-----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, NfS0govA/fKIFuaxPRDTMHd7YdxO3JlsgQj/+hjc1iI665kXHnoqu3/UUNoQgXaY kHN3K3sCQ3mlhPSUqHI+cA== 0000033533-97-000005.txt : 19971003 0000033533-97-000005.hdr.sgml : 19971003 ACCESSION NUMBER: 0000033533-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971002 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-K SEC ACT: SEC FILE NUMBER: 001-04383 FILM NUMBER: 97690084 BUSINESS ADDRESS: STREET 1: PO BOX 422 STREET 2: CONGRESS & BALLSTON AVENUES CITY: SARATOGA SPRINGS STATE: NY ZIP: 12866 BUSINESS PHONE: 5185844100 10-K 1 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 [Fee Required] For the fiscal year ended June 30, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the transition period from ________________ to ______________ Commission File No. 1-4383 ESPEY MFG. & ELECTRONICS CORP. (Exact name of registrant as specified in its charter) New York 14-1387171 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 233 Ballston Avenue, Saratoga Springs, NY 12866 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (518) 584-4100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered 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] State the aggregate market value of the voting stock held by non-affiliates of the registrant: $13,175,490.71 as of September 19, 1997 based upon the closing sale price of $16 5/8 on the American Stock Exchange on September 19, 1997. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding at September 19, 1997 Common Stock, $.33-1/3 par value 1,111,220 PART I Item 1. Business. General Espey Mfg. & Electronics Corp. (the "Company") was incorporated in 1928. The Company presently operates a one segment business. A significant portion of the Company's business is the production of military and industrial electronic equipment for use by the United States Government, its agencies, and certain industrial customers. In fiscal year ended June 30, 1997 (referred to herein as "1997"), the Company's total sales were $15,166,075. Sales made to the United States Government and its agencies are primarily on a subcontract basis. Sales to two domestic customers accounted for 19.9% and 61.4%, respectively, of total sales in 1997. Sales to two domestic customers and one foreign customer accounted for 28.9%, 22.8% and 17.8%, respectively, of total sales in 1996. Sales to two domestic customers and one foreign customer accounted for 31.5%, 24.2% and 16.2%, respectively, of total sales in 1995. Export sales in 1997 were not significant. Export sales in 1996 and 1995 aggregated approximately $3,073,000 and $2,602,000, respectively. Products The Company has been and intends to continue to be engaged principally in the development, design, production and sales of specialized electronic power conditioning apparatus (electronic power supplies), a wide variety of transformers and other types of iron-core components, and electronic systems. 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 electronic power supplies and components manufactured by the Company find application principally in (i) computers, (ii) aircraft, shipboard and land based radar, (iii) missile guidance and control systems, (iv) short, medium range and global communication systems, (v) navigation systems for aircraft, (vi) nuclear submarine control systems, (vii) locomotives, and (viii) land-based military vehicles. The electronic systems manufactured by the Company include antenna systems and high power radar transmitters. These systems utilize the Company's own electronic power supplies, transformers, and other iron-core components and mechanical assemblies. The Company's iron-core components include (i) transformers of the audio, power and pulse types, (ii) magnetic amplifiers, and (iii) audio filters. 2 The following tabulation shows the percentage of the Company's total sales represented by sales of each class of similar products during one or more of the last three fiscal years. Fiscal Year Ended June 30 1997 1996 1995 Electronic Power Supplies 82% 81% 84% Iron-Core Components 11% 15% 11% Electronic Systems and Assemblies 7% 4% 5% 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 used by it. Sales Backlog The total amount of backlog orders believed to be firm as of June 30, 1997 was approximately $9,037,000 as compared to approximately $16,297,000 as of June 30, 1996. This decrease resulted primarily from the consolidation and relocation of the facilities and personnel of one of the Company's major customers. The transition stage of this consolidation has caused delays in both ongoing and newly proposed programs. At the present time, the Company does not know what effect, if any, this will have on the receipt of currently pending new business from this customer. The Company is hopeful that any further delays will be minimal. It is presently anticipated that a minimum of $8,000,000 of orders comprising the June 30, 1997 backlog will be filled during the fiscal year ending June 30, 1998. This is in addition to any shipments which may be made against orders subsequently received during the fiscal year ending June 30, 1998. The forward-looking estimate of the firmness of the 1997 backlog to be shipped is subject to future events which may cause the amount of the backlog actually shipped to change. 3 Military Contracts The Company, as well as other companies primarily 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 termination of orders for convenience. Marketing and Competition The Company is 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. Subcontract work for government end use is solicited from major electronic and aircraft companies, primarily by the Company's own employees and sales representatives. 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 portion of the industry's production of any class of products made by the Company. The principal methods of competition for electronic products of both a military and industrial nature include, among other factors, price and product performance and the experience of the particular company and history of its dealings in such products. The Company's business is not considered to be of a seasonal nature. Research and Development The Company has increased its expenditures for research and development over the past three fiscal years. In 1997, approximately $223,000 was expended for this type of effort. In 1996 and 1995, the Company spent $205,000 and $141,000, respectively, on research and development. Some of the Company's professional employees spend varying degrees of time in either development of new products or improvement of existing products. Employees The number of persons employed by the Company as of September 19, 1997 was 166. 4 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 1997, and the Company believes will not in fiscal year ending June 30, 1998 or the 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 Company initially occupied the plant in 1952, and in 1955 consolidated all of its manufacturing operations at the plant when it terminated its manufacturing operations in New York, New York. The Saratoga Springs plant was originally constructed about 1900 and consists of various closely adjoining one-story buildings. The plant has a sprinkler system throughout and contains approximately 138,000 square feet of floor space, of which 60,000 is used for manufacturing, 23,000 for engineering, 33,000 for shipping and climatically secured storage, and 3,000 for offices. The offices and engineering area are air conditioned and approximately 1,000 square feet of "white rooms" are completely climatically controlled. In addition to assembly and wiring operations, the plant includes facilities for varnishing, potting, impregnation, and spray painting operations, in addition to complete machine shop and sheet metal fabrication facilities adequate for substantially all of the Company's current operations. During fiscal year 1995, the Company expended about $800,000 for the upgrading of its plating department to more uniformly conform to the environmental standards set by the Federal Government and established a new plating division, called Saratoga Electro-Finishing. Besides normal test equipment, the Company maintains a sophisticated on-site environmental test facility. A fully staffed Automatic Data Processing Center is also on-site. The Company maintains additional manufacturing facilities in a three-story, fully sprinklered building of approximately 4,000 square feet at 146 Fulton Street, Gloversville, New York. The facility is used primarily for subcomponent wiring and assembly. The Company maintains a sales office in a modern office building at 445 Northern Boulevard, 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. 5 Item 3. Legal Proceedings. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 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: 1997 High Low First Quarter 15 7/8 15 5/8 Second Quarter 17 7/8 14 5/8 Third Quarter 19 1/4 15 1/2 Fourth Quarter 18 1/8 17 1996 High Low First Quarter 16 1/4 14 1/4 Second Quarter 14 1/2 13 3/8 Third Quarter 14 1/4 12 7/8 Fourth Quarter 14 1/4 13 3/4 Holders The approximate number of holders of the common stock was 209 on September 19, 1997. Included in this number are shares held in "nominee" or "street" name and, therefore, the number of beneficial owners of the common stock are believed to be substantially in excess of the foregoing number. 6 Dividends On September 19, 1997 the Board of Directors declared a cash dividend of $.70 per share to be paid on November 21, 1997 to shareholders of record on October 24, 1997. The Company paid a cash dividend on the common stock of $.70 per share for its fiscal year ended June 30, 1996 and $.70 per share for its fiscal year ended June 30, 1995.
