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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2003
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
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES |_| NO |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 14, 2004
------- --------------------------------
Common stock, $.33-1/3 par value 1,009,818 shares
ESPEY MFG. & ELECTRONICS CORP.
Quarterly Report on Form 10-Q
I N D E X
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Balance Sheets (Unaudited) -
December 31, 2003 and June 30, 2003 1
Statements of Operations (Unaudited) -
Three and Six Months Ended December 31, 2003 and 2002 3
Statements of Cash Flows (Unaudited)-
Six Months Ended December 31, 2003 and 2002 4
Notes to Financial Statements (Unaudited) 5
Item 2 Management's Discussion and Analysis of 6
Financial Condition and Results of Operations.
Item 4 Controls and Procedures 9
PART II OTHER INFORMATION 10
SIGNATURES 12
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets (Unaudited)
December 31, 2003 and June 30, 2003
2003 2003
December 31 June 30
----------- -----------
ASSETS:
Cash and cash equivalents $10,041,987 $10,996,483
Trade accounts receivable, net 4,641,302 3,470,895
Other receivables 5,288 11,638
Inventories:
Raw materials and supplies 1,576,633 1,570,028
Work-in-process 2,695,128 3,020,081
Costs relating to contracts in process, net of
advance payments of $2,207,554 at December 31,
2003 and $3,314,816 at June 30, 2003 6,704,588 7,246,158
----------- -----------
Total inventories 10,976,349 11,836,267
----------- -----------
Deferred income taxes 91,117 88,643
Prepaid expenses and other current assets 13,682 124,508
----------- -----------
Total current assets 25,769,725 26,528,434
----------- -----------
Property, Plant and Equipment, net 3,194,649 3,267,063
----------- -----------
Total assets $28,964,374 $29,795,497
=========== ===========
See accompanying notes to the financial statements.
(Continued)
1
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets (Unaudited), Continued
December 31, 2003 and June 30, 2003
2003 2003
December 31 June 30
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 462,548 $ 647,597
Accrued expenses:
Salaries, wages and commissions 105,304 88,287
Vacation 415,590 465,815
Employees' insurance costs 7,772 7,038
ESOP payable 268,825 --
Other 44,264 42,361
Payroll and other taxes withheld and accrued 63,554 38,425
Income taxes payable 2,289 350,232
------------ ------------
Total current liabilities 1,370,146 1,639,755
------------ ------------
Deferred income taxes 272,234 202,234
------------ ------------
Total liabilities 1,642,380 1,841,989
------------ ------------
Common stock, par value .33-1/3 per share
Authorized 10,000,000 shares;
Issued 1,514,937 shares on December 31, 2003 and
June 30, 2003, outstanding 1,009,818 on
December 31, 2003 and 1,019,643 on June 30, 2003 504,979 504,979
Capital in excess of par value 10,437,396 10,459,278
Retained earnings 25,041,109 25,458,400
------------ ------------
35,983,484 36,422,657
Less common stock subscribed (558,662) (558,662)
Cost of 505,119 shares on December 31, 2003 and 495,294
on June 30, 2003 of common stock in treasury (8,102,828) (7,910,487)
------------ ------------
Total stockholder's equity 27,321,994 27,953,508
------------ ------------
Total liabilities and
stockholders' equity $ 28,964,374 $ 29,795,497
============ ============
See accompanying notes to the financial statements.
2
ESPEY MFG. & ELECTRONICS CORP.
Statements of Operations (Unaudited)
Three and Six Months Ended December 31, 2003 and 2002
Three Months Six Months
2003 2002 2003 2002
------------------------- -------------------------
Net Sales $ 5,871,675 $ 5,374,456 $10,966,992 $ 9,865,815
Cost of sales 5,143,799 5,449,710 9,338,943 9,151,848
----------- ----------- ----------- -----------
Gross profit (loss) 727,876 (75,254) 1,628,049 713,967
Selling, general and
administrative expenses 684,594 537,346 1,234,397 966,653
----------- ----------- ----------- -----------
Operating income (loss) 43,282 (612,600) 393,652 (252,686)
----------- ----------- ----------- -----------
Other income
Interest and dividend income 21,865 38,097 45,229 83,366
Sundry income 21,574 18,058 22,814 21,602
----------- ----------- ----------- -----------
43,439 56,155 68,043 104,968
----------- ----------- ----------- -----------
Income (loss) before income taxes 86,721 (556,445) 461,695 (147,718)
Provision (benefit) for income taxes 25,291 (139,111) 119,300 (36,929)
----------- ----------- ----------- -----------
Net Income (loss) $ 61,430 $ (417,334) $ 342,395 $ (110,789)
=========== =========== =========== ===========
Net income per share:
Basic and dilutive
Net income (loss) per share $ .06 $ (.41) $ .34 $ (.11)
----------- ----------- ----------- -----------
Weighted average common
shares outstanding
Basic 1,013,077 1,026,090 1,014,591 1,030,326
Diluted 1,023,660 1,028,748 1,021,821 1,033,104
=========== =========== =========== ===========
See accompanying notes to the financial statements.
