UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 1-4383
ESPEY MFG. & ELECTRONICS CORP.
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(Exact name of registrant as specified in its charter)
New York 14-1387171
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
233 Ballston Avenue, Saratoga Springs, NY 12866
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(Address of principal executive offices including Zip Code)
(Registrant's telephone number including area code) (518) 584-4100
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock $.33-1/3 par value American Stock Exchange
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing requirements
for the past 90 days [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $17,700,931 as of September 13, 2000 based upon the closing sale
price of $17.125 on the American Stock Exchange on September 13, 2000.
The number of shares of common stock outstanding as of September 13, 2000 was
1,033,631.
<PAGE>
PART I
Item 1. Business.
General
Espey Mfg. & Electronics Corp. (the "Company") is engaged principally in the
development, design, production and sales of specialized electronic power
supplies, a wide variety of transformers and other types of iron-core
components, and electronic system components. In some cases, the Company
manufactures such products in accordance with pre-developed mechanical and
electrical requirements. In other cases, the Company is responsible for both the
overall design and manufacture of the product. The Company does not generally
manufacture standardized components. The Company operates a one-segment business
and was incorporated in 1928.
The electronic power supplies and components manufactured by the Company find
application principally in (i) shipboard and land based radar, (ii) locomotives,
(iii) aircraft, (iv) short, medium range and global communication systems, (v)
navigation systems for aircraft, (vi) nuclear submarine control systems, (vii)
missile guidance and control systems and (viii) land-based military vehicles.
The Company's iron-core components include (i) transformers of the audio, power
and pulse types, (ii) magnetic amplifiers and (iii) audio filters.
The electronic system components manufactured by the Company include antenna
systems and high power radar transmitters. These system components utilize the
Company's own electronic power supplies, transformers and other iron-core
components and mechanical assemblies.
In the fiscal year ended June 30, 2000 (referred to herein as "2000"), the
Company's total sales were $14,719,818. Sales to two domestic customers
accounted for 29.7% and 26.3% of total sales in 2000. Sales to two domestic
customers and one foreign customer accounted for 37.6%, 25.4% and 11.2%,
respectively, of total sales in 1999. Sales to three domestic customers
accounted for 47.9%, 14.7%, and 12.5%, respectively, of total sales in 1998.
Export sales in 2000 and 1999 were approximately $4,200,000 and $2,500,000,
respectively, and were not significant in 1998. During 1999, the Company
established a foreign sales corporation.
Raw Materials
The Company has never experienced any significant delay or shortage with respect
to the purchase of raw materials and components used in the manufacture of its
products, and has at least two potential sources of supply for all raw
materials.
Sales Backlog
At September 13, 2000, the Company's backlog was approximately $28.0 million.
The total backlog at June 30, 2000 was approximately $29.1 million as compared
to approximately $16.9 million at June 30, 1999. The Company's backlog is
discussed in greater detail in Management's Discussion and Analysis of Financial
Condition and Results of Operations, contained in Item 7, below.
It is presently anticipated that a minimum of $15 million of orders comprising
the June 30, 2000 backlog will be filled during the fiscal year ending June 30,
2001. The minimum of $15 million does not include any shipments which may be
made against orders subsequently received during the fiscal year ending June 30,
2001. The estimate of the June 30, 2000 backlog to be shipped in fiscal 2001 is
subject to future events which may cause the amount of the backlog actually
shipped to differ from such estimate.
2
<PAGE>
Marketing and Competition
The Company markets its products primarily through its own direct sales
organization. Business is solicited from Fortune 500 companies, United States
and foreign governments and major foreign electronic equipment companies. In
certain countries the Company has external sales representatives to help solicit
and coordinate foreign contracts. The Company is also on the eligible list of
contractors of many agencies of the Department of Defense and generally is
automatically solicited by such agencies for procurement needs falling within
the major classes of products produced by the Company. In addition, the Company
directly solicits bids from both the Department of Defense and other United
States Government agencies for prime contracts.
There is competition in all classes of products manufactured by the Company,
from divisions of the largest electronic companies in the country, as well as
many small companies. The Company's sales do not represent a significant share
of the industry's market for any class of its products. The principal methods of
competition for electronic products of both a military and industrial nature
include, among other factors, price, product performance, the experience of the
particular company and history of its dealings in such products. The Company, as
well as other companies engaged in supplying equipment for military use, is
subject to various risks, including, without limitation, dependence on
government appropriations and program allocations, the competition for available
military business, and government termination of orders for convenience.
The Company's business is not considered to be of a seasonal nature.
Research and Development
The Company's expenditures for research and development were approximately
$255,000, $291,000 and $244,000 in 2000, 1999 and 1998, respectively. Some of
the Company's engineers and technicians spend varying degrees of time on either
development of new products or improvement of existing products.
Employees
The number of persons employed by the Company as of September 13, 2000 was 242.
Government Regulations
Compliance with federal, state and local provisions that have been enacted or
adopted to regulate the discharge of materials into the environment, or
otherwise relating to the protection of the environment, did not in 2000, and
the Company believes will not in fiscal 2001 or any succeeding fiscal year, have
a material effect upon the capital expenditures, earnings or competitive
position of the Company.
Item 2. Properties.
The Company's principal manufacturing and all of its engineering facilities are
at its plant in Saratoga Springs, New York, which the Company owns.
The Saratoga Springs plant consists of various closely adjoining one-story
buildings. The plant has a sprinkler system throughout and contains
approximately 151,000 square feet of floor space, of which 90,000 is used for
manufacturing, 24,000 for engineering, 33,000 for shipping and climatically
secured storage, and 4,000 for offices. The offices, engineering and some
manufacturing areas are air-conditioned. In addition to assembly and wiring
operations, the plant includes facilities for varnishing, potting, plating,
impregnation and spray painting operations. The manufacturing operation also
includes a complete machine shop, with welding and sheet metal fabrication
facilities adequate for substantially all of the Company's current operations.
Besides normal test equipment, the Company maintains a sophisticated on-site
environmental test facility. In addition to meeting all of the Company's
3
<PAGE>
in-house needs, the plating, machine shop and environmental facilities are
available to other companies on a contract basis.
The Company owns an additional manufacturing facility in a three-story building
of approximately 4,000 square feet in Gloversville, New York. The facility is
used primarily for subcomponent wiring and assembly.
The Company maintains a sales office in Great Neck, New York. This space,
comprising approximately 750 square feet, is leased from a non-affiliated person
for a term expiring on September 9, 2001.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Price Range of Common Stock
The table below shows the range of high and low prices for the Company's common
stock on the American Stock Exchange, the principal market for trading in the
common stock, for each quarterly period for the last two fiscal years ended June
30:
2000 High Low
First Quarter 14 3/4 12 1/8
Second Quarter 15 1/4 13 5/8
Third Quarter 15 9/16 12 7/8
Fourth Quarter 15 1/8 13 7/8
1999 High Low
First Quarter 14 5/8 12 3/4
Second Quarter 13 3/8 12 3/8
Third Quarter 14 1/8 11 3/4
Fourth Quarter 12 3/4 11 1/4
Holders
The approximate number of holders of record of the common stock was 168 on
September 13, 2000 according to records of the Company's transfer agent.
Included in this number are shares held in "nominee" or "street" name and,
therefore, the number of beneficial owners of the common stock is believed to be
substantially in excess of the foregoing number.
4
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Dividends
The Company paid a cash dividend on the common stock of $.20 per share for the
fiscal years ended June 30, 2000 and 1999, respectively, and $.70 per share in
its fiscal year ended June 30, 1998. The Board of Directors has authorized the
payment of a fiscal 2001 first quarter dividend of $.05 payable on September 29,
2000 to shareholders of record on September 1, 2000. On a quarterly basis the
Board of Directors will consider dividend declarations for fiscal 2001.
Item 6. Selected Financial Data.
ESPEY MFG. & ELECTRONICS CORP.