Item 6. Selected Financial Data. ESPEY MFG. & ELECTRONICS CORP. Five Years Ended June 30, 1997 Selected Income Statement Data Year ended June 30, 1997 1996 1995 1994 1993 Net Sales $ 15,166,075 16,800,200 14,574,097 14,678,303 15,206,921 Operating income 342,177 209,226 24,064 1,502,470 2,234,782 Other income, net 525,046 575,006 726,073 435,238 396,891 Cumulative effect of change in accounting principle -- -- -- 201,653 -- Net earnings 563,128 522,737 491,767 1,343,877 1,594,290 Earnings per common share: Earnings before cumulative effect of change in accounting principle $ .51 .41 .37 .85 1.18 Cumulative effect of change in accounting principle -- -- -- .15 -- Net earnings $ .51 .41 .37 1.00 1.18 Selected Balance Sheet Data Year ended June 30, 1997 1996 1995 1994 1993 Current assets $ 21,819,899 21,499,805 25,243,909 25,364,435 24,160,510 Current liabilities 599,180 623,908 983,401 722,170 681,101 Working capital 21,220,719 20,875,897 24,260,508 24,642,265 23,479,409 Total assets 25,199,951 24,950,043 28,839,718 28,474,536 27,608,660 Long-term liabilities (deferred income taxes) -- -- 30,697 124,619 446,934 Stockholders' equity 24,600,771 24,326,135 27,825,620 27,627,747 26,480,625 Cash dividends declared and paid per common share $ .70 .70 .60 .60 .60 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The Company presently operates a one segment manufacturing business. It principally manufactures power supplies and components for military and industrial use. Sales volume is primarily dependent on product mix in any given fiscal period. This mix is in turn subject to the dictates of customer needs and delivery requirements. These factors principally account for any variation in sales and operating income from year to year. Sales for fiscal years ended June 30, 1997, 1996, and 1995 were $15,166,075, $16,800,200, and $14,574,097, respectively. This decrease in sales resulted primarily from the consolidation and relocation of the facilities and personnel of one of the Company's major customers. This consolidation has caused delays in both ongoing and newly proposed programs. The corresponding cost of sales during these fiscal years were 86%, 89%, and 90%, respectively. Although sales in 1997 decreased by approximately 10% over the previous year, the gross profit percentage increased. Many of the contracts shipped in the fiscal year called for a somewhat higher gross profit margin than those shipped in the prior year. As a result, cost of sales for the current period dropped to 86% compared to the 89% reflected last year. This factor was the primary reason for the increase in net profits, although there was a decrease in sales. A pretax write-off of $385,000 relating to inventory was taken in the fourth quarter. This write-off caused the net loss per share during the current fourth quarter. Selling, general and administrative expenses increased approximately 12% for the 1997 fiscal year. This is primarily due to the transfer of a high level employee from a manufacturing position to an administrative position, in addition to an increase in legal expenses through the Company's efforts to obtain patents on a number of its products. Earnings before income taxes increased in 1997 to $867,223 from $784,237 in 1996. Net earnings per share increased to $.51 from $.41. 8 The Company's inventories have decreased from $11,033,346 to $8,201,875. As noted above, this decrease resulted primarily from the reduction of the Company's backlog. The change in the ratio of work-in-process to costs relating to contracts in process is primarily attributable to the allocation of approximately $2,300,000 to a project for one customer in contemplation of the execution of a contract. The execution of a firm contract with this customer would bring the ratio to its fiscal year 1996 level. Negotiations with the customer are in progress; however, there is no guarantee that the contract will be signed. Business Outlook Customer order patterns are inherently difficult to predict. As previously disclosed, one of the Company's major customers has announced the consolidation and relocation of several of its facilities and various personnel. The transition stage of this consolidation has caused delays in both ongoing and newly proposed programs. At the present time, the Company does not know what effect, this will have on the receipt of currently pending new business from this customer. The Company is hopeful that any further delays will be minimal. The Company believes that in the long term it will continue to obtain contracts consistent with its past experience as a result of the Company's projected customer base. The Company currently has outstanding quotations well in excess of $30,000,000 for both repeat and new programs, in addition to increase option clauses in various existing contracts. Whether these quotations and options will result in firm contracts will depend on the outcome of the consolidation mentioned above and certain competitive factors. There can be no assurance that the Company will acquire contracts consistent with past experience since such a forward-looking statement is subject to future events and market conditions which may affect the number of firm contracts acquired. As was the case in fiscal 1996, the Company has been accepting orders with reduced profit margins because of the increasingly competitive nature of the marketplace. The Company is making efforts to resolve this situation by expanding its efforts to develop technologies and products of a more proprietary nature for sale in the commercial and military marketplace. The Company's efforts and investment in the advancement and refinement of both military and industrial technologies has resulted in the Company receiving notices of allowability for the following three patents: (i) Dental Implant for promoting bone growth, (ii) "Quiet" transformer for Naval application, and (iii) Dual Dipole Antenna for military communications applications. Current demographics indicate a need for the products for which the Company has received patents, particularly in the military marketplace, as well as a worldwide need for the Company's long-range radar transmitters and components for high power AC locomotives. The management currently anticipates that the course of action the Company has taken will enhance the Company's revenues and profitability in future periods based on these indicated needs. 9 Liquidity and Capital Expenditures 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, including financing activities, with cash flows resulting from operating activities. The Company did not borrow any funds during the last three fiscal years and does not currently anticipate that it will borrow any funds during fiscal year 1998. The Company's working capital for fiscal years ended June 30, 1997, 1996, and 1995 was $21,220,719, $20,875,897, and $24,260,508, respectively. The principal reason for the decrease in working capital between 1996 and 1995 was the repurchase by the Company of its common stock during 1996 in the total amount of $3,696,340. On March 7, 1996, the Company purchased a combined total of 219,400 shares of common stock from the Entwistle Company and Global Securities at a total cost of $3,620,100. In addition, the Company purchased 7,426 shares of common stock from the Company's ESOP during 1997 for a total purchase price of $116,031. Under existing authorizations, as of August 31, 1997, funds in the amount of $1,884,000 were available for the continuing repurchase of the Company's shares of common stock. In the statement of cash flows, the increasein net cash provided by operating activities between fiscal years 1996 and 1997 was due primarily to a decrease in material purchases in keeping with the reduction in the Company's current backlog. The decrease in net cash provided by investing activities between fiscal years 1996 and 1997 was a result of the decrease in the investment base for the purchase of the Company's common stock as set forth in paragraph above. The Company's combined investment in both short-term investments and marketable investment securities was (i) $12,226,531 as of June 30, 1993, (ii) $13,290,888 as of June 30, 1994, (iii) $12,022,004 as of June 30, 1995, (iv) $7,505,507 as of June 30, 1996, and (v) $10,706,782 as of June 30, 1997. The short-term investments consisted of Certificates of Deposit and United States Treasury Bills. During fiscal years 1993 through 1997, interest rates on short-term investments ranged from 6.00% to 2.10%. This factor accounts, along with the changes in the overall balances of short-term investments and marketable investment securities, for the fluctuation of interest income during much of the five-year period. Interest income was $718,785 in fiscal 1995, $556,565 in fiscal 1996, and $514,822 in fiscal 1997. Interest income in fiscal 1996 and 1997, however, was affected by the decrease in the Company's investment base arising from the capital expenditures of $1,080,000 in 1995 and purchase of the Company's common stock in the amount of $3,696,340 during fiscal 1996 as set forth above. A majority of the Company's investment base is represented by Certificates of Deposit, United States Government Treasury Securities and a Money Market account. Consequently, the Company does not feel that there is any significant risk associated with its investment policy. 