-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J5cXcDCBbUlNy6lmjNGHGmCeEBOUF93KSY3VmkAriFvAR8wMRMCnMcEwHgnqzonB AChCp0qUfpOYRvrLej1b3g== 0000033533-98-000011.txt : 19980518 0000033533-98-000011.hdr.sgml : 19980518 ACCESSION NUMBER: 0000033533-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESPEY MANUFACTURING & ELECTRONICS CORP CENTRAL INDEX KEY: 0000033533 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 141387171 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04383 FILM NUMBER: 98623529 BUSINESS ADDRESS: STREET 1: PO BOX 422 STREET 2: CONGRESS & BALLSTON AVENUES CITY: SARATOGA SPRINGS STATE: NY ZIP: 12866 BUSINESS PHONE: 5185844100 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20459 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1998 Commission File Number I-4383 ESPEY MFG. & ELECTRONICS CORP. (Exact name of registrant as specified in charter) NEW YORK 14-1387171 (State of Incorporation) (I.R.S. Employer's Ident No.) 233 Ballston Avenue, Saratoga Springs, New York 12866 (Address of principal executive offices) (Zip Code) Registrant's telephone number, include area code 518-584-4100 Number of shares outstanding of issuer's class of common stock $.33-1/3 par value as at the end of the period covered by this report 1,111,220 . 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: Balance Sheets - March 31, 1998 1 and June 30, 1997 Statements of Earnings - Three Months 3 and Nine Months Ended March 31, 1998 and 1997 Statements of Cash Flows - Nine Months 4 Ended March 31, 1998 and 1997 Notes to Financial Statements 5 March 31, 1998 and 1997 Item 2 Management's Discussion and Analysis of 8 Financial Condition and Results of Operations. PART II OTHER INFORMATION 11 SIGNATURES 12
ESPEY MFG. & ELECTRONICS CORP. Balance Sheets March 31, 1998 and June 30, 1997 A S S E T S Unaudited 1998 1997 March 31 June 30 CURRENT ASSETS: Cash $ 2,382,969 $ 1,416,801 Short-term investments at cost (market value March 31, 1998, $7,883,661 and June 30, 1997, $10,746,731) 7,843,128 10,706,782 Total Cash and Short-term Investments 10,226,097 12,123,583 Trade accounts receivable net of $3,000 allowance March 31, 1998 and June 30, 1997 1,677,546 1,142,599 Other receivables 500 21,231 NET RECEIVABLES 1,668,046 1,163,830 Inventories: Raw materials and supplies 554,480 449,416 Work-in-process 3,666,023 3,225,657 Costs relating to contracts in process 4,331,779 4,526,802 NET INVENTORIES 8,552,282 8,201,875 Deferred Income taxes 366,086 137,758 Prepaid expenses and other current assets 359,368 192,853 TOTAL CURRENT ASSETS 21,171,880 21,819,899 Deferred income taxes 78,313 74,671 PROPERTY, PLANT AND EQUIPMENT AT COST 12,314,421 12,043,850 Less: Accumulated depreciation and amortization ( 9,053,529) (8,738,469) NET PROPERTY, PLANT AND EQUIPMENT 3,260,892 3,305,381 TOTAL $ 24,511,085 $ 25,199,951 - 1 - (Continued) ESPEY MFG. & ELECTRONICS CORP. Balance Sheets, Continued March 31, 1998 and June 30, 1997 LIABILITIES AND STOCKHOLDERS' EQUITY Unaudited 1998 1997 March 31 June 30 CURRENT LIABILITIES: Accounts Payable $ 348,958 $ 245,803 Accrued expenses: Salaries, wages and commissions 264,793 107,640 Employees' insurance costs 36,309 40,573 ESOP payable 341,778 - Other 10,744 8,994 Payroll and other taxes withheld and accrued 83,964 47,564 Dividends payable - - Deferred income taxes - - Income tax payable - 148,606 TOTAL CURRENT LIABILITIES 1,086,546 599,180 STOCKHOLDERS' EQUITY: Common stock, par value .33-1/3 per share. Authorized 2,250,000 shares; issued 1,164,937 shares March 31, 1998 and June 30, 1997. 504,979 504,979 Capital in excess of par value 10,496,287 10,496,287 Retained earnings 22,972,173 24,148,405 33,973,439 35,149,671 Less: Common stock subscribed ( 3,910,636) ( 3,910,636) Cost of 403,717 shares on March 31, 1998 and June 30, 1997 of common stock in treasury ( 6,638,264) ( 6,638,264) TOTAL STOCKHOLDERS' EQUITY 23,424,539 24,600,771 TOTAL $ 24,511,085 $ 25,199,951 See accompanying notes to financial statements - 2 - ESPEY MFG. & ELECTRONICS CORP. STATEMENTS OF EARNINGS Three and Nine Months Ended March 31, 1998 and 1997 Unaudited Unaudited Three Months Nine Months 1998 1997 1998 1997 Net Sales $ 2,240,347 $ 3,805,569 $ 8,293,629 $12,458,847 Cost of sales 2,697,955 3,261,532 7,921,334 10,487,571 Gross profit (loss) ( 457,608) 544,037 372,295 1,971,276 Selling, general and administrative expenses 468,375 467,407 1,476,201 1,374,285 Operating income (Loss) ( 925,983) 76,630 ( 1,103,906) 596,991 Other income Interest income 137,595 130,072 427,892 378,595 Sundry income 11,603 668 13,192 3,629 149,198 130,740 441,085 382,224 Earnings(loss)before income taxes ( 776,785) 207,370 ( 662,821) 979,215 