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, 2004
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
- ---------------------------- --------------------------------------------
(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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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, 2005
------- --------------------------------
Common stock, $.33-1/3 par value 1,011,404 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, 2004 and June 30, 2004 1
Statements of Income (Unaudited) -
Three and Six Months Ended December 31, 2004 and 2003 3
Statements of Cash Flows (Unaudited)-
Six Months Ended December 31, 2004 and 2003 4
Notes to Financial Statements (Unaudited) 5
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk 10
Item 4 Controls and Procedures 10
PART II OTHER INFORMATION AND SIGNATURES 11
Item 1 Legal Proceedings 11
Item 2 Unregistered Sales of Equity Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits 12
SIGNATURES 12
PART I: FINANCIAL INFORMATION
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets (Unaudited)
December 31, 2004 and June 30, 2004
--------------------------------------------------
A S S E T S
2004 2004
December 31, June 30,
------------ -----------
ASSETS:
Cash and cash equivalents $12,217,928 $12,310,972
Short term investments 1,824,000 1,056,000
Trade accounts receivable, net 2,309,842 2,140,397
Other receivables 8,541 1,809
Inventories:
Raw materials and supplies 1,689,332 1,543,930
Work-in-process 3,637,742 3,390,133
Costs relating to contracts in process, net of advance
payments of $88,830 at December 31, 2004 and
$905,646 at June 30, 2004 4,681,032 5,151,234
----------- -----------
Total inventories 10,008,106 10,085,297
----------- -----------
Deferred income taxes 76,876 76,876
Prepaid expenses and other current assets 236,951 359,393
----------- -----------
Total current assets 26,682,244 26,030,744
----------- -----------
Property, plant and equipment, net 3,049,062 3,100,516
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Total assets $29,731,306 $29,131,260
=========== ===========
See accompanying notes to the financial statements.
(Continued)
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets (Unaudited), Continued
December 31, 2004 and June 30, 2004
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LIABILITIES AND STOCKHOLDERS' EQUITY
2004 2004
December 31, June 30,
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 1,015,005 $ 250,675
Accrued expenses:
Salaries, wages and commissions 83,534 44,519
Employee insurance costs 8,510 7,487
Vacation 401,563 451,516
Other 55,370 50,370
Payroll and other taxes withheld and accrued 45,514 26,000
Income taxes payable 84,656 134,471
------------ ------------
Total current liabilities 1,694,152 965,038
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Deferred income taxes 345,778 324,316
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Total liabilities 2,039,930 1,289,354
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Common stock, par value $.33-1/3 per share. Authorized 10,000,000
shares; issued 1,514,937 shares on December 31, 2004 and June
30, 2004 Outstanding 1,011,404 and 1,014,618 on December
31, 2004 and June 30, 2004, respectively 504,979 504,979
Capital in excess of par value 10,408,095 10,411,915
Retained earnings 24,836,205 24,911,920
------------ ------------
35,749,279 35,828,814
Less: Cost of 503,533 shares on December
31, 2004 and 500,319 on June 30, 2004
of common stock in treasury (8,057,903) (7,986,908)
------------ ------------
Total stockholders' equity 27,691,376 27,841,906
------------ ------------
Total liabilities and
stockholders' equity $ 29,731,306 $ 29,131,260
============ ============
See accompanying notes to the financial statements.
2
ESPEY MFG. & ELECTRONICS CORP.
Statements of Income (Unaudited)
Three and Six Months Ended December 31, 2004 and 2003
----------------------------------------------------------
Three Months Six Months
2004 2003 2004 2003
-------------------------- ---------------------------
Net sales $4,896,741 $5,871,675 $9,627,068 $10,966,992
Cost of sales 4,124,354 5,143,799 8,205,539 9,338,943
---------- ---------- ---------- -----------
Gross profit 772,387 727,876 1,421,529 1,628,049
Selling, general and
administrative expenses 580,538 684,594 1,181,217 1,234,397
---------- ---------- ---------- -----------
Operating income 191,849 43,282 240,312 393,652
---------- ---------- ---------- -----------
Other income (expense)
Interest and dividend income 43,618 21,865 78,488 45,229
Other 3,150 21,574 6,366 22,814
---------- ---------- ---------- -----------
46,768 43,439 84,854 68,043
---------- ---------- ---------- -----------
Income before income taxes 238,617 86,721 325,166 461,695
Provision for income taxes 71,585 25,291 97,550 119,300
---------- ---------- ---------- -----------
Net income $ 167,032 $ 61,430 $ 227,616 $ 342,395
========== ========== ========== ===========
Net income per share:
Basic $ .17 $ .06 $ .22 $ .34
Diluted $ .16 $ .06 $ .22 $ .34
---------- ---------- ---------- -----------
Weighted average number of shares outstanding:
Basic 1,011,378 1,013,077 1,012,269 1,014,591
Diluted 1,024,535 1,023,660 1,022,926 1,021,821
========== ========== ========== ===========
See accompanying notes to the financial statements.
