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 December 31, 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 February 10, 2000: 1,043,631.
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 -
December 31, 1999 and June 30, 1999 1
Consolidated Statements of Income -
Three and Six Months Ended
December 31, 1999 and 1998 3
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 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
December 31, 1999 and June 30, 1999
------------------------------------
A S S E T S
<TABLE>
<CAPTION>
Unaudited
1999 1999
December 31 June 30
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,782,624 $ 2,364,335
Investments securities 663,000 3,674,169
Trade accounts receivable net of
$3,000 allowance at December 31, 1999
and June 30, 1999 1,939,539 4,440,177
Other receivables 9,614 10,941
----------- -----------
Total Receivables 1,949,153 4,451,118
----------- -----------
Inventories:
Raw materials and supplies 602,182 546,007
Work-in-process 2,104,681 2,639,330
Costs relating to contracts in
Process, net of advance payments of
$775,400 at December 31, 1999 and $0 at
June 30, 1999 9,249,057 7,856,607
----------- -----------
Total Inventories 11,955,920 11,041,944
----------- -----------
Deferred income taxes 362,060 327,497
Prepaid expenses and other current assets 193,216 232,051
----------- -----------
Total Current Assets 21,905,973 22,091,114
----------- -----------
Deferred Income Taxes 42,367 42,367
Net Property, Plant and Equipment 3,396,059 3,261,231
----------- -----------
Total Assets $25,344,399 $25,394,712
=========== ===========
</TABLE>
See accompanying notes to the financial statements
(Continued)
-1-
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
December 31, 1999 and June 30, 1999
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited
1999 1999
December 31 June 30
------------ ------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 428,333 $ 285,281
Accrued expenses:
Salaries, wages and commissions 364,540 498,695
Employees' insurance costs 62,318 58,539
Vacation 216,837 211,162
ESOP payable 274,078 --
Other 12,184 41,251
Payroll and other taxes withheld
and accrued 110,772 116,211
Income taxes payable 27,597 62,987
------------- ------------
TOTAL CURRENT LIABILITIES 1,496,659 1,274,126
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per share.
Authorized 10,000,000 shares;
issued 1,514,937 shares December 31, 1999
and June 30, 1999. Outstanding 1,048,631 and
1,063,658 on December 31, 1999 and June 30, 1999,
respectively 504,979 504,979
Accumulated other comprehensive income, net of income
tax benefit of $56,380 and $25,557 at December 31, 1999
and June 30,1999,
respectively (99,620) (38,175)
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 23,175,119 23,193,297
------------- ------------
34,076,765 34,156,388
Less: Common stock subscribed (2,793,312) (2,793,312)
Cost of 466,306 and 451,279 shares
on December 31, 1999 and June30, 1999
respectively of common stock
in treasury (7,435,713) (7,242,490)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 23,847,740 24,120,586
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,344,399 $ 25,394,712
============ ============
See accompanying notes to the financial statements
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three and Six Months Ended December 31, 1999 and 1998
------------------------------------------------------
Unaudited Unaudited
Three Months Six Months
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 3,412,424 $ 3,134,377 $ 6,711,404 $ 5,658,362
Cost of sales 2,918,399 2,508,924 5,803,765 4,634,203
----------- ----------- ----------- -----------
Gross profit 494,025 625,453 907,639 1,024,159
Selling, general and administrative
expenses 533,327 532,737 1,025,951 938,518
----------- ----------- ----------- -----------
Operating income (loss) (39,302) 92,716 (118,312) 85,641
----------- ----------- ----------- -----------
Other income
Interest and dividend income 111,922 143,138 202,587 292,241
Sundry income (loss) (528) 255 52,413 270
----------- ----------- ----------- -----------
111,394 143,393 255,000 292,511
----------- ----------- ----------- -----------
Income before income taxes 72,092 236,109 136,688 378,152
Provision for income taxes 25,000 70,000 50,000 128,000
----------- ----------- ----------- -----------
Net Income $ 47,092 $ 166,109 $ 86,688 $ 250,152
=========== =========== =========== ===========
Income per share:
Basic and dilutive income per share . $ .04 $ .15 $ .08 $ .23
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding ................ 1,048,631 1,104,675 1,050,754 1,106,557
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
- 3 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Unaudited
December 31,
1999 1998
----------- -----------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 86,688 $ 250,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 226,510 216,811
Changes in assets and liabilities:
Decrease (increase) in receivables 2,501,964 (236,213)
Increase in inventories (913,976) (1,239,360)
Decrease (increase) in prepaid expenses and other
current assets 38,835 (160,602)
Increase in accounts payable 143,052 509,921
(Decrease)increase in accrued salaries,
wages and commissions (134,155) 27,098
Increase in accrued employee insurance costs 3,779 6,916
(Decrease)increase in other accrued expenses (29,067) 1,701
Increase in vacation accrual 5,675 -
(Decrease)increase in payroll & other taxes withheld
and accrued (5,439) 58,501
Decrease in deferred income taxes - 10,800
(Decrease)in income taxes payable (35,390) -
Increase in ESOP contributions 274,078 279,331
----------- -----------
Net cash provided by (used in)
operating activities 2,162,555 (274,944)
----------- -----------
Cash Flows From Investing Activities:
Proceeds from maturity of investment securities 2,915,161 6,000,000
Purchases of investment securities -- (6,011,032)
Additions to property, plant & equipment (361,342) (192,516)
----------- -----------
Net cash provided by (used in)
investing activities 2,553,819 (203,548)
----------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (104,862) -
Purchase of treasury stock (193,225) (120,464)
----------- -----------
Net cash used in
financing activities (298,085) (120,464)
----------- -----------
Increase (decrease) in cash and cash equivalents 4,418,289 (598,956)
Cash and cash equivalents, beginning of period 2,364,335 2,591,739
----------- -----------
Cash and cash equivalents, end of period $ 6,782,624 $ 1,992,783
----------- -----------
Income Taxes Paid $ 80,000 $ -
=========== ===========
</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 six months ended December 31,
1999 were based on 1,050,754 shares and on 1,106,557 shares for December
31, 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 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
- 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 December 31, 1999 there were 161,125
shares allocated to participants.
