5/8/02 11:36 AM
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 March 31, 2002
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 May 4, 2002: 1,032,961.
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 -
March 31, 2002 and June 30, 2001 1
Consolidated Statements of Income -
Three and Nine Months Ended
March 31, 2002 and 2001 3
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 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
PART II OTHER INFORMATION 9
SIGNATURES 9
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets
March 31, 2002 and June 30, 2001
------------------------------------
A S S E T S
Unaudited
2002 2001
March 31 June 30
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 9,474,734 $ 5,200,736
Investment securities 352,000 737,600
Trade accounts receivable, net 2,409,848 2,537,310
Other receivables 18,347 31,179
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Total Receivables 2,428,195 2,568,489
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Inventories:
Raw materials and supplies 1,226,228 1,036,726
Work-in-process 4,400,461 2,658,436
Costs relating to contracts in
process, net of advance payments of
$2,194,269 at March 31, 2002 and
$289,000 at June 30, 2001 6,577,601 11,237,515
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Total Inventories 12,204,290 14,932,677
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Deferred income taxes 140,569 145,609
Prepaid expenses and other current assets 247,018 151,880
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Total Current Assets 24,846,806 23,736,991
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Net property, plant and equipment 3,391,411 3,491,890
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Total Assets $28,238,217 $27,228,881
=========== ===========
See accompanying notes to the consolidated financial statements
(Continued)
1
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Balance Sheets, Continued
March 31,2002 and June 30, 2001
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited
2002 2001
March 31 June 30
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 562,575 $ 334,772
Accrued expenses:
Salaries, wages and commissions 84,304 124,081
Employees' insurance costs 6,366 61,798
Vacation 348,874 345,546
ESOP payable 404,814 --
Dividends payable 77,209 --
Other 34,022 37,711
Payroll and other taxes withheld and accrued 30,423 39,397
Income taxes payable 232,773 61,440
Deferred income taxes 58,752 58,752
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Total Current Liabilities 1,840,112 1,063,497
STOCKHOLDERS' EQUITY:
Common stock, par value .33-1/3 per share
Authorized 10,000,000 shares; issued 1,514,937
shares on March 31, 2002 and June 30, 2001
Outstanding 1,031,961 and 1,029,461 on
March 31, 2002 and June 30, 2001, respectively 504,979 504,979
Accumulated other comprehensive loss (40,921) (50,281)
Capital in excess of par value 10,482,665 10,496,287
Retained earnings 24,797,474 24,607,239
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Less: Common stock subscribed (1,675,987) (1,675,987)
Cost of 482,976 and 485,476 shares on
March 31, 2002 and June 30, 2001
respectively of common stock in treasury (7,670,105) (7,716,853)
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TOTAL STOCKHOLDERS' EQUITY 26,398,105 26,165,384
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Total Liabilities And
Stockholders' Equity $ 28,238,217 $ 27,228,881
============ ============
See accompanying notes to the consolidated financial statements
2
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Income
Three and Nine Months Ended March 31, 2001 and 2000
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Unaudited Unaudited
Three Months Nine Months
2002 2001 2002 2001
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Net sales $ 4,616,587 $ 4,615,138 $ 14,401,620 $ 12,967,365
Cost of sales 3,916,571 3,920,377 12,500,450 10,695,335
----------- ----------- ----------- -----------
Gross profit 700,016 694,761 1,901,170 2,272,030
Selling, general and
administrative expenses 408,350 456,964 1,329,484 1,461,207
----------- ----------- ----------- -----------
Operating income 291,666 237,797 571,686 810,823
----------- ----------- ----------- -----------
Other income
Interest and
dividend income 38,179 59,716 153,385 193,462
Other (26,061) 5,575 (13,167) 31,199
----------- ----------- ----------- -----------
12,118 65,291 140,218 224,661
----------- ----------- ----------- -----------
Income before income taxes 303,784 303,088 711,904 1,035,484
Provision for income taxes 91,140 97,534 213,571 357,242
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Net Income $ 212,644 $ 205,554 $ 498,333 $ 678,242
=========== =========== =========== ===========
Income per share:
Basic and diluted
income per share $ .20 $ .20 $ .48 $ .66
----------- ----------- ----------- -----------
Weighted average number
of shares outstanding
Basic 1,029,850 1,029,461 1,029,589 1,032,048
Diluted 1,034,961 1,032,445 1,034,083 1,034,469
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements
3
ESPEY MFG. & ELECTRONICS CORP.