3
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows (Unaudited)
Six Months Ended December 31, 2003 and 2002
December 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 342,395 $ (110,789)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 247,339 250,381
Deferred income tax payable 67,526 --
Changes in assets and liabilities:
Increase in receivables (1,164,057) (2,585,209)
Decrease in inventories 859,918 1,466,438
Decrease in prepaid expenses and other current assets 110,826 24,026
(Decrease) Increase in accounts payable (185,049) 563,191
Increase in accrued salaries, wages and commissions 17,017 13,614
Increase (Decrease) in accrued employee insurance costs 734 (536)
Increase (Decrease) in other accrued expenses 1,902 (4,411)
Decrease in vacation accrual (50,225) (4,464)
Increase in payroll & other taxes withheld and accrued 25,129 25,212
Decrease in income taxes payable (347,943) (36,929)
Increase in ESOP payable 268,825 273,028
------------ ------------
Net cash provided by (used in)
operating activities 194,337 (126,448)
------------ ------------
Cash flows from investing activities:
Additions to property, plant & equipment (174,924) (247,117)
------------ ------------
Net cash provided by (used in)
investing activities (174,924) (247,117)
------------ ------------
Cash flows from financing activities:
Dividends paid on common stock (759,686) (154,059)
Purchase of treasury stock (272,328) (296,455)
Proceeds from exercise of stock options 58,105 5,300
------------ ------------
Net cash used in
financing activities (973,909) (445,214)
------------ ------------
Increase (Decrease) in cash and cash equivalents (954,496) (818,779)
Cash and cash equivalents, beginning of period 10,996,483 9,192,962
------------ ------------
Cash and cash equivalents, end of period 10,041,987 8,374,183
------------ ------------
Income taxes paid $ 413,501 $ --
============ ============
Noncash financing activities:
Dividend Payable $ -- $ --
============ ============
See accompanying notes to the financial statements.
4
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements (Unaudited)
Note 1. Basis of Presentation
In the opinion of management the accompanying unaudited 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 Annual Report on Form 10-K for the year
ended June 30, 2003.
Note 2. Net Income per Share
Basic net income per share excludes dilution and is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted net income 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.
Note 3. Employee Stock Ownership Plan
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 December 31, 2003 there were 219,737 shares allocated to participants.
Note 4. Other Comprehensive Income
Total comprehensive income consists of:
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss) $ 61,430 $(417,334) $ 342,395 $(110,789)
Accumulated other comprehensive income -- 4,160 -- 3,019
--------- --------- --------- ---------
Total comprehensive income (loss) $ 61,430 $(413,174) $ 342,395 $(107,770)
========= ========= ========= =========
5
Note 5. Stock Based Compensation
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for
Stock Based Compensation. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation and amends the disclosure requirements of
SFAS No. 123, Accounting for Stock Based Compensation, to require more prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.
The Company has elected to account for its stock-based compensation plans under
the intrinsic value-based method of accounting as permitted by SFAS No. 123 and
as prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB No. 25, in accounting for its fixed
stock option plans. Under this method, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. Unearned compensation recognized for restricted
stock awards is shown as a separate component of stockholders' equity and is
amortized to expense over the vesting period of the stock award using the
straight-line method. The Company adopted the disclosure requirements of SFAS
No. 123 and SFAS No. 148, as required.
The following table illustrates the effect on net income and net income per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, to stock-based employee compensation.