6. Total comprehensive income consists of:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Net income $ 47,092 166,109 86,688 250,152
Accumulated other comprehensive income:
Unrealized gain (loss) on
available for sale securities (28,165) - (61,445) -
-------- -------- --------- --------
Total comprehensive income 18,927 166,109 25,243 250,152
======== ======== ========= ========
</TABLE>
- 6 -
<PAGE>
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.
The Company will apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for the stock
option plans and determine the necessary pro forma disclosure
information required by Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation". No options have been
granted under the plan. Shareholders approved the Plan at the Annual
Meeting on January 4, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operation
Net sales for the six months ended December 31, 1999 were $6,711,404 as compared
to $5,658,362 for the same period in 1998. Net sales for the three months ended
December 31, 1999 were $3,412,424 as compared to $3,134,377 for the same period
in 1998. The Company's increase in sales for the three and six month periods
ended December 31, 1999 as compared to December 31, 1998 is largely due to
increased commercial power supply and radar test equipment sales. 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.
Net income for the six months ended December 31, 1999 was $86,688 or $.08 per
share compared to $250,152 or $.23 per share for the corresponding period ended
December 31, 1998.
During the first six months of fiscal 2000 gross profits as a percentage of
sales decreased approximately 4.5% as compared with the first six months of
fiscal 1999.
The primary reason for the decrease in gross profit and net income was product
mix, higher employee related expenses and an overall increase in selling,
general and administrative expenses. Management continues to expand 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 exceeded 225 people as compared to December
31, 1998 when 175 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 December 31, 1999 was approximately $28,600,000 an increase of
approximately 62% over the prior year. 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 assurances made since such a forward-looking
statement is subject to future events.
Selling, general and administrative expenses were $1,025,951 for the six months
ended December 31, 1999, an increase of $87,433, or 9.3%, as compared to the six
months ended December 31, 1998. 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 continues to add employees to increase and
manage the continued growth in sales and order backlog.
Other income for the three and six months ended December 31, 1999 remained
relatively the same as compared to the three and six months ended December 31,
1998. 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.
Liquidity and Capital Resources
As of December 31, 1999, the Company had working capital of $20.4 million
compared to $20.6 million at December 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.
- 7 -
<PAGE>
The table below presents the summary of cash flow for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash provided by(used in) operating activities $ 2,162,555 (274,944)
Net cash provided by(used in) investing activities .. 2,553,819 (203,548)
Net cash (used in) financing activities .. (298,086) (120,464)
</TABLE>
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. Management is currently analyzing the need for a
line of credit to help fund further growth. For the first half of fiscal 2000
capital expenditures were approximately $361,000.
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 six months ended December 31, 1999 the Company repurchased 15,027
shares of its common stock from the Company's ESOP and through other public
transactions. Under existing authorizations, as of December 31, 1999, 57,473
shares could be repurchased at a price not to exceed $13.50. Under this
authorization, on February 8, 2000 the company repurchased an additional 5000
shares of common stock.
Year 2000 Issues
The Company's information technology systems successfully completed the "roll
over" to the year 2000. The transition resulted in no adverse or negative impact
on operations. The company believes that the risk addociated 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.
- 8 -
<PAGE>
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
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 December 21, 1999 reporting under Items 5 and 7,
announcing an amendment to certain provisions of the Rights
Agreeement dated March 31, 1989, as amended February 12, 1999.
- 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
--------------------------------
Howard Pinsley, President and
Chief Executive Officer
/s/ David O'Neil
--------------------------------
David O'Neil, Treasurer and
Principal Financial Officer
14 February 2000
----------------
Date
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 6,782,624
<SECURITIES> 663,000
<RECEIVABLES> 1,949,153
<ALLOWANCES> 0
<INVENTORY> 11,995,920
<CURRENT-ASSETS> 21,905,973
<PP&E> 3,396,059
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,344,399
<CURRENT-LIABILITIES> 1,496,659
<BONDS> 0
0
0
<COMMON> 504,979
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,344,399
<SALES> 6,711,404
<TOTAL-REVENUES> 6,711,404
<CGS> 5,803,765
<TOTAL-COSTS> 5,803,765
<OTHER-EXPENSES> 1,025,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,000
<INCOME-PRETAX> 136,688
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 86,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,688
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