10 Management feels that the Company's reserve for bad debts of $3,000 is adequate, since given the customers with whom the Company deals, particularly the United States Government and its agencies, the amount of bad debts over the years has been minimal. The Company does not currently offer, nor does management currently contemplate offering in the future, any post-retirement or employment benefits. Consequently, no accruals or liabilities have been provided for in the financial statements. During fiscal year 1997, the Company expended approximately $353,000 for plant improvements and new equipment. The Company plans to expend approximately $400,000 for new equipment and plant improvements in fiscal 1998. Management presently anticipates that the funds required will be available from current operations. Changes in Accounting Principles and Policies The Company has adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", as of July 1, 1994, the effects of which are described in the Notes to the Financial Statements set forth in Item 8 of this Annual Report. The Company adopted the provisions of Statement of Financial Accounting Standards (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, the effects of which are described in the Notes to the Financial Statements set forth in Item 8 of this Annual Report. The adoption of this accounting standard had no effect on the financial position or results of operations of the Company. 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 $8.4 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. 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 portion of the common stock will be allocated to participating employees. As of June 30, 1997, there were 152,451 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. 11 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. In 1997 and 1996, 7,426 and 5,402 shares of the Company's common stock, respectively, was purchased from the ESOP, representing distributions taken by participants. 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. 12 Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Page Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . 14 Balance Sheets at June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . 15 Statements of Earnings for the years ended June 30, 1997, 1996 and 1995 . . 17 Statements of Changes in Stockholders' Equity for the years ended June 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . ....... . . . . . 18 Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 . 19 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 20 13 Independent Auditors' Report The Board of Directors and Stockholders Espey Mfg. & Electronics Corp.: We have audited the financial statements of Espey Mfg. & Electronics Corp. as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Espey Mfg. & Electronics Corp. as of June 30, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly,in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Albany, New York August 29, 1997 14 [CAPTION] ESPEY MFG. & ELECTRONICS CORP. Balance Sheets June 30, 1997 and 1996 Assets 1997 1996 Current assets: Cash $1,416,801 1,112,767 Short-term investments, at cost (market value - $10,746,731 in 1997 and $4,577,305 in 1996) 10,706,782 4,484,312 Total cash and short-term investments 12,123,583 5,597,079 Marketable investment securities (note 2) -- 3,021,195 Trade accounts receivable, net of $3,000 allowance in 1997 and 1996 1,142,599 1,556,404 Other receivables 21,231 18,177 Net receivables 1,163,830 1,574,581 Inventories: Raw materials and supplies 449,416 499,900 Work in process 3,225,657 1,561,742 Costs relating to contracts in process (notes 3 and 4) 4,526,802 8,971,704 Net inventories 8,201,875 11,033,346 Deferred income taxes (note 8) 137,758 796 Prepaid expenses and other current assets 192,853 272,808 Total current assets 21,819,899 21,499,805 Deferred income taxes (note 8) 74,671 9,088 Property, plant and equipment, at cost (note 5) 12,043,850 11,813,137 Less accumulated depreciation (8,738,469) (8,371,987) Net property, plant and equipment 3,305,381 3,441,150 $ 25,199,951 24,950,043
15 (Continued) [CAPTION] ESPEY MFG. & ELECTRONICS CORP. Balance Sheets, Continued June 30, 1997 and 1996 Liabilities and Stockholders' Equity 1997 1996 Current liabilities: Accounts payable $ 245,803 158,631 Accrued expenses: Salaries, wages and commissions 107,640 116,351 Employee insurance costs 40,573 54,739 Other 8,994 17,440 Payroll and other taxes withheld and accrued 47,564 156,890 Income taxes payable 148,606 119,857 Total current liabilities 599,180 623,908 Stockholders' equity: Common stock, par value $.33-1/3 per share (note 11) Authorized 2,250,000 shares; issued 1,514,937 shares in 1997 and 1996 504,979 504,979 Capital in excess of par value 10,496,287 10,496,287 Retained earnings 24,148,405 24,316,400 35,149,671 35,317,666 Less: Common stock subscribed (note 12) (3,910,636) (4,469,299) Cost of 403,717 shares in 1997 and 396,291 shares in 1996 of common stock in treasury (6,638,264) (6,522,232) Total stockholders' equity 24,600,771 24,326,135 Commitments (note 14) $ 25,199,951 24,950,043
See accompanying notes to financial statements. 16
ESPEY MFG. & ELECTRONICS CORP. Statements of Earnings Years ended June 30, 1997, 1996 and 1995 1997 1996 1995 Net sales $ 15,166,075 16,800,200 14,574,097 Cost of sales 13,015,436 14,973,018 13,074,247 Gross profit 2,150,639 1,827,182 1,499,850 selling,general and administrative expenses 1,808,462 1,617,956 1,475,786 Operating income 342,177 209,226 24,064 Other income: Interest income 514,822 556,565 718,785 Sundry income 10,224 18,441 7,288 525,046 575,006 726,073 Earnings before income taxes 867,223 784,232 750,137 Provision for income taxes (note 8) 304,095 261,495 258,370 Net earnings $ 563,128 522,737 491,767 Earnings per common share (note 9): Net earnings per common share $ .51 .41 .37 See accompanying notes to financial statements. 17 ESPEY MFG. & ELECTRONICS CORP. Statements of Changes in Stockholders' Equity Years ended June 30, 1997, 1996 and 1995 Capital Common Total Common in excess Retained stock Treasury stockholders' stock of par value earnings subscribed stock equity Balance at June 30, 1994 504,979 10,496,287 24,945,412 (5,586,624) (2,732,307) 27,627,747 Dividends paid on common stock $.60 per share -- -- (809,041) -- -- (809,041) Net earnings - 1995 -- -- 491,767 -- -- 491,767 Tax effect of dividends on unallocated ESOP shares(note 8) -- -- 50,070 -- -- 50,070 Purchase of treasury stock (7,260 shares) -- -- -- -- (93,585) (93,585) Reduction of common stock subscribed -- -- -- 558,662 -- 558,662 Balance at June 30, 1995 504,979 10,496,287 24,678,208 (5,027,962) (2,825,892) 27,825,620 Dividends paid on common stock $.70 per share -- -- (937,119) -- -- (937,119) Net earnings - 1996 -- -- 522,737 -- -- 522,737 Tax effect of dividends on unallocated ESOP shares(note 8) -- -- 52,574 -- -- 52,574 Purchase of treasury stock (224,802 shares) -- -- -- -- (3,696,340) (3,696,340) Reduction of common stock subscribed -- -- -- 558,663 -- 558,663 Balance at June 30, 1996 504,979 10,496,287 24,316,400 (4,469,299) (6,522,232) 24,326,135 Dividends paid on common stock $.70 per share -- -- (777,855) -- -- (777,855) Net earnings - 1997 -- -- 563,128 -- -- 563,128 Tax effect of dividends on unallocated ESOP shares(note 8) -- -- 46,732 -- -- 46,732 