Five Years Ended June 30, 2000
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------
Selected Income Statement Data 2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales.................... $14,719,818 $ 13,629,692 $ 10,793,572 $ 15,166,075 $ 16,800,200
Operating income (loss)...... 733,617 690,839 (1,750,663) 342,177 209,226
Other income, net............ 459,326 441,762 595,691 525,046 575,006
------------ ------------ ------------ ------------ ------------
Net income (loss)...... 782,943 730,601 (739,602) 563,128 522,737
Income (loss) per common share: .75 $ .66 $ (.67) $ .51 $ .41
============ ============ ============ ============ ============
Selected Balance Sheet Data
Current assets............... 22,540,316 22,091,114 21,309,658 21,819,899 21,499,805
Current liabilities.......... 1,329,171 1,274,126 883,980 599,180 623,908
Working capital.............. 21,211,145 20,816,988 20,425,678 21,220,719 20,875,897
Total assets................. 26,118,037 25,394,712 24,574,108 25,199,951 24,950,043
Long-term liabilities (deferred
income taxes).......... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Stockholders' equity......... 24,788,866 24,120,586 23,690,128 24,600,771 24,326,135
------------ ------------ ------------ ------------ ------------
Cash dividends declared and paid
per common share....... $.20 $ .20 $ .70 $ .70 $ .70
============ ============ ============ ============ ============
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Net Sales for fiscal years ended June 30, 2000, 1999,and 1998, were $14,719,818,
$13,629,692, and $10,793,572, respectively. The 8% increase in sales over 1999
is a result of the Company continuing to realize the benefits of intensified
sales and marketing efforts in an attempt to increase business with existing
customers as well as establishing new customer relationships. These efforts have
provided for the continued increase in the sales backlog that has occurred over
the last several quarters. The sales backlog at June 30, 2000 was approximately
$29.1 million, a 72% increase over the June 30, 1999 backlog. The increase in
backlog includes significant orders for the Company's land and shipboard high
voltage radar power supply/transmitters, industrial power supplies, and
significant contracts to manufacture certain customer products in accordance
with pre-developed requirements. The 26% increase in net sales in 1999 as
compared to 1998 was also a result of intensified sales and marketing efforts
which increased the sales order backlog and allowed the company to ship
significantly more in 1999. Significant shipments in 1999 included high voltage
radar power supply/transmitters, repair depot, and industrial power supplies.
Net income for fiscal 2000, was $782,943 or $.75 per share compared to $730,601
or $.66 per share for fiscal 1999. The 13.6% increase in earnings per share was
due to increased net sales, increased internal cost controls, and a decrease in
the average number of shares outstanding. Net income for fiscal 1999, was
$730,601 or $.66 per share compared to a net loss of $739,602 or ($.67) per
5
<PAGE>
share for fiscal 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 fiscal years ended June 30, 2000, 1999 and 1998 gross profits were
$2,735,934, $2,537,676, and $685,953, respectively. Gross profit for fiscal 2000
was a percentage of sales remained consistent with fiscal 1999 at 18.6%. The
increase in gross profit between 2000, 1999, and 1998, was predominately due to
increased efficiency in the manufacturing and engineering workforces and an
increase in net sales.
Selling, general and administrative expenses were $2,002,317 for the fiscal year
ended June 30, 2000, an increase of $155,480, or 8% as compared to the prior
year. This increase is mainly attributable to an overall increase in selling
expenses. Selling, general and administrative expenses were $1,846,837 for the
year ended June 30, 1999, a decrease of $110,279, or 5.6% as compared to the
prior year. The reduction is primarily related to a decrease in professional
fees, officer's salaries and employment-related expenses.
Total other income in fiscal 2000 remained relatively consistent with fiscal
1999. Interest and dividend income decreased as expected, however, this decrease
was offset by government grants received related to increased employment. Total
other income in fiscal 1999, as compare to fiscal 1998 declined as expected, as
the company continued to increase the backlog and improve overall net sales,
more cash was being utilized in operations for inventory and higher accounts
receivable balances during fiscal 1999. This trend left the company with less
cash to invest in interest bearing securities. Also, interest rates declined
slightly in fiscal 1999 from fiscal 1998.
Business Outlook
The Company continues to increase net sales while also increasing the existing
sales backlog. The sales backlog of $28.0 million as of September 13, 2000,
gives the Company a solid base to grow over the next few years. In addition to
the backlog, the Company currently has outstanding quotations in excess of $22
million for both repeat and new programs. The Company has received major
contracts for power supplies which should find extensive use throughout the
world. The Company also expects to receive substantial orders for spare parts on
the various types of transmitters which are already in the field, and a number
of contracts for further development and manufacture of numerous transformers.
The outstanding quotations encompass various new and previously manufactured
power supplies, transformers, and subassemblies. Management presently
anticipates that the Company will realize both an increase in revenues and
income in 2001, however, there can be no assurance that the Company will acquire
any or all of the proposed orders described above since such a forward-looking
statement is subject to future events, market conditions, political stability of
foreign governments, and allocations of the United States defense budget.
Liquidity and Capital Resources
The Company's working capital is an appropriate indicator of the liquidity of
its business, and during the past three fiscal years, the Company, when
possible, has funded all of its operations with cash flows resulting from
operating activities and when necessary from its existing cash and investments.
The Company did not borrow any funds during the last three fiscal years. On
April 26, 2000, management established a $3,000,000 line of credit to help fund
further growth, if necessary, but does not anticipate the need for any borrowed
funds in the foreseeable future.
The Company's working capital as of June 30, 2000, 1999 and 1998 was
$21,211,145, $20,816,988, and $20,425,678, respectively. During 2000 and 1999
the Company repurchased 30,027 and 47,562 shares, respectively, of its common
stock from the Company's ESOP and in other private and public transactions, for
a total purchase price of $403,472 and $604,226,respectively. The Company did
not repurchase any of its common stock during fiscal year 1998. Under existing
6
<PAGE>
authorizations from the Company's Board of Directors, as of September 13, 2000,
management is authorized to purchase an additional $925,750 worth of Company
stock.
The table below presents the summary of cash flow information for the fiscal
year indicated:
2000 1999
---- ----
Net cash used in operating activities............. $2,076,644 $ 2,947,631
Net cash provided by investing activities......... 2,691,701 3,541,565
Net cash used in financing activities............. 612,201 821,338
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, purchases of inventory, level of sales and payment of accounts
payable. The cash provided by investing activities is due to the maturities of
the Company's investment securities with no offsetting purchase of new
investments as the Company needed the funds to support current operations. The
decrease in cash used in financing activities is due to the decrease in the
amount of treasury stock purchased during 2000 as explained above.
The Company 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 believes that the Company's reserve for bad debts of $3,000 is
adequate given the customers with whom the Company deals. The amount of bad
debts over the years has been minimal.
During fiscal year 2000, and 1999, the Company expended approximately $782,100
and $508,000, respectively, for plant improvements and new equipment. The
Company plans to expend approximately $385,000 for new equipment and plant
improvements in fiscal 2001. Management presently anticipates that the funds
required will be available from current operations.
Management Restructuring
At the end of the fiscal 1998, the Company implemented a management succession
plan. The plan was effectuated through agreements with five executive officers
of the Company: Joseph Canterino (former President and Chief Executive Officer),
Barry Pinsley (former Vice President-Investor Relations and Human Resources),
Seymour Saslow (Senior Vice President), Herbert Potoker (Treasurer and Principal
Financial Officer) and Reita Wojtowecz (Secretary). Under the terms of the
agreements, the executives agreed to resign from their positions as executive
officers and are being compensated in accordance with their respective
agreements. The implementation of this plan resulted in the Company recording in
fiscal 1998 a $479,500 pre-tax charge for payments due under the contracts and
costs related to the implementation of the plan. The costs of the plan are being
paid with cash flows from the Company's operating activities. At June 30, 2000
approximately $142,000 remains to be paid under these agreements.
Other Matters
An Employee Retirement Plan and Trust ("ESOP") was established for the eligible
non-union employees of the Company and was effective as of July 1, 1988. The
ESOP used the proceeds of a loan from the Company to purchase 316,224 shares of
the Company's common stock for approximately $8,400,000, 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.
Each year the Company makes contributions to the ESOP, which are used to make
loan interest and principal payments. With each loan and interest payment, a
7
<PAGE>
portion of the common stock will be allocated to participating employees. As of
June 30, 2000, there were 197,137 shares allocated to participants. Dividends
attributable to allocated shares were likewise allocated to the participants'
accounts, whereas the dividends on unallocated shares were used as part of the
loan repayment, thus reducing the Company's required contribution.
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.
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>
Item 8. Financial Statements
Report of Independent Accountants
To the Board of Directors and Stockholders of
Espey Mfg. & Electronics Corp. and Subsidiary:
In our opinion, the 2000 and 1999 consolidated financial statements listed in
the index appearing under Item 14(a)(1) present fairly, in all material
respects, the financial position of Espey Mfg. and Electronics Corp. and
Subsidiary at June 30, 2000 and 1999, and the results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Albany, New York
August 22, 2000
9
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:
We have audited the statements of income, changes in stockholders' equity, and
cash flows of Espey Mfg. & Electronics Corp. for the year ended June 30, 1998,
as listed in the index appearing under Item 14(a)(1). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and the cash flows of Espey
Mfg. & Electronics Corp. for the year ended June 30, 1998, in conformity with
generally accepted accounting principles.
