======== ========= ========
</TABLE>
7. Stock Options
On October 29, 1999, the Board of Directors approved, subject to
shareholder approval, the 2000 Stock Option Plan (the Plan). Under the
Plan and related incentive stock option agreements, options will be
granted to purchase shares of common stock of the Company with an
exercise price not less than the fair value of a share of such common
stock at the date of the grant and vest over a period not to exceed ten
years as will be determined by the Option Committee which will
administer the Plan. Non-Qualified stock options will be issued in
accordance with the Plan. Shareholders approved the Plan at the Annual
Meeting on January 4, 2000.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for the Plan.
To determine the necessary pro forma disclosure information the Company
utilizes Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation". On March 1, 2000, 11,500
stock options were granted under the plan. All options were granted at
fair market value. The options granted did not create any difference
between basic and diluted earnings per share.
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, 2000 were $10,001,220 as compared
to $8,747,908 for the same period in 1999. Net sales for the three months ended
March 31, 2000 were $3,289,816 as compared to $3,089,547 for the same period in
1999. The Company's increase in sales for the three and nine month periods ended
March 31, 2000 as compared to March 31, 1999 is largely due to increased
industrial power supply and radar test equipment sales. Successful marketing
efforts with new and existing customers have lead the Company to recognize
higher net sales levels as backlog orders are completed and shipped.
Net income for the nine months ended March 31, 2000 was $350,332 or $.33 per
share compared to $349,694 or $.32 per share for the corresponding period ended
March 31, 1999.
During the first nine months of fiscal 2000 gross profits as a percentage of
sales remained constant as compared with the first nine months of fiscal 1999.
The primary reason for the increase in gross profit and net income was product
mix. Higher employee related expenses and an overall increase in selling,
general and administrative expenses somewhat offset the increases in gross
profit and net income. Management has expanded the Company's workforce to ensure
that production and overall execution of the large increase in backlog orders
and additional anticipated orders are successfully performed. Present employment
has reached 235 people.
The backlog at March 31, 2000 was approximately $31,300,000, an increase of
approximately $15 million over the prior year. The Company continues to increase
the backlog while increasing current sales levels. New orders for the quarter
totaled approximately $5,989,000.
Selling, general and administrative expenses were $1,493,450 for the nine months
ended March 31, 2000, an increase of $122,566, or 8.9%, as compared to the nine
months ended March 31, 1999. The increase is primarily due to an increase in
selling expenses offset partially by a decrease in professional fees. This
increase was expected as the Company added employees to manage the continued
growth in sales and order backlog.
Other income for the three and nine months ended March 31, 2000 remained
relatively the same as compared to the three and nine months ended March 31,
1999. The Company does not believe there is any significant risk associated with
its investment policy, since a majority of the 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, 2000, the Company had working capital of $20.3 million compared
to $20.5 million at March 31, 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:
Nine Months Ended March 31,
-----------------------------
2000 1999
-------- --------
Net cash provided by (used in) operating activities $ 333,694 (1,422,932)
Net cash provided by investing activities 2,236,153 250,312
Net cash used in financing activities (486,267) (134,589)
Net cash provided by (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 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. On April 26, 2000, management established a
$3,000,000 line of credit to help fund further growth. For the first nine months
of fiscal 2000 capital expenditures were approximately $679,000.
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 expense relating to ESOP. The Company has
eliminated the offsetting accruals from the Consolidated Balance Sheets.
During the nine months ended March 31, 2000 the Company repurchased 25,027
shares of its common stock from the Company's ESOP and through other public
transactions. As of March 31, 2000, Management was authorized by the Board of
Directors to repurchase $1,000,000 in Company stock. On May 4, 2000, under this
authorization, management repurchased 5,000 shares of company stock.
Year 2000 Issues
The Company's information technology systems successfully completed the
transition into the year 2000. The beginning of the new year resulted in no
adverse or negative impact on operations. The Company believes that the risk
associated with the year 2000 problem has been identified and eliminated. The
Company will continue to evaluate the 2000 readiness of its business systems and
significant vendors to ensure a complete transition through the year 2000. The
estimated total cost of the year 2000 assessment and remediation plan has been
less than $25,000.
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.
8
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company's Annual Meeting of Shareholders (the "Annual
Meeting") was held on January 4, 2000.
b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended. There were no solicitations in opposition to
management's nominees listed in the proxy statement. All three
nominees listed in the proxy statement were elected.
c) The following matters were voted upon at the annual meeting: The
election of three Class C directors. The votes were cast as
follows:
Nominee: Shares Voted For:
-------- -----------------
Paul Corr 866,771
Barry Pinsley 864,951
Michael W. Wool 866,571
Ratification of PricewaterhouseCoopers LLP, as independent
auditors for the Corporation for the fiscal year ending June 30,
2000. The votes were cast as follows:
Shares IN FAVOR 947,150
Shares AGAINST 15,790
ABSTENTIONS 21,511
Proposal to increase the authorized shares of the Company's
common stock from 2,500,000 to 10,000,000. The votes were cast
as follows:
Shares IN FAVOR 764,994
Shares AGAINST 215,603
ABSTENTIONS 3,855
Proposal to approve the Company's 2000 Stock Option Plan. The
votes were cast as follows:
Shares IN FAVOR 559,270
Shares AGAINST 212,570
ABSTENTIONS 12,257
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
None
9
<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
--------------------------------
Howard Pinsley, President and
Chief Executive Officer
/s/ David O'Neil
--------------------------------
David O'Neil, Treasurer and
Principal Financial Officer
May 10, 2000
- ---------------
Date
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,447,915
<SECURITIES> 648,000
<RECEIVABLES> 2,478,796
<ALLOWANCES> 0
<INVENTORY> 14,235,096
<CURRENT-ASSETS> 22,384,069
<PP&E> 3,594,390
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,020,826
<CURRENT-LIABILITIES> 2,107,224
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,020,826
<SALES> 10,001,220
<TOTAL-REVENUES> 10,001,220
<CGS> 8,322,049
<TOTAL-COSTS> 8,322,049
<OTHER-EXPENSES> 1,493,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357,701
<INCOME-PRETAX> 543,332
<INCOME-TAX> 193,000
<INCOME-CONTINUING> 350,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350,332
<EPS-BASIC> .33
<EPS-DILUTED> .33
</TABLE>