Purchase of treasury stock (7,426 shares) -- -- -- -- (116,032) (116,032) Reduction of common stock subscribed -- -- -- 558,663 -- 558,663 Balance at June 30, 1997 $ 504,979 10,496,287 24,148,405 (3,910,636) (6,638,264) 24,600,771 see accompanying notes to financial statements 18 ESPEY MFG. & ELECTRONICS CORP. Statements of Cash Flows Years ended June 30, 1997, 1996 and 1995 1997 1996 1995 Cash flows from operating activities: Net earnings $ 563,128 522,737 491,767 Adjustments to reconcile net earnings to net cash provided by operating activities: Tax effect of dividends on unallocated ESOP shares 46,732 52,574 50,070 Depreciation 488,617 503,160 493,735 Gain on sale of marketable investment securities -- (5,796) -- Deferred income tax benefit (202,545) (116,496) (87,651) Change in assets and liabilities: Decrease (increase) in receivables, net 410,751 371,824 (774,451) Decrease (increase) in inventories, net 2,831,471 (785,021) (69,763) Decrease (increase) in income tax refund receivable -- 410,467 (52,049) Decrease (increase) in prepaid expenses and other current assets 79,955 112,225 (199,116) Increase (decrease) in accounts payable 87,172 (438,192) 259,941 Increase (decrease) in accrued salaries, wages and commissions (8,711) 12,082 4,717 Increase (decrease) in accrued employee insurance costs (14,166) 4,446 (7,979) Increase (decrease) in other accrued expenses (8,446) 2,852 (2,430) Increase (decrease) in payroll and other taxes withheld and accrued (109,326) 15,377 711 Increase in income taxes payable 28,749 119,857 -- Net cash provided by operating activities 4,193,381 782,096 107,502 Cash flows from investing activities: Proceeds from maturity of marketable investment securities 27,695,753 10,454,464 3,887,307 Additions to property, plant and equipment (352,848) (348,501) (1,079,443) Reduction of common stock subscribed 558,663 558,663 558,662 Proceeds from sale of marketable investment securities -- 3,866,542 -- Purchases of marketable investment securities (24,674,558) (6,781,941) (14,341,771) Net cash provided by (used in) investing activities 3,227,010 7,749,227 (10,975,245) Cash flows from financing activities: Dividends on common stock (777,855) (937,119) (809,041) Purchase of treasury stock (116,032) (3,696,340) ( 93,585) Net cash used in financing activities (893,887) (4,633,459) (902,626) Increase (decrease) in cash and short-term investments 6,526,504 3,897,864 (11,770,369) Cash and short-term investments, beginning of year 5,597,079 1,699,215 13,469,584 Cash and short-term investments, end of year $ 12,123,583 5,597,079 1,699,215 Supplemental disclosures of cash flow information: Income taxes paid (refund) $ 431,160 (204,907) 348,000 See accompanying notes to financial statements.See accompanying notes to financial statements.
ESPEY MFG. & ELECTRONICS CORP. Notes to Financial Statements June 30, 1997, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Nature of Operations Espey Mfg. & Electronics Corp. (the Company) is a manufacturer of electronic equipment used primarily in military applications. The principal markets for the Company's products have been the United States and Israel. (b) Inventory Valuation and Income Recognition Raw materials are valued at cost, principally on the first-in, first-out method. 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, reduced by amounts identified with revenue recognized on units shipped and billed. 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. 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. 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. General and administrative expenses are charged to operations in the period in which they are incurred. Revenue is recognized on contracts and orders in the period in which the units are shipped and billed (unit-of-delivery method). (c) Depreciation Depreciation of plant and equipment is computed generally on a straight-line basis over the estimated useful lives of the assets for book purposes and on an accelerated method for tax purposes. (d) Income Taxes The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 109,"Accounting for Income Taxes". (1), Continued 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. (e) Short-Term Investments and Cash Equivalents All short-term investments, consisting of certificates of deposit, money market accounts, and U.S. Treasury bills, maturing within three months are considered cash equivalents for purposes of the statements of cash flows. (f) Marketable Investment Securities Marketable investment securities at June 30, 1996 consist of U.S. Treasury securities. The Company classifies Marketable Investment Securities as held-to-maturity. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until their maturity. Held-to-maturity securities are recorded at amortized cost. A decline in the market value of any held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Interest income is recognized when earned. (g) Management 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. (h) Investment Tax Credits Investment tax credits are accounted for as a reduction of income tax expense in the year taxes payable are reduced. (1), Continued (i) Accounting for the Impairment of Long-Lived Assets 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 requires that certain long-lived assets 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. (2) Marketable Investment Securities Marketable investment securities at June 30, 1996, consist of U.S. Treasury securities, which are classified as held-to-maturity securities, and recorded at amortized cost. There were no gross unrealized gains or losses on U.S. Treasury securities at June 30, 1997 or 1996. The difference between cost and fair market value for the U.S. Treasury securities represents interest income, which has been recognized and is included in accrued interest receivable. Maturities of investment securities classified as held-to-maturity were as follows: Amortized Fair Cost Value At June 30, 1997: Due after three months through 1 year $ - - At June 30, 1996: Due after three months through 1 year $ 3,021,195 3,134,458
(3) Inventories and Cost of Sales Included in costs relating to contracts in process at June 30, 1997, 1996 and 1995 are costs of $368,687,$1,504,409, and $1,023,945, 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 earnings until the units under contract are shipped. (4) Contracts in Process Contracts in process at June 30, 1997 and 1996 are as follows: 1997 1996 Gross contract value $ 9,037,572 16,297,193 Carrying value of contracts in process included in current assets $ 4,526,802 8,971,704
(5) Property, Plant and Equipment A summary of property, plant and equipment at June 30, 1997 and 1996 is as follows: 1997 1996 Land $ 50,000 50,000 Buildings and improvements 3,863,413 3,828,650 Machinery and equipment 7,807,631 7,614,027 Furniture, fixtures and office equipment 322,806 320,460 $ 12,043,850 11,813,137 The estimated useful lives of depreciable assets are as follows: Buildings and improvements 20 - 25 years Machinery and equipment 10 years Furniture, fixtures and office equipment 10 years Autos and trucks 5 years
(6) Research and Development Costs Research and development costs charged to operations during the years ended June 30, 1997, 1996 and 1995 were approximately $223,000, $205,000 and $141,000, 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 $66,642 in 1997, $79,282 in 1996 and $65,500 in 1995. (8) Provision for Income Taxes A summary of the components of the provision for income taxes for the years ended June 30, 1997, 1996 and 1995 is as follows: 1997 1996 1995 Current tax expense - Federal $ 481,729 366,108 324,021 Current tax expense - State 24,911 11,883 22,000 Deferred tax benefit (202,545) (116,496) (87,651) $ 304,095 261,495 258,370 Total income tax expense for the years ended June 30, 1997, 1996 and 1995 was allocated as follows: 1997 1996 1995 Earnings from operations $ 304,095 261,495 258,370 Stockholders' equity, for tax effect of dividends on unallocated ESOP shares (46,732) (52,574) (50,070) $ 257,363 208,921 208,300
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 35.1%, 33.3% and 34.4% for 1997, 1996 and 1995, respectively, differed from the statutory U.S. Federal income tax rate for the following reasons: 1997 1996 1995 U.S. statutory tax rate 34.0% 34.0% 34.0% Increase (reduction) in rate resulting from: Dividends received deduction (.3) (.3) (.3) State franchise tax, net of Federal income tax benefit 1.9 1.0 1.9 Other (.5) (1.4) (1.2) Effective tax rate 35.1% 33.3% 34.4%(8), Continued
