-----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, RRwyDcIrXDcxTbjMOov2Q6HMV8P5Mhbm+v/JMeRtNyIAVm1uYTm+5jNzB8R/H5hj 71WR+k1YkaH8QmaUXh4tdw== 0000914317-02-001390.txt : 20021114 0000914317-02-001390.hdr.sgml : 20021114 20021114113211 ACCESSION NUMBER: 0000914317-02-001390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 1934 Act SEC FILE NUMBER: 001-04383 FILM NUMBER: 02822757 BUSINESS ADDRESS: STREET 1: 233 BALLSTON AVE STREET 2: CONGRESS & BALLSTON AVENUES CITY: SARATOGA SPRINGS STATE: NY ZIP: 12866 BUSINESS PHONE: 5185844100 MAIL ADDRESS: STREET 1: 233 BALLSTON AVE CITY: SARATOGA SPRINGS STATE: NY ZIP: 12866 10-Q 1 form10q-47606_1102.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2002 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 Identification No.) 233 Ballston Avenue, Saratoga Springs, New York 12866 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 518-584-4100 --------------------------- Number of shares outstanding of issuer's class of common stock $.33-1/3 par value as of November 6, 2002: 1,034,561. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] ESPEY MFG. & ELECTRONICS CORP. I N D E X PART I FINANCIAL INFORMATION PAGE Item 1 Financial Statements: Consolidated Balance Sheets - September 30, 2002 and June 30, 2002 1 Consolidated Statements of Income - Three Months Ended September 30, 2002 and 2001 3 Consolidated Statements of Cash Flows - Three Months Ended September 30, 2002 and 2001 4 Notes to Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. 6 Item 4 Controls and Procedures 8 PART II OTHER INFORMATION 8 SIGNATURES
ESPEY MFG. & ELECTRONICS CORP. Consolidated Balance Sheets September 30, 2002 and June 30, 2002 ------------------------------------ A S S E T S Unaudited 2002 2002 September 30 June 30 ------------ ------- CURRENT ASSETS: Cash and cash equivalents $ 8,991,556 $ 9,192,962 Investment security 366,000 368,000 Trade accounts receivable, net 3,690,346 2,409,706 Other receivables 2,353 13,413 ----------- ----------- Total Receivables 3,692,699 2,423,119 ----------- ----------- Inventories: Raw materials and supplies 1,587,082 1,424,278 Work-in-process 2,864,912 4,298,988 Costs relating to contracts in process, net of advance payments of $2,738,701 at September 30, 2002 and $2,194,269 at June 30, 2002 8,016,052 7,017,529 ----------- ----------- Total Inventories 12,468,046 12,740,795 ----------- ----------- Deferred Income Taxes 86,634 85,773 Prepaid expenses and other current assets 148,744 198,061 ----------- ----------- Total Current Assets 25,753,679 25,008,710 ----------- ----------- Property, Plant and Equipment, net 3,410,661 3,324,252 ----------- ----------- Total Assets $29,164,340 $28,332,962 =========== ===========
See accompanying notes to the consolidated financial statements. (Continued)
ESPEY MFG. & ELECTRONICS CORP. Consolidated Balance Sheets, Continued September 30,2002 and June 30, 2002 ------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Unaudited 2002 2002 September 30 June 30 ------------ ------- CURRENT LIABILITIES: Accounts Payable $ 912,990 $ 497,454 Accrued expenses: Salaries, wages and commissions 87,382 86,881 Vacation 348,621 398,898 Employees' insurance costs 7,043 6,887 ESOP payable 136,514 -- Dividend payable -- -- Other 36,993 41,410 Payroll and other taxes withheld and accrued 41,313 37,943 Income taxes payable 191,148 88,966 Deferred Income Taxes 120,081 120,081 ---------- ---------- Total Current Liabilities 1,882,085 1,278,520 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock, par value .33-1/3 per share. Authorized 10,000,000 shares; Issued 1,514,937 shares on September 30, 2002 and June 30, 2002, outstanding 1,034,561 on September 30, 2002 and June 30, 2002 504,979 504,979 Capital in excess of par value 10,465,878 10,465,878 Accumulated other comprehensive loss (30,961) (29,079) Retained earnings 25,078,553 24,848,858 ---------- ---------- 36,018,449 35,790,636 Less Common stock subscribed (1,117,325) (1,117,325) Cost of 480,376 shares on September 30, 2002 and June 30, 2002 of common stock in treasury (7,618,869) (7,618,869) ---------- ---------- Total Stockholders' Equity 27,282,255 27,054,442 ---------- ---------- Total Liabilities And Stockholders' Equity $29,164,340 $28,332,962 =========== =========== See accompanying notes to the consolidated financial statements.
