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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended June 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to
Commission File No. 1-4383
ESPEY MFG. & ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
New York 14-1387171
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
233 Ballston Avenue, Saratoga Springs, NY 12866
- --------------------------------------------------------------------------------
(Address of principal executive offices including Zip Code)
(Registrant's telephone number including area code) (518) 584-4100
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock $.33-1/3 par value American Stock Exchange
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing requirements
for the past 90 days [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $11,712,576.75 as of September 15, 1999 based upon the closing
sale price of $14.75 on the American Stock Exchange on September 15, 1999.
The number of shares of common stock outstanding as of September 15, 1999 was
1,048,631.
PART I
Item 1. Business.
General
Espey Mfg. & Electronics Corp. (the "Company") has been and intends to continue
to be engaged principally in the development, design, production and sales of
specialized electronic 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. 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 Company operates a one
segment business and was incorporated in 1928.
The electronic power supplies and components manufactured by the Company find
application principally in (i) aircraft, (ii) shipboard and land based radar,
(iii) locomotives, (iv) short, medium range and global communication systems,
(v)navigation systems for aircraft, (vi) nuclear submarine control systems,
(vii) missile guidance and control systems and (viii) land-based military
vehicles.
The Company's iron-core components include (i) transformers of the audio, power
and pulse types, (ii) magnetic amplifiers and (iii) audio filters.
The electronic system components manufactured by the Company include antenna
systems and high power radar transmitters. These system components utilize the
Company's own electronic power supplies, transformers and other iron-core
components and mechanical assemblies.
In the fiscal year ended June 30, 1999 (referred to herein as "1999"), the
Company's total sales were $13,629,692. Sales to two domestic customers and one
foreign customer accounted for 37.6%, 25.4% and 11.2%, respectively, of total
sales in 1999. Sales to three domestic customers accounted for 47.9%, 14.7%, and
12.5%, respectively, of total sales in 1998. Sales to two domestic customers
accounted for 19.9% and 61.4%, respectively, of total sales in 1997.
Export sales in 1999 were approximately $2,500,000 and were not significant in
1998 or 1997. During 1999, the Company established a foreign sales corporation.
Raw Materials
The Company has never experienced any significant delay or shortage with respect
to the purchase of raw materials and components used in the manufacture of its
products, and has at least two potential sources of supply for all raw
materials.
Sales Backlog
At September 1, 1999, the Company's backlog was approximately $25,500,000 which
is the highest it has been since 1992. The total backlog at June 30, 1999 was
approximately $16,961,000 as compared to approximately $12,168,000 as of June
2
30, 1998. The Company's backlog is discussed in greater detail in Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contained in Item 7, below.
It is presently anticipated that a minimum of $13,000,000 of orders comprising
the June 30, 1999 backlog will be filled during the fiscal year ending June 30,
2000. This is in addition to any shipments which may be made against orders
subsequently received during the fiscal year ending June 30, 2000. The estimate
of the June 1999 backlog to be shipped in fiscal 2000 is subject to future
events which may cause the amount of the backlog actually shipped to change.
Marketing and Competition
The Company markets its products primarily through its own direct sales
organization. Business is solicited from Fortune 500 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 many agencies of the 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 both the Department of Defense and other United
States Government agencies for prime contracts.
There is competition in all classes of products manufactured by the Company,
from divisions of the largest electronic companies in the country, 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
government appropriations and program allocations, the competition for available
military business, and termination of orders for convenience.
The Company's business is not considered to be of a seasonal nature.
Research and Development
The Company's expenditures for research and development were approximately
$291,000, $244,000 and $223,000 in 1999, 1998 and 1997, respectively. Some of
the Company's engineers and technicians spend varying degrees of time on either
development of new products or improvement of existing products.
Employees
The number of persons employed by the Company as of September 14, 1999 was 202.