For the year ended June 30, 1997 deferred income tax benefit of $202,545 results from the changes in temporary differences for the year. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of June 30, 1997 and 1996 are presented below: 1997 1996 Deferred tax assets: Inventory - differences in valuation methods 179,533 180,421 Common stock subscribed-due to difference in interest recognition 475,493 510,198 Total gross deferred tax assets 655,026 690,619 Deferred tax liabilities: Property, plant and equipment - principally due to differences in depreciation methods $ 400,822 501,110 Inventory - effect of uniform capitalization 41,775 179,625 Total gross deferred tax liabilities 442,597 680,735 Net deferred tax asset $ 212,429 9,884
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 scheduled 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. The Company's Federal income tax returns have been audited and accepted without change through June 30, 1989. (9) Common Stock and Earnings Per Share Earnings 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 1,112,074 in 1997, 1,269,467 in 1996, and 1,346,757 in 1995. (10) Segment Reporting 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 made to the U.S. Government and its agencies are primarily on a subcontract basis. Sales to two domestic customers accounted for 19.9%, and 61.4%, respectively, of total sales in 1997. Sales to two domestic customers and one foreign customer accounted for 28.9%, 22.8% and 17.8%, respectively, of total sales in 1996. Sales to two domestic customers and one foreign customer accounted for 31.5%, 24.2%, and 16.2%, respectively, of total sales in 1995. Export sales in 1997 were not significant. Export sales in 1996 and 1995 aggregated approximately $3,073,000 and $2,602,000, respectively. (11) Stock Rights Plan During 1989, the Company adopted a Shareholder Rights Plan in which 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 $75 per share subject to adjustment. The rights are exercisable only if a person or group acquires beneficial ownership of 25% 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 30% or more of the Company's common stock. If a 25% 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 30% 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 25% 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 30% or more of the Company's common stock. (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 31,690 shares of the Company's common stock to pay benefits to participants. At June 30,1997, the ESOP held a total of 299,534 shares of the Company's common stock,of which 152,450 shares 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. In 1997, the Company's required contribution of $1,039,605 was reduced by $117,667, which represents the dividends paid on the unallocated ESOP shares. The resulting payment of $921,938 includes $440,996 classified as compensation expense. In 1996, the Company's required contribution of $1,039,605 was reduced by $132,376, which represents the dividends paid on the unallocated ESOP shares. The resulting payment of $907,229 includes $426,287 classified as compensation expense. In 1995, the Company's required contribution of $1,039,605 was reduced by $126,072, which represents the dividends paid on the unallocated ESOP shares. The resulting payment of $913,533 includes $432,590 classified as compensation expense. (13) Financial Instruments/Concentration of Credit Risk The carrying amounts of financial instruments, including cash, short-term investments, marketable investment securities, accounts receivable and accounts payable, approximated fair value as of June 30, 1997 and 1996 because of the relatively short maturity of these instruments. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and short-term investments and accounts receivable. The Company maintains cash and short-term investments 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 sales are made to the U.S. Government and its agencies and certain industrial customers. The related accounts receivable balance represented 66.7% and 54% of the Company's total trade accounts receivable balance at June 30, 1997 and 1996, respectively. (13), Continued 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. (14) 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 $50,792 payable as follows: Year ending June 30, 1998 $ 12,190 1999 12,190 2000 12,190 2001 12,190 2002 2,032 $ 50,792 Rent expense for the years ended June 30, 1997, 1996 and 1995 was $14,156, $22,624, and $22,235, respectively. (15) Quarterly Financial Information (Unaudited) First Second Third Fourth Quarter Quarter Quarter Quarter 1997: Net sales $ 4,586,892 4,066,386 3,805,569 2,707,228 Gross profit 698,018 729,221 544,037 179,363 Net earnings 228,719 244,126 127,370 (37,087) Net earnings per share $ .21 .21 .12 (.03) 1996: Net sales $ 4,000,805 4,434,896 4,352,275 4,012,224 Gross profit 404,675 486,916 533,557 402,034 Net earnings 98,440 125,906 169,479 128,912 Net earnings per share $ .07 .09 .13 .12 1995: Net sales $ 4,161,569 2,814,595 3,496,584 4,101,349 Gross profit 614,354 293,631 267,462 324,403 Net earnings 174,765 33,407 74,149 209,446 Net earnings per share $ .13 .02 .06 .16
Financial information for the fourth quarter of 1997 reflects a pre-tax write off of approximately $385,000 related to inventory for which the Company expected to receive orders during the year.In the fourth quarter of 1997, management's assessment of this inventory resulted in the aforementioned write-off as previously anticipated orders did not materialize. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. 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 Joseph Canterino Annual Meeting in President and 72 December 1998 Chief Executive Director since Officer December 11, 1992 Paul J. Corr Annual Meeting in None 53 December 1999 Director since April 3, 1992 William P. Greene Annual Meeting in None 67 December 1998 Director since April 3, 1992 Barry Pinsley Annual Meeting in Vice President- 55 December 1999 Investor Relations Director since and Human Resources March 25, 1994 Howard Pinsley Annual Meeting in Executive Vice President 57 December 1997 Director since December 11, 1992 Sol Pinsley Annual Meeting in Chairman of 84 December 1997 the Board Director since 1950 (continued)
Date Present Term Other Positions Expires and Period and Offices Held Name Served as Director With Registrant Age Seymour Saslow Annual Meeting in Senior Vice President 76 December 1998 Director since December 11, 1992 Michael W. Wool Annual Meeting in None 51 December 1999 Director since 1990 Identification of Executive Officers Positions and Offices Held Period Served As Name With Company Executive Officer Age Sol Pinsley Chairman of the President and Chief 84 Board and Executive Officer for Director more than the past five years prior to taking present position on August, 1996; Treasurer from August 4, 1988 to September 10, 1993 Seymour Saslow Senior Vice President Served as Vice 76 and Director President from April 3, 1992 until being elected to present position on December 6, 1997 Joseph Canterino President and Chief Since April 3, 1992; 72 Executive Officer and Vice President- Director Manufacturing prior to present position
(continued) Positions and Offices Held Period Served As Name With Company Executive Officer Age Howard Pinsley Executive Vice President Served as Vice President- 57 and Director Special Power Supplies from April 3, 1992 until being elected to present position on December 6, 1997 Barry Pinsley Vice President- Served as Vice President- 55 Investor Relations Special Projects from and Human Resources March 25, 1994 until and Director being elected to present position on December 6, 1997 John J. Pompay, Jr. Vice President- Since December 6, 1996 62 Marketing and Sales Herbert Potoker Treasurer and Principal Since September 10, 68 Financial Officer 1993 Garry M. Jones Assistant Treasurer Since August 4, 1988; 57 and Principal Accounting Principal Financial Officer Officer from August 4, 1988 to September 10, 1993 Reita Wojtowecz Secretary Since June 27, 1994 68