2
ESPEY MFG. & ELECTRONICS CORP. Consolidated Statements of Income Three Months Ended September 30, 2002 and 2001 ------------------------------------------------------ Unaudited Three Months 2002 2001 ---- ---- Net sales $4,491,359 $4,585,515 Cost of sales 3,702,138 3,977,930 ---------- ---------- Gross profit 789,221 607,585 Selling, general and administrative expenses 429,307 394,032 ---------- ---------- Operating income 359,914 213,553 ---------- ---------- Other income Interest and dividend income 45,269 66,479 Other income 3,544 10,955 ---------- ---------- 48,813 77,434 ---------- ---------- Income before income taxes 408,727 290,987 Provision for income taxes 102,182 87,296 ---------- ---------- Net Income $ 306,545 $ 203,691 ========== ========== Income per share: Basic and diluted income per share $ .30 $ .20 ---------- ---------- Weighted average number of shares outstanding Basic 1,034,561 1,029,461 Diluted 1,037,460 1,032,471 ========== ==========
See accompanying notes to the consolidated financial statements. 3
ESPEY MFG. & ELECTRONICS CORP. Consolidated Statements of Cash Flows Three Months Ended September 30, 2002 and 2001 Unaudited September 30, 2002 2001 ---- ---- Cash Flows From Operating Activities: Net income $ 306,545 $ 203,691 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Depreciation 121,808 123,635 Changes in assets and liabilities: Increase in receivables (1,269,579) (747,852) Decrease in inventories 272,749 1,254,179 Decrease in prepaid expenses and other current assets 49,317 35,008 Increase in accounts payable 415,536 357,244 Increase (Decrease) in accrued salaries, wages and commissions 500 (14,008) Increase (Decrease) in accrued employees' insurance costs 156 (27,668) Increase (Decrease) in other accrued expenses (4,417) (4,017) Decrease in vacation accrual (50,277) (51,421) Increase in payroll & other taxes withheld and accrued 3,370 1,653 Increase in income taxes payable 102,182 75,058 Increase in ESOP contributions 136,514 134,938 ----------- ----------- Net cash provided by operating activities 84,404 1,340,440 ----------- ----------- Cash Flows From Investing Activities: Additions to property, plant & equipment (208,217) (164,067) Net cash used in ----------- ----------- investing activities (208,217) (164,067) ----------- ----------- Cash Flows From Financing Activities: Dividends on common stock (77,592) (77,209) ---------- ----------- Net cash used in financing activities (77,592) (77,209) ------------ ----------- Increase (Decrease) in cash and cash equivalents (201,405) 1,099,164 Cash and cash equivalents, beginning of period 9,192,961 5,200,735 ------------ ----------- Cash and cash equivalents, end of period $ 8,991,556 $ 6,299,899 ------------ ----------- Income Taxes Paid $ -- $ 12,238 ------------ ----------- Noncash Financing Activities Dividends Payable $ -- $ 231,629 ------------ -----------
See accompanying notes to the consolidated financial statements. 4 ESPEY MFG. & ELECTRONICS CORP. Notes to Consolidated Financial Statements ------------------- 1. In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation for results for such periods. The results for any interim period are not necessarily indicative of the results to be expected for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the Company's most recent audited financial statements included in its 2002 Form 10-K. 2. Other income consists principally of interest on money market accounts and dividends on equity securities. 3. For purposes of the statements of cash flows, the Company considers all liquid debt instruments with original maturities of three months or less to be cash equivalents. 4. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the Income of the Company. 5. In fiscal 1989 the Company established an Employee Stock Ownership Plan (ESOP) for eligible non-union employees. The ESOP used the proceeds of a loan from the Company to purchase 316,224 shares of the Company's common stock for approximately $8.4 million and the Company contributed approximately $400,000 to the ESOP, which was used by the ESOP to purchase an additional 15,000 shares of the Company's common stock. As of September 30, 2002 there were 216,577 shares allocated to participants. 6. Total comprehensive income consists of:
Three Months Ended September 30, 2002 2001 -------- -------- Net income $ 306,545 $ 203,691 Accumulated other comprehensive income: Unrealized (loss) gain on available for sale securities (1,882) 10,920 --------- --------- Total comprehensive income $ 304,663 $ 214,611 ========= =========
5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates We believe our most critical accounting policies include revenue recognition and cost estimation on our contracts. Revenue recognition and cost estimation A significant portion of our business is comprised of development and production contracts which are accounted for under the provisions of the American Institute of Certified Public Accountants (AICPA) Statement of Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." Generally revenue on long-term fixed-price contracts are recorded on a percentage of completion basis using units of delivery as the measurement basis for progress toward completion. Contract accounting requires judgment relative to estimating costs and making assumptions related to technical issues and delivery schedule. Contract costs include material, subcontract costs, labor and an allocation of indirect costs. The estimation of cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract. Given the significance of the estimation processes and judgments described above, it is possible that materially different amounts of contract costs could be recorded if different assumptions were used in the estimation of cost at completion. When a change in contract value , contract performance status, or estimated cost is determined, changes are reflected in current period earnings. Results of Operations Net sales for the three months ended September 30, 2002 were $4,491,359 as compared to $4,585,515 for the same period in 2001. The $94,156 decrease in net sales for the three-month period is mainly due to the timing of shipments on several long-term contracts with deliveries to occur in the next several quarters. Management anticipates an overall increase in net sales for the year ending June 30, 2003. During the first quarter of fiscal 2003 gross profits as a percentage of sales increased approximately 4.3% as compared with the first quarter of fiscal 2002. The increase in gross profit was primarily due to lower production costs from decreased labor hours and a more favorable product mix. Management's implementation of certain Lean Manufacturing principles has improved gross profit. Management continues to evaluate the Company's workforce to insure that