/s/KPMG LLP
-----------
KPMG LLP
Albany, New York
August 26, 1998
10
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Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Balance Sheets
June 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,367,191 $ 2,364,335
Investment securities 650,000 3,674,169
----------------- -----------------
Net cash and cash equivalents and investment securities 3,017,191 6,038,504
----------------- -----------------
Trade accounts receivable, net 4,105,028 4,440,177
Other receivables 46,435 10,941
----------------- -----------------
Net receivables 4,151,463 4,451,118
----------------- -----------------
Inventories:
Raw materials and supplies 822,814 546,007
Work in process 3,113,708 2,639,330
Costs related to contracts in process, net of progress payments of
$537,468 in 2000 and $-0- in 1999 10,889,930 7,856,607
----------------- -----------------
Net inventories 14,826,452 11,041,944
----------------- -----------------
Deferred income taxes 299,709 327,497
Prepaid expenses and other current assets 245,501 232,051
----------------- -----------------
Total current assets 22,540,316 22,091,114
----------------- -----------------
Deferred income taxes 6,516 42,367
----------------- -----------------
Property, plant and equipment, at cost 13,165,043 12,851,825
Less accumulated depreciation (9,593,838) (9,590,594)
----------------- -----------------
Net property, plant and equipment 3,571,205 3,261,231
----------------- -----------------
Total assets $ $
26,118,037 25,394,712
================= =================
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts payable $ 541,636 $ 285,281
Accrued expenses:
Salaries, wages and commissions 244,865 498,695
Vacation 280,493 211,162
Employee insurance costs 65,194 58,539
Other 3,372 41,251
Payroll and other taxes withheld and accrued 69,536 116,211
Income taxes payable 124,075 62,987
----------------- -----------------
Total current liabilities 1,329,171 1,274,126
----------------- -----------------
Stockholders' equity:
Common stock, par value $.33-1/3 per share authorized 10,000,000 504,979 504,979
shares;
issued 1,514,937 shares in 2000 and 1999; outstanding 1,033,631
and 1,063,658 shares in 2000 and 1999
Capital in excess of par value 10,496,287 10,496,287
Accumulated other comprehensive (loss) (107,221) (38,175)
Retained earnings 23,775,433 23,193,297
----------------- -----------------
34,669,478 34,156,388
Less common stock subscribed (2,234,650) (2,793,312)
Cost of 481,306 and 451,279 shares of common stock in
treasury in 2000 and 1999, respectively (7,645,962) (7,242,490)
----------------- -----------------
Total stockholders' equity 24,788,866 24,120,586
----------------- -----------------
Total liabilities and stockholders' equity $ 26,118,037 $ 25,394,712
================= =================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Income
Years Ended June 30, 2000, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Net sales $ 14,719,818 $ 13,629,692 $ 10,793,572
Cost of sales 11,983,884 11,092,016 10,107,619
----------------- ----------------- -------------------
Gross profit 2,735,934 2,537,676 685,953
Selling, general and administrative expense 2,002,317 1,846,837 1,957,116
Other costs -- -- 479,500
----------------- ----------------- -------------------
Operating income (loss) 733,617 690,839 (1,750,663)
Other income
Interest and dividend income 363,599 425,330 553,540
Other 95,727 16,432 42,151
----------------- ----------------- -------------------
Total other income 459,326 441,762 595,691
----------------- ----------------- -------------------
Income (loss) before income taxes 1,192,943 1,132,601 (1,154,972)
Provision (benefit) for income taxes 410,000 402,000 (415,370)
----------------- ----------------- -------------------
Net income (loss) $ 782,943 $ 730,601 $ (739,602)
================= ================= ===================
Income per common share;
Net income (loss) per common share - basic
and diluted $ .75 $ .66 $ (.67)
================= ================= ===================
Weighted average outstanding shares 1,045,520 1,100,065 1,111,220
================= ================= ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2000, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Other
Capital in Comprehen-
Excess of Par sive Income Retained
Common Stock Value (Loss) Earnings
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1997 504,979 $ 10,496,287 $ - $ 24,148,405
Comprehensive loss:
Net loss, 1998 (739,602)
Other comprehensive income, net of tax of $3,740 7,260
Comprehensive loss
Dividends paid on common stock, $.70 per share (777,854)
Tax effect of dividends on unallocated ESOP shares 40,891
Reduction of common stock subscribed
---------- -------------- ------------- ------------
Balance at June 30, 1998 504,979 10,496,287 7,260 22,671,840
---------- -------------- ------------- ------------
Comprehensive income (loss):
Net income, 1999 730,601
Other comprehensive loss, net of tax benefit of $25,557 (45,435)
Comprehensive income
Dividends paid on common stock $.20 per share (217,112)
Tax effect of dividends on unallocated ESOP shares 7,968
Purchase of treasury stock
Reduction of common stock subscribed
---------- -------------- ------------- ------------
Balance at June 30, 1999 504,979 10,496,287 (38,175) 23,193,297
---------- -------------- ------------- ------------
Comprehensive income (loss):
Net income, 2000 782,943
Other comprehensive loss, net of tax benefit of $39,962 (69,046)
Comprehensive income
Dividends paid on common stock, $.20 per share (208,729)
Tax effect of dividends on unallocated ESOP shares 7,922
Purchase of treasury stock
Reduction of common stock subscribed
---------- -------------- ------------- ------------
Balance at June 30, 2000 $ 504,979 $10,496,287 $ (107,221) $23,775,433
=========== ============== ============= ============
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Common Treasury Stock Total
Stock ------------------------- Stockholders'
Subscribed Shares Amount Equity
------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at June 30, 1997 $ (3,910,636) 403,717 $ (6,638,264) $ 24,600,771
Comprehensive loss:
Net loss , 1998 (739,602)
Other comprehensive income, net of tax of $3,740 7,260
------------
Comprehensive loss (732,342)
Dividends paid on common stock, $.70 per share (777,854)
Tax effect of dividends on unallocated ESOP shares 40,891
Reduction of common stock subscribed 558,662 558,662
------------- ------------ ----------- ------------
Balance at June 30, 1998 (3,351,974) 403,717 (6,638,264) 23,690,128
------------- ------------ ----------- ------------
Comprehensive income (loss):
Net income, 1999 730,601
Other comprehensive loss, net of tax benefit of $25,557 (45,435)
------------
Comprehensive income 685,166
Dividends paid on common stock $.20 per share (217,112)
Tax effect of dividends on unallocated ESOP shares 7,968
Purchase of treasury stock 47,562 (604,226) (604,226)
Reduction of common stock subscribed 558,662 558,662
------------- ------------ ----------- ------------
Balance at June 30, 1999 (2,793,312) 451,279 (7,242,490) 24,120,586
------------- ------------ ----------- ------------
Comprehensive income (loss):
Net income, 2000 782,943
Other comprehensive loss, net of tax benefit of $39,962 (69,046)
------------
Comprehensive income 713,897
Dividends paid on common stock, $.20 per share (208,729)
Tax effect of dividends on unallocated ESOP shares 7,922
Purchase of treasury stock 30,027 (403,472) (403,472)
Reduction of common stock subscribed 558,662 558,662
------------- ------------ ----------- ------------
Balance at June 30, 2000 $ (2,234,650) 481,306 $ (7,645,962) $ 24,788,866
============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 2000, 1999 and 1998
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 782,943 $ 730,601 $ (739,602)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Tax effect of dividends on unallocated ESOP shares 7,922 7,968 40,891
Depreciation 472,149 430,111 422,013
Deferred income tax expense (benefit) 103,600 85,000 (220,618)
Change in assets and liabilities
Decrease (increase) in trade account receivables,
and other receivables, net 299,655 (2,566,142) (721,148)
Increase in inventories, net (3,784,508) (2,253,233) (586,836)
Decrease (increase) in income tax refund receivable - 270,408 (270,408)
Decrease (increase) in prepaid expenses
and other current assets (13,450) (42,491) 3,294
Increase (decrease) in accounts payable 256,355 77,397 (37,917)
Increase (decrease) in accrued salaries, wages and
commissions (253,830) (64,363) 475,418
Increase (decrease) in accrued employee
insurance costs 6,655 21,066 (3,101)
Increase (decrease) in other accrued expenses (37,879) 29,048 3,210
Increase in vacation accrual 69,331 191,161 -
Increase (decrease) in payroll and other taxes
withheld and accrued (46,675) 72,851 (4,204)
Increase (decrease) in income taxes payable 61,088 62,987 (148,606)
------------ ------------ ------------
Net cash used in operating activities (2,076,644) (2,947,631) (1,787,614)
------------ ------------ ------------
Cash flows from investing activities
Proceeds from maturity of investment securities 2,915,161 10,000,000 -
Additions to property, plant and equipment (782,122) (507,684) (300,289)
Purchases of investment securities - (6,509,413) (7,224,749)
Reduction of common stock subscribed 558,662 558,662 558,662
------------ ------------ ------------
Net cash provided by (used in) investing 2,691,701 3,541,565 (6,966,376)
activities ------------ ------------ ------------
Cash flows from financing activities
Dividends on common stock (208,729) (217,112) (777,854)
Purchase of treasury stock (403,472) (604,226) -
------------ ------------ ------------
Net cash used in financing activities (612,201) (821,338) (777,854)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 2,856 (227,404) (9,531,844)
Cash and cash equivalents, beginning of the year 2,364,335 2,591,739 12,123,583
------------ ------------ ------------
Cash and cash equivalents, end of the year $ 2,367,191 $ 2,364,335 2,591,739
============ ============ ============
Supplemental disclosures of cash flow information:
Income taxes paid $ 237,500 $ 331,045 $ 224,262
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Nature of Operations
Espey Mfg. & Electronics Corp. and Subsidiary (the Company) is a
manufacturer of electronic equipment used primarily in military and
industrial applications. The principal markets for the Company's products
are companies that provide electronic support to both military and
industrial applications. During 1999, the Company established a foreign
sales corporation (subsidiary).