3
Government Regulations
Compliance with federal, state and local provisions that have been enacted or
adopted to regulate the discharge of materials into the environment, or
otherwise relating to the protection of the environment, did not in
1999, and the Company believes will not in fiscal 2000 or any succeeding fiscal
year, have a material effect upon the capital expenditures, earnings or
competitive position of the Company.
Item 2. Properties.
The Company's principal manufacturing and all of its engineering facilities are
at its plant in Saratoga Springs, New York, which the Company owns.
The Saratoga Springs plant consists of various closely adjoining one-story
buildings. The plant has a sprinkler system throughout and contains
approximately 151,000 square feet of floor space, of which 90,000 is used for
manufacturing, 24,000 for engineering, 33,000 for shipping and climatically
secured storage, and 4,000 for offices. The offices, engineering and some
manufacturing areas are air-conditioned. In addition to assembly and wiring
operations, the plant includes facilities for varnishing, potting, plating
impregnation and spray painting operations. The manufacturing operation also
includes a complete machine shop, with welding and sheet metal fabrication
facilities adequate for substantially all of the Company's current operations.
Besides normal test equipment, the Company maintains a sophisticated on-site
environmental test facility. In addition to meeting all of the Company's
in-house needs, the plating, machine shop and environmental facilities are
available to other companies on a contract basis.
The Company owns an additional manufacturing facility in a three-story building
of approximately 4,000 square feet in Gloversville, New York. The facility is
used primarily for subcomponent wiring and assembly.
The Company maintains a sales office in Great Neck, New York. This space,
comprising approximately 750 square feet, is leased from a non-affiliated person
for a term expiring on September 9, 2001.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
4
Price Range of Common Stock
The table below shows the range of high and low prices for the Company's common
stock on the American Stock Exchange, the principal market for trading in the
common stock, for each quarterly period for the last two fiscal years ended June
30:
1999 High Low
First Quarter 14 5/8 12 3/4
Second Quarter 13 3/8 12 3/8
Third Quarter 14 1/8 11 3/4
Fourth Quarter 12 3/4 11 1/4
1998 High Low
First Quarter 17 3/8 16 3/8
Second Quarter 18 1/8 16 3/4
Third Quarter 17 15
Fourth Quarter 15 3/8 13 3/4
Holders
The approximate number of holders of record of the common stock was 178 on
September 13, 1999 according to records of the Company's transfer agent.
Included in this number are shares held in "nominee" or "street" name and,
therefore, the number of beneficial owners of the common stock is believed to be
substantially in excess of the foregoing number.
Dividends
The Company paid a cash dividend on the common stock of $.20 per share for the
fiscal year ended June 30, 1999 and $.70 per share in its fiscal year ended June
30, 1998. The Board of Directors has authorized the payment of an annual
dividend of $.20 per share in fiscal 2000. This dividend will be paid quarterly
at $.05 per share at the end of each of the four quarters in fiscal 2000.
5
Item 6. Selected Financial Data.
ESPEY MFG. & ELECTRONICS CORP.
