10-Q
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 December 31, 2000
Commission File Number I-4383
ESPEY MFG. & ELECTRONICS CORP.
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(Exact name of registrant as specified in charter)
NEW YORK 14-1387171
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(State of Incorporation) (I.R.S. Employer's Identification No.)
233 Ballston Avenue, Saratoga Springs, New York 12866
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 518-584-4100
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Number of shares outstanding of issuer's class of common stock $.33-1/3 par
value as of February 13, 2001: 1,029,461.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
ESPEY MFG. & ELECTRONICS CORP.
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Balance Sheets -
December 31, 2000 and June 30, 2000 1
Consolidated Statements of Income -
Three and Six Months Ended
December 31, 2000 and 1999 3
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of 5
Financial Condition and Results of
Operations.
PART II OTHER INFORMATION 8
SIGNATURES 8
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
December 31, 2000 and June 30, 2000
------------------------------------
A S S E T S
Unaudited
2000 2000
December 31 June 30
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 3,193,433 $ 2,367,191
Investment securities 702,000 650,000
Trade accounts receivable, net 3,178,745 4,105,028
Other receivables 12,501 46,435
Inventories:
Raw materials and supplies 905,777 822,814
Work-in-process 3,274,236 3,113,708
Costs relating to contracts in
Process, net of advance payments of
$181,888 at December 31, 2000 and
$537,468 at June 30, 2000 11,491,350 10,889,930
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Total Inventories 15,671,363 14,826,452
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Deferred income taxes 281,509 299,709
Prepaid expenses and other current assets 201,206 245,501
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Total Current Assets 23,240,757 22,540,316
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Deferred Income Taxes 6,516 6,516
Property, Plant and Equipment, net 3,494,300 3,571,205
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Total Assets $26,741,573 $26,118,037
=========== ===========
See accompanying notes to the consolidated financial statements
(Continued)
1
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
December 31, 2000 and June 30, 2000
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
2000 2000
December 31 June 30
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CURRENT LIABILITIES:
Accounts Payable $ 337,240 $ 541,636
Accrued expenses:
Salaries, wages and commissions 191,444 244,865
Vacation 285,610 280,493
Employees' insurance costs 115,384 65,194
ESOP payable 275,129 --
Dividends payable 51,682 --
Other 13,625 3,372
Payroll and other taxes withheld
and accrued 107,883 69,536
Income taxes payable 242,472 124,075
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TOTAL CURRENT LIABILITIES 1,620,469 1,329,171
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per share.
Authorized 10,000,000 shares; issued 1,514,937
shares at December 31, 2000 and June 30, 2000.
Outstanding 1,029,461 and 1,033,631 at
December 31, 2000 and June 30, 2000, respectively 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Accumulated other comprehensive income (loss) (73,421) (107,221)
Retained earnings 24,144,761 23,775,433
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35,072,606 34,669,478
Less: Common stock subscribed (2,234,649) (2,234,650)
Cost of 485,476 and 481,306 shares at
December 31, 2000 and June 30, 2000,
respectively, of common stock in treasury (7,716,853) (7,645,962)
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TOTAL STOCKHOLDERS' EQUITY 25,121,104 24,788,866
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 26,741,573 $ 26,118,037
============= ============
See accompanying notes to the consolidated financial statements
2
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three and Six Months Ended December 31, 2000 and 1999
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Unaudited Unaudited
Three Months Six Months
2000 1999 2000 1999
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Net Sales $ 4,184,993 $ 3,412,424 $ 8,352,228 $ 6,711,404
Cost of sales 3,295,985 2,918,399 6,774,958 5,803,765
----------- ----------- ----------- -----------
Gross profit 889,008 494,025 1,577,270 907,639
Selling, general and
administrative expenses 543,992 533,327 1,004,244 1,025,951
----------- ----------- ----------- -----------
Operating income (loss) 345,016 (39,302) 573,026 (118,312)
----------- ----------- ----------- -----------