Inventory Valuation and Revenue Recognition
Raw materials are stated at the lower of cost or market and are valued at
weighted average cost.
Inventoried work relating to contracts in process and work in process is
valued at actual production cost, including factory overhead and initial
set-up costs incurred to date. Work in process represents spare units and
parts and other inventory items acquired or produced to service units
previously sold or to meet anticipated future orders. The cost elements
of contracts in process consist of production costs of goods and services
currently in process and overhead relative to those contracts where such
costs are reimbursable under the terms of the contracts. Provision for
losses on contracts is made when existence of such losses becomes
evident. The costs attributed to units delivered under contracts are
based on the estimated average cost of all units expected to be produced.
Certain contracts are expected to extend beyond twelve months.
Revenue is recognized on contracts in the period in which the units are
delivered and billed (unit-of-delivery method).
Depreciation
Depreciation of plant and equipment is computed on a straight-line basis
over the estimated useful lives of the assets.
Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the provisions of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. In addition, SFAS No. 109
requires that the tax benefit of tax deductible dividends on unallocated
ESOP shares be recorded as a direct addition to retained earnings rather
than as a reduction of income tax expense.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, certificates of
deposit, money market accounts, and U.S. Treasury bills with original
maturities of three months or less.
16
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies, Continued
Investment Securities
The Company accounts for its investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Investment securities at June 30, 2000 and 1999 consist of U.S. Treasury
securities and corporate equity securities. The Company classifies U.S.
Treasury securities and corporate equity securities as
available-for-sale.
Unrealized holding gains and losses, net of related tax effect, on
available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' equity until realized. Realized
gains and losses for securities classified as available-for-sale are
included in earnings and are determined using the specific identification
method. Interest income is recognized when earned.
Stock-Based Compensation
The intrinsic value method of accounting is used for stock-based
compensation plans. Under the intrinsic value method, compensation cost
is measured as the excess, if any, of the quoted market price of the
stock at the grant date over the amount of an employee must pay to
acquire the stock.
Per Share Amounts
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock were exercised or converted into Common
Stock or resulted in the issuance of Common Stock that then shared in the
earnings of the entity.
Comprehensive Income
In 1999, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." This statement
establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net income and unrealized
gains (losses) on securities available for sale and is presented in the
Statement of Changes in Stockholders' Equity. Prior year financial
statements have been reclassified to conform to the SFAS No. 130
requirements. Components of other comprehensive income include unrealized
gains (losses) on securities available for sale. There were no realized
gains (losses) included in net income requiring reclassification
adjustments to other comprehensive income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Investment Tax Credits
Investment tax credits are accounted for as a reduction of income tax
expense in the year taxes payable are reduced.
17
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies, Continued
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board Issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 has subsequently been
amended by SFAS No. 137, issued June 1999, which delays the effective
date for implementation of SFAS No. 133 until fiscal quarters of fiscal
years beginning after June 15, 2000. Management believes SFAS No. 133
will not impact the Company's consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 in the quarter ended June 30, 2001. Management
does not expect the adoption of SAB 101 to have a material effect on the
Company's financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB Opinion No. 25."
FIN 44 clarifies the application of APB Opinion No. 25 and, among other
issues clarifies the definition of an employee for purposes of applying
APB Opinion No. 25; the criteria for determining whether a plan qualifies
as a non-compensatory plan; the accounting consequences of various
modifications to the terms of previously fixed stock options or awards;
and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The Company has applied the
applicable provisions of FIN 44 which did not have a material effect on
the Company's consolidated financial statements.
18
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
2. Investment Securities
Investment securities at June 30, 2000, consist of U.S. Treasury bills
and corporate equity securities, which are classified as
available-for-sale securities, and recorded at market value. The cost,
gross unrealized holding gains, gross unrealized holding losses and fair
value of available-for-sale securities by major security type at June 30,
2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
2000 Cost Holding Gains Holding Losses Fair Value
---------- ---------------- -------------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury bills $ - $ - $ - $ -
Corporate equity securities 819,005 - 169,005 650,000
---------- ---------- ---------- ----------
$ 819,005 $ - $ 169,005 $ 650,000
========== ========== ========== ==========
1999
U.S. Treasury bills $2,915,161 $ - $ - $2,915,161
Corporate equity securities 819,005 - 59,997 759,008
---------- ---------- ---------- ----------
$3,734,166 $ - $ 59,997 $3,674,169
========== ========== ========== ==========
</TABLE>
The U.S. Treasury bills classified as available-for-sale at June 30, 1999
matured during 2000. The change in unrealized holding losses on available
for sale investment securities net of tax was $69,046 and $45,435 in 2000
and 1999, respectively.
3. Contracts in Process
Contracts in process at June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Gross contract value $ 29,128,352 $ 16,961,238
Costs related to contracts in process, net of progress
payments of $537,468 in 2000 and $-0- in 1999 $ 10,889,930 $ 7,856,607
</TABLE>
Included in costs relating to contracts in process at June 30, 2000 and
1999 are costs of $748,722 and $298,814, respectively, relative to
contracts that may not be completed within the ensuing year. Under the
unit-of-delivery method, the related sale and cost of sales will not be
reflected in the statement of income until the units under contract are
shipped.
19
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
4. Property, Plant and Equipment
A summary of the original cost of property, plant and equipment at June
30, 2000 and 1999 is as follows:
2000 1999
Land $ 50,000 $ 50,000
Buildings and improvements 3,992,041 3,952,869
Machinery and equipment 8,755,010 8,477,396
Furniture, fixtures and office equipment 367,992 371,560
--------------- ------------
$ 13,165,043 $ 12,851,825
=============== ============
Estimated useful lives of depreciable assets are as follows:
Buildings and improvements 15-20 years
Machinery and equipment 10 years
Furniture, fixtures and office equipment 10 years
5. Line of Credit
At June 30, 2000, the Company has an available unused Line of Credit with
a financial institution. The agreement provides that the Company may
borrow up to $3,000,000. The line generally provides for interest at
prime minus fifty basis points.
6. Research and Development Costs
Research and development costs charged to operations during the years
ended June 30, 2000, 1999 and 1998 were approximately $255,000, $291,000,
and $244,000, respectively.
7. Pension Expense
Under terms of a negotiated union contract, the Company is obligated to
make contributions to a union-sponsored defined benefit pension plan
covering eligible employees. Such contributions are based upon hours
worked at a specified rate and amounted to $88,660 in 2000, $64,829 in
1999, and $54,269 in 1998.
20
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
8. Provision (Benefit) for Income Taxes
A summary of the components of the provision (benefit) for income taxes
for the years ended June 30, 2000, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Current tax expense (benefit) - federal $ 295,400 $ 313,000 $ (195,179)
Current tax expense - state 11,000 4,000 427
Deferred tax expense (benefit) 103,600 85,000 (220,618)
------------- -------------- -------------
$ 410,000 $ 402,000 $ (415,370)
============= ============== =============
</TABLE>
Deferred income taxes reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting
purposes and such amounts measured by tax laws and regulations. These
"temporary differences" are determined in accordance with SFAS No. 109.