3 Months Ended 6 Months Ended
December 31 December 31
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income (loss) as $ 61,430 $ (417,334) $ 342,395 $ (110,789)
reported
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (9,227) (9,020) (18,454) (18,040)
---------- ---------- ---------- ----------
Pro forma net income $ 52,203 $ (426,354) $ 323,941 $ (128,829)
(loss) ========== ========== ========== ==========
Net income (loss) per share:
Basic-as reported $ .06 $ (.41) $ .34 $ (.11)
========== ========== ========== ==========
Basic-pro forma $ .05 $ (.42) $ .32 $ (.13)
========== ========== ========== ==========
Diluted-as reported $ .06 $ (.41) $ .34 $ (.11)
========== ========== ========== ==========
Diluted-pro forma $ .05 $ (.42) $ .32 $ (.13)
========== ========== ========== ==========
Note 6. Foreign Sales Corporation
During the quarter the Company dissolved Espey International, Inc., a wholly
owned subsidiary. The subsidiary was an inactive foreign sales corporation.
Note 7. Recently Issued Accounting Standards
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
requires issuers to classify as liabilities (or assets in some circumstances)
three classes of freestanding financial instruments that embody obligations for
the issuer. Generally, SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have an impact on the Company's results of
operations and financial condition.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
6
Overview
Espey Mfg. & Electronics Corp. (the "Company") located in Saratoga Springs, New
York, is engaged principally in the development, design, production and sale of
specialized electronic power supplies, a wide variety of transformers and other
types of iron-core components, and electronic system components. In some cases,
the Company manufactures such products in accordance with pre-developed
mechanical and electrical requirements ("build to print"). In other cases, the
Company is responsible for both the overall design and manufacture of the
product. The Company does not generally manufacture standardized components.
The products manufactured by the Company find application principally in (i)
shipboard and land based radar, (ii) locomotives, (iii) aircraft, (iv) short and
medium range communication systems, (v) navigation systems, and (vi) land based
military vehicles.
Business is solicited from large industrial manufacturers and defense companies,
United States and foreign governments and major foreign electronic equipment
companies. In certain countries the Company has external sales representatives
to help solicit and coordinate foreign contracts. The Company is also on the
eligible list of contractors of the United States Department of Defense and
generally is automatically solicited by such agencies for procurement needs
falling within the major classes of products produced by the Company. In
addition, the Company directly solicits bids from the United States Department
of Defense for prime contracts.
There is competition in all classes of products manufactured by the Company,
from divisions of the largest electronic companies, as well as many small
companies. The Company's sales do not represent a significant share of the
industry's market for any class of its products. The principal methods of
competition for electronic products of both a military and industrial nature
include, among other factors, price, product performance, the experience of the
particular company and history of its dealings in such products. The Company, as
well as other companies engaged in supplying equipment for military use, is
subject to various risks, including, without limitation, dependence on U.S. and
foreign government appropriations and program allocations, the competition for
available military business, and government termination of orders for
convenience.
Business Outlook
During the first six months of fiscal year 2004, while net sales increased, new
orders received by the Company did not keep pace with backlog relieved. Thus,
while the sales backlog of $17.3 million at December 31, 2003 gives the Company
a solid base of future sales, the Company anticipates that the reduction of
backlog may result in a reduction of sales during the first half of fiscal year
2005. Management believes that existing customers have delayed in placing orders
for additional products, but anticipates that new orders will be received in the
current calendar year which should result in an increase in backlog at December
31, 2004 as compared to December 31, 2003. In addition to the backlog, the
Company currently has outstanding quotations representing in excess of $32
million in the aggregate for both repeat and new programs. Based on management's
communications with customers, the Company also expects to receive substantial
orders for spare parts on the various types of transmitters which are already in
service, a number of contracts for further development and manufacture of power
supplies, transformers and additional contracts for pre-engineered hardware.
The outstanding quotations encompass various new and previously manufactured
power supplies, transformers, and subassemblies. However, there can be no
assurance that the Company will acquire any or all of the anticipated orders
described above, many of which are subject to allocations of the United States
defense spending and factors affecting the defense industry and military
procurement generally.
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. Generally revenue on long-term fixed-price contracts is recorded on a
percentage of completion basis using units of delivery as the measurement basis
for progress toward completion.
Percentage of completion accounting requires judgment relative to expected
sales, 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 materials and other 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. When a change in contract value, contract
performance status, or estimated cost is determined, changes are reflected in
current period earnings.