Each officer's term is at the will of the Board of Directors, except for Sol Pinsley and John J. Pompay, Jr. The term of Mr. Pinsley's employment is subject to the provisions of an Employment Agreement, dated January 1, 1995. The term of Mr. Pompay's employment is subject to the provision of an Employment Agreement, dated December 6, 1996. See "Executive Compensation-Employment Contracts and Termination of Employment and Change in Control Agreements." Family Relationships Sol Pinsley is the father of Barry Pinsley and uncle of Howard Pinsley. Barry Pinsley and Howard Pinsley are cousins. Howard Pinsley and Herbert Potoker are cousins. Business Experience of Directors and Officers Joseph Canterino has been President and Chief Executive Officer since Sol Pinsley retired from these positions on August 1, 1996. Prior to his election to his present position, Mr. Canterino served as Vice President- Manufacturing since April 3, 1992 and Plant Manager for more than five years prior to being elected Vice President-Manufacturing. Paul J. Corr is a Certified Public Accountant and currently a partner at the Latham, New York accounting firm of Richter & Company. Mr. Corr was a partner of the accounting firm of Corr & Company from 1982 to 1993. Since 1981 to date, Mr. Corr has been professor of Business at Skidmore College in Saratoga Springs, New York. Mr. Corr currently holds the position of Associate Professor. William P. Greene has been employed as Vice President of Operations for National Library of Music since August, 1997. Prior to his present position, Mr. Greene was employed as Vice President of Operations for Bulk Materials International Co., Newton, Connecticut from 1994 to August,1997. From 1991 to 1994, Mr. Greene was Associate Professor of Finance and International Business at Pennsylvania State University, Kutztown, Pennsylvania. From 1985 to 1990, he was Associate Dean at the School of Business, United States International University in San Diego, California. From 1982 to 1985, he was Chairman, Department of Business, Skidmore College, Saratoga Springs, New York. Prior to that time, he had been employed as an officer with several financial institutions. 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 Financial and Accounting Officer on August 4, 1988. Barry Pinsley is a Certified Public Accountant who for five years acted as a consultant to the Company prior to his election as a Vice President- Special Projects on March 25, 1994. On December 6, 1997, Mr. Pinsley was elected to his present position of Vice President-Investor Relations and Human Resources. 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 Program Director prior to being elected Vice President-Special Power Supplies on April 3, 1992. On December 6, 1996, Mr. Pinsley was elected to his present position of Executive Vice President. Sol Pinsley has been for more than the past five years employed on a full time basis as the President and Chief Executive Officer of the Company. Mr. Pinsley retired from these positions effective August 1, 1996. He has remained with the Company as Chairman of the Board. Herbert Potoker for more than the past five years has been employed by the Company on a full time basis in a senior financial management position prior to being elected Treasurer and Principal Financial Officer on September 10, 1993. Mr. Potoker previously had been the Treasurer and Principal Financial and Accounting Officer of the Company until August 4, 1988. Seymour Saslow has been Senior Vice President since December 6, 1996. Prior to being elected to his present position, Mr. Saslow served as Vice President-Engineering since April 3, 1992. Reita Wojtowecz has been Secretary of the Company since June 27, 1994. She has been employed by the Company as Director of Human Resources for more than the past five years. Michael W. Wool has been 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. 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. 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. Legal Proceedings None of the directors or executive officers of the Company were involved during the past five years in any of the 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, 1997, June 30, 1996 and June 30, 1997 received by the Company's Chief Executive Officer, the other five highest paid executive officers of the Company who were such as of June 30, 1997, and Sol Pinsley, for whom disclosure would have been required but for the fact Mr. Pinsley resigned as President and Chief Executive Officer in August, 1996: SUMMARY COMPENSATION TABLE Name and Fiscal Annual All Other Principal Position Year Salary Bonus Compensation(1) Sol Pinsley (2) 1997 $156,670 $25,000 $14,969 Chairman of 1996 $193,900 $25,000 $14,129 the Board 1995 $189,000 $25,000 $ 9,968 Seymour Saslow 1997 $117,075 $25,000 $15,353 Senior Vice President 1996 $112,900 $25,000 $15,063 1995 $108,000 $25,000 $10,393 Joseph Canterino 1997 $133,880 $25,000 $16,536 President and Chief 1996 $103,180 $25,000 $15,819 Executive Officer 1995 $ 98,280 $25,000 $11,320 Howard Pinsley 1997 $109,600 $25,000 $16,455 Executive Vice 1996 $ 93,350 $20,000 $15,567 President 1995 $ 90,450 $12,000 $11,042 Herbert Potoker 1997 $109,855 $25,000 $13,289 Treasurer and 1996 $107,680 $25,000 $11,892 Principal Financial Officer 1995 $101,280 $25,000 $ 9,320 Barry Pinsley 1997 $ 85,050 $12,000 $13,338 Vice President- 1996 $ 84,675 $10,000 $12,389 Investor Relations and 1995 $ 79,500 $10,000 $ 8,083 Human Resources John J. Pompay, Jr. 1997 $172,963(3) $ 0 $13,289 Vice President-Sales
_______________ (1) Represents (a) the cash and market value of the shares allocated for the respective fiscal years under the Company's Employee Retirement Plan and Trust ("ESOP") to the extent to which each named executive officer is vested, and (b) directors' fees except for Mr. Potoker and Mr. Pompay. (2) Effective August 1, 1996, Mr. Pinsley retired from the positions of President and Chief Executive Officer. In accordance with the terms of his Employment Agreement,Mr. Pinsley has remained as Chairman of the Board and as a non-executive officer of the Company at a reduced salary. See "Executive Compensation - Employment Contracts and Termination of Employment and Change in Control Agreements." (3) Represents wages as an executive officer and non-executive officer during fiscal year ending June 30, 1997. Insurance The executive officers of the Company are covered under group life and medical and health plans which do not discriminate in favor of the officers or directors of the Company and which are available generally to all salaried 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 actions. Employee Retirement Plan and Trust Under the Company's Employee Retirement Plan and Trust ("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 officers, five of whom, Sol Pinsley, Seymour Saslow, Joseph Canterino, Barry Pinsley and Howard Pinsley, are also directors of the Company, 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 during the year effective as of June 30, 1994. Of the 152,451 shares of common stock of the Company allocated to participants of the ESOP as of June 30, 1997, 2,816.19 shares were allocated to Sol Pinsley, 4,921.19 shares were allocated to each Joseph Canterino, Herbert Potoker and John J. Pompay, Jr., 4,602.21 shares were allocated to Howard Pinsley, 4,620.19 shares were allocated to Seymour Saslow and 1,499.21 shares were allocated to Barry Pinsley. Compensation of Directors The Company's standard arrangement compensates each director of the Company a fee in the amount of $500 for each meeting of the Board of Directors attended by such director. No amount in excess of such fee per meeting of the Board of Directors was paid to any director during the last fiscal year for services as a director.Each member of the Audit Committee is compensated in the amount of $500 for each Committee meeting attended. Michael W. Wool, Paul J. Corr and William P. Greene were paid $1,000, $3,170 and $3,600, respectively, for additional services in connection with their duties as directors for the fiscal year ended June 30, 1997. Employment Contracts and Termination of Employment and Change in Control Agreements There has been in effect, since July 1, 1973, a full-time employment contract with Sol Pinsley, who was President, Chief Executive Officer and a director of the Company until August 1, 1996. The most recent