ESPEY MFG & ELECTRONICS CORP — Interim / Quarterly Report 2001

Nov 9, 2001

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. -------------------------------------------------- (Exact name of registrant as specified in charter) NEW YORK 14-1387171 - ------------------------ -------------------------------------- (State of Incorporation) (I.R.S. Employer's Identification No.) 233 Ballston Avenue, Saratoga Springs, New York 12866 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 518-584-4100 --------------------------- 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

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

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 ------------------------------------------------------

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

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 -------- -------- Total comprehensive income $214,611 $222,270 ======= ======== 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 - --------------- Date 8