3
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows (Unaudited)
Six Months Ended December 31, 2004 and 2003
December 31,
2004 2003
------------ ------------
Cash Flows From Operating Activities:
Net income $ 227,616 $ 342,395
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 282,170 247,339
Deferred income tax 21,462 67,526
Changes in assets and liabilities:
Increase in receivables (176,177) (1,164,057)
Decrease in inventories 77,191 859,918
Decrease in prepaid expenses and other current assets 122,442 110,826
Increase (Decrease) in accounts payable 764,330 (185,049)
Increase in accrued salaries, wages and commissions 39,015 17,017
Increase in accrued employee insurance costs 1,023 734
Decrease in vacation accrual (49,953) (50,225)
Increase in other accrued expenses 5,000 1,902
Increase in payroll & other taxes withheld and accrued 19,514 25,129
Decrease in income taxes payable (49,815) (347,943)
Increase in ESOP payable -- 268,825
------------ ------------
Net cash provided by operating activities 1,283,818 194,337
------------ ------------
Cash Flows From Investing Activities:
Additions to property, plant & equipment (230,716) (174,924)
Purchase of short term investments (1,440,000) --
Maturity of short term investments 672,000
------------ ------------
Net cash used in investing activities (998,716) (174,924)
------------ ------------
Cash Flows From Financing Activities:
Dividends on common stock (303,331) (759,686)
Purchase of treasury stock (90,315) (272,328)
Proceeds from exercise of stock options 15,500 58,105
------------ ------------
Net cash used in financing activities (378,146) (973,909)
------------ ------------
Decrease in cash and cash equivalents (93,044) (954,496)
Cash and cash equivalents, beginning of period 12,310,972 10,996,483
------------ ------------
Cash and cash equivalents, end of period 12,217,928 10,041,987
------------ ------------
Income Taxes Paid $ 125,902 $ 413,501
============ ============
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 United
States 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 2004 Form 10-K.
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. Effective June 30, 2004, the ESOP loan was paid in
full and all shares in the ESOP are allocated to participant's accounts.
Therefore, in fiscal 2005 no contributions to the ESOP have been made. As of
December 31, 2004, there were 235,245 shares allocated to participants.
Note 4. Stock Based Compensation
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.
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.
5
3 Months Ended 6 Months Ended
December 31, December 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income as reported $ 167,032 $ 61,430 $ 227,616 $ 342,395
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
for all awards, net of
related tax effects (9,997) (9,227) (18,374) (18,454)
---------- ---------- ---------- ----------
Pro forma net income $ 157,035 $ 52,203 $ 209,242 $ 323,941
========== ========== ========== ==========
Net Income per share:
Basic-as reported $ .17 $ .06 $ .22 $ .34
========== ========== ========== ==========
Basic-pro forma $ .16 $ .05 $ .21 $ .32
========== ========== ========== ==========
Diluted-as reported $ .16 $ .06 $ .22 $ .34
========== ========== ========== ==========
Diluted-pro forma $ .15 $ .05 $ .20 $ .32
========== ========== ========== ==========
Note 5. Commitments and Contingencies
The Company has entered into standby letters of credit agreements with financial
institutions primarily relating to the guarantee of future performance on
certain contracts. Contingent liabilities on outstanding standby letters of
credit agreements aggregated $39,300 at December 31, 2004. The Company does not
expect to fund any of the amounts under the standby letters of credit.