employment contract was entered into by the Company with Mr. Pinsley on June 12, 1995 pursuant to prior authorization given by the Board of Directors on March 24, 1995. This employment contract, which was approved and ratified by the Board of Directors on June 17, 1995, is dated and effective as of January 1, 1995 for a term expiring December 31, 1998, and covers Mr. Pinsley's employment as President (or Chairman of the Board) and Chief Executive Officer and also as a non-executive officer employee should Mr. Pinsley elect to become a non-executive officer employee. The agreement provided a minimum base annual compensation of $182,000 for each calendar year commencing 1995 and the Board of Directors in its discretion may increase such compensation for any calendar year and/or award Mr. Pinsley a bonus for any calendar year. The foregoing compensation is to be reduced by $40,000 per annum in the event Mr. Pinsley elects to become a non-executive officer employee. The employment agreement further provides that in the event of his disability the foregoing compensation shall continue to be paid to Mr. Pinsley until the expiration date of the agreement, and, in the event of his death, such compensation shall be paid to his estate until the expiration date of the agreement or 187 days after his death, whichever is later. The agreement provides for (i)a restrictive covenant of non-competition by Mr. Pinsley, and (ii) his covenant not to divulge or use, other than for the registrant,confidential information concerning the registrant during and for 18 months after the expiration date of the agreement. Effective August 1, 1996, Mr. Pinsley retired from the positions of President and Chief Executive Officer. In accordance with the terms of the above agreement, Mr. Pinsley has remained as Chairman of the Board and as a non-executive officer of the Company at a reduced salary. The Company has entered into an employment contract with John J. Pompay, Jr. in connection with his duties as Vice President-Marketing and Sales. The contract is dated and effective as of December 6, 1996 and terminates on December 31, 1998. The contract provides for a minimum base annual salary of $10,400 plus commissions at the rate of 3% on all payments received by the Company against Mr. Pompay's open orders as of the date of the contract and those 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 one year after the termination date and the Company will pay him commissions on all orders received during the year after termination whenever shipped and paid. 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. Item 12. Security Ownership of Certain Beneficial Owners and Management. Security Ownership of Certain Beneficial Owners The following information is furnished as of September 19, 1997 (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 Sol Pinsley 80,261.00 -Direct 7.4762% $.33-1/3 p.v. P.O. Box 422 2,816.19 -Indirect (1) Saratoga Springs, NY 12866 " Dimensional Fund 74,400.00 -Direct (2) 6.6953% Advisors Inc. 1299 Ocean Avenue 11th Floor Santa Monica, CA 90401 " Franklin Resources, Inc. 96,300.00 -Direct (3) 8.6662%
777 Mariners Island Blvd. P.O. Box 7777 San Mateo, CA 94403-7777 (continued) Amount and Nature of Title of Name and Address Beneficial Percent of Class of Beneficial Owner Ownership Class Common Stock The Adirondack Trust 299,297.00 -Direct (4) 26.9340% $.33-1/3 p.v. Company, as Trustee of the Company's Employee Retirement Plan and Trust 473 Broadway Saratoga Springs, NY 12866
(1) Does not include 4,200 shares of common stock of the Company owned by the testamentary trust of the deceased spouse of Sol Pinsley, Ruth Pinsley, beneficial ownership of which is disclaimed by Mr. Pinsley. The shares listed as indirectly owned by Sol Pinsley are the shares allocated to him as of June 30, 1997 as a participant in the Company's ESOP. Mr. Pinsley has the right under the ESOP to direct the manner in which such shares allocated to him are to be voted by the ESOP Trustee. (2) The information as to the number of shares of common stock of the Company that may be deemed beneficially owned by Dimensional Fund Advisors Inc.("Dimensional") is from the Schedule 13G dated February 5, 1997 filed with the Securities and Exchange Commission. Dimensional, a registered investment advisor, is deemed to have beneficial ownership of 74,400 shares of Espey Mfg. & Electronics Corp. stock as of December 31, 1996, all of which shares are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. Dimensional reported sole voting power with respect to 49,500 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 February 12, 1997 filed with the Securities and Exchange Commission. The Franklin statement indicated that Franklin's investment advisory subsidiary, Franklin Advisory Services, Inc. ("Franklin Advisory") has 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,including Franklin Advisory. The statement also indicated that it filed the Schedule 13G on behalf of itself, Franklin Advisory, 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, the Principal Shareholders and Franklin Advisory 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 August 29, 1997, filed with the Securities and Exchange Commission by the Trustee on behalf of the Company's Employee Retirement Plan and Trust ("ESOP"). The ESOP Trustee has sole voting power with respect to unallocated common shares owned by the Trust, 147,083 shares as of August 28, 1997, as directed by the Plan Administrator appointed by the Company's Board of Directors. As to the common shares allocated to participants,152,214 shares as of August 28,1997, 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 19, 1997 (unless otherwise indicated), as to each class of equity securities of the Company beneficially owned by all the Directors and by Directors and Officers of the Company as a Group: 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 500.00 -Direct .0450% " William P. Greene 100.00 -Direct .0090% " Michael W. Wool 100.00 -Direct .0090% " Sol Pinsley 80,261.00 -Direct 7.4762% 2,816.19 -Indirect (1)(2)
(continued) Amount and Nature of Title of Name of Beneficial Percent of Class Beneficial Owner Ownership Class Common Stock Seymour Saslow 301.00 -Direct .4429% $.33-1/3 p.v. 4,620.19 -Indirect (2) " Joseph Canterino 7,500.00 -Direct 1.1178% 4,921.19 -Indirect (2) " John J. Pompay, Jr. 4,921.19 -Indirect (2) .4429% " Howard Pinsley 39,134.00 -Direct 3.9359% 4,602.21 -Indirect (2) " Barry Pinsley 1,000.00 -Direct .6029% 5,699.21 -Indirect (2)(3)(4) " Herbert Potoker 6,490.00 -Direct 1.0270% 4,921.19 -Indirect (2)(5) " Garry M. Jones 2,279.94 -Indirect (2) .2052% " Reita Wojtowecz 1,558.97 -Indirect (2) .1403% " Officers and Directors 135,286.00 -Direct 15.4449% as a Group 36,340.28 -Indirect (6)
_____________ (1) Excludes 4,200 shares owned by a testamentary trust of Ruth Pinsley, the deceased spouse of Sol Pinsley. Beneficial ownership of the shares owned by the trust is disclaimed by Mr. Pinsley. (2) Shares allocated to named officer as of June 30, 1997 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) Excludes 1,300 shares owned by Barry Pinsley's spouse, as to which beneficial ownership is disclaimed by Mr. Pinsley. (4) Includes 4,200 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. (5) Excludes 300 shares owned by Herbert Potoker's spouse, as to which beneficial ownership is disclaimed by Mr. Potoker. (6) Shares allocated to all officers as a group as of June 30, 1997 who participate 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. There are no arrangements known to the Company the operation of which may at a subsequent date result in change of control of the Company. Item 13. Certain Relationships and Related Transactions. For the fiscal year ended June 30, 1997, Christopher Canterino, who is a full time employee of the Company and the son of Joseph Canterino, President and Chief Executive Officer of the Company, received compensation as such employee of $84,650.00, as well as an ESOP allocation of Company Stock and dividends thereon totaling $10,626.00. 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, 1997, there were 152,451 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 five (Sol Pinsley, Seymour Saslow, Joseph Canterino, Howard Pinsley and Barry Pinsley)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, 1997. The Company believes the services provided to it by Langrock, Sperry & Wool were provided to it at a cost comparable to that which the Company would have been required to pay for comparable services from an unaffiliated third party. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements Included in Part II of this report: Independent Auditors' Report Balance Sheets at June 30, 1997 and 1996 Statements of Earnings for the years ended June 30, 1997, 1996 and 1995 Statements of Changes in Stockholders' Equity for the years ended June 30, 1997, 1996 and 1995 Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 Notes to Financial Statements 2. Financial Statement Schedules Included in Part IV of this report: Page Schedule II - Valuation and Qualifying Accounts 46 Other 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 Page 10.1 Employment Agreement dated December 6, 1996 48 between John J. Pompay, Jr. and Espey Mfg. & Electronics Corp. 11.1 Statement re: Computation of Per Share Earnings 50 27 Financial Data Schedule (for electronic filing N/A purposes only) (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1997. 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. /s/ Joseph Canterino Joseph Canterino, 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 (Principal Executive Officer) /s/ Joseph Canterino September 29, 1997 Joseph Canterino Treasurer (Principal Financial Officer) /s/ Herbert Potoker September 29, 1997 Herbert Potoker Assistant Treasurer (Principal Accounting Officer) /s/ Garry M. Jones September 29, 1997 Garry M. Jones Vice President and Director /s/ Howard Pinsley September 29, 1997 Howard Pinsley (signatures continued) Vice President and Director /s/ Barry Pinsley September 29, 1997 Barry Pinsley Chairman of the Board and Director /s/ Sol Pinsley September 29, 1997 Sol Pinsley Vice President and Director /s/ Seymour Saslow September 29, 1997 Seymour Saslow Director /s/ Michael W. Wool September 29, 1997 Michael W. Wool Director /s/ Paul J. Corr September 29, 1997 Paul J. Corr Director /s/ William P.Greene September 29, 1997 William P. Greene
SCHEDULE II ESPEY MFG. & ELECTRONICS CORP. Valuation and Qualifying Accounts Years ended June 30, 1997, 1996 and 1995 Balance at Additions Deductions Balance at beginning to from end of Description of period reserve reserve period Allowance for doubtful accounts: 1997 $ 3,000 - - 3,000 1996 $ 3,000 - - 3,000 1995 $ 3,000 - - 3,000
EXHIBIT INDEX Exhibit No. Page 10.1 Employment Agreement dated December 6, 1996 48 between John J. Pompay, Jr. and Espey Mfg. & Electronics Corp. 11.1 Statement re: Computation of Per Share Earnings 50 27 Financial Data Schedule (for electronic filing N/A purposes only) EXHIBIT 10.1 The following is an agreement between John J. Pompay, Jr. and Espey Mfg. & Electronics Corp. (the company). This agreement supersedes and replaces all previous understandings. We will pay you a salary of $200.00 a week. Your job title and duties will be Vice President-Sales. As such you will have the responsibilities and authority to create an outside sales force of representatives as needed. You shall establish the terms of remuneration to these representatives, subject to the prior approval of the President. You shall also have the authority to establish an internal contracts department to support your responsibilities. You will receive a commission at 3% on all payments received by Espey against your current open written orders and those written orders booked by you thru 12/31/96. You will receive a commission at 1% on all payments received against written orders booked by the Company between 12/31/96 and 12/31/98. The 1% commission shall be in lieu of the prior 3% commission. Expenses incurred by you in the performance of your duties will be reimbursed by our company. These expenses must fall under the ethics guidelines of the U.S. Government. In the event you voluntarily terminate your employment with the Company, or we terminate you for cause other than as set forth in the following paragraph, we will pay you commissions, at the rate then prevailing as provided herein, on your written orders in the house at the time of such termination, when such orders are shipped and paid. Your salary will cease upon leaving our employ. In the event you voluntarily leave our employ or are terminated for cause, for a period of two years from the date of termination you will not, directly or indirectly, compete with Espey or accept employment or independent contractor status or participate as an owner or otherwise with any competitor of Espey. If you do, Espey's obligation to make any payments under this agreement will terminate. In the event we terminate your employment, for other than cause, we will pay you commissions, at the rate then prevailing on all your orders then in the house. We will continue to pay your salary for one year and we will pay you commissions at the agreed rates on all orders received during the year after termination whenever shipped and paid. The same terms as the paragraph above will apply if you die or become permanently disabled. This agreement shall terminate on 12/31/98. Commission, when payable pursuant to this agreement, shall be based on our net billing price; that is, our billing price less freight, discount, Federal or State taxes. Commissions are payable only when shipment has actually been made and full payment received by our company. Payment of commissions will be made to you, in the month following receipt of full payment from our customer. Our company will, between the 10th and 20th of each month, forward to you a statement of each account and each amount collected for the previous month and, at the same time, a check will be delivered to you for the amount of commissions to which you are entitled. It may be or become necessary that our company issue credits to customers on invoices which have been paid. Such credits are issuable at the sole discretion of our company and when such credits are issued you agree that your commission account will be charged back for any commissions previously paid to you based on paid invoices. Such charge-backs for commissions will be shown on the statement of account forwarded to you. We agree to furnish you with data on all orders accepted as above outlined and data on all invoices in connection with shipments on all such orders. This agreement shall be strictly personal to and with you, and it is specifically understood that you shall not sell, assign or encumber the same or in any way sell, assign or encumber any monies due to you unless you have the prior written approval of our company, which approval must be signed by the President of our company. You will work exclusively for our company. This agreement may not be modified orally. It may be modified only in writing, signed by you on your behalf and by the President of our company. This understanding shall be governed by and interpreted under the Laws of the State of New York. If the above is acceptable to you,please sign a copy at the place indicated below for your signature. Very truly yours, Dated: December 6, 1996 ESPEY MFG. & ELECTRONICS CORP. ACCEPTED: By: /s/ Joseph Canterino, President JOSEPH CANTERINO, PRESIDENT /s/ John J. Pompay, Jr. JOHN J. POMPAY, JR. [CAPTION] EXHIBIT 11.1 ESPEY MFG. & ELECTRONICS CORP. Computation of per Share Earnings as Disclosed in Item 14 of Form 10-K Five years ended June 30, 1997 1997 1996 1995 1994 1993 Computation of earnings per share: Number of shares issued at beginning of year 1,514,937 1,514,937 1,514,937 1,514,937 1,514,937 Monthly weighted average number of treasury shares (402,863) (245,470) (168,180) (164,229) (159,897) Weighted average number of primary shares outstanding 1,112,074 1,269,467 1,346,757 1,350,708 1,355,040 Net earnings $ 563,128 522,737 491,767 1,343,877 1,594,290 Per share $ .51 .41 .37 1.00 1.18
EX-27 2
5 This schedule contains summary financial information extracted from the year ending June-30-1997 10-K filing and is qualified in its entirety by reference to such financial statements. YEAR JUN-30-1997 JUN-30-1997 1,416,801 10,706,782 1,163,830 0 8,201,875 21,819,899 12,043,850 8,738,469 25,199,951 599,180 0 0 0 504,979 24,600,771 25,199,951 15,166,075 15,166,075 13,015,436 13,015,436 1,808,462 0 0 867,223 304,095 563,128 0 0 0 563,128 .51 0
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