Five Years Ended June 30, 1999
Year Ended June 30,
---------------------------------------------------------------------------------
Selected Income Statement Data 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Net sales ...................... $ 13,629,692 $ 10,793,572 $ 15,166,075 $ 16,800,200 $ 14,574,097
Operating income (loss) ........ 690,839 (1,750,663) 342,177 209,226 24,064
Other income, net .............. 441,762 595,691 525,046 575,006 726,073
------------ ------------ ------------ ------------ ------------
Net income (loss) ....... 730,601 (739,602) 563,128 522,737 491,767
Income (loss) per common share: $ .66 $ (.67) $ .51 $ .41 $ .37
============ ============ ============ ============ ============
Selected Balance Sheet Data
Current assets ................. 22,091,114 21,309,658 21,819,899 21,499,805 25,243,909
Current liabilities ............ 1,274,126 883,980 599,180 623,908 983,401
Working capital ................ 20,816,988 20,425,678 21,220,719 20,875,897 24,260,508
Total assets ................... 25,394,712 24,574,108 25,199,951 24,950,043 28,839,718
Long-term liabilities (deferred
income taxes) ............. -- -- -- -- 30,697
------------ ------------ ------------ ------------ ------------
Stockholders' equity ........... 24,120,586 23,690,128 24,600,771 24,326,135 27,825,620
------------ ------------ ------------ ------------ ------------
Cash dividends declared and paid
per common share .......... $ .20 $ .70 $ .70 $ .70 $ .60
============ ============ ============ ============ ============
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Net Sales for fiscal years ended June 30, 1999, 1998,and 1997, were
$13,629,692, $10,793,572 and $15,166,075, respectively. The 26% increase in
sales over 1998 is a result of the Company beginning to realize the benefits of
intensified marketing efforts in an attempt to increase business with existing
customers as well as establishing new customer relationships. These efforts have
provided for the continued increase in the backlog that has occurred over the
last several quarters. At September 1, 1999, the Company's backlog was
approximately $25,500,000, which is the highest it has been since 1992. The
backlog at June 30, 1999 was approximately $16,961,000, a 39% increase over the
June 30, 1998 backlog. The increase in sales orders resulted from the increased
demand from foreign customers, and for spare parts and commercial power
supplies.
6
The decrease in Net Sales in 1998 as compared to 1997 was primarily a result of
the relatively low June 30, 1997 backlog. The backlog was low due to the
consolidation and relocation of the facilities and personnel of one of the
Company's major customers, and the attendant delay in its issuance of new orders
and establishment of new programs.
Net income for fiscal 1999, was $730,601 or $.66 per share compared to a net
loss of $739,602 or ($.67) per share for fiscal 1998. The net income increase
was due to increased Net Sales, favorable product mix and an overall decrease in
selling, general and administrative expenses.
For fiscal years ended June 30, 1999, 1998 and 1997 gross profits were
$2,537,676, $685,953 and $2,150,639, respectively. The increase in gross profit
in 1999 was predominately due to increased efficiency in manufacturing and
engineering workforce and favorable product mix. The decrease in gross profit in
1998, as compared to 1997, is largely attributable to the 29% decrease in sales
during 1998 and the fact that in an effort to expand and diversify product lines
the Company accepted certain contracts with negative profit margins.
Selling, general and administrative expenses were $1,846,837 for the year ended
June 30, 1999, a decrease of $110,279, or 5.6% as compared to the prior year.
The reduction is primarily related to a decrease in professional fees, officers
salaries and employment related expenses. Selling, general and administrative
expenses increased approximately 8% in the 1998 fiscal year as compared to the
1997 fiscal year. No one factor accounted for this increase.
Other income declined, as expected, as the company continued to increase the
backlog and improve overall net sales, more cash was being utilized in
operations for inventory and higher accounts receivable balances during fiscal
1999. This trend left the company with less cash to invest in interest bearing
securities. Also, interest rates declined slightly in fiscal 1999 from fiscal
1998.
Business Outlook
The Company continues to increase Net Sales while also increasing the existing
backlog. During the first nine weeks of fiscal 2000, the Company received
approximately $13,000,000 in new orders. The backlog of over $25 million as of
September 1, 1999, gives the Company a solid base to grow from over the next few
years. In addition to the backlog, the Company currently has outstanding
quotations well in excess of $60 million for both repeat and new programs. The
Company has received major contracts for power supplies which should find
extensive use throughout the world. The Company has also received substantial
orders for spare parts on the various types of transmitters which are already in
the field, and a number of contracts for further development and manufacture of
numerous transformers. The outstanding quotations encompass various new and
previously manufactured power supplies, transformers, and subassemblies.
Management presently anticipates that the Company will realize both an increase
in revenues and income in 2000, however, there can be no assurance that the
Company will acquire any or all of the proposed orders described above since
such a forward-looking statement is subject to future events, market conditions,
political stability of foreign governments, and allocations of the United States
defense budget.