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2001 and 2000
Unaudited
March 31,
2002 2001
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Cash Flows From Operating Activities:
Net income $ 498,333 $ 678,242
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation 392,422 469,121
(Gain)/loss on disposal of assets 27,082 (14,721)
Deferred Income Tax Benefit 872 --
Changes in assets and liabilities:
Decrease in receivables 140,292 972,737
Decrease (Increase) in inventories 2,728,387 (392,511)
(Increase) Decrease in prepaid expenses
and other current assets (95,138) 46,818
Increase (Decrease) in accounts payable 227,803 (25,725)
Decrease in accrued salaries, wages
and commissions (39,777) (83,945)
(Decrease)Increase in accrued employee (55,432) 71,479
insurance costs
(Decrease) Increase in other accrued expenses (3,689) 4,640
Increase in vacation accrual 3,329 42,131
(Decrease) Increase in payroll & other
taxes withheld and accrued (8,974) 4,337
Increase in income taxes payable 171,334 166,324
Increase in ESOP contributions 404,814 409,541
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Net cash provided by
operating activities 4,391,658 2,348,468
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Cash Flows From Investing Activities:
Proceeds from maturity of investment securities 399,128 --
Additions to property, plant & equipment (330,975) (450,007)
Proceeds on sale of assets, net 11,950 14,750
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Net cash provided by
(used in) investing activities 80,103 (435,257)
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Cash Flows From Financing Activities:
Dividends on common stock (230,888) (103,362)
Purchase of treasury stock - (70,891)
Proceeds from exercise of stock options 33,126 -
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Net cash used in
financing activities (197,762) (174,253)
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Increase in cash and cash equivalents 4,273,999 1,738,958
Cash and cash equivalents, beginning of period 5,200,735 2,367,191
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Cash and cash equivalents, end of period 9,474,734 $ 4,106,149
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Income Taxes Paid $ 42,238 $ 175,000
=========== ===========
Noncash Financing Activities
Dividends Payable $ 77,209 $ 51,473
=========== ===========
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 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 2001 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 March 31, 2002 there were 199,876 shares allocated to participants.
6. Total comprehensive income consists of:
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
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Net income $212,644 $205,554 $498,333 $678,242
Accumulated other comprehensive income:
Unrealized gain (loss) on
available for sale securities (11,440) 26,884 9,360 60,684
-------- -------- --------- --------
Total comprehensive income $201,204 $232,438 $507,693 $738,926
======== ======== ========= ========
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 or estimated
cost is determined, changes are reflected in current period earnings.
Results of Operations
Net sales for the nine months ended March 31, 2002, (fiscal 2002) were
$14,401,620 as compared to $12,967,365 for the same period in 2001, an 11%
increase. Net sales for the three months ended March 31, 2002 were $4,616,587 as
compared to $4,615,138 for the same period in 2001. The Company's increase in
sales for the three and nine month periods ended March 31, 2002, as compared to
March 31, 2001, is due to an increase in antenna, radar transmitter, and
transmitter component shipments.
During the first nine months of fiscal 2002 gross profits as a percentage of
sales decreased approximately 4.3% as compared with the first nine months of
fiscal 2001. For the three months ended March 31, 2002 gross profit remained
consistent as compared to the same period in 2001.
Net income for the nine months ended March 31, 2002 was $498,333 or $.48 per
share compared to $678,242 or $.66 per share for the corresponding period ended
March 31, 2001. For the three months ended March 31, 2002 net income increased
nominally as compared to the same period in 2001.
The decrease in gross profit and net income for the nine-month period ended
March 31, 2002, 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. Gross profit and net
income for the three-month period ended March 31, 2002 as compared to the same
period last year remained relatively consistent with slight increases in both
categories. 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 in a cost effective manner.
Employment at March 31, 2002 was 189 people compared to March 31, 2001 when 217
people were employed.
The backlog at March 31, 2002 was approximately $ 26,212,000, an increase of
approximately $1 million from the prior year. Management continues to market the
engineering capabilities and products of the Company. New orders for the quarter
totaled approximately $5 million.
6
Selling, general and administrative expenses were $1,329,484 for the nine months
ended March 31, 2002, a decrease of $131,723, or 9.0%, as compared to the nine
months ended March 31, 2001. Selling, general and administrative expenses were
$408,350 for the three months ended March 31, 2002, a decrease of $48,614, or
10.6%, compared to the three months ended March 31, 2001. The decrease is
primarily due to a decrease in employees, selling expenses and professional
fees.
Other income for the three and nine months ended March 31, 2002 decreased as
compared to the three and nine months ended March 31, 2001 due to lower interest
income for both periods associated with lower interest rates and a charge for
the loss on disposal of fixed assets. The Company does not believe there is
significant risk associated with its investment policy, since a majority of the
investments are preferred equity securities and a money market account.
Liquidity and Capital Resources
As of March 31, 2002, the Company had working capital of $ 23.0 million compared
to $22.7 million at March 31, 2001. The Company meets its short-term financing
needs through cash from operations and when necessary, from its existing cash
and cash equivalents.
The table below presents the summary of cash flow for the periods indicated:
Nine Months Ended March 31,
-----------------------------
2002 2001
-------- --------
Net cash provided by operating activities $4,391,658 $ 2,348,468
Net cash provided by (used in) investing activities 80,103 (435,257)
Net cash used in financing activities (197,762) (174,253)
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. The decrease in net cash provided by (used in) investing
activities is due to the maturity of investment securities with no offsetting
purchase of new investments in the prior year. The increase in net cash used in
financing activities is due to increased dividend payments offset partially by
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 nine months
of fiscal 2002 capital expenditures were approximately $331,000.
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 expense relating to ESOP.
During the nine months ended March 31, 2002 and 2001, the Company repurchased 0,
and 4,170 shares respectively, of its common stock from the Company's ESOP and
through other public transactions. As of March 31, 2002, under existing Board
authorization, $854,859 could be utilized to repurchase shares of company stock.
As of March 31, 2002, 2,500 stock options were exercised under the Company's
existing stock option plan.
7
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.
8
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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
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David O'Neil, Treasurer and
Principal Financial Officer
May 9, 2002
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Date