UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number I-4383
ESPEY MFG. & ELECTRONICS CORP.
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(Exact name of registrant as specified in charter)
NEW YORK 14-1387171
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(State of Incorporation) (I.R.S. Employer's Identification No.)
233 Ballston Avenue, Saratoga Springs, New York 12866
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 518-584-4100
---------------------------
Number of shares outstanding of issuer's class of common stock $.33-1/3 par
value as of November 6, 2000: 1,033,631.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Balance Sheets -
September 30, 2000 and June 30, 2000 1
Consolidated Statements of Income -
Three Months Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of
Operations
PART II OTHER INFORMATION 9
SIGNATURES 10
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
September 30, 2000 and June 30, 2000
------------------------------------
A S S E T S
<TABLE>
<CAPTION>
Unaudited
2000 2000
September 30 June 30
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,971,887 $ 2,367,191
Investments securities 679,000 650,000
----------- -----------
Net cash and cash equivalents and
investment securities 3,650,887 3,017,191
----------- -----------
Trade accounts receivable, net 3,224,423 4,105,028
Other receivables 10,263 46,435
----------- -----------
Net Receivables 3,234,686 4,151,463
----------- -----------
Inventories:
Raw materials and supplies 823,264 822,814
Work-in-process 3,363,149 3,113,708
Costs relating to contracts in process, net of
progress payments of $363,776 at September 30
and $537,468 at June 30, 2000 11,121,352 10,889,930
----------- -----------
Net Inventories 15,307,765 14,826,452
----------- -----------
Deferred income taxes 289,559 299,709
Prepaid expenses and other current assets 159,201 245,501
----------- -----------
Total Current Assets 22,642,098 22,540,316
----------- -----------
Deferred Income Taxes 6,516 6,516
----------- -----------
Property, plant and equipment, net 3,549,313 3,571,205
----------- -----------
Total Assets $26,197,927 $26,118,037
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
(Continued)
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
September 30, 2000 and June 30, 2000
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unaudited
2000 2000
September 30 June 30
------------ -----------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts Payable $ 407,526 $ 541,636
Accrued expenses:
Salaries, wages and commissions 195,296 244,865
Employees' insurance costs 57,318 65,194
Vacation 223,991 280,493
ESOP payable 138,615 -
Other 4,057 3,372
Payroll and other taxes withheld
and accrued 57,000 69,536
Income taxes payable 154,670 124,075
------------ -----------
TOTAL CURRENT LIABILITIES 1,238,473 1,329,171
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per
share. Authorized 10,000,000 shares;
issued 1,514,937 shares September 30, 2000
and June 30, 2000. Outstanding 1,033,631
on September 30, 2000 and June 30, 2000 504,979 504,979
Accumulated other comprehensive income(loss) (88,371) (107,221)
Capital in excess of par value 10,496,287 10,496,287
Retained earnings 23,927,171 23,775,433
------------ -----------
34,840,066 34,669,478
Less: Common stock subscribed (2,234,650) (2,234,650)
Cost of 481,306 shares on September 30, 2000
and June 30, 2000 of common stock in treasury (7,645,962) (7,645,962)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 24,959,454 24,788,866
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 26,197,927 $ 26,118,037
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999
----------------------------------------------
<TABLE>
<CAPTION>
Unaudited
Three Months
September 2000 September 1999
-------------- --------------
<S> <C> <C>
Net Sales $ 4,167,234 $ 3,298,980
Cost of sales 3,478,973 2,884,391
----------- -----------
GROSS PROFIT 688,261 414,589
Selling, general and
administrative expenses 460,251 493,600
----------- -----------
OPERATING INCOME (LOSS) 228,010 (79,011)
----------- -----------
Other Income:
Interest and dividend income 65,190 90,666
Other 17,126 52,941
----------- -----------
TOTAL OTHER INCOME 82,316 143,607
----------- -----------
Income before income taxes 310,326 64,596
Provision for income taxes 106,906 25,000
----------- -----------
NET INCOME $ 203,420 $ 39,596
----------- -----------
Income per Share:
Basic and diluted income per share $ .20 $ .04
===== =====
Weighted average number of
shares outstanding
Basic 1,033,631 1,052,884
========= =========
Diluted 1,035,966 1,052,884
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Three Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Unaudited
September 30
2000 1999
----------- -----------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 203,420 $ 39,596
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 181,094 111,751
Gain on disposal of fixed assets (14,721) -
Changes in assets and liabilities:
Decrease in receivables 916,777 1,181,939
Increase in inventories (481,313) (617,286)
Decrease in prepaid expenses and
other current assets 86,300 147,738
(Decrease) increase in accounts payable (134,110) 555,001
Decrease in accrued salaries,
wages and commissions (49,569) (118,242)
Decrease in accrued employee insurance costs (7,876) (1,391)