The combined U.S. federal and state effective income tax rates of 34.4%,
35.5% and (36.0)% for 2000, 1999 and 1998, respectively, differed from
the statutory U.S. federal income tax rate for the following reasons:
2000 1999 1998
U.S. federal statutory income tax rate 34% 34% (34.0)%
Increase (reduction) in rate resulting
from:
Dividends received deduction (1.2) (0.5) -
State franchise tax, net of federal
income tax benefit 1.7 2.3 (2.4)
Foreign sales corporation benefit (1.0) (1.1) -
Other .9 0.8 .4
----- ------ -----
Effective tax rate 34.4% 35.5% (36.0)%
===== ====== =====
21
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
8. Provision (Benefit) for Income Taxes, Continued
For the years ended June 30, 2000 and 1999 deferred income tax expense of
$103,600 and $85,000, respectively, result from the changes in temporary
differences for each year. The tax effects of temporary differences that
give rise to deferred tax assets and deferred tax liabilities as of June
30, 2000 and 1999 are presented as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Deferred tax assets:
Inventory - differences in valuation methods $150,945 $161,194
Unrealized loss on available-for-sale investment
securities 61,779 25,557
Common stock subscribed - due to difference in
interest recognition 407,791 449,891
Non-deductible accruals 152,100 154,810
Other 16,695 13,353
-------- --------
Total deferred tax assets 789,310 804,805
-------- --------
Deferred tax liabilities:
Property, plant and equipment - principally due to
differences in depreciation methods 401,275 407,524
Inventory - effect of uniform capitalization 81,810 27,417
-------- --------
Total deferred tax liabilities 483,085 434,941
-------- --------
Net deferred tax asset $306,225 $369,864
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the schedule reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projection for future taxable income over the period in which
the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these
temporary differences without consideration of a valuation allowance.
9. Common Stock and Income Per Share
Income per share information is based on the weighted average number of
common shares outstanding during the respective periods. The weighted
average number of shares used in the computation was 1,045,520 in 2000,
1,100,065 in 1999, and 1,111,220 in 1998.
22
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
10. Significant Customers
A significant portion of the Company's business is the production of
military and industrial electronic equipment for use by the U.S.
Government and its agencies and certain industrial customers. Sales to
two domestic customers accounted for 29.7% and 26.3%, respectively of
total sales in 2000. Sales to two domestic customers and one foreign
customer accounted for 37.6%, 25.4% and 11.2%, respectively, of total
sales in 1999. Sales to three domestic customers accounted for 47.9%,
14.7% and 12.5%, respectively, of total sales in 1998.
Export sales aggregated approximately $4,200,000 and $2,500,000 for years
ended June 30, 2000 and 1999, respectively. Export sales in 1998 were not
significant.
11. Stock Rights Plan
The Company has a Shareholder Rights Plan which expires on December 31,
2009. Under this plan, common stock purchase rights were distributed as a
dividend at the rate of one right for each share of common stock
outstanding as of or issued subsequent to April 14, 1989. Each right
entitles the holder thereof to buy one-half share of common stock of the
Company at an exercise price of $50 per share subject to adjustment. The
rights are exercisable only if a person or group acquires beneficial
ownership of 15% or more of the Company's common stock or commences a
tender or exchange offer which, if consummated, would result in the offer
or, together with all affiliates and associates thereof, being the
beneficial owner of 15% or more of the Company's common stock.
If a 15% or larger shareholder should engage in certain self-dealing
transactions or a merger with the Company in which the Company is the
surviving corporation and its shares of common stock are not changed or
converted into equity securities of any other person, or if any person
were to become the beneficial owner of 15% or more of the Company's
common stock, than each right not owned by such shareholder or related
parties of such shareholder (all of which will be void) will entitle its
holder to purchase, at the right's then current exercise price, shares of
the Company's common stock having a value of twice the right's exercise
price. In addition, if the Company is involved in any other merger or
consolidation with, or sells 50% or more of its assets or earning power
to, another person, each right will entitle its holder to purchase, at
the right's then current exercise price, shares of common stock of such
other person having a value of twice the right's exercise price.
The Company generally is entitled to redeem the rights at one cent per
right at any time until the 15th day (or 25th day if extended by the
Company's Board of Directors) following public announcement that a 15%
position has been acquired or the commencement of a tender or exchange
offer which, if consummated, would result in the offer or, together with
all affiliates and associates thereof, being the beneficial owner of 15%
or more of the Company's common stock.
23
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
12. Employee Stock Ownership Plan
In 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 in 1989 to the ESOP which was used by the ESOP to purchase an
additional 15,000 shares of the Company's common stock. Since inception
of the Plan, the ESOP has sold or distributed 66,628 shares of the
Company's common stock to pay benefits to participants. At June 30, 2000
and 1999, the ESOP held a total of 281,185 and 272,692 shares,
respectively, of the Company's common stock, of which 197,137 and 167,632
shares, respectively, were allocated to participants in the Plan.
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. The Company recognizes the principal payments of the ESOP debt,
on a straight-line basis over the term of the note, as compensation
expense.
Each year, the Company makes contributions to the ESOP which are used to
make loan payments. With each loan payment, a portion of the common stock
is allocated to participating employees. For the periods ended June 30,
2000 and 1999, 21,012 shares were allocated to participants. In 2000, the
Company's required contribution of $1,039,605 was reduced by $21,012
which represents the dividends paid on the unallocated ESOP shares. The
resulting payment of $1,018,593 includes $537,650 classified as
compensation expense. In 1999, the Company's required contribution of
$1,039,605 was reduced by $25,214, which represents the dividends paid on
the unallocated ESOP shares. The resulting payment of $1,014,319 includes
$533,449 classified as compensation expense. In 1998, the Company's
required contribution of $1,039,605 was reduced by $102,952, which
represents the dividends paid on the unallocated ESOP shares. The
resulting payment of $936,646 includes $455,704 classified as
compensation expense. All shares purchased by the ESOP are considered to
be outstanding for the income per share computations.
13. Stock Options
During fiscal 2000, the Board of Directors and shareholders approved, the
2000 Stock Option Plan (the Plan). Under the Plan, incentive and
non-qualified stock options will be granted to purchase shares of common
stock of the Company. As of June 30, 2000 the Plan was authorized to
issue 150,000 shares of the Company's common stock.
Options granted under the Plan have been granted at not less than the
fair market value at the grant date and vest over a maximum period of ten
years.
On March 1, 2000, 11,500 stock options were granted under the plan which
vest over two years. As of June 30, 2000 no options were forfeited.
24
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
13. Stock Options, Continued
The Company has elected to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in accounting for the
Plan. Under APB 25, no compensation expense has been recognized in 2000.
Had compensation cost and fair value been determined pursuant to
Statement of Financial Accounting Standards No. 123 (FAS 123) "Accounting
for Stock-Based Compensation", net income would have decreased from
$782,943 to $778,296. The options outstanding did not create any
difference between basic and diluted earnings per share. The initial
impact of FAS 123 on pro forma earnings per share may not be
representative of the effect on income in future years because options
vest over several years and additional option grants may be made each
year.
The weighted average fair value of options granted under FAS 123 was
$3.71 in 2000. The fair value of options granted is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for the grants: dividend yield of 2.5%;
expected volatility of 16.4% ; risk-free interest rates of 6%; and
expected life of 5 years.
14. Financial Instruments/Concentration of Credit Risk
The carrying amounts of financial instruments, including cash, short-term
investments, investment securities, accounts receivable, accounts payable
and accrued expenses, approximated fair value as of June 30, 2000 and
1999 because of the relatively short maturities of these instruments.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company maintains cash and cash
equivalents with various financial institutions. At times such
investments may be in excess of FDIC insurance limits. As disclosed in
Note 10, a significant portion of the Company's business is the
production of military and industrial electronic equipment for use by the
U.S. Government and its agencies and certain industrial customers. The
related accounts receivable balance represented by three customers was
64% and 93.2% of the Company's total trade accounts receivable balance at
June 30, 2000 and 1999, respectively.
Although the Company's exposure to credit risk associated with nonpayment
of these balances is affected by conditions or occurrences within the
U.S. Government, the Company believes that its trade accounts receivable
credit risk exposure is limited. The Company performs ongoing credit
evaluations of its customers' financial conditions and requires
collateral, such as progress payments, in certain circumstances. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
25
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
15. Commitments
The Company under an operating lease agreement rents a sales office in
Great Neck, New York. This lease, which expires on September 9, 2001,
requires future minimum lease payments of $14,222 payable as follows:
Year ending June 30,
2001 12,190
2002 2,032
----------------------
$ 14,222
======================
Rent expense for the years ended June 30, 2000, 1999 and 1998 was
$12,190, $18,674, and $12,398, respectively.
