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, 2001
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 November 6, 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 -
September 30, 2001 and June 30, 2001 1
Consolidated Statements of Income -
Three Months Ended September 30, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 2001 and 2000 4
Notes to Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II OTHER INFORMATION 8
SIGNATURES 8
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
September 30, 2001 and June 30, 2001
------------------------------------
A S S E T S
Unaudited
2001 2001
September 30 June 30
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 6,299,899 $ 5,200,736
Investments securities 754,400 737,600
Trade accounts receivable, net 3,312,518 2,537,310
Other receivables 3,822 31,179
----------- -----------
Total Receivables 3,316,340 2,568,489
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Inventories:
Raw materials and supplies 1,165,930 1,036,726
Work-in-process 4,348,601 2,658,436
Costs relating to contracts in
process, net of advance payments of
$1,245,170 at September 30, 2001 and
$289,000 at June 30, 2001 8,163,966 11,237,515
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Total Inventories 13,678,497 14,932,677
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Deferred Income Taxes 139,729 145,609
Prepaid expenses and other current assets 116,871 151,880
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Total Current Assets 24,305,737 23,736,991
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Property, Plant and Equipment, net 3,532,324 3,491,890
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Total Assets $27,838,060 $27,228,881
=========== ===========
See accompanying notes to the consolidated financial statements.
(Continued)
1
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
September 30,2001 and June 30, 2001
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
2001 2001
September 30 June 30
------------ ------------
CURRENT LIABILITIES:
Accounts Payable $ 692,015 $ 334,772
Accrued expenses:
Salaries, wages and commissions 110,073 124,081
Vacation 294,124 345,546
Employees' insurance costs 34,130 61,798
ESOP payable 134,938 --
Dividend payable 231,629 --
Other 33,695 37,711
Payroll and other taxes withheld and accrued 41,050 39,397
Income taxes payable 136,499 61,440
Deferred Income Taxes 58,752 58,752
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Total Current Liabilities 1,766,905 1,063,497
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STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per share
Authorized 10,000,000 shares;
Issued 1,514,937 shares on September 30, 2001
and June 30, 2001, outstanding 1,029,461
on September 30, 2001 and June 30, 2001 504,979 504,979
Capital in excess of par value 10,496,287 10,496,287
Accumulated other comprehensive loss (39,361) (50,281)
Retained earnings 24,502,090 24,607,239
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35,463,995 35,558,224
Less Common stock subscribed (1,675,987) (1,675,987)
Cost of 485,476 shares on
September 30, 2001 and June 30, 2001
of common stock in treasury (7,716,853) (7,716,853)
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TOTAL STOCKHOLDERS' EQUITY 26,071,156 26,165,384
------------ ------------
Total Liabilities And
Stockholders' Equity $ 27,838,060 $ 27,228,881
============ ============
See accompanying notes to the consolidated financial statements.
2
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three Months Ended September 30, 2001 and 2000
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Unaudited
Three Months
2001 2000
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Net sales $4,585,515 $4,167,234
Cost of sales 3,977,930 3,478,973
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Gross profit 607,585 688,261
Selling, general and
administrative expenses 394,032 460,251
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Operating income 213,553 228,010
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Other income
Interest and
dividend income 66,479 65,190
Other income 10,955 17,126
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77,434 82,316
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Income before income taxes 290,987 310,326
Provision for income taxes 87,296 106,906
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Net Income $ 203,691 $ 203,420
========== ==========
Income per share:
Basic and diluted
income per share $ .20 $ .20
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Weighted average number
of shares outstanding
Basic 1,029,461 1,033,631
Diluted 1,032,471 1,035,966
========== ==========
See accompanying notes to the consolidated financial statements.