(Decrease) increase in other accrued expenses 685 (28,235)
Decrease in vacation accrual (56,502) (21,450)
Increase in ESOP payable 138,615 138,352
Decrease in payroll & other taxes
withheld and accrued (12,536) (22,418)
Decrease in deferred income taxes - -
Increase in income taxes payable 30,595 19,608
----------- -----------
Net cash provided by
operating activities 800,859 1,384,963
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of fixed assets 14,750 -
Proceeds from maturity of investment securities - 2,915,161
Additions to property, plant & equipment (159,231) (260,559)
----------- -----------
Net cash (used in) provided by
investing activities (144,481) 2,654,602
----------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (51,682) (52,432)
Purchase of treasury stock - (193,223)
----------- -----------
Net cash used in
financing activities (51,682) (245,655)
----------- -----------
Increase in cash and cash equivalents 604,696 3,793,910
Cash and cash equivalents, beginning of period 2,367,191 2,364,335
----------- -----------
Cash and cash equivalents, end of period $ 2,971,887 $ 6,158,245
----------- -----------
Income Taxes Paid $ - $ -
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
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<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
Notes to Consolidated Financial Statements
------------------------------------------
1. In the opinion of management the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of results for
such periods. The results for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the Company's most recent audited
financial statements included in its 2000 Form 10-K.
2. The basic earnings per share (EPS) is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed giving effect to all
dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares consist of the incremental common shares
issuable upon the exercise of stock options for all periods using the
treasury stock method.
3. Other income consists principally of government grants related to increased
employment, interest on Certificates of Deposit, Treasury Bills, money
market accounts and dividends on equity securities.
4. For purposes of the statements of cash flows, the Company considers all
liquid debt instruments with original maturities of three months or less to
be cash equivalents.
5. In fiscal 1989 the Company established an Employee Stock Ownership Plan
(ESOP) for eligible non-union employees. The ESOP used the proceeds of a
loan from the Company to purchase 316,224 shares of the Company's common
stock for approximately $8.4 million and the Company contributed
approximately $400,000 to the ESOP, which was used by the ESOP to purchase
an additional 15,000 shares of the Company's common stock.
The loan from the Company to the ESOP is repayable in annual installments
of $1,039,605, including interest, through June 30, 2004. Interest is
payable at a rate of 9% per annum. The Company's receivable from the ESOP
is recorded as common stock subscribed in the accompanying balance sheets.
Each year, the Company will make contributions to the ESOP which will be
used to make loan interest and principal payments. With each loan and
interest payment, a portion of the common stock will be allocated to
participating employees. As of September 30, 2000 there were 197,136 shares
allocated to participants.
6. Total comprehensive income consists of:
Three Months Ended
September 30,
2000 1999
-------- --------
Net income $ 203,420 39,596
Accumulated other comprehensive income:
Unrealized gain (loss) on
investment securities 18,850 (33,280)
-------- --------
Total comprehensive income 222,270 6,316
======== ========
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<PAGE>
7. Stock Options
On October 29, 1999, the Board of Directors approved, subject to
shareholder approval, the 2000 Stock Option Plan (the Plan). Under the Plan
and related incentive stock option agreements, options will be granted to
purchase shares of common stock of the Company with an exercise price not
less than the fair value of a share of such common stock at the date of the
grant and vest over a period not to exceed ten years as will be determined
by the Option Committee which will administer the Plan. Non-Qualified stock
options will be issued in accordance with the Plan. Shareholders approved
the Plan at the Annual Meeting on January 4, 2000.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for the Plan. To determine
the necessary pro forma disclosure information the Company utilizes
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation". On March 1, 2000, 11,500 stock options were
granted under the Plan. All options were granted at fair market value.
- 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------
Results of Operations
---------------------
Net sales for the three months ended September 30, 2000 were $4,167,234 as
compared to $3,298,980 for the same period in 1999. The $868,254 increase in net
sales for the three-month period is mainly due to increased sales of power
supplies and radar transmitters. Due to successful marketing efforts with new
and existing customers the Company should continue to see increased net sales
levels as backlog orders are completed and shipped.