16. Other Costs
During 1999 the Company implemented a management succession plan that
involves agreements with five members of management. These agreements
require the Company to pay certain amounts for a period of approximately
two years after the employees' resignations from the Company in exchange
for the employees' agreements to be available to the Company on an
as-needed basis. Since there is no minimum service required by the
agreements, the Company accrued for these payments on the effective date
of the plan as the employees are eligible for the benefit at that date.
At June 30, 1999, approximately $306,000 was accrued to record the
liabilities relating to these agreements. At June 30, 2000, $142,000
remained to be paid to these individuals.
17. Related Parties
The Company paid a law firm in which a director of the Company is a
partner, a total of $42,000 for legal services during each fiscal year
ended June 30, 2000, 1999 and 1998. The Company paid a director of the
Company, a total of approximately $15,975 and $15,600 for consulting
services during the fiscal year ended June 30, 2000 and 1999,
respectively.
18. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
2000
Net sales $ 3,298,980 $ 3,412,424 $ 3,289,816 $ 4,718,598
Gross profit 414,586 493,051 771,435 1,056,862
Net income (loss) 39,593 47,092 263,548 432,710
Net income (per share - basic
and diluted) 0.04 0.04 0.25 0.42
</TABLE>
26
<PAGE>
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
18. Quarterly Financial Information (Unaudited), Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999
Net sales $ 2,523,984 $ 3,134,377 $ 3,089,547 $ 4,881,784
Gross profit 398,705 625,453 451,815 1,061,703
Net income 84,042 166,109 99,723 380,727
Net income (per share - basic
and diluted) 0.08 0.15 0.9 0.34
1998
Net sales $ 2,503,584 $ 3,549,697 $ 2,240,347 $ 2,499,944
Gross profit 428,603 401,300 (457,608) 313,658
Net income (loss) 45,009 24,955 (507,426) (302,140)
Net income (loss) per share - basic
and diluted 0.04 0.02 (0.46) (0.27)
</TABLE>
27
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Identification of Directors
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
---- ------------------ --------------- ---
Paul J. Corr Annual Meeting in None 56
December 2002
Director since 1992
William P. Greene Annual Meeting in Vice President of 70
December 2001 Operations
Director since 1992
Carl Helmetag Annual Meeting in None 52
December 2000
Director since 1999
Barry Pinsley Annual Meeting in None 58
December 2002
Director since 1994
Howard Pinsley Annual Meeting in President and Chief 60
December 2000 Executive Officer
Director since 1992
Alvin A. Sabo Annual Meeting in None 57
December 2000
Director since 1999
Seymour Saslow Annual Meeting in None 79
December 2001
Director since 1992
Gerald B.H. Solomon Annual meeting in None 70
December 2001
Director since 1999
Michael W. Wool Annual Meeting in None 54
December 2002
Director since 1990
28
<PAGE>
Identification of Executive Officers
<TABLE>
<CAPTION>
Positions and
Offices Held Period Served As
Name With Company Executive Officer Age
---- ------------------ --------------- ---
<S> <C> <C> <C>
Howard Pinsley President and Served as Vice President- 60
Chief Executive Special Power Supplies
Officer from April 3, 1992 until
being elected as Executive
Vice President on December
6, 1997. Elected to present
office on June 9, 1998
William P. Greene Vice President- Since February 1, 1999 70
Operations
John J. Pompay, Jr. Vice President- Since December 6, 1996 65
Marketing and Sales
David A. O'Neil Treasurer & Principal Since January 4, 2000, 35
Financial Officer Controller and Assistant
Treasurer from December 11
To January 3, 2000
Garry M. Jones Assistant Treasurer Since August 4, 1988, 60
& Principal Accounting Principal Financial
Officer Officer from August 4,
1988 to September 10, 1993
Peggy A. Murphy Secretary Since December 11, 1998 42
</TABLE>
The terms of office of Mr. Howard Pinsley, Mr. William P. Greene, Ms. Peggy A.
Murphy, Mr. David A. O'Neil and Mr. Garry M. Jones are until the next annual
meeting of the Board of Directors unless successors are sooner appointed by the
Board of Directors. The term of office of Mr. Pompay is subject to the
provisions of an agreement between him and the Company. See "Executive
Compensation-Employment Contracts and Termination of Employment and Change in
Control Agreements."
Family Relationships
Barry Pinsley and Howard Pinsley are cousins. Herbert Potoker (former Treasurer)
and Howard Pinsley are cousins.
Business Experience of Directors and Officers
Paul J. Corr is a Certified Public Accountant and has been a Professor of
Business at Skidmore College in Saratoga Springs, New York since 1981. Mr. Corr
currently holds the position of Associate Professor. Mr. Corr is also a
shareholder in the Latham, New York accounting firm of Rutnik, Matt & Corr, P.C.
William P. Greene, D.B.A. prior to joining the Company's management team was
Vice President of Finance for ComCierge, LLC, San Diego, CA since August 1997.
Prior to that position, Dr. Greene held the position of Vice President
Operations for Bulk Materials International, Newtown, CT from 1993 to July 1997.
From 1991 to 1993, Dr. Greene was Associate Professor of Finance and
International Business at Pennsylvania State University Kutztown, Kutztown, PA.
From 1985 to 1990, he was Associate Dean of the School of Business, United
States International University, San Diego, CA. From 1992 to 1995, he was
Chairman of the Department of Business, Skidmore College, Saratoga Springs, NY.
Prior to that time, he had been employed as an officer with several financial
institutions.
29
<PAGE>
Barry Pinsley is a Certified Public Accountant who for five years acted as a
consultant to the Company prior to his election as Vice President-Special
Projects on March 25, 1994. On December 6, 1997, Mr. Pinsley was elected to the
position of Vice President-Investor Relations and Human Resources, from which he
resigned on June 9, 1998. Mr. Pinsley has been a practicing Certified Public
Accountant in Saratoga Springs, New York since 1975.
Howard Pinsley for more than the past five years has been employed by the
Company on a full-time basis as a Program Director prior to being elected Vice
President-Special Power Supplies on April 3, 1992. On December 6, 1996, Mr.
Pinsley was elected to the position of Executive Vice President. On June 9,1998
he was elected to the positions of President and Chief Operating Officer.
Subsequently he also became the Chief Executive Officer.
Seymour Saslow had been Senior Vice President since December 6, 1996. Prior to
being elected to Senior Vice President, Mr. Saslow served as Vice
President-Engineering since April 3, 1992. Mr. Saslow resigned as an executive
officer effective December 31, 1999.
Gerald B.H. Solomon is currently President and Chief Executive Officer of the
Solomon Group. The Solomon Group is an international consulting firm providing
strategic advice and counsel to corporations worldwide. Prior to becoming
President of the Solomon Group he retired from the United States Congress where
he served as a congressman from New York State for twenty years.
Michael W. Wool is an attorney in private practice and a partner in the law firm
of Langrock, Sperry & Wool in Burlington, Vermont for more than the past five
years.
Alvin O. Sabo is an attorney engaged in private practice of law and Senior
Partner of the law firm of Donohue, Sabo, Varley & Armstrong, P.C. in Albany, NY
since 1980. Prior to that position, he was Assistant Attorney General, State of
New York, Department of Law for eleven years.
Carl Helmetag is currently President and CEO of UVEX Inc, in Providence, RI.
From 1996 to 1999, he was President and CEO of HEAD USA Inc. Prior to that
position, Mr. Helmetag was Executive Vice President, and then President at
Dynastar Inc. from 1978 to 1996. He is an MBA graduate from the Wharton School
of Business, University of Pennsylvania.
Peggy Murphy is Secretary of the Company since December 11, 1998. She has been
employed by the Company as Director of Human Resources since October 1998.
David A. O'Neil is currently the Treasurer and Principal Financial Officer of
the Company. Mr. O'Neil is a Certified Public Accountant who joined the Company
as Controller and Assistant Treasurer on November 16, 1998. Prior to joining the
Company Mr. O'Neil was a Senior Manager at the accounting firm of KPMG LLP.
John J. Pompay, Jr. for more than the past five years has been employed by the
Company on a full-time basis as Director of Marketing and Sales prior to being
elected Vice President-Marketing and Sales on December 6, 1996.
Garry M. Jones for more than the past five years has been employed by the
Company on a full-time basis as Senior Accountant prior to being elected
Assistant Treasurer and Principal Accounting Officer on August 4, 1988.
Directorships
None of the directors holds a directorship in any other company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of that Act or any company registered as an
Investment company under the Investment Company Act of 1940.
30
<PAGE>
Legal Proceedings
None of the directors or executive officers of the Company were involved during
the past five years in any legal proceedings specified under Item 401(f) of
Regulation S-K.
Item 11. Executive Compensation.