7
Results of Operations
Net sales for the six months ended December 31, 2003 were $10,966,992 as
compared to $9,865,815 for the same period in 2002, an 11.2% increase. Net sales
for the three months ended December 31, 2003 were $5,871,675 as compared to
$5,374,456 for the same period in 2002, a 9.3% increase. The Company's increase
in sales for the three and six month periods ended December 31, 2003, as
compared to December 31, 2002, is due primarily to an increase in radar
transmitter component shipments.
During the first six months of fiscal 2003 gross profits increased to $1,628,049
as compared with $713,967 for the first six months of fiscal 2002. For the three
months ended December 31, 2003 gross profit (loss) increased to $727,876 as
compared to a loss of $(75,254) for the same period in 2002.
Net income for the six months ended December 31, 2003 was $342,395 or $.34 per
share compared to a loss of $(110,789) or $(.11) per share for the corresponding
period ended December 31, 2002. For the three months ended December 31, 2003 the
net income was $61,430 or $.06 per share as compared to a net loss of $(417,334)
or $(.41) per share for the same period in 2002.
The primary factor in determining gross profit and net income is product mix.
The gross profits on mature products and build to print contracts are higher
than with respect to the products which are still in the engineering development
stage or in the early stages of production. In any given accounting period the
mix of product shipments between higher margin mature programs and less mature
programs has a significant impact on gross profit and net income. For the three
and six months ended December 31, 2003 gross profit and net income were higher
as shipments were made on more mature programs and build to print contracts with
higher gross margins as compared to the three and six month periods ended
December 31, 2002. In addition, gross margins for the three and six months ended
December 31, 2003 and 2002 were lower than anticipated due to higher than
expected development costs associated with customer specific products which
caused the net loss for the three and six months ended December 31, 2002.
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, 2003
and 2002 was approximately 190 people.
The backlog at December 31, 2003 was approximately $17.3 million as compared to
$25.5 million at December 31, 2002. New orders for the six-month period ended
December 31, 2003 were approximately $6.9 million. New orders for the three
months ended December 31, 2003 were approximately $2.3 million.
Selling, general and administrative expenses were $1,234,397 for the six months
ended December 31, 2003, an increase of $267,744 as compared to the six months
ended December 31, 2002. Selling, general and administrative expenses were
$684,594 for the three months ended December 31, 2003, an increase of $147,248
as compared to the three months ended December 31, 2002. The increase is
primarily due to an increase in insurance costs, professional fees and
administrative salaries.
Other income for the six months ended December 31, 2003 decreased compared to
the corresponding period ended December 31, 2002 primarily due to lower interest
rates on the Company's money market accounts and the sale of a higher yielding
preferred security held for investment in January, 2003. For the three months
ended December 31, 2003 other income decreased due to lower interest rates on
money market accounts as compared to the same period in 2002. The Company does
not believe there is any significant risk associated with its investment policy,
since at December 31, 2003 all of the investments are primarily represented by
short-term liquid investments including certificates of deposit and money market
accounts.
Liquidity and Capital Resources
As of December 31, 2003, the Company had working capital of $24.4 million
compared to $23.2 million at December 31, 2002. The Company meets its short-term
financing needs through cash flow 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,
2003 2002
--------- ---------
Net cash provided by (used in) operating activities $ 194,337 $(126,448)
Net used in investing activities (174,924) (247,117)
Net cash used in financing activities (973,909) (445,214)
Net cash provided by operating activities fluctuates between periods primarily
as a result of differences in net income, the timing of shipments and the
collection of accounts receivable, changes in inventory, level of sales and
payment of accounts payable. The decrease in net cash used in investing
activities is due to lower fixed asset purchases. The increase in net cash used
in financing activities is due to an increase in dividends paid to shareholders.
The Company currently believes that the cash flow generated from operations and
when necessary, from cash and cash equivalents, will be sufficient to meet its
funding requirements for the foreseeable future. The Company has a
8
$3,000,000 line of credit with a bank which could be utilized, if required, to
fund growth of the Company's business. The line of credit had no outstanding
balance at December 31, 2003. For the first half of fiscal 2004 capital
expenditures were approximately $175,000.
Since the debt of the Company's ESOP is not to an outside party the Company has
eliminated from the Statements of Operations the offsetting items of interest
income and interest expenses relating to the ESOP.