7
Liquidity and Capital Resources
The Company's working capital is an appropriate indicator of the liquidity of
its business, and during the past three fiscal years, the Company, when
possible, has funded all of its operations with cash flows resulting from
operating activities and when necessary from its existing cash and investments.
The Company did not borrow any funds during the last three fiscal years and does
not currently anticipate that it will borrow any funds during fiscal year 2000.
The Company's working capital as of June 30, 1999, 1998 and 1997 was
$20,816,988, $20,425,678,and $21,220,719, respectively. During 1999 the Company
repurchased 47,562 shares of its common stock from the Company's ESOP and in
other private and public transactions, for a total purchase price of $604,226.
The Company did not repurchase any of its common stock during fiscal year 1998.
The Company repurchased 7,426 shares of common stock from the Company's ESOP
during 1997 for a total purchase price of $116,032. In the first quarter of
fiscal year 2000, the Company repurchased 15,027 shares of common stock from the
Company's ESOP at a purchase price of $193,222. Under existing authorizations
from the Company's Board of Directors, as of September 7, 1999, 57,473 company
shares could be repurchased by the Company, at a price not to exceed $13.50 per
share.
The table below presents the summary of cash flow information for the fiscal
year indicated:
1999 1998
---- ----
Net cash used in operating activities ............ $ 2,947,631 $ 1,787,614
Net cash (provided by)used in investing activities (3,541,565) 6,966,376
Net cash used in financing activities ............ 821,338 777,854
Net cash used in 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 increase in cash (provided by) used in investing activities is due
to the maturities of the Company's investment securities with no offsetting
purchase of new investments as the Company needed the funds to support current
operations. The increase in cash used in financing activities is due to the
increased amount of treasury stock purchased during 1999 as explained above.
The Company 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 believes that the Company's reserve for bad debts of $3,000 is
adequate given the customers with whom the Company deals. The amount of bad
debts over the years has been minimal.
During fiscal year 1999, and 1998, the Company expended approximately $508,000
and $300,000, respectively, for plant improvements and new equipment. The
Company plans to expend approximately $590,000 for new equipment and plant
improvements in fiscal 2000. Management presently anticipates that the funds
required will be available from current operations.
8
Management Restructuring
At the end of the fiscal 1998, the Company implemented a management succession
plan. The plan was effectuated through agreements with five executive officers
of the Company: Joseph Canterino (former President and Chief Executive Officer),
Barry Pinsley (former Vice President-Investor Relations and Human Resources),
Seymour Saslow (Senior Vice President), Herbert Potoker (Treasurer and Principal
Financial Officer) and Reita Wojtowecz (Secretary). Under the terms of the
agreements, the executives agreed to resign from their positions as executive
officers and are being compensated in accordance with their respective
agreements. The implementation of this plan resulted in the Company recording in
fiscal 1998 a $479,500 pre-tax charge for payments due under the contracts and
costs related to the implementation of the plan. The costs of the plan are being
paid with cash flows from the Company's operating activities. At June 30, 1999
approximately $306,000 remains to be paid under these agreements.
Other Matters
An Employee Retirement Plan and Trust ("ESOP") was established for the eligible
non-union employees of the Company and was effective as of July 1, 1988. The
ESOP used the proceeds of a loan from the Company to purchase 316,224 shares of
the Company's common stock for approximately $8,400,000, 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.
Each year the Company makes contributions to the ESOP which are 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
June 30, 1999, there were 167,632 shares allocated to participants. Dividends
attributable to allocated shares were likewise allocated to the participants'
accounts, whereas the dividends on unallocated shares were used as part of the
loan repayment, thus reducing the Company's required contribution.
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 balance sheets.
Year 2000 Issues
The Company's Year 2000 team has the responsibility of identifying and resolving
significant Year 2000 issues in a timely manner. In addition, management
continues to monitor the status of the Company's Year 2000 remediation.