Executive Compensation Table
The following table summarizes the annual compensation for each of the fiscal
years ended June 30, 2000, 1999, and 1998 received by the Company's Chief
Executive Officer and the other highest paid executive officers of the Company
that received over $100,000 in total compensation as of June 30, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Securities
Name and Fiscal Annual Underlying All Other
Principal Position Year Salary Bonus Options (#) Compensation(1)
------------------ ---- ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Howard Pinsley 2000 $160,520 $25,000 1,500 $ 8,623
President and 1999 $127,700 $ 0 0 $11,492
Chief Executive Officer 1998 $120,125 $25,000 0 $15,961
Seymour Saslow (2) 2000 $111,150 $25,000 0 $ 1,237
Senior Vice President 1999 $124,625 $ 0 0 $10,568
1998 $119,625 $25,000 0 $15,024
William P. Greene 2000 $116,270 $ 0 600 $ 6,414
Vice President of 1999 $ 37,650 $ 0 0 $ 0
Operations (3)
John J. Pompay, Jr. 2000 $237,816 $20,000 600 $ 8,822
Vice President-Sales 1999 $189,399 $ 0 0 $ 8,679
1998 $176,297 $ 0 0 $12,314
</TABLE>
(1) Represents (a) the cash and market value of the shares allocated for the
respective fiscal years under the Company's ESOP to the extent to which
each named executive officer is vested, and (b) directors' fees except
for Mr. Pompay through April 1, 1999. Effective April 1, 1999 employees
of the Company that also serve on the Board do not receive director's
fees.
(2) Represents wages as both an executive officer and non-executive officer.
Mr. Saslow resigned as Senior Vice President on December 31, 1999.
(3) Mr. Greene's employment with the Company commenced in February 1999.
31
<PAGE>
OPTION GRANTS IN FISCAL 2000
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Number of Percent Rates of Stock
Securities of Total Price Appreciation
Underlying Options for Option Term (1)
Options Granted to Exercise Expiration ------------------
Name Granted Employees Price Date 5%($) 10%($)
--------------- --------- -------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard Pinsley 1,500 13% 13.25 03/01/2010 12,495 31,680
William P. Greene 600 5% 13.25 03/01/2010 4,998 12,672
John J. Pompay Jr. 600 5% 13.25 03/01/2010 4,998 12,672
David A. O'Neil 600 5% 13.25 03/01/2010 4,998 12,672
</TABLE>
(1) Amounts reflect certain assumed rates of appreciation set forth in the
Commission's executive compensation disclosure rules. Actual gains, if any, on
stock option exercises will depend on future performance of the Common Stock. No
assurance can be made that the amounts reflected in these columns will be
achieved. The values in these columns assume that the fair market value on the
date of grant of each option was equal to the exercise price thereof.
In accordance with the 2000 Stock Option Plan the above options are exercisable
anytime after March 1, 2002. Accordingly, no options were exercised by the above
named executive officers in fiscal 2000.
Insurance
The executive officers and directors of the Company can elect to be covered
under the company sponsored health plans which do not discriminate in favor of
the officers or directors of the Company and which are available generally to
all employees. In addition, the executive officers are covered under a group
life plan, which does not discriminate, and is available to all employees.
The Company maintains insurance coverage, as authorized by Section 727 of the
New York Business Corporation Law, providing for (a) reimbursement of the
Company for payments it makes to indemnify officers and directors of the
Company, and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by them in any actions.
Employee Retirement Plan and Trust
Under the Company's ESOP, approved by the Board of Directors on June 2, 1989,
effective July 1, 1988, all non-union employees of the Company, including the
Company's executive and non-executive officers are eligible to participate. The
ESOP is a non-contributory plan which is designed to invest primarily in shares
of common stock of the Company. Reference is made to, and there is incorporated
by reference, the description of the ESOP, its implementation and pertinent
documents attached as exhibits in the Company's Form 8-K dated June 16, 1989,
filed with the Commission on June 20, 1989, and to the amendments thereto filed
as an Exhibit to the 10-K Report for the fiscal year ended June 30, 1991.
Certain technical amendments not considered material were adopted effective as
of June 30, 1994.
Of the 197,137 shares of common stock of the Company allocated to participants
of the ESOP as of June 30, 2000, 451 shares were allocated to William P. Greene,
7,251 shares were allocated to John J. Pompay, Jr., 6,843 shares were allocated
to Howard Pinsley, 6,170 shares were allocated to Seymour Saslow, 433 shares
were allocated to David A. O'Neil and 2,703 shares were allocated to Barry
Pinsley.
32
<PAGE>
Compensation of Directors
The Company's standard arrangement compensates each director of the Company an
annual fee in the amount of $10,000 for being a member of the Board of
Directors. Each Director that also serves as a member of the Audit Committee is
compensated an additional annual fee of $5,000. These fees are paid monthly to
the Directors. Barry Pinsley was paid $15,975 for additional services in
connection with his duties as a director for the fiscal year ended June 30,
2000. Executive officers that also serve on the Company's Board of Directors do
not receive director's fees.
Directors are also eligible to receive stock options under the 2000 Stock Option
Plan at the discretion of the stock option committee. The stock option committee
consists of three appointed board members. For the year ended June 30, 2000, the
following options were granted to the Board of Directors in accordance with this
Plan.
Name Number of Options Exercise Price
---- ----------------- --------------
Seymour Saslow 700 $13.25
Barry Pinsley 700 13.25
Michael W. Wool 300 13.25
Paul J. Corr 300 13.25
Alvin A. Sabo 200 13.25
Carl Helmetag 200 13.25
Gerald B.H. Solomon 200 13.25
The above options are exercisable anytime after March 1, 2002 and expire on
March 1, 2010.
Employment Contracts and Termination of Employment and
Change in Control Agreements
The Company has an employment contract with John J. Pompay Jr. in connection
with his duties as Vice President-Marketing and Sales. The contract was
effective as of January 4, 1999 and terminated on December 31, 1999 subject to a
one-year option. Effective January 1, 2000 the one-year option was exercised
extending the contract through December 31, 2000. The contract provides for a
minimum base annual salary of $117,000 plus commissions at the rate of 3% on all
payments received by the Company against Mr. Pompay's open orders booked up to
and including December 31, 1996, and 1% on all payments received against orders
booked by the Company between January 1, 1997 and December 31, 1998. The
contract further provides that if Mr. Pompay's employment is terminated by the
Company prior to the expiration date, other than for cause, he will continue to
receive his full salary for six months after the termination date and the
Company will pay him commissions due on all orders when payment is received. The
contract also provides for a restrictive covenant of non-competition by Mr.
Pompay for a period of two years upon termination for cause or termination of
the contract by Mr. Pompay. At the end of the contract term Mr. Pompay has the
option to accept at the time of his voluntary resignation as an executive
officer, an employment contract as a non-executive officer in which he would
receive full compensation for 13 weeks and then for the next 104 weeks receive
$1,000 per week.
As part of a management succession plan as implemented by the Board of Directors
in June 1998, the Company has entered into agreements with the following named
executive officers: Joseph Canterino, Barry Pinsley, Seymour Saslow and Herbert
Potoker. The contracts provide for the resignation of the above officers from
their positions as executive officers and for them to be compensated in
33
<PAGE>
accordance with their respective agreements. The effective date of the
resignations of Mr. Canterino and Mr. Barry Pinsley as executive officers was
June 9, 1998. The effective date of the resignation of Mr. Potoker as an
executive officer was December 31, 1998. The effective date of the resignation
of Mr. Saslow as an executive officer was December 31, 1999. The compensation to
be paid under the agreements is $1,000 per week for Messrs. Canterino, Saslow
and Potoker and $500 per week for Mr. Pinsley during such two-year period. In
the event of a named executive officer's death, the Company is obligated to
continue the payments as scheduled under the terms of the agreements.
All of the named executive officers' contracts contain a restrictive covenant
regarding non-competition with the Company during the term of the agreement and
for a period of five years after the termination of the agreement and an
agreement regarding the treatment of confidential information.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Security Ownership of Certain Beneficial Owners
The following information is furnished as of September 13, 2000 (unless
otherwise indicated) with respect to any person (including any "group" as that
term is used in Section 13(d)(3) of the Act) who is known to the Company to be
the beneficial owner of more than five percent of any class of the Company's
voting securities:
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
----- ------------------- --------- -----
Common Stock Barry Pinsley 2,900 -Direct 8.0%
$.33-1/3 p.v. P.O. Box 422 80,164 -Indirect (1)
Saratoga Springs,
NY 12866
" Dimensional Fund 74,500 -Direct (2) 7.1%
Advisors Inc.