Provision(benefit)for income taxes ( 269,359) 80,000 ( 225,359) 379,000 Net earnings (loss) ($ 507,426) $ 127,370 ($ 437,462) $ 600,215 Net earnings(loss)per share ($ .46) $ .12 ($ .39) $ .54 Average number of shares outstanding 1,111,220 1,111,220 1,111,220 1,112,358 See accompanying notes to Financical Statements - 3 - ESPEY MFG. & ELECTRONICS CORP. Statements of Cash Flows Nine Months Ended March 31, 1998 and 1997 Unaudited March 31 1998 1997 Cash Flows From Operating Activities: Net (loss) earnings ($ 437,462) $ 600,215 Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: Tax effect of dividends on unallocated ESOP shares 39,084 46,732 Depreciation 315,059 399,926 Changes in assets and liabilities: Decrease (increase) in receivables, net ( 504,216) ( 325,642) Decrease (increase) in inventories, net ( 350,407) 2,907,234 Decrease (increase) in other current assets ( 166,515) ( 19,717) Increase (decrease) in accounts payable 103,155 180,957 Increase (decrease) in accrued salaries, 157,153 159,543 wages and commissions Increase (decrease) in accrued employee ( 4,264) ( 17,565) insurance costs Increase (decrease) in other accrued expenses 1,749 ( 5,121) Increase (decrease) in payroll & other 36,400 ( 46,374) taxes withheld and accrued Increase (decrease) in income tax payable ( 148,606) 150 Decrease (increase) in deferred income taxes ( 231,970) ( 38,042) Increase in accrued ESOP contributions 341,778 330,746 Net cash provided by (used in) operating activities ( 849,062) 4,173,042 Cash Flows From Investing Activities: Additions to property, plant & equipment ( 270,570) ( 299,752) Proceeds from maturity of marketable investment securities - 4,880,073 Purchases of marketable investment securities - ( 1,958,878) Net cash provided by(used in) investing activities ( 270,570) 2,621,443 Cash Flows From Financing Activities: Dividends on common stock ( 777,854) ( 777,854) Purchase of treasury stock - ( 116,032) Net cash used in financing activities ( 777,854) ( 893,886) Increase (decrease) in cash and short-term investments ( 1,897,486) 5,900,599 Cash and short-term investments, beginning of period 12,123,583 5,597,079 Cash and short-term investments, end of period $ 10,226,097 $ 11,497,678 Income Taxes Paid $ 195,000 $ 367,000 See accompanying notes to financial statements. - 4 -
ESPEY MFG. & ELECTRONICS CORP. Notes to Financial Statements ___________________ 1. The unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of March 31, 1998, and the results of operations for each of the three and nine month periods ended March 31, 1998 and 1997 and cash flows for each of the three and nine month periods ended March 31, 1998 and 1997. The operating results for the three and nine month periods are not necessarily indicative of the operating 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 principals have been condensed or omitted pursuant to such rules and regulations applicable to interim financial statements, although management believes the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's most recent audited financial statements included in its 1997 Annual Report to Stockholders and its 1997 Form 10-K. 2. The earnings per share computations for March 31, 1998 were based on 1,111,220 shares and on 1,112,358 shares for March 31,1997. These represent the average number of shares outstanding for each respective period. Pursuant to the Company's STOCK RIGHTS PLAN (as described in the 1997 Form 10- K), common stock purchase rights under the Plan could potentially dilute earnings per common share in the future. These shares were not included in a computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented. - 5 - 3. Other income consists principally of interest on Certificates of Deposit, Treasury Bills and money market accounts. 4. There were no material unusual charges or credits to operations or a change in accountants during the most recently completed quarter which would require the filing of a Form 8-K. 5. There were no securities sold by the Company during the current quarter which were not registered under the Securities Act of 1933(the "Act")in reliance upon an exemption from registration provided in Section 4(2) of the Act. 6. 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. 