UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,September 30, 2001
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
- ------------------------ --------------------------------------
(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 May 15,November 6, 2001: 1,029,461.
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 [_]
ESPEY MFG. & ELECTRONICS CORP.
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Balance Sheets -
March 31,September 30, 2001 and June 30, 20002001 1
Consolidated Statements of Income -
Three and Nine Months Ended March 31,September 30, 2001 and 2000 3
Consolidated Statements of Cash Flows -
NineThree Months Ended March 31,September 30, 2001 and 2000 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8Operations 6
PART II OTHER INFORMATION 8
SIGNATURES 8
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
March 31,September 30, 2001 and June 30, 20002001
------------------------------------
A S S E T S
Unaudited
2001 2000
March 312001
September 30 June 30
------------ -----------
CURRENT ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 4,106,1496,299,899 $ 2,367,1915,200,736
Investments securities 743,360 650,000754,400 737,600
Trade accounts receivable, net of
$3,000 allowance at March 31, 2001
and June 30, 2000 3,177,681 4,105,0283,312,518 2,537,310
Other receivables 1,046 46,4353,822 31,179
----------- -----------
Total Receivables 3,178,727 4,151,4633,316,340 2,568,489
----------- -----------
Inventories:
Raw materials and supplies 969,737 822,8141,165,930 1,036,726
Work-in-process 2,679,164 3,113,7084,348,601 2,658,436
Costs relating to contracts in
process, net of advance payments of
$289,000$1,245,170 at March 31,September 30, 2001 and
$537,468$289,000 at June 30, 2000 11,570,063 10,889,9302001 8,163,966 11,237,515
----------- -----------
Total Inventories 15,218,964 14,826,45213,678,497 14,932,677
----------- -----------
Deferred Income Taxes 267,033 299,709139,729 145,609
Prepaid expenses and other current assets 198,683 245,501116,871 151,880
----------- -----------
Total Current Assets 23,712,916 22,540,31524,305,737 23,736,991
----------- -----------
Deferred Income Taxes 6,516 6,516
Net
Property, Plant and Equipment, 3,552,062 3,571,205net 3,532,324 3,491,890
----------- -----------
Total Assets $27,271,494 $26,118,037$27,838,060 $27,228,881
=========== ===========
See accompanying notes to the consolidated financial statementsstatements.
(Continued)
1
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
March 31,2001September 30,2001 and June 30, 20002001
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
2001 2000
March 312001
September 30 June 30
------------ -----------
CURRENT LIABILITIES:------------
CURRENT LIABILITIES:
Accounts Payable $ 515,910692,015 $ 541,633334,772
Accrued expenses:
Salaries, wages and commissions 160,920 244,865110,073 124,081
Vacation 294,124 345,546
Employees' insurance costs 136,673 65,194
Vacation 322,624 280,49434,130 61,798
ESOP payable 409,541134,938 --
Dividends Payable 51,473Dividend payable 231,629 --
Other 33,695 37,711
Payroll and other taxes withheld and accrued 56,137 51,80041,050 39,397
Income taxes payable 290,398 124,074
Other 25,749 21,109136,499 61,440
Deferred Income Taxes 58,752 58,752
------------ ------------
Total Current Liabilities 1,969,425 1,329,1691,766,905 1,063,497
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per share.share
Authorized 10,000,000 shares;
issuedIssued 1,514,937 shares on March 31,September 30, 2001
and June 30, 2000
Outstanding2001, outstanding 1,029,461
and 1,033,631 on March 31,September 30, 2001 and June 30, 2000, respectively2001 504,979 504,979
Accumulated other comprehensive loss (46,537) (107,221)
Capital in excess of par value 10,496,287 10,496,287
Accumulated other comprehensive loss (39,361) (50,281)
Retained earnings 24,298,842 23,775,43624,502,090 24,607,239
------------ ------------
35,253,571 34,669,481
Less:35,463,995 35,558,224
Less Common stock subscribed (2,234,649) (2,234,650)(1,675,987) (1,675,987)
Cost of 485,476 and 481,306 shares on
March 31,September 30, 2001 and June 30, 2000
respectively2001
of common stock in treasury (7,716,853) (7,645,963)(7,716,853)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 25,302,069 24,788,86826,071,156 26,165,384
------------ ------------
Total Liabilities And
Stockholders' Equity $ 27,271,49427,838,060 $ 26,118,03727,228,881
============ ============
See accompanying notes to the consolidated financial statementsstatements.