Other income
Interest and dividend income 68,556 111,922 133,746 202,587
Sundry income (loss) 8,499 (528) 25,624 52,413
----------- ----------- ----------- -----------
77,055 111,394 159,370 255,000
----------- ----------- ----------- -----------
Income before income taxes 422,071 72,092 732,396 136,688
Provision for income taxes 152,802 25,000 259,708 50,000
----------- ----------- ----------- -----------
Net Income $ 269,269 $ 47,092 $ 472,688 $ 86,688
=========== =========== =========== ===========
Income per share:
Basic and dilutive
income per share $ .26 $ .04 $ .46 $ .08
----------- ----------- ----------- -----------
Weighted average common
shares outstanding
Basic 1,032,996 1,048,631 1,033,314 1,050,754
Diluted 1,035,399 1,048,631 1,035,494 1,050,754
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements
3
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2000 and 1999
Unaudited
December 31,
2000 1999
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Cash Flows From Operating Activities:
Net income $ 472,688 $ 86,688
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 345,273 226,510
(Gain)/Loss on disposal of assets (14,721) -
Changes in assets and liabilities:
Decrease in receivables 960,219 2,501,964
Increase in inventories (844,910) (913,976)
Decrease in prepaid expenses and other
current assets 44,294 38,835
(Decrease)Increase in accounts payable (204,395) 143,052
Decrease in accrued salaries,
wages and commissions (53,421) (134,155)
Increase in accrued employee insurance costs 50,191 3,779
Increase(Decrease) in other accrued expenses 10,254 (29,067)
Increase in vacation accrual 5,117 5,675
Increase(Decrease) in payroll & other taxes
withheld and accrued 38,346 (5,439)
Increase(Decrease) in income taxes payable 118,398 (35,390)
Increase in ESOP contributions 275,129 274,078
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Net cash provided by
operating activities 1,202,462 2,162,554
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Cash Flows From Investing Activities:
Proceeds from maturity of investment securities -- 2,915,161
Additions to property, plant & equipment (268,397) (361,342)
Proceeds on Sale of Assets 14,750 -
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Net cash provided by (used in)
investing activities (253,647) 2,553,819
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Cash Flows From Financing Activities:
Dividends paid on common stock (51,682) (104,862)
Purchase of treasury stock (70,891) (193,222)
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Net cash used in
financing activities (122,573) (298,084)
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Increase in cash and cash equivalents 826,242 4,418,289
Cash and cash equivalents, beginning of period 2,367,191 2,364,335
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Cash and cash equivalents, end of period $ 3,193,433 $ 6,782,624
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Income Taxes Paid $ 135,000 $ 80,000
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Noncash Financing Activities
Dividend payable $ 51,682 $ -
=========== ===========
See accompanying notes to the consolidated financial statements
4
ESPEY MFG. & ELECTRONICS CORP.
Notes to 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 of the 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 2000 Form 10-K.
2. Other income consists principally of interest on Certificates of Deposit,
Treasury Bills, 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. In fiscal 1989 the Company established an Employee Stock Ownership Plan
(ESOP) for eligible non-union employees. The ESOP used the proceeds of
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 December
31, 2000 there were 192,367 shares allocated to participants.
5. Total comprehensive income consists of:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
-------- -------- -------- --------
Net income $ 269,269 47,092 472,688 86,688
Accumulated other comprehensive
income/(loss) 14,950 (28,165) 33,800 (61,445)
-------- -------- --------- --------
Total comprehensive income 284,219 18,927 506,488 25,243
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations
Results of Operations
Net sales for the six months ended December 31, 2000, (fiscal 2001) were
$8,352,228 as compared to $6,711,404 for the same period in 1999, a 24%
increase. Net sales for the three months ended December 31, 2000 were $4,184,993
as compared to $3,412,424 for the same period in 1999, a 23% increase. The
Company's increase in sales for the three and six month periods ended December
31, 2000, as compared to December 31, 1999, is largely due to an increase in
radar transmitter component sales.