7. In fiscal 1989 the Company established an Employee Stock Ownership Plan (ESOP) for eligible non-union employees. The ESOP used the proceeds of a loan from the Company to purchase 316,224 shares of the Company's common stock for approximately $8.4 million and the Company contributed approximately $400,000 to the ESOP which was used by the ESOP to purchase an additional 15,000 shares of the Company's common stock. The loan from the Company to the ESOP is repayable in annual installments of $1,039,605, including interest, through June 30, 2004. Interest is payable at a rate of 9% per annum. The Company's receivable from the ESOP is recorded as common stock subscribed in the accompanying balance sheets. Each year, the Company will make contributions to the ESOP which will be used to make loan interest and principal payments. With each loan and interest payment, a portion of the common stock will be allocated to participating employees. As of March 31, 1998 there were 144,126 shares allocated to participants. - 6 - 8. The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", as of July 1,1995. This accounting standard required that certain long-lived assets be reviewed for impairment when events or circumstances indicate that the carrying amount of the assets may not be recoverable. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value is written down to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The adoption of this accounting standard had no effect on the financial position or results of operations of the Company. - 7 - ESPEY MFG. & ELECTRONICS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Sales for the nine months ended March 31, 1998 were $8,293,629 as compared to $12,458,847 for the same period in fiscal 1997. The Company's sales volume has been directly affected by significant delays in the awarding of contracts on several major programs which the Company had anticipated receiving in prior periods. The orders which were booked during the six months ended December 31, 1997, particularly the $7,000,000 reported for the three months ended December 31, 1997 did not allow enough lead time to materially effect the sales volume for the three months ended March 31, 1998. Additionally, since customer delivery schedules are constantly fluctuating due to their changing requirements and funding restraints, our own shipments are difficult to predict. Sales for the three months ended March 31, 1998 were $2,240,347 as compared to $3,805,569 for the three months ended March 31, 1997. As noted above, the sales volume of the Company has been affected by delays in the awarding of several major contracts. As a result of this decrease in sales volume, in conjunction with our expenditures for the three months as disclosed below, the Company sustained a net loss for the three month period ended March 31, 1998 of $507,426, or $.46 per outstanding share of common stock. The cost of sales, as a percentage of sales, rose to 96% for the nine months ended March 31, 1998 as compared to the 84% reflected for the same period in fiscal 1997. The substantial increase was caused by the operations of the current quarter, during which the Company expended and wrote off costs associated with the development of several new products. The Company feels that given the current competitive environment of its industry, the expenditures were justified, in order that it might establish a broader base of high technology items for future revenues. The initial order for the prototypes of one of these items contains an option clause which enables the customer to substantially increase the quantities on order, and by so doing, increase the monetary value of the order by approximately $7,000,000. Due to both the increase in the cost of sales percentage and the decrease in sales volume for the three months ended March 31, 1998, the Company sustained a net loss for the nine month period of $437,462, or $.39 per outstanding share of common stock. This compares to last year's net profit of $600,215 and earnings per share of $.54. The 13% increase in interest income, between the nine months ended March 31, 1998 and the corresponding nine month period of fiscal 1997, was principally due to our continuing efforts to obtain higher interest rates on our investments than in the past. The reclassification of short-term investments was explained in detail in the most recently filed Form 10-K in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Expenditures." The Company does not believe that there is any risk associated with its investment policy, since the majority of the Company's investments are represented by Certificates of Deposit, United States Government Treasury Securities and a Money Market account. - 8 - There were no material changes in selling, general and administrative expenses between the nine months ended March 31, 1998 and 1997. The increase in inventories shown in the Statements of Cash Flows reflects the purchasing required for the orders received during the nine month period ended March 31, 1998. However, the net inventories shown on the Balance Sheets