Note 6. Recently Issued Accounting Standards
In November 2004, the FASB issued SFAS No. 151, "Accounting for Unexpected
Production Defects and Waste." SFAS No. 151 requires that "abnormal freight,
handling costs, and amounts of wasted materials (spoilage)" should be treated as
current-period costs. Under this concept, if the costs associated with the
actual level of spoilage or production defects are greater than the costs
associated with the range of normal spoilage or defects, the difference should
be charged to current-period expense. SFAS No. 151 is effective for annual
periods beginning after June 15, 2005. In December 2004, the FASB issued SFAS
No. 123R, "Share Based Payment." SFAS No. 123R requires companies to recognize
in the income statement the grant-date fair value of stock options and other
equity-based compensation issued to employees. SFAS No. 123R is effective for
annual periods beginning after June 15, 2005. The adoption of SFAS No. 151 and
SFAS No. 123R are not expected to have a material impact on the Company's
results of operations and financial condition.
In December 2004, the FASB issued Staff Position FAS 109-1 regarding Income from
Domestic Production Activities which was effective immediately. Staff Position
FAS 109-1 clarifies SFAS No. 109's guidance that applies to the new deduction
for qualified domestic production activities. The staff position clarifies that
the deduction should be accounted for as a special deduction under SFAS No. 109.
The adoption of Staff Position FAS 109-1 did not have a material impact on the
Company's results of operations or financial condition.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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,
the government of the 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 United States and
foreign government appropriations and program allocations, the competition for
available military business, and government termination of orders for
convenience.
Business Outlook
Management is optimistic about the future of the Company. In the first half of
fiscal 2005, the Company received approximately $8.3 million in new orders.
These orders include both follow-on production quantities for mature products,
and engineering development orders which will enable the Company to utilize its
engineering expertise in developing new customer specific products. Some of
these products, once developed, will be produced in the Company's manufacturing
facility and are expected to provide large production order quantities over
several years. These orders are in line with the Company's strategy of getting
involved in long-term high quantity military and industrial products.
Management expects to receive several more orders in fiscal 2005. These orders
will increase the Company's backlog which is approximately $14.7 million at
February 14, 2005. Many potential orders are currently being discussed and
negotiated with our customers. Some of these potential orders management
expected to receive in the first half of fiscal 2005. The delay in placing these
orders may be due to several factors including the war in Iraq. In addition to
the backlog, the Company currently has outstanding quotations representing in
excess of $47 million in the aggregate for both repeat and new programs. Based
on management's communications with customers, the Company expects to receive
substantial orders for spare parts on the various types of transmitters already
in service, contracts for the further development and manufacture of power
supplies and transformers, as well as additional contracts for pre-engineered
hardware. We expect these contracts to increase sales substantially in years
after fiscal year 2005. 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.
Management, along with the Board of Directors, continues to evaluate the need
and use of the Company's working capital. Expectations are that the working
capital will be required to fund the expected increase in orders over the next
several quarters, dividend payments, and general operations of the business.
Also, the Mergers and Acquisitions Committee of the Board continues to evaluate
potential strategic alternatives on a periodic basis.
As stated in the Company's 10-K filed for the year ended June 30, 2004, the
Company anticipates a decrease in sales for fiscal 2005. During fiscal 2004,
while net sales increased, new orders received by the Company did not keep pace
with backlog relieved. Thus, while the sales backlog of approximately $15.4
million at June 30, 2004 gave the Company a solid base of future sales, the
Company continues to anticipate a reduction of sales during fiscal 2005.
Critical Accounting Policies and Estimates
We believe our most critical accounting policies include revenue recognition and
estimates to completion.
7
Revenue recognition and estimation
A significant portion of our business is comprised of development and production
contracts. Generally, revenues 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.
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 overhead 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 expected sales and contract costs could be
recorded if different assumptions were used, based on changes in circumstances,
in the estimation process. When a change in expected sales value or estimated
cost is determined, changes are reflected in current period earnings.
Results of Operations
The Company's operating cycle is long-term and includes various types of
products and varying delivery schedules. Accordingly, results of a particular
period or period-to-period comparison of recorded revenues and income may not be
indicative of future operating results. The following comparative analysis
should be viewed in this context.