3
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Three Months Ended September 30, 2001 and 2000
Unaudited
September 30,
2001 2000
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Cash Flows From Operating Activities:
Net income $ 203,691 $ 203,420
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation 123,635 181,094
(Gain)/loss on disposal of assets -- (14,721)
Changes in assets and liabilities:
Decrease (Increase) in receivables (747,852) 916,777
Decrease (Increase) in inventories 1,254,179 (481,313)
Decrease in prepaid expenses and
other current assets 35,008 86,300
(Decrease) Increase in accounts payable 357,244 (134,110)
Decrease in accrued salaries,
wages and commissions (14,008) (49,569)
Decrease in accrued employees' insurance costs (27,668) (7,876)
(Decrease) Increase in other accrued expenses (4,017) 685
Increase (Decrease) in vacation accrual (51,421) 56,502
(Decrease) Increase in payroll & other
taxes withheld and accrued 1,653 (12,536)
Increase in income taxes payable 75,058 30,595
Increase in ESOP contributions 134,938 138,615
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Net cash provided by
operating activities 1,340,440 800,859
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Cash Flows From Investing Activities:
Additions to property, plant & equipment (164,067) (159,231)
Proceeds on sale of assets -- 14,750
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Net cash used in
investing activities (164,067) (144,481)
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Cash Flows From Financing Activities:
Dividends on common stock (77,209) (51,682)
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Net cash used in
financing activities (77,209) (51,682)
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Increase in cash and cash equivalents 1,099,164 604,696
Cash and cash equivalents, beginning of period 5,200,735 2,367,191
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Cash and cash equivalents, end of period $ 6,299,899 $ 2,971,887
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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 of 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 2001 Form 10-K.
2. The basic earnings per share (EPS) is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed by giving effect to all
dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares consist of the incremental common shares
issuable upon the exercise of stock options for all periods using the
treasury stock method.
3. Other income consists principally of government grants related to increased
employment, interest on Certificates of Deposit, Treasury Bills, money
market accounts and dividends 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 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 consolidated
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, 2001 there were 199,896 shares
allocated to participants.
6. Total comprehensive income consists of:
Three Months Ended
September 30,
2001 2000
-------- --------
Net income $203,691 $203,420
Accumulated other comprehensive income:
Unrealized gain on available for sale securities 10,920 18,850
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Total comprehensive income $214,611 $222,270
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5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the three months ended September 30, 2001 were $4,585,515 as
compared to $4,167,234 for the same period in 2000. The $418,281 increase in net
sales for the three-month period is mainly due to increased sales of power
supplies and radar transmitters. Due to successful marketing efforts with new
and existing customers the Company should continue to see increased net sales
levels as backlog orders are completed and shipped.
During the first quarter of fiscal 2002 gross profits as a percentage of sales
decreased approximately 3.2% as compared with the first quarter of fiscal 2001.
The decrease in gross profit was primarily due to higher than expected
engineering development and prototype production costs. This decrease was
partially offset by the increase in net sales. 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 191 people.
Net income for the three months ended September 30, 2001 was $203,691 or $.20
per share compared to $203,420 or $.20 per share for the corresponding period
ended September 30, 2000.
Selling, general and administrative expenses were $394,032 for the three months
ended September 30, 2001, a decrease of $66,219, or 14.4%, as compared to the
three months ended September 30, 2000. This decrease was primarily due to a
decrease in professional fees and salaries.
Total other income for the three months ended September 30, 2001 remained
relatively consistent when compared to the three months ended September 30,
2000. The Company does not believe that there is any risk associated with its
investment policy, since the majority of its investments are represented by
preferred equity securities and money market accounts.
The Company continues to diversify its customer base and product offerings. The
backlog at September 30, 2001 was approximately $24,767,000 as compared to
approximately $27,339,000 at September 30, 2000.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 2001, the Company had working capital of $22.5 million
compared to $22.7 million at June 30, 2001. 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,
2001 2000
---- ----
Net cash provided by operating activities $1,340,440 $ 800,859
Net cash used in investing activities $ (164,067) $ (144,481)
Net cash used in financing activities $ (77,209) $ (51,682)
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
6
requirements for the next twelve months. Management has in place a $3,000,000
line of credit to help fund further growth. For the first quarter of fiscal 2001
capital expenditures were approximately $164,000.
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 the ESOP. The Company has also
eliminated the offsetting accruals from the Consolidated Balance Sheets.
During the three months ended September 30, 2001 and 2000, the Company did not
repurchase any of its common stock. Under existing Board authorization, as of
September 30, 2001, $854,860 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
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 2001
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Date
8