2
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three and Nine Months Ended March 31,September 30, 2001 and 2000
------------------------------------------------------
Unaudited
Unaudited
Three Months Nine Months
2001 2000
2001 2000
------------------------------ ----------------------------------------- ----------
Net Sales $ 4,615,138 $ 3,289,816 $ 12,967,365 $ 10,001,220sales $4,585,515 $4,167,234
Cost of sales 3,920,377 2,519,259 10,695,335 8,322,049
----------- ----------- ----------- -----------3,977,930 3,478,973
---------- ----------
Gross profit 694,761 770,557 2,272,030 1,679,171607,585 688,261
Selling, Generalgeneral and
Administrative Expenses 456,964 466,613 1,461,207 1,493,539
----------- ----------- ----------- -----------administrative expenses 394,032 460,251
---------- ----------
Operating income 237,797 303,944 810,823 185,632
----------- ----------- ----------- -----------213,553 228,010
---------- ----------
Other income
Interest and
Dividend Income 59,716 95,717 193,462 298,304dividend income 66,479 65,190
Other income 5,575 6,983 31,199 59,396
----------- ----------- ----------- -----------
65,291 102,700 224,661 357,700
----------- ----------- ----------- -----------10,955 17,126
---------- ----------
77,434 82,316
---------- ----------
Income before income taxes 303,088 406,644 1,035,484 543,332290,987 310,326
Provision for income taxes 97,534 143,000 357,242 193,000
----------- ----------- ----------- -----------87,296 106,906
---------- ----------
Net Income $ 205,554203,691 $ 263,644 $ 678,242 $ 350,332
=========== =========== =========== ===========203,420
========== ==========
Income per share:
Basic and diluted
income per share $ .20 $ .25 $ .66 $ .33
----------- ----------- ----------- -----------.20
---------- ----------
Weighted average number
of shares outstanding
Basic 1,029,461 1,045,005 1,032,048 1,048,8541,033,631
Diluted 1,032,445 1,045,005 1,034,469 1,048,854
=========== =========== =========== ===========1,032,471 1,035,966
========== ==========
See accompanying notes to the consolidated financial statementsstatements.
3
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
NineThree Months Ended March 31,September 30, 2001 and 2000
Unaudited
March 31,September 30,
2001 2000
----------- -----------
Cash Flows From Operating Activities:
Net income $ 678,242203,691 $ 350,332203,420
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation 469,121 345,846123,635 181,094
(Gain)/loss on disposal of assets -- (14,721) --
Changes in assets and liabilities:
Decrease (Increase) in receivables 972,737 1,962,020
Increase(747,852) 916,777
Decrease (Increase) in inventories (392,511) (3,193,152)1,254,179 (481,313)
Decrease in prepaid expenses and
other current assets 46,818 35,55135,008 86,300
(Decrease) Increase in accounts payable (25,725) 588,357
(Decrease)357,244 (134,110)
Decrease in accrued salaries,
wages and commissions (83,945) (215,803)
Increase(14,008) (49,569)
Decrease in accrued employeeemployees' insurance costs 71,479 11,941(27,668) (7,876)
(Decrease) Increase in other accrued expenses 4,640 (20,512)(4,017) 685
Increase (Decrease) in vacation accrual 42,131 40,409(51,421) 56,502
(Decrease) Increase in payroll & other
taxes withheld and accrued 4,337 (76,143)1,653 (12,536)
Increase in income taxes payable 166,324 101,61075,058 30,595
Increase in ESOP contributions 409,541 403,238134,938 138,615
----------- -----------
Net cash provided by
operating activities 2,348,468 333,6941,340,440 800,859
----------- -----------
Cash Flows From Investing Activities:
Proceeds from maturity of investment securities -- 2,915,161
Additions to property, plant & equipment (450,007) (679,008)(164,067) (159,231)
Proceeds on sale of assets -- 14,750 --
----------- -----------
Net cash (used in) provided
byused in
investing activities (435,257) 2,236,153(164,067) (144,481)
----------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (103,362) (157,045)
Purchase of treasury stock (70,891) (329,222)(77,209) (51,682)
----------- -----------
Net cash used in
financing activities (174,253) (486,267)(77,209) (51,682)
----------- -----------
Increase in cash and cash equivalents 1,738,958 2,083,5801,099,164 604,696
Cash and cash equivalents, beginning of period 2,267,191 2,364,3355,200,735 2,367,191
----------- -----------
Cash and cash equivalents, end of period $ 4,106,1496,299,899 $ 4,447,9152,971,887
----------- -----------
Income Taxes Paid $ 175,00012,238 $ 91,500--
=========== ===========
Noncash Financing Activities
Dividends Payable $ 51,473231,629 $ --
=========== ===========
See accompanying notes to the consolidated financial statementsstatements.
