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, 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 February 13, 2002: 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, 2001 and June 30, 2001 1
Consolidated Statements of Income -
Three and Six Months Ended
December 31, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 2001 and 2000 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 7
SIGNATURES 7
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
December 31, 2001 and June 30, 2001
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ASSETS
Unaudited
2001 2001
December 31 June 30
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CURRENT ASSETS:
Cash and cash equivalents $ 7,561,910 $ 5,200,736
Investment securities 369,600 737,600
Trade accounts receivable, net 3,189,763 2,537,310
Other receivables 3,906 31,179
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Total Receivables 3,193,669 2,568,489
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Inventories:
Raw materials and supplies 1,078,622 1,036,726
Work-in-process 4,711,769 2,658,436
Costs relating to contracts in process, net of advance
payments of $956,220 at December 31, 2001 and
$289,000 at June 30, 2001 7,753,143 11,237,515
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Total Inventories 13,543,534 14,932,677
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Deferred income taxes 134,409 145,609
Prepaid expenses and other current assets 233,172 151,880
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Total Current Assets 25,036,294 23,736,991
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Property, plant and equipment, net 3,482,533 3,491,890
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Total Assets $28,518,827 $27,228,881
============== ==============
See accompanying notes to the consolidated financial statements.
(Continued)
1
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
December 31, 2001 and June 30, 2001
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LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
2001 2001
December 31 June 30
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CURRENT LIABILITIES:
Accounts payable $ 1,203,705 $ 334,772
Accrued expenses:
Salaries, wages and commissions 118,743 124,081
Vacation 322,098 345,546
Employees' insurance costs 271 61,798
ESOP payable 269,876 --
Dividend payable 154,419 --
Other 21,241 37,711
Payroll and other taxes withheld and accrued 64,313 39,397
Income taxes payable 141,633 61,440
Deferred income taxes 58,752 58,752
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Total Current Liabilities 2,355,051 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 December 31, 2001 and June 30, 2001,
outstanding 1,029,461 on December 31, 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 (29,481) (50,281)
Retained earnings 24,584,831 24,607,239
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35,556,616 35,558,224
Less Common stock subscribed (1,675,987) (1,675,987)
Cost of 485,476 shares on December 31, 2001 and
June 30, 2001 of common stock in treasury (7,716,853) (7,716,853)
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Total Stockholders' Equity 26,163,776 26,165,384
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Total Liabilities And
Stockholders' Equity $28,518,827 $ 27,228,881
=============== ===============
See accompanying notes to the consolidated financial statements.
2
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three and Six Months Ended December 31, 2001 and 2000
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Unaudited Unaudited
Three Months Six Months
2001 2000 2001 2000
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Net Sales $ 5,199,517 $ 4,184,993 $ 9,785,032 $ 8,352,228
Cost of sales 4,605,948 3,295,985 8,583,878 6,774,958
------------ ------------ ------------ ------------
Gross profit 593,569 889,008 1,201,154 1,577,270
Selling, general and
administrative expenses 527,101 543,992 921,134 1,004,244
------------ ------------ ------------ ------------
Operating income 66,468 345,016 280,020 573,026
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Other income
Interest and dividend income 48,726 68,556 115,205 133,746
Sundry income 1,940 8,499 12,895 25,624
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50,666 77,055 128,100 159,370
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Income before income taxes 117,134 422,071 408,120 732,396
Provision for income taxes 35,135 152,802 122,431 259,708
------------ ------------ ------------ ------------
Net Income $ 81,999 $ 269,269 $ 285,689 $ 472,688
============ ============ ============ ============
Income per share:
Basic and dilutive
income per share $ .08 $ .26 $ .28 $ .46
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Weighted average common
shares outstanding
Basic 1,029,461 1,032,996 1,029,461 1,033,314
Diluted 1,034,640 1,035,399 1,033,658 1,035,494
=========== ============ ============ ============
See accompanying notes to the consolidated financial statements
3
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000
Unaudited
December 31,
2001 2000
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Cash Flows From Operating Activities:
Net income $ 285,689 $ 472,688
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 247,505 345,273
(Gain)/Loss on disposal of assets 250 (14,721)
Deferred income tax benefit 872 --
Changes in assets and liabilities:
Decrease (Increase) in receivables (625,180) 960,219
Decrease (Increase) in inventories 1,389,143 (844,910)
Decrease (Increase) in prepaid expenses and other current assets (81,292) 44,294
Increase (Decrease) in accounts payable 868,933 (204,395)
Decrease in accrued salaries, wages and commissions (5,338) (53,421)
Increase (Decrease) in accrued employee insurance costs (61,527) 50,191
Increase (Decrease) in other accrued expenses (16,470) 10,254
Increase (Decrease) in vacation accrual (23,448) 5,117
Increase in payroll & other taxes withheld and accrued 24,916 38,346
Increase in income taxes payable 80,193 118,398
Increase in ESOP payable 269,876 275,129
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Net cash provided by
operating activities 2,354,122 1,202,462
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Cash Flows From Investing Activities:
Proceeds from maturity of investment securities 399,128 --
Additions to property, plant & equipment (238,448) (268,397)
Proceeds on Sale of Assets 50 14,750
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Net cash provided by (used in)
investing activities 160,730 (253,647)
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Cash Flows From Financing Activities:
Dividends paid on common stock (153,678) (51,682)
Purchase of treasury stock -- (70,891)
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Net cash used in
financing activities (153,678) (122,573)
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Increase in cash and cash equivalents 2,361,174 826,242
Cash and cash equivalents, beginning of period 5,200,736 2,367,191
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Cash and cash equivalents, end of period $ 7,561,910 $ 3,193,433
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Income Taxes Paid $ 42,238 $ 135,000
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Noncash Financing Activities
Dividend payable $ 154,419 $ 51,682
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See accompanying notes to the consolidated financial statements
4
ESPEY MFG. & ELECTRONICS CORP.
