-----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, Nn9zvIcBpN1t6LU+rhcBeKp0unLJFGiH7l5ZqI4CiJmKdbUulqdfE0y+wJXx1f5t a9hQTO0dXOH3/O20ngL+TQ== 0000914317-98-000699.txt : 19981116 0000914317-98-000699.hdr.sgml : 19981116 ACCESSION NUMBER: 0000914317-98-000699 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESPEY MANUFACTURING & ELECTRONICS CORP CENTRAL INDEX KEY: 0000033533 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 141387171 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04383 FILM NUMBER: 98748633 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 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20459 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1998 Commission File Number I-4383 ESPEY MFG. & ELECTRONICS CORP. (Exact name of registrant as specified in charter) NEW YORK 14-1387171 (State of Incorporation) (I.R.S. Employer's Ident No.) 233 Ballston Avenue, Saratoga Springs, New York 12866 (Address of principal executive offices) (Zip Code) Registrant's telephone number, include area code 518-584-4100 Number of shares outstanding of issuer's class of common stock $.33-1/3 par value as at the end of the period covered by this report 1,104,977 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] ESPEY MFG. & ELECTRONICS CORP. I N D E X PART I FINANCIAL INFORMATION PAGE ---- Item 1 Financial Statements: Balance Sheets - September 30, 1998 1 and June 30, 1998 Statements of Income - Three Months 3 Ended September 30, 1998 and 1997 Statements of Cash Flows - Three Months 4 Ended September 30, 1998 and 1997 Notes to Financial Statements 5 Item 2 Management's Discussion and Analysis of 7 Financial Condition and Results of Operations. PART II OTHER INFORMATION 10 SIGNATURES 11
ESPEY MFG. & ELECTRONICS CORP. Balance Sheets September 30, 1998 and June 30, 1998 A S S E T S Unaudited 1998 1998 September 30 June 30 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents ................. $ 225,829 $ 191,739 Short-term investments at cost (market value September 30, 1998, $2,300,000 and June 30, 1998, $2,400,000) .......................... 2,300,000 2,400,000 ------------ ------------ Total Cash and Short-term Investments .... 2,525,829 2,591,739 ------------ ------------ Investments securities .................... 7,235,749 7,235,749 Trade accounts receivable net of $3,000 allowance at September 30, 1998 and June 30, 1998 ...................... 2,017,704 1,866,336 Other receivables ......................... 245,271 289,050 ------------ ------------ Net Receivables ......... 2,262,975 2,155,386 ------------ ------------ Inventories: Raw materials and supplies ............. 399,137 558,951 Work-in-process ........................ 2,389,020 2,905,269 Costs relating to contracts in process ................................ 6,376,628 5,324,491 ------------ ------------ Net Inventories ......... 9,164,785 8,788,711 ------------ ------------ Deferred income taxes ..................... 418,507 348,514 Prepaid expenses and other current assets . 79,996 189,559 ------------ ------------ Total Current Assets .... 21,687,841 21,309,658 ------------ ------------ DEFERRED INCOME TAXES .............................. -- 80,793
PROPERTY, PLANT AND EQUIPMENT AT COST .............. 12,390,370 12,344,139 Less: Accumulated depreciation and amortization ........................ (9,266,777) (9,160,482) ------------ ------------ Net Property, Plant and Equipment 3,123,593 3,183,657 ------------ ------------ Total Assets ............ $ 24,811,434 $ 24,574,108 ============ ============
See accompanying notes to financial statements - 1 -
ESPEY MFG. & ELECTRONICS CORP. Balance Sheets, Continued September 30, 1998 and June 30, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY Unaudited 1998 1998 September 30 June 30 ------------ ------------ CURRENT LIABILITIES: Accounts Payable ............................ $ 246,170 $ 207,886 Accrued expenses: Salaries, wages and commissions .......... 591,943 583,058 Employees' insurance costs ............... 46,677 37,472 ESOP payable ............................. 139,666 -- Other .................................... 17,619 12,204 Payroll and other taxes withheld and accrued ........................ 82,591 43,360 ------------ ------------ TOTAL CURRENT LIABILITIES . 1,124,666 883,980 STOCKHOLDERS' EQUITY: Common stock, par value .33-1/3 per share. Authorized 2,250,000 shares; issued 1,514,937 shares September 30, 1998 and June 30, 1998 .......................... 504,979 504,979 Unrealized gain on available-for-sale securities, net $3,740 of income tax ........ 7,260 7,260 Capital in excess of par value .............. 10,496,287 10,496,287 Retained earnings ........................... 22,755,882 22,671,840 ------------ ------------ 33,764,408 33,680,366 Less: Common stock subscribed .............. (3,351,974) (3,351,974) Cost of 409,960 shares on September 30, 1998 and 403,717 on June 30, 1998 of common stock in treasury ..... (6,725,666) (6,638,264) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY ......... 23,686,768 23,690,128 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 24,811,434 $ 24,574,108 ============ ============
See accompanying notes to financial statements - 2 -