5
During the first six months of fiscal 2001 gross profits as a percentage of
sales increased approximately 5.4% as compared with the first six months of
fiscal 2000.
Net income for the six months ended December 31, 2000 was $472,688 or $.46 per
share compared to $86,688 or $.08 per share for the corresponding period ended
December 31, 1999.
The primary reason for the increase in gross profit and net income for the three
and six month period ended December 31, 2000, was contract mix. The current
contracts the Company has for radar transmitter components have improved gross
profit. The Company is presently investing in several new programs and products.
These expenditures, which have a negative impact on current operations, in
managements estimate, should improve the operating results of the Company when
future production orders are received. Management continues to evaluate the
Company's workforce to ensure that production and overall execution of the
backlog orders and additional anticipated orders are successfully performed.
Employment at December 31, 2000 has leveled off at 222 people compared to
December 31, 1999 when 225 people were employed.
The Company continues to diversify its customer base and product line. The
backlog at December 31, 2000 was approximately $25.8 million as compared to
$28.6 at December 31, 1999. New orders for the six-month period ending December
31, 2000 were approximately $2.7 million.
Selling, general and administrative expenses were $1,004,243 for the six months
ended December 31, 2000, a decrease of $21,709 as compared to the six months
ended December 31, 1999. The decrease is primarily due to a decrease in selling
expenses.
Other income for the three and six months ended December 31, 2000 decreased as
compared to the three and six months ended December 31, 1999 due to lower
interest income for both periods associated with lower investment balances. The
Company does not believe there is any significant risk associated with its
investment policy, since a majority of the investments are represented by United
States Government Treasury Securities, preferred equity securities, and a money
market account.
Liquidity and Capital Resources
As of December 31, 2000, the Company had working capital of $21.6 million
compared to $20.4 million at December 31, 1999. 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:
Six Months Ended December 31,
-----------------------------
2000 1999
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Net cash provided by operating activities $ 1,202,462 2,162,554
Net cash provided by (used in) investing activities (253,647) 2,553,819
Net cash (used in) financing activities (122,573) (298,084)
Net cash provided by (used in) operating activities fluctuates between periods
primarily as a result of differences in net income, the timing of the collection
of accounts receivable, changes in inventory, level of sales and payment of
6
accounts payable. The decrease in net cash provided by (used in) investing
activities is due to the maturity of investment securities in 1999 with no
offsetting purchase of new investments. The decrease in net cash used in
financing activities is due to decreased treasury stock purchases.
The Company currently believes that the cash generated from operations and when
necessary, from cash and cash equivalents, will be sufficient to meet its
long-term funding requirements. Management, if necessary, has at its disposal a
$3,000,000 line of credit to help fund further growth. For the first half of
fiscal 2000 capital expenditures were approximately $268,000.
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.
During the six months ended December 31, 2000 the Company repurchased 4,170
shares of its common stock from the Company's ESOP. Under existing Board
authorizations, as of December 31, 2000, $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
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company's Annual Meeting of Shareholders (the "Annual
Meeting") was held on December 8, 2000.
b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
as amended. There were no solicitations in opposition to
management's nominees listed in the proxy statement. All
three nominees listed in the proxy statement were elected.
c) The following matters were voted upon at the annual
meeting: The election of three Class A directors. The votes
were cast as follows:
Nominee: Shares Voted For:
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Howard Pinsley 951,089
Alvin O. Sabo 951,358
Carl Helmetag 951,558
Ratification of PricewaterhouseCoopers LLP, as independent
auditors for the Corporation for the fiscal year ending
June 30, 2001. The votes were cast as follows:
Shares IN FAVOR 951,358
Shares AGAINST 2,632
ABSTENTIONS 500
Item-5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
8
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
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Howard Pinsley, President and
Chief Executive Officer
/s/ David O'Neil
--------------------------------
David O'Neil, Treasurer and
Principal Financial Officer
13 February 2000
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Date