During the first quarter of fiscal 2001 gross profits as a percentage of sales
increased approximately 4% as compared with the first quarter of fiscal 2000.
Net income for the three months ended September 30, 2000 was $203,419 or $.20
per share compared to $39,596 or $.04 per share for the corresponding period
ended September 30, 1999.
The increase in gross profit and net income was primarily due to higher sales
volume and changes in contract/product mix. Management continues to evaluate the
Company's workforce to insure that production and overall execution of backlog
orders and additional anticipated orders are successfully performed. Present
employment is approximately 240 people.
Selling, general and administrative expenses were $460,251 for the three months
ended September 30, 2000, a decrease of $33,349, or 6.8%, as compared to the
three months ended September 30, 1999. This decrease was primarily due to a
decrease in selling expenses.
Total other income for the three months ended September 30, 2000 decreased
$61,292, compared to the three months ended September 30, 1999. This decrease is
due to lower interest income and lower funds received related to government
grants for increased employment. The Company does not believe that there is any
risk associated with its investment policy, since the majority of its
investments are represented by United States Government Treasury Securities,
preferred equity securities and a money market account.
The Company continues to diversify its customer base and product offerings. The
backlog at September 30, 2000 was approximately $27,339,000, as compared to
approximately $27,871,000 at September 30, 1999.
Liquidity and Capital Resources
-------------------------------
As of September 30, 2000, the Company had working capital of $21.4 million
compared to $21.2 million at June 30, 2000. The Company meets its short-term
financing needs through cash from operations and when necessary, from its
existing cash and short term investments.
The table below presents the summary of cash flow for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 800,859 $1,384,963
Net cash (used in) provided by investing activities $ (144,481) $2,654,602
Net cash used in financing activities $ 51,682 $ 245,655
</TABLE>
Net cash provided by operating activities fluctuates between periods primarily
as a result of differences in net income, the timing of the collection of
- 7 -
<PAGE>
accounts receivable, purchase of inventory, level of sales and payment of
accounts payable. The decrease in net cash provided by (used in) investing
activities is due to the maturity of investment securities with no offsetting
purchase of new investments. The decrease in net cash used in financing
activities is due to decreased treasury stock purchases.
The Company currently believes that its current cash and cash equivalent
balances and the cash generated from operations will be sufficient to meet its
long-term funding requirements. Management has in place a $3,000,000 line of
credit to help fund further growth. For the first quarter of fiscal 2000 capital
expenditures were approximately $160,000.
Since the debt of the Company's ESOP is not to an outside party the Company has
eliminated from the Consolidated Statements of Income the offsetting items of
interest income and interest expenses relating to ESOP. The Company has
also eliminated the offsetting accruals from the Consolidated Balance Sheets.
During the three months ended September 30, 2000, the Company did not repurchase
any of its common stock. During the three months ended September 30, 1999, the
Company repurchased 15,027 shares of its common stock from the Company's ESOP
and other public transactions. Under existing Board authorizations, as of
September 30, 2000, $925,750 could be utilized to repurchase the Company's
common stock.
Year 2000 Issues
The Company's information technology systems successfully completed the
transition into the year 2000. The beginning of the new year resulted in no
adverse or negative impact on operations. The Company believes that the risk
associated with the year 2000 problem has been identified and eliminated. The
Company will continue to evaluate the 2000 readiness of its business systems and
significant vendors to ensure a complete transition through the year 2000. The
estimated total cost of the year 2000 assessment and remediation plan has been
less than $25,000.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
It should be noted that in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "anticipate," "intend," "goal,"
"expect," and similar expressions may identify forward-looking statements. These
forward-looking statements represent the Company's current expectations or
beliefs concerning future events. The matters covered by these statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those set forth in the forward-looking statements,
including the Company's dependence on timely development, introduction and
customer acceptance of new products, the impact of competition and price
erosion, as well as supply and manufacturing constraints and other risks and
uncertainties. The foregoing list should not be construed as exhaustive, and the
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
- 8 -
<PAGE>
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None during the quarter.
Item-5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None during the quarter.
- 9 -
<PAGE>
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESPEY MFG. & ELECTRONICS CORP.
/s/ Howard Pinsley,President
-------------------------------
Howard Pinsley, President and
Chief Executive Officer
/s/ David O'Neil, Treasurer
--------------------------------
David O'Neil, Treasurer and
Principal Financial Officer
15 November 2000
----------------
Date
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