ESPEY MFG. & ELECTRONICS CORP. Statements of Income Three Months Ended September 30, 1998 and 1997 Unaudited Three Months September 1998 September 1997 -------------- -------------- Net Sales ................................................. $2,523,984 $2,503,584 Cost of sales ............................................. 2,125,279 2,074,981 ---------- ---------- GROSS PROFIT ............................ 398,705 428,603 Selling, general and administrative expenses ......................................... 416,781 507,165 ---------- ---------- OPERATING LOSS .......................... (18,076) (78,562) ---------- ---------- Other Income: Interest income .................................. 149,103 149,364 Sundry income .................................... 15 1,207 ---------- ---------- 149,118 150,571 Income before income taxes ................................ 131,042 72,009 Provision for income taxes ................................ 47,000 27,000 ---------- ---------- NET INCOME .............................. $ 84,042 $ 45,009 ========== ========== Income per Share: Basic and dilutive income per share ....................... $ .08 $ .04 ========== ========== Weighted average number of shares outstanding ........................................ 1,110,474 1,111,220 ========== ==========
See accompanying notes to financial statements - 3 -
ESPEY MFG. & ELECTRONICS CORP. Statements of Cash Flows Three Months Ended September 30, 1998 and 1997 Unaudited September 30 ------------------------------ 1998 1997 ------------ ------------ Cash Flows From Operating Activities: Net income ............................................................ $ 84,042 $ 45,009 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Tax effect of dividends on unallocated ESOP shares .................... -- 39,084 Depreciation .......................................................... 106,295 105,434 Changes in assets and liabilities: Increase in receivables ...................................... (107,589) (512,475) Increase in inventories ...................................... (376,074) (562,634) Decrease in other current assets ............................. 109,563 61,915 Increase in accounts payable ................................. 38,284 59,692 Increase in accrued salaries, wages and commissions .......... 8,885 47,670 Increase (decrease) in accrued employee insurance costs ...... 9,205 (7,375) Increase in other accrued expenses ........................... 5,415 893 Increase in payroll & other taxes withheld and accrued ................................................. 39,231 15,915 Decrease (increase) in deferred income taxes ................. 10,800 (1,223) Increase (decrease) in income taxes payable .................. -- (80,861) Increase in ESOP contributions payable ....................... 139,666 113,926 ------------ ------------ Net cash provided by (used in) operating activities ......................... 67,723 (675,030) ------------ ------------ Cash Flows From Investing Activities: Additions to property, plant & equipment .............................. (46,231) (27,366) ------------ ------------ Net cash used in investing activities ......................... (46,231) (27,366)
ESPEY MFG. & ELECTRONICS CORP. Statements of Cash Flows Three Months Ended September 30, 1998 and 1997 (continued) Unaudited September 30 ------------------------------ 1998 1997 ------------ ------------ Cash Flows From Financing Activities: Purchase of treasury stock ............................................ (87,402) -- ------------ ------------ Net cash used in financing activities ......................... (87,402) -- ------------ ------------ Decrease in cash and short-term investments .................................... (65,910) (702,396) Cash and short-term investments, beginning of period ........................... 2,591,739 12,123,583 ------------ ------------ Cash and short-term investments, end of period ................................. $ 2,525,829 $ 11,421,187 ------------ ------------ Income Taxes Paid .............................................................. $ -- $ 70,000 ------------ ------------
See accompanying notes to financial statements - 4 - ESPEY MFG. & ELECTRONICS CORP. Notes to Financial Statements ----------------------------- 1. In the opinion of management the accompanying unaudited 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 1998 Annual Report to Stockholders and its 1998 Form 10-K. 2. The earnings per share computations for September 30, 1998 were based on 1,110,474 shares and on 1,111,220 shares for September 30, 1997. These represent the average number of shares outstanding for each respective period. 3. Other income consists principally of interest on Certificates of Deposit, Treasury Bills, money market accounts and dividend on equity securities. 4. For purposes of the statements of cash flows, the Company considers all liquid debt instruments with original maturities of three months or less to be cash equivalents. 5. In fiscal 1989 the Company established an Employee Stock Ownership Plan (ESOP) for eligible non-union employees. The ESOP used the proceeds of a loan from the Company to purchase 316,224 shares of the Company's common stock for approximately $8.4 million and the Company contributed approximately $400,000 to the ESOP which was used by the ESOP to purchase an additional 15,000 shares of the Company's common stock. The loan from the Company to the ESOP is repayable in annual - 5 - installments of $1,039,605, including interest, through June 30,2004. Interest is payable at a rate of 9% per annum. The Company's receivable from the ESOP is recorded as common stock subscribed in the accompanying balance sheets. Each year, the Company will make contributions to the ESOP which will be used to make loan interest and principal payments. With each loan and interest payment, a portion of the common stock will be allocated to participating employees. As of September 30, 1998 there were 165,139 shares allocated to participants. 