Net sales for the three months ended December 31, 2004 were $4,896,741 as
compared to $5,871,675 for the same period in 2003, representing a 16.6%
decrease. Net sales for the six months ended December 31, 2004 were $9,627,068
as compared to $10,966,992 for the same period in 2003, representing a 12.2%
decrease. The Company's decrease in sales for the three month and six month
period ended December 31, 2004 is due primarily to a decrease in radar
transmitter component shipments offset partially by an increase in power supply
shipments. Generally, the decrease also can be attributed to the overall
decrease in the Company's backlog.
The backlog at December 31, 2004 was approximately $14.1 million compared to
approximately $17.3 million at December 31, 2003. New orders for the three
months ended December 31, 2004 were approximately $3.5 million. New orders for
the six-month period ended December 31, 2004 were approximately $8.3 million.
Management continues to market the engineering capabilities and products of the
Company. Currently, approximately $47 million in quotations are outstanding to
various customers of the Company.
The primary factor in determining gross profit and net income is product mix. In
any given accounting period, the mix of product shipments between higher margin
mature programs and less mature programs and loss contracts, has a significant
impact on gross profit and net income. The table below presents the statement of
income line items as a percentage of net sales for period-to-period comparison
purposes.
3 Months Ended December 31, 6 Months Ended December 31,
2004 2003 2004 2003
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.2% 87.6% 85.2% 85.2%
------ ------ ------ ------
Gross profit 15.8% 12.4% 14.8% 14.8%
Selling, general and administrative expenses 11.9% 11.7% 12.3% 11.3%
------ ------ ------ ------
Operating income 3.9% 0.7% 2.5% 3.6%
Other income (expense)
Interest and dividend income 0.9% 0.3% 0.8% 0.4%
Other 0.1% 0.5% 0.1% 0.3%
------ ------ ------ ------
1.0% 0.7% 0.9% 0.6%
Income before income taxes 4.9% 1.5% 3.4% 4.2%
Provision for income taxes 1.5% 0.4% 1.0% 1.1%
------ ------ ------ ------
Net income 3.4% 1.0% 2.4% 3.1%
====== ====== ====== ======
For the three months ended December 31, 2004, gross profit as a percentage of
net sales was higher as compared to the three months ended December 31, 2003.
The improved gross profit percentage relates to the continued investment by the
Company in engineering contracts that result in charges to cost of sales for
loss contracts, and lower ESOP contribution expense. The engineering contract
charges were less for the three-month period ended December 31, 2004 as compared
to the same period ended December 31, 2003. These contracts are expected to
improve the operating results of the Company when the engineering phase of these
contracts are completed and follow-on production orders are received. Gross
profit for the three and six month
8
periods ended was also positively impacted by a decrease in ESOP contribution
expense, which was zero for the three month period ended December 31, 2004, and
$107,530 for the three month period ended December 31, 2003. Net income for the
same period improved due to the increase in gross profit and reduced selling,
general and administrative expenses. For the six months ended December 31, 2004
gross profit as a percentage of net sales remained the same at 14.8% as compared
to the six months ended December 31, 2003. The ESOP contribution expense was
zero for the six month period ended December 31, 2004 and $215,060 for the six
month period ended December 31, 2003. This decrease had a positive impact on
gross profit which was offset by lower sales and unfavorable product mix. Net
income decreased for the same period due to lower sales, partially offset by
lower selling, general and administrative expenses.
The Company has encountered performance problems with one customer due to
technical problems associated with a product. Several shipments of hardware have
been made to this customer. The customer and the Company are working together to
resolve the technical problems and to date the customer has not asserted any
liability claims against the Company. Shipments made on this customer specific
product were $1,273,824 through December 31, 2004. Shipments to be made for this
customer on orders currently included in the Company's backlog at December 31,
2004 are $ 885,926. Management believes the technical issues can be resolved and
has added to contract cost estimates to cover the anticipated work necessary to
resolve the technical issues.
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, 2004
was 171 people compared to 190 people at December 31, 2003.
Selling, general and administrative expenses were $580,538 for the three months
ended December 31, 2004, a decrease of $104,056 compared to the three months
ended December 31, 2003. Selling, general and administrative expenses were
$1,181,217 for the six months ended December 31, 2004, a decrease of $53,180
compared to the six months ended December 31, 2003. The decrease is primarily
due to a decrease in administrative salaries and ESOP contribution expense.