4
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 forof 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 20002001 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 by 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.
3.4. 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.
4.5. 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 consolidated
balance sheets.
Each year, the Company will make contributions to the ESOP which will be
used to make loan interest and principal payments. With each loan and
interest payment, a portion of the common stock will be allocated to
participating employees. As of March 31,September 30, 2001 there were 187,884199,896 shares
allocated to participants.
5.6. Total comprehensive income consists of:
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
-------- -------- ------ ------
Net income $205,554 263,644 678,242 350,332
Accumulated other comprehensive income:
Unrealized gain (loss) on
available for sale securities 26,884 (9,600) 60,684 (71,045)
-------- -------- --------- --------
Total comprehensive income $232,438 254,044 738,926 279,287
======== ======== =========Three Months Ended
September 30,
2001 2000
-------- --------
Net income $203,691 $203,420
Accumulated other comprehensive income:
Unrealized gain on available for sale securities 10,920 18,850
-------- --------
Total comprehensive income $214,611 $222,270
======= ========
6. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," (SFAS 133),
SFAS 133 establishes a new model for accounting for derivatives and hedging
activities. This statement is effective for all Fiscal quarters of all
fiscal years after June 15, 2000. The Company has adopted the provisions of
this standard which did not have an impact on the Company's financial
statements.
In December 1999, the SEC issued Staff 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 the 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.5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the ninethree months ended March 31,September 30, 2001 were $12,967,365$4,585,515 as
compared to $10,001,220 for the same period in 2000. Net sales for the three months ended
March 31, 2001 were $4,615,138 as compared to $3,289,816$4,167,234 for the same period in 2000. The Company's$418,281 increase in net
sales for the three and nine month periods ended
March 31, 2001 as compared to March 31, 2000three-month period is largelymainly due to increased sales of power
supplies and radar transmitter component sales. Successfultransmitters. Due to successful marketing efforts with new
and existing customers have lead the Company should continue to recognize highersee increased net sales
levels as backlog orders are completed and shipped.
Net income forDuring the nine months ended March 31, 2001 was $678,242 or $.66 per
sharefirst quarter of fiscal 2002 gross profits as a percentage of sales
decreased approximately 3.2% as compared to $350,332 or $.33 per share forwith the corresponding period ended
March 31, 2000.first quarter of fiscal 2001.
The primary reason for the changedecrease in gross profit was primarily due to higher than expected
engineering development and net income for the three
and nine month periods ended March 31, 2001prototype production costs. This decrease was
increased salespartially offset by changesthe increase in contract mix and energy costs. The current contracts the Company has
for radar transmitter components have improved gross profit. The Company is also
presently investing in several new programs and products. These expenditures,
which have a negative impact on current operations, in managements estimate,
should improve the operating results of the Company when future production
orders are received. In addition, energy costs have had a significant impact on
gross profit and net income. The gas and electric expense for the nine months
ended March 31, 2001 was approximately $94,000 higher than the expense for the
prior year nine month period ended March 31, 2000. These higher expenses have
continued into April of 2001 as Management continues to monitor the gas and
electric market looking for opportunities to lock-in energy prices at the lowest
possible price. Management has also implemented energy saving policies to reduce
consumption at its production facility.sales. Management continues to evaluate
the Company's workforce to ensureinsure that production and overall execution of the
backlog orders and additional anticipated orders are successfully performed.