6. The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", as of July 1, 1998. The adoptions of these accounting stands had no material effect on the financial position or results of operations of the Company. -6- ESPEY MFG. & ELECTRONICS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Results of Operations Net sales for the three months ended September 30, 1998 were $2,523,984 as compared to $2,503,584 for the same period in 1997. The lack of growth in sales between the comparative quarters was due principally to the low backlog which the Company experienced for most of fiscal 1998. The "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for fiscal 1998 ("1998 Form 10-K") reports the reversal of this trend starting in the latter part of fiscal 1998, and specifically reporting that approximately $5,000,000 in new orders was received during the first two months of fiscal 1999. The timing of this reversal, and the lead time required for manufacture and shipment of new orders would dictate that the effect of this reversal would not become evident until the second quarter of fiscal 1999. The cost of sales, as a percentage of sales, rose slightly to 84% for the first quarter of fiscal 1999 as compared to the 83% reflected for the same period last year. This, however, is a decrease from the 87% which was reflected for the last quarter of fiscal 1998. Although gross profit for the current period decreased as compared to the corresponding period last year, net income increased due to a substantial reduction in selling and general and administrative expenses. This reduction in the current period was principally due to a reduction in both professional fees and employment related expenses. Other Income remained relatively the same for the comparative three month periods, however the current period reflects the addition of dividend income, arising from the purchase for investment of preferred equity securities during the latter part of fiscal 1998. These dividends are non-taxable for Federal Income Tax purposes to the extent of 80%. Cash and short-term investments likewise reflected very little change between the comparative three month periods. The Company does not feel that there is any significant risk associated with its investment policy, since its investments are represented by Certificates of Deposit, United States Government Treasury Securities, a Money Market account, and more recently, preferred equity securities. Net income for the three months ended September 30, 1998 were $84,042 or $.08 per share compared to $45,009, or $.04 per share for the corresponding period last year. The net earnings increase was due to both reduced overall expenses and the shipment of contracts with higher gross profit margins. Liquidity and Capital Expenditures There were no differences in the three month comparative periods of the Statements of Cash Flows which were either material in nature or not self explanatory. The Company, in the first quarter, funded its operations with cash flows from operating activities and investing activities. Management currently feels that during the balance of the fiscal year, funds from operating activities will be adequate to meet funding requirements. For the first quarter capital expenditures were approximately $46,230. Since the debt of the Company's ESOP is not to an outside party, the Company has eliminated from the Statements of Earnings the offsetting items of interest income and interest expense relating to the ESOP. The Company has eliminated the offsetting accruals from the Balance Sheets. As previously announced in the 1998 Form 10-K the Board of Directors has decided to forgo the annual dividend in 1998. The Board is hopeful of reinstituting the payment of dividends when the Company returns to profitability on a consistent basis. -7- Under existing authorizations, as of September 30, 1998, funds in the amount of $1,796,589 were available for the continuing repurchase of the Company's shares. Business Outlook Customer order patterns are inherently difficult to predict. As previously disclosed in the 1998 Form 10-K one of the Company's major customers consolidated and relocated several of its facilities and various personnel. The ongoing transition stage of this consolidation which caused delays in both ongoing and newly proposed programs is now complete and is reflected in our increasing backlog. The backlog as of September 30, 1997 was $7,661,378. The backlog as of September 30, 1998 was $14,632,470. The Company presently believes that it will continue to obtain contracts more consistent with its past experience. Both Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Business Outlook" of our 1998 Form 10K and the President's message in the Annual Report to Shareholders for 1998 describe in detail the products the Company is concentrating on and the types of contracts the Company expects to receive. Management presently anticipates that sales for the second half of fiscal 1999 will exceed those of the first half. The