at March 31, 1998, December 31, 1997 and June 30, 1997 were relatively the same, since the Company's backlog has been keeping pace with the orders being shipped, although both are at a pace slower than anticipated. Liquidity and Capital Expenditures As of March 31, 1998 the total cash and short-term investments was $10,226,097 as compared to $12,123,583 at June 30, 1997. This decrease in cash and short-term investments for the nine month period ended March 31, 1998 is principally attributable to the cash used in operating activities. The Company, during the first nine months of fiscal 1998, funded its operations with cash flows from operating activities and investing activities. Management currently believes that during the balance of the fiscal year, funds from these activities will be adequate to meet funding requirements. For the first nine months of fiscal 1998 capital expenditures were $270,570. Since the debt of the Company's ESOP is not to an outside party, the Company has eliminated from the Statements of Earnings the offsetting items of interest income and interest expense relating to the ESOP. The Company has likewise eliminated the offsetting accruals from the Balance Sheets. Under existing authorizations, as of March 31, 1998, funds in the amount of $1,884,000 were available for the continuing repurchase of the Company's shares. Business Outlook As mentioned above, customer order patterns are inherently difficult to predict, however the Company has in excess of $30,000,000 in outstanding quotations, as well increase options as described above, in excess of $10,000,000 on existing contracts. The Company is not certain what portion of these quotations and options will materialize during the next twelve months, nor is the Company certain of the future demand for the new products being developed. The backlog as of March 31, 1998 was $11,494,387. The backlog as of March 31, 1997 was $9,404,766. The increase is a result of the Company receiving orders at a faster rate than those shipped during the past twelve months. This was particularly evident in the three months ended December 31, 1997, during which the Company received in excess of $7,000,000 in new orders. Approximately $2,400,000 of these orders is connected with the establishment of a repair site in Europe for our high power radar transmitters. The Company is still anticipating a new contract for additional transmitters. In view of the disappointing sales volume of the three months ended March 31,1998 the Company's sales for the second half of fiscal 1998, as compared to fiscal 1997, will be lower than previously anticipated. - 9 - The Company is continuing to expand its Sales and Marketing departments. Various specifics concerning the products we are concentrating on are addressed in both the President's message accompanying our 1997 Annual Report and in our most recently filed Form 10-K in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Business Outlook." In addition, as mentioned above, the Company is developing new products for market penetration. Management currently continues to anticipate that the course of action that the Company is taking will enhance the Company's revenues and profitability in future periods. Other Matters A dividend in the amount of $.70 per share was declared payable November 21, 1997 to shareholders of record on October 24, 1997. The Company is aware of the problems which may arise at the turn of the century as regards the programming of our computers to accommodate the year 2000. All necessary steps have been taken to assure that this transition will be made smoothly. The cost of these efforts has been and will continue to be minimal. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 It should be noted that certain statements 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. 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. - 10 - ESPEY MFG. & ELECTRONICS CORP. PART II: Other Information and Signatures Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (for electronic filing only) - 11 - 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. Joseph Canterino, President Herbert Potoker, Treasurer and Chief Financial Officer 14 May 1998 Date - 12 - EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINACIAL INFORMATION EXTRACTED FROM THE 3RD QUARTER 10-Q FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1998 MAR-31-1998 2,382,969 7,843,128 1,668,046 0 8,552,282 21,171,880 12,314,421 ( 9,053,529) 24,511,085 1,086,546 0 504,979 0 0 23,424,539 24,511,085 8,293,629 8,293,629 7,921,334 7,921,334 1,476,201 0 0 (662,821) (225,359) (437,462) 0 0 0 (437,462) (.39) 0 -----END PRIVACY-ENHANCED MESSAGE-----