During the six months ended December 31, 2003 the Company repurchased 13,625
shares of common stock for $272,329. Under existing Board authorizations, as of
December 31, 2003, approximately $540,000 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
This report contains "forward-looking statements" within the meaning 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, supply and manufacturing constraints, potential
new orders from customers 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.
Item 4. Controls and Procedures
(a) The Company's management, with the participation of the Company's chief
executive officer and chief financial officer, carried out an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, our chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.
(b) There have been no changes in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
9
ESPEY MFG. & ELECTRONICS CORP.
PART II: Other Information and Signatures
Item 1. Legal Proceedings
On January 20, 2004, Franklin Resources, Inc., an investment advisor to
Franklin MicroCap Value Fund, which holds a 7.7% ownership interest in the
Company, filed a statement on Schedule 13D with the Securities and
Exchange Commission stating that it had joined with Michael W. Wool and
Paul J. Corr in pursuing contemplated legal action against the Company
based on a vote taken at the November 13, 2003 annual meeting of
shareholders to remove Messrs. Wool and Corr as directors, described below
under Item 4.
On January 29, 2004, the Company announced that its Board of Directors had
unanimously determined that such vote was improper. Accordingly, Messrs.
Wool and Corr were reinstated as directors, and Mr. Corr was reinstated as
Chairman of the Company's Audit Committee.
The Board of Directors also determined to set aside its appointment on
November 24, 2003 of Alan D. Kohn to fill a pre-November 13, 2003 vacancy
on the Board of Directors on the basis that his appointment had been
procedurally improper. Mr. Kohn concurred in this decision. No decision
has been made by the Board as to whether Mr. Kohn will be considered again
for appointment to the Board. The Board also stated its intention to
create a nominating committee comprised of independent directors for
future nominations of directors.
The Board's actions followed consultation with special independent counsel
who had been retained in connection with the previously announced review
that is being conducted by the American Stock Exchange ("AMEX") of the
vote taken to remove Messrs. Wool and Corr at the November 13, 2003 annual
meeting of shareholders, described below under Item 4. The Company has
provided information requested by AMEX in connection with such review. The
AMEX review has not been concluded.
The Board of Directors has also directed its special counsel to continue
its investigation into whether any directors or officers engaged in
misconduct or in violation of applicable law in connection with the annual
meeting.
On January 29, 2004 the Company also reached an agreement with Messrs.
Wool, Corr and Franklin Resources, Inc. that has resulted in such parties'
withdrawal of the claims that had been asserted against the Company. In
this regard, the Company agreed to reimburse such parties for legal
expenses to a maximum of $19,400 and to pay Messrs. Wool and Corr
directors' fees and any other benefits due them during the period November
13, 2003 to January 29, 2004..
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 November 13, 2003.
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: Voted For: Voted Against or Withheld: Broker Non-Votes:
------- --------- ------------------------- ----------------
Howard Pinsley 907,884 82,659 4,131
Alvin O. Sabo 953,170 37,373 4,131
Carl Helmetag 982,084 8,849 4,131
Ratification of KPMG LLP, as independent auditors for the
Corporation for the fiscal year ending June 30, 2004. The votes were
cast as follows:
Shares IN FAVOR 983,834
Shares AGAINST 6,159
ABSTENTIONS 550
Broker NON-VOTES 4,131
10
Shareholder, H. Bud Wolf, made a proposal to remove directors
Michael W. Wool, Paul J. Corr and William P. Greene, without cause.
On the advice of counsel, who was present at the meeting, the
proposal was deemed properly before the meeting and the named
proxies in the Company's proxy statement were advised that they had
the discretionary authority to vote on the proposal. The votes were
cast as follows:
Removal of: Shares IN FAVOR: Shares AGAINST: ABSTENTIONS: Broker Non-Votes:
---------- --------------- -------------- ----------- ----------------
Michael W. Wool 983,943 6,600 -- 4,131
Paul J. Corr 983,943 6,600 -- 4,131
William P. Greene 6,790 983,753 -- 4,131
Item-5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2 Certification of the Principal Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Form 8-K filed November 13, 2003 announcing the removal of directors
Michael W. Wool and Paul J. Corr as proposed and voted for at the
Company's Annual Meeting of Shareholders.
Form 8-K filed November 24, 2003 announcing the election of Mr. Alan
D. Kohn to the Company's Board of Directors as well as the Company's
Audit Committee, where he will serve as Chairman of this Committee.
11
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
13 February 2004
- ----------------
Date
12