Company is continuing to expand its Sales and Marketing departments and restructuring its management team. Management currently anticipates that the course of action the Company is taking will enhance the Company's revenues and profitability in future periods. Accounting Pronouncements In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" was issued. Statement No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Statement No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income are to be reported in a financial statement that is displayed in equal prominence with other financial statements. The Company adopted Statement No. 130 as of July 1, 1998, and the adoption had no significant impact on the Company's financial statements. In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued. Statement No. 131 establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders, but not for interim periods in the initial year of adoption. Statement No. 131 is effective for fiscal years beginning after December 15, 1997. The Company believes that it operates as one segment, which includes three product lines (Electronic Power Supplies, Iron Core Components and Electronic Systems and Assemblies) and that adoption of Statement No. 131 will not have a significant impact on its financial statements. Year 2000 Issues The Year 2000 issue is the result of computer programs having been written using two digits, rather than four, to define the applicable year. Any of the Company's computers, computer programs, manufacturing and administration equipment or products that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the Year 2000. If any of the Company's systems or equipment that have date-sensitive software use only two digits, system failures or miscalculations may result causing disruptions of operations, including, among other things, a temporary inability to process transactions or send and receive electronic data with third parties or engage in similar normal business activities. - 8 - The Company has formed a team to address the Year 2000 issue that encompasses operating and administrative areas of the Company. The team has begun to identify and resolve significant Year 2000 issues in a timely manner. In addition, executive management monitors the status of the Company's Year 2000 remediation plans. The process includes an assessment of issues and development of remediation plans, where necessary, as they relate to internally used software, computer hardware and use of computer applications in the Company's manufacturing processes and products. In addition, the Company is engaged in assessing the Year 2000 issue with significant suppliers. The Company has initiated communications with its significant suppliers and large customers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 issues. Finally, with regard to products sold by the Company, the Company has determined that contingencies related to the Year 2000 Issue will not have a material adverse effect on the Company. Accordingly, the Company has not established a contingency plan and does not anticipate creating such a plan. The Company intends to use both internal and external resources to reprogram, or replace and test, the software it currently uses for Year 2000 modifications. The Company plans to substantially complete its Year 2000 assessment and remediation by January 31, 1999. The total project cost has not yet been determined. To date, the Company has not incurred any material costs related to the assessment of, and preliminary efforts in connection with, its Year 2000 issues. The costs of the project and the date on which the Company plans to complete its Year 2000 assessment and remediation are based on management's estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ significantly from those plans. Specific factors that might cause differences from management's estimates include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct relevant computer codes, and similar uncertainties. Management believes that the Company is devoting the necessary resources to identify and resolve significant Year 2000 issues in a timely manner. With regard to its internal Year 2000 compliance program, the Company has completed approximately 75% of its review and, when necessary, remediation. With regard to its Year 2000 compliance program addressing the status of the Company's suppliers and customers, the Company has completed approximately 50% of its review. 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. 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 forgoing 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. - 9 - 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 Effective October 30, 1998 Mr. Sol Pinsley resigned as both the Chairman and a member of the Board of Directors. Item 6. Exhibits and Reports on Form 8-K None during the quarter. -10- 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 /s/Herbert Potoker --------------------------------- Herbert Potoker, Treasurer and Chief Financial Officer 11 November 1998 - ---------------- Date -11- EX-27 2
5 3-MOS JUN-30-1999 SEP-30-1998 225,829 2,300,000 2,262,975 0 9,164,785 21,687,841 12,390,370 (9,266,777) 24,811,434 1,124,666 0 0 0 504,979 0 23,686,768 2,523,984 2,523,984 2,125,279 2,125,279 416,781 0 0 131,042 47,000 84,042 0 0 0 84,042 84,042 .08
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