Other income for the three months ended December 31, 2004 was $46,768 as
compared to $43,439 for the three months ended December 31, 2003. Other income
for the six months ended December 31, 2004 increased to $84,854 as compared to
$68,043 for the six months ended December 31, 2003. The increase for both
periods is due to higher returns on short-term investments and cash equivelents.
The Company does not believe there is significant risk associated with its
investment policy, since at December 31, 2004 all of the investments are
primarily represented by short-term liquid investments including certificates of
deposit and money market funds.
The Company estimates its income taxes using an estimated effective tax rate for
the annual period. The effective income tax rate at December 31, 2004 and 2003
was 30.0% and 25.8%, respectively. The effective tax rate fluctuates between
periods and is less than the statutory tax rate mainly due to the foreign
exportation benefit the Company receives on its foreign sales.
Liquidity and Capital Resources
As of December 31, 2004, the Company had working capital of $25.0 million
compared to $24.4 million at December 31, 2003. The Company meets its short-term
financing needs through cash flow 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:
Six Months Ended December 31,
2004 2003
----------- ---------
Net cash provided by operating activities $ 1,283,818 $ 194,337
Net cash used by investing activities (998,716) (174,924)
Net cash used in financing activities (378,146) (973,909)
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 change in net cash used by investing activities is due to
the purchase of short-term certificates of deposit. The decrease in net cash
used in financing activities is due mainly to decreased dividends. The first
quarter of fiscal year ended June 30, 2004 included the payment of a special
dividend in the amount of $506,357 or $.50 per share.
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
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 2005 capital expenditures were $230,716.
During the three-month period ended December 31, 2004, 600, and during the
six-month period ended December 31, 2004, 800 stock options were exercised under
the Company's existing stock option plan. No shares were repurchased during the
three-month period ended December 31, 2004. During the six months ended December
31, 2004, the Company repurchased 4,014 shares of its common stock for a total
of $90,315. As of December 31, 2004, under existing Board authorizations,
approximately $452,251 could be utilized to repurchase the Company's common
stock.
9
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 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is a small business as defined under Security and Exchange
Commission rule 12b-2 and therefore files Form 10-Q utilizing the exemption
available to small business issuers for Item 305 of Regulation S-K, quantitative
and qualitative disclosures about market risk, and therefore does not provide
the information for this item.
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.
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PART II: Other Information and Signatures
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Securities Repurchased
(a) Securities Sold - For the six-month period ended December 31,
2004, 800 stock options were exercised
under the Company's existing stock option
plan. The securities were sold for cash and
were made without registration under the
Securities Act in reliance upon the
exemption from registration afforded under
Section 4(2) of the Securities Act of 1933.
Proceeds were used for general working
capital purposes.
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 12, 2004.
(b) Seymour Saslow was re-elected as a Class B director to serve
for a three-year term. Subsequent to the mailing of the
Company's proxy statement for the Annual Meeting, William P.
Greene, the other Class B director, passed away. Continuing as
directors after the Annual Meeting were:
Class A (term expiring 2006): Howard Pinsley
Alvin O. Sabo
Carl Helmetag
Class C (term expiring 2005): Paul J. Corr
Barry Pinsley
Michael W. Wool
(c) The following matters were voted upon at the annual meeting:
The election of one Class B director. The votes were cast as
follows:
Nominee: Voted For: Voted Against or Withheld: Broker Non-Votes:
------- --------- ------------------------- ----------------
Seymour Saslow 965,050 19,165 9,542
Approval of an Amendment to the Company's Certificate of
Incorporation, to change the number of members of the Board of
Directors from nine to a number not less than three, nor more
than nine. The votes were cast as follows:
Shares IN FAVOR 975,014
Shares AGAINST 8,300
ABSTENTIONS 901
Broker NON-VOTES 9,542
Ratification of KPMG LLP, as independent auditors for the
Corporation for the fiscal year ending June 30, 2005. The
votes were cast as follows:
Shares IN FAVOR 982,419
Shares AGAINST 1,066
ABSTENTIONS 730
Broker NON-VOTES 9,542
Item 5. Other Information
None
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Item 6. Exhibits
3.1 Certificate of Amendment of the Certificate of
Incorporation (14th Amendment)
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
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
February 14, 2005
- -----------------
Date
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