1299 Ocean Avenue
11th Floor
Santa Monica,
CA 90401
" Franklin Resources, Inc. 90,000 -Direct (3) 8.6%
777 Mariners Island
Blvd., P.O. Box 7777
San Mateo,
CA 94403-7777
" The Adirondack Trust 280,585 -Direct (4) 27.1%
Company, as Trustee of
the Company's Employee
Retirement Plan and Trust
473 Broadway
Saratoga Springs,
NY 12866
(1) Does not include 2,000 shares of common stock of the Company owned by the
spouse of Barry Pinsley, beneficial ownership of which is disclaimed by Mr.
Pinsley. The shares listed as indirectly owned by Barry Pinsley are 2,703 shares
allocated to him as of June 30, 2000 as a participant in the Company's ESOP and
34
<PAGE>
77,461 shares owned by the trust under the will of Ruth Pinsley of which Mr.
Pinsley is trustee. Mr. Pinsley has the right to direct the manner in which such
shares are to be voted.
(2) The information as to the number of shares of common stock of the Company
that may be deemed beneficially owned by advisory clients of Dimensional Fund
Advisors Inc. ("Dimensional") is from the Schedule 13G dated February 4, 2000
filed with the Securities and Exchange Commission (the "SEC"). Dimensional, a
registered investment advisor, is deemed to have beneficial ownership of 74,500
shares of Espey Mfg. & Electronics Corp. stock as of February 4, 2000, all of
which shares are held in Dimensional investment companies, trusts and accounts.
Dimensional, in its role as investment advisor and/or manager, disclaims
beneficial ownership of all such shares. Dimensional, in its role as investment
advisor and/or manager, reported sole voting power with respect to 74,500
shares.
(3) The information as to the number of shares of common stock of the Company
that may be deemed beneficially owned by Franklin Resources, Inc. ("Franklin")
is from the Schedule 13G, dated January 19,2000 filed with the SEC. The Franklin
statement indicated that Franklin's investment "advisory subsidiaries", have
sole voting and dispositive power with respect to all of the shares of common
stock shown in the table above for Franklin. The Franklin statement indicates
that the common stock set forth in the table is beneficially owned by one or
more open or closed-end investment companies or other managed accounts which are
advised by direct and indirect Franklin investment advisory subsidiaries. The
statement also indicated that it filed the Schedule 13G on behalf of itself and
Franklin's principal shareholders, Charles B. Johnson and Rupert H. Johnson, Jr.
(the "Principal Shareholders"), all of which are deemed beneficial owners of the
shares of common stock shown in the above table for Franklin. Franklin and the
Principal Shareholders disclaim any economic interest or beneficial ownership in
any of the common stock shown in the table for Franklin.
(4) This information is from the Form 4 dated September 12, 2000 filed with the
SEC by the Trustee on behalf of the Company's ESOP. The ESOP Trustee has sole
voting power with respect to unallocated common shares owned by the Trust,
84,048 shares as of September 13, 2000, as directed by the Plan Administrator
appointed by the Company's Board of Directors. As to the common shares allocated
to participants, 196,537 shares as of September 13, 2000, the ESOP Trustee has
the power to vote such shares as directed by such Plan Administrator to the
extent the participants do not direct the manner in which such shares are to be
voted.
Security Ownership of Management
The following information is furnished as of September 13, 2000 (unless
otherwise indicated), as to each class of equity securities of the Company
beneficially owned by all Directors and Executive Officers and by Directors and
Executive Officers of the Company as a Group:
35
<PAGE>
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
----- ---------------- --------- -----
Common Stock
$.33-1/3 p.v. Paul J. Corr 3,000-Direct 0.29%
" William P. Greene 100-Direct 0.05%
451-Indirect (2)
" Carl Helmetag 1,800-Direct 0.22%
500-Indirect (6)
" Michael W. Wool 100-Direct 0.01%
" Alvin O. Sabo 0-Indirect (4) -
" Gerald B.H. Solomon 0-Indirect (5) -
" Barry Pinsley 2,600-Direct 8.00%
80,164-Indirect
(1)(2)(3)
" Seymour Saslow 351-Direct 0.63%
6,170-Indirect(2)
" John J. Pompay, Jr. 7,251-Indirect(2) 0.70%
" Howard Pinsley 42,134-Direct 4.74%
6,843-Indirect(2)
" David A. O'Neil 1,000-Direct 0.14%
433-Indirect (2)
" Garry M. Jones 3,412-Indirect(2) 0.33%
" Peggy Murphy 2,110-Indirect(2) 0.20%
" Officers and Directors 51,085-Direct 15.33%
as a Group 107,334-Indirect
(1) Excludes 2,000 shares owned by the spouse of Barry Pinsley. Beneficial
ownership of the shares is disclaimed by Mr. Pinsley.
(2) Includes shares allocated to named director or executive officer as of
June 30, 2000 as a participant in the Company's ESOP. Each such person
has the right to direct the manner in which such shares allocated to him
or her are to be voted by the ESOP Trustee.
(3) Includes 77,461 shares owned by a testamentary trust of Ruth Pinsley, the
deceased spouse of Sol Pinsley. As trustee of the trust, Barry Pinsley is
deemed the beneficial owner, as defined in Rule 13d-3, of the shares held
by the trust.
(4) Excludes 1,000 shares owned by the spouse of Alvin O. Sabo. Beneficial
ownership of the shares is disclaimed by Mr. Sabo.
(5) Excludes 400 shares owned by the spouse of Gerald B.H. Solomon.
Beneficial ownership of the shares is disclaimed by Mr. Solomon.
(6) Includes 500 shares owned by the trust of Molly K. Helmetag. As trustee
of the trust, Mr. Helmetag is deemed beneficial owner, as defined in rule
13d-3, of the shares held by the trust.
There are no arrangements known to the Company the execution of which may at a
subsequent date result in change of control of the Company.
36
<PAGE>
Item 13. Certain Relationships and Related Transactions.
As previously reported, the Company established and sold to the ESOP Trust on
June 5, 1989, 331,224 shares of the Company's treasury stock at a price of
$26.50 per share, which purchase price was funded by the Company making a cash
contribution and loan. Each year, the Company makes contributions to the ESOP,
which are used to make loan interest and principal payments to the Company. With
each such payment, a portion of the common stock held by the ESOP is allocated
to participating employees. As of June 30, 2000, there were 197,137 shares
allocated to participants. The loan from the Company to the ESOP is repayable in
annual installments of $1,039,605, including interest, through June 30, 2004.
Officers of the Company, including two (Howard Pinsley and Bill Greene) who are
also directors, are eligible to participate in the ESOP and to have shares and
cash allocated to their accounts and distributed to them in accordance with the
terms of the ESOP.
The Company paid the law firm of Langrock, Sperry & Wool, of which Michael W.
Wool, a director of the Company, is a partner, a total of $42,000 for legal
services during the fiscal year ended June 30, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements
Included in Part II, Item 8, of this report:
Reports of Independent Accountants
Balance Sheets at June 30, 2000 and 1999
Statements of Income for the years ended
June 30, 2000, 1999 and 1998
Statements of Changes in Stockholders' Equity
for the years ended June 30, 2000, 1999 and 1998
Statements of Cash Flows for the years ended
June 30, 2000, 1999 and 1998
Notes to Financial Statements
2. Financial Statement Schedules
Schedules are omitted because of the absence of conditions
under which they are required or because the required
information is given in the financial statements or notes
thereto.
3. Exhibits
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
none
37
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 and 15(d) 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.
-----------------------
Howard Pinsley,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
President
/s/Howard Pinsley (Principal Executive Officer)
------------------------------------
Howard Pinsley September 7, 2000
Treasurer
/s/David O'Neil (Principal Financial Officer)
------------------------------------
David O'Neil September 7, 2000
Assistant Treasurer
/s/Garry M. Jones (Principal Accounting Officer)
------------------------------------
Garry M. Jones September 7, 2000
/s/Barry Pinsley Director
------------------------------------
Barry Pinsley September 7, 2000
/s/Seymour Saslow Director
------------------------------------
Seymour Saslow September 7, 2000
Vice President of
/s/William P. Greene operations and Director
------------------------------------
William P. Greene September 7, 2000
/s/Michael W. Wool Director
------------------------------------
Michael W. Wool September 7, 2000
/s/Paul J. Corr Director
------------------------------------
Paul J. Corr September 7, 2000
/s/Gerald B.H. Solomon Director
------------------------------------
Gerald B. H. Solomon September 7, 2000
/s/Alvin O. Sabo Director
------------------------------------
Alvin O. Sabo September 7, 2000
/s/Carl Helmetag Director
------------------------------------
Carl Helmetag September 7, 2000
38