Employment at March 31, 2001 stands at 202Present employment is 191 people.
The backlog at March 31,Net income for the three months ended September 30, 2001 was approximately $25,355,000, a decrease of
approximately $6 million from the prior year. Management continues$203,691 or $.20
per share compared to market the
engineering capabilities and products of the Company. New orders$203,420 or $.20 per share for the quarter
totaled approximately $4.2 million.corresponding period
ended September 30, 2000.
Selling, general and administrative expenses were $1,461,207$394,032 for the ninethree months
ended March 31,September 30, 2001, a decrease of $32,332,$66,219, or 2.2%14.4%, as compared to the
ninethree months ended March 31,September 30, 2000. TheThis decrease iswas primarily due to decreased selling
expenses.
Othera
decrease in professional fees and salaries.
Total other income for the three and nine months ended March 31,September 30, 2001 decreased asremained
relatively consistent when compared to the three and nine months ended March 31, 2000 due to lower interest
income for both periods associated with lower investment balances.September 30,
2000. The Company does not believe that there is significantany risk associated with its
investment policy, since athe majority of theits investments are United States Government
Treasury Securities,represented by
preferred equity securities and a money market account.accounts.
The Company continues to diversify its customer base and product offerings. The
backlog at September 30, 2001 was approximately $24,767,000 as compared to
approximately $27,339,000 at September 30, 2000.
Liquidity and Capital Resources
- -------------------------------
As of March 31,September 30, 2001, the Company had working capital of $21.7$22.5 million
compared to $20.3$22.7 million at March 31, 2000.June 30, 2001. The Company meets its short-term
financing needs through cash from operations and when necessary, from its
existing cash and short term investments.
The table below presents the summary of cash flow for the periods indicated:
Nine Months Ended March 31,
---------------------------------
2001 2000
----------- ------------
Net cash provided by operating activities $ 2,348,468 333,694
Net cash (used in) provided by investing activities (435,257) 2,236,153
Net cash used in financing activities (174,253) (486,267)
Three Months Ended September 30,
2001 2000
---- ----
Net cash provided by operating activities $1,340,440 $ 800,859
Net cash used in investing activities $ (164,067) $ (144,481)
Net cash used in financing activities $ (77,209) $ (51,682)
Net cash provided by operating activities fluctuates between periods primarily
as a result of differences in net income, the timing of the collection of
accounts receivable, purchase of inventory, level of sales and payment of
accounts payable. The decreaseNet cash used in net cash provided by (used in) investing activities is due to the maturityrepresents purchases of
investment securities with no offsetting
purchase of new investments in the prior year. The decrease in netfixed assets. Net cash used in financing activities is due to decreased treasury stock purchases.
represents dividends on
common stock.
The Company currently believes that its current cash and cash equivalent
balances and the cash generated from operations and when
necessary, from cash and cash equivalents, will be sufficient to meet its
long-term funding
requirements.6
requirements for the next twelve months. Management if necessary, has at its disposalin place a $3,000,000
line of credit to help fund further growth. For the first nine monthsquarter of fiscal 2001
capital expenditures were approximately $450,000.$164,000.
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 expenseexpenses relating to the ESOP. The Company has also
eliminated the offsetting accruals from the Consolidated Balance Sheets.
During the ninethree months ended March 31,September 30, 2001 and March 31, 2000, the Company repurchased 4,170, and 25,027 shares respectively,did not
repurchase any of its common stock from the
Company's ESOP and through other public transactions. As of March 31, 2001,
understock. Under existing Board authorization, $854,859as of
September 30, 2001, $854,860 could be utilized to repurchase shares of companythe Company's
common stock.
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.
7
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
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESPEY MFG. & ELECTRONICS CORP.
/s/ Howard Pinsley
--------------------------------
Howard Pinsley, President and
Chief Executive Officer
/s/ David O'Neil
--------------------------------
David O'Neil, Treasurer and
Principal Financial Officer
May 15,6 November 2001
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Date
8