Notes to Consolidated Financial Statements
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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 generally accepted in the United States 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. 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. 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 a 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, 2001 there
were 199,876 shares allocated to participants.
6. Total comprehensive income consists of:
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
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Net income $ 81,999 $269,269 $285,689 $472,688
Other comprehensive income 9,880 14,950 20,800 33,800
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Total comprehensive income $ 91,879 $284,219 $306,489 $506,488
======== ======== ======== ========
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, 2001, (fiscal 2002) were
$9,785,032 as compared to $8,352,228 for the same period in 2000, a 17%
increase. Net sales for the three months ended December 31, 2001 were $5,199,517
as compared to $4,184,993 for the same period in 2000, a 24% increase. The
Company's increase in sales for the three and six month periods ended December
31, 2001, as compared to December 31, 2000, is due to an increase in antenna,
radar transmitter, and transmitter component shipments.
During the first six months of fiscal 2002 gross profits as a percentage of
sales decreased approximately 6.6% as compared with the first six months of
fiscal 2001. For the three months ended December 31, 2001 gross profit as a
percentage of sales decreased 33% as compared to the same period in 2000.
Net income for the six months ended December 31, 2001 was $285,689 or $.28 per
share compared to $472,688 or $.46 per share for the corresponding period ended
December 31, 2000. For the three months ended December 31, 2001 net income was
$81,999 or $.08 per share compared to $285,689 or $.28 per share for the same
period in 2000.
The decrease in gross profit and net income for the three and six-month periods
ended December 31, 2001, was a result of the Company investing engineering
resources in several new customer specific programs and products. These
engineering and prototype developmental expenditures, which have a negative
impact on current operations, in management's 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, 2001
was 190 people compared to December 31, 2000 when 222 people were employed.
5
The backlog at December 31, 2001 was approximately $25.9 million as compared to
$25.8 at December 31, 2000. New orders for the six-month period ended December
31, 2001 were approximately $8.2 million.
Selling, general and administrative expenses were $921,134 for the six months
ended December 31, 2001, a decrease of $83,110 as compared to the six months
ended December 31, 2000. The decrease is primarily due to a decrease in
employees, selling expenses and professional fees.
Other income for the three and six months ended December 31, 2001 decreased as
compared to the three and six months ended December 31, 2000 due to lower
interest income for both periods. The Company does not believe there is any
significant risk associated with its investment policy, since a majority of the
investments are represented by preferred equity securities and a money market
account.
Liquidity and Capital Resources
As of December 31, 2001, the Company had working capital of $22.7 million
compared to $21.6 million at December 31, 2000. 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,
2001 2000
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Net cash provided by operating activities $ 2,354,122 $ 1,202,462
Net cash provided by (used in) investing activities 160,730 (253,647)
Net cash (used in) financing activities (153,678) (122,573)
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, changes in inventory, level of sales and payment of
accounts payable. The increase in net cash provided by (used in) investing
activities is due to the sale of an investment security in 2001. The increase in
net cash used in financing activities is due to an increase in dividends paid on
common stock.
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 2002 capital expenditures were approximately $238,000.
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.
During the six months ended December 31, 2001 the Company did not repurchase
shares of its common stock. Under existing Board authorizations, as of December
31, 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.
6
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 7, 2001.
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 two
nominees listed in the proxy statement were elected.
c) The following matters were voted upon at the annual meeting: The
election of two Class B directors. The votes were cast as
follows:
Nominee: Shares Voted For:
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William Greene 873,097
Symour Saslow 897,860
Ratification of PricewaterhouseCoopers LLP, as independent
auditors for the Corporation for the fiscal year ending June
30, 2002. The votes were cast as follows:
Shares IN FAVOR 999,230
Shares AGAINST 2,600
ABSTENTIONS 900
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Item-5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Report on Form 8-K
Form 8-K filed November 9, 2001 announcing the death of a director.
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
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David O'Neil, Treasurer and
Principal Financial Officer
13 February 2001
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Date