production and overall execution of backlog orders and additional anticipated orders are successfully performed. Present employment is 194 people. Net income for the three months ended September 30, 2002 was $306,545 or $.30 per share compared to $203,691 or $.20 per share for the corresponding period ended September 30, 2001. Selling, general and administrative expenses were $429,307 for the three months ended September 30, 2002, an increase of $35,275, or 8.9%, as compared to the three months ended September 30, 2001. This increase was primarily due to an increase in the cost of health insurance. Total other income for the three months ended September 30, 2002 decreased by $28,621, or 37% as compared to the three months ended September 30, 2001. The decrease is due to lower interests rates on the Company's Money Market accounts. The Company does not believe that there is any risk associated with its investment policy, since its investments are represented by a preferred equity security and money market accounts. The Company continues to diversify its customer base and product offerings. The backlog at September 30, 2002 was approximately $26,239,000 as compared to approximately $24,767,000 at September 30, 2001. 6
Liquidity and Capital Resources - ------------------------------- As of September 30, 2002, the Company had working capital of $23.9 million compared to $23.7 million at June 30, 2002. The Company meets its short-term financing needs through cash from operations and when necessary, from its existing cash and short term investments. The table below presents the summary of cash flow for the periods indicated: Three Months Ended September 30, 2002 2001 ---- ---- Net cash provided by operating activities $ 84,404 $ 1,340,440 Net cash used in investing activities $(208,217) $ (164,067) Net cash used in financing activities $ (77,592) $ (77,209)
Net cash provided by operating activities fluctuates between periods primarily as a result of differences in net income, the timing of the collection of accounts receivable, purchase of inventory, level of sales and payment of accounts payable. Net cash used in investing activities represents purchases of fixed assets. Net cash used in financing activities represents dividends on common stock. The Company currently believes that its current cash and cash equivalent balances and the cash generated from operations will be sufficient to meet its funding requirements for the next twelve months. Management has in place an uncommitted $3,000,000 line of credit to help fund further growth. For the first quarter of fiscal 2003 capital expenditures were approximately $208,000. Since the debt of the Company's ESOP is not to an outside party the Company has eliminated from the Consolidated Statements of Income the offsetting items of interest income and interest expenses relating to ESOP. The Company has also eliminated the offsetting accruals from the Consolidated Balance Sheets. During the three months ended September 30, 2002 and 2001, the Company did not repurchase any of its common stock. Under existing Board authorization, as of September 30, 2002, $854,859 could be utilized to repurchase the Company's common stock. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 It should be noted that in this Management's Discussion and Analysis of Financial Condition and Results of Operations are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The terms "believe," "anticipate," "intend," "goal," "expect," and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's current expectations or beliefs concerning future events. The matters covered by these statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including the Company's dependence on timely development, introduction and customer acceptance of new products, the impact of competition and price erosion, as well as supply and manufacturing constraints and other risks and uncertainties. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. 7 Item 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the filing date of this report, an evaluation was conducted under the supervision of and with the participation of Espey's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that all material information related to the company and its consolidated subsidiary is made known to them, particularly during the period when our periodic reports are being prepared. Subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation, there have been no significant changes in our internal controls, or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. It should be noted that the design of any system of controls is based in part upon certain assumptions about the liklihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. ESPEY MFG. & ELECTRONICS CORP. PART II: Other Information and Signatures Item 4. Submission of Matters to a Vote of Security Holders None during the quarter. Item-5. Other Information None Item 6. Exhibits and Reports on Form 8-K None during the quarter S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ESPEY MFG. & ELECTRONICS CORP. /s/ Howard Pinsley -------------------------------- Howard Pinsley, President and Chief Executive Officer /s/ David O'Neil -------------------------------- David O'Neil, Treasurer and Principal Financial Officer 6 November 2002 - --------------- Date 8 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Howard Pinsley, certify that: 1. I have reviewed this annual report on Form 10-Q of Espey Mfg. & Electronics Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 6, 2002 /s/ Howard Pinsley ---------------------------------- Howard Pinsley, President and Chief Executive Officer 9 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, David A. O'Neil, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Espey Mfg. & Electronics Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 6, 2002 /s/ David A. O'Neil ----------------------------- David A. O'Neil, Treasurer and Principal Financial Officer 10 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with this quarterly report on Form 10-Q of Espey Mfg. & Electronics Corp. (the "Company"), I, Howard Pinsely, President and Chief Executive Officer of the Company, certify , pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company Date: November 6, 2002 /s/ Howard Pinsley ---------------------------- Howard Pinsley, President and Chief Executive Officer Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with this quarterly report on Form 10-Q of Espey Mfg. & Electronics Corp. (the "Company"), I, David A. O'Neil, Treasurer and Principal Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 6, 2002 /s/ David A. O'Neil ---------------------------- David A. O'Neil, Treasurer and Principal Financial Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----