The process has included an assessment of issues and development of remediation
plans, where necessary, as they relate to internally used software, computer
hardware and use of computer applications in the Company's manufacturing
processes and products. In addition, the Company is engaged in assessing the
Year 2000 issue with significant suppliers. The Company continues to communicate
with its significant suppliers and large customers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. To date no significant issues have been identified
as to internally used software, computer hardware and use of computer
applications in the Company's manufacturing processes and products. In addition,
no issues have been identified regarding significant suppliers and large
customers.
9
The Company is utilizing both internal and external resources to reprogram, or
replace and test, the software it currently uses for Year 2000 modifications.
The Company has substantially completed its Year 2000 assessment and
remediation. The total project costs to date, related to the assessment and
remediation of its Year 2000 issues are less than $25,000.
With regard to its internal Year 2000 compliance program, the Company has
completed approximately 99% of its review and, when necessary, 100% of
remediation. With regard to its Year 2000 compliance program addressing the
status of the Company's suppliers and customers, the Company has completed
approximately 98% of its review. No problems have been identified.
The Company has determined that contingencies related to the Year 2000 issue
will not have a material adverse effect. Accordingly, the Company has not
established a contingency plan and does not anticipate creating such a plan.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company, despite its efforts as described in this section,
can give no assurance as to whether the consequences of Year 2000 failures will
have a material impact on the Company's results of operations, liquidity or
financial condition.
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
It should be noted that certain statements 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.
Item 8. Financial Statements and Supplementary Data.
10
Report of Independent Accountants
To the Board of Directors and Stockholders of
Espey Mfg. & Electronics Corp. and Subsidiary:
In our opinion, the 1999 consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 23 present fairly, in all material
respects, the financial position of Espey Mfg. and Electronics Corp. and
Subsidiary at June 30, 1999, and the results of their operations and their cash
flows for the year ended June 30, 1999 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Albany, New York
August 24, 1999
11
Report of Independent Accountants
June 30, 1998 and 1997
The Board of Directors and Stockholders
Espey Mfg. & Electronics Corp.:
We have audited the accompanying balance sheet of Espey Mfg. & Electronics Corp.
as of June 30, 1998, and the related statements of earnings, changes in
stockholders' equity and cash flows for the years ended June 30, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Espey Mfg. & Electronics Corp.
as of June 30, 1998, and the results of its operations and its cash flows for
the years ended June 30, 1998 and 1997, in conformity with generally accepted
accounting principles.
/s/KPMG LLP
- -----------
KPMG LLP
Albany, New York
August 26, 1998
12
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Balance Sheets
June 30, 1999 and 1998
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 2,364,335 $ 2,591,739
Investment securities 3,674,169 7,235,749
Trade accounts receivable, net of $3,000 allowance in 1999 and 1998 4,440,177 1,866,336
Income tax refund receivable -- 270,408
Other receivables 10,941 18,642
------------ ------------
Net receivables 4,451,118 2,155,386
------------ ------------
Inventories:
Raw materials and supplies 546,007 558,951
Work in process 2,639,330 2,905,269
Costs relating to contracts in process 7,856,607 5,324,491
------------ ------------
Net inventories 11,041,944 8,788,711
------------ ------------
Deferred income taxes 327,497 348,514
Prepaid expenses and other current assets 232,051 189,559
------------ ------------
Total current assets 22,091,114 21,309,658
------------ ------------
Deferred income taxes 42,367 80,793
Property, plant and equipment, at cost 12,851,825 12,344,139
Less accumulated depreciation (9,590,594) (9,160,482)
------------ ------------
Net property, plant and equipment 3,261,231 3,183,657
------------ ------------
Total assets $ 25,394,712 $ 24,574,108
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 285,281 $ 207,886
Accrued salaries, wages and commissions 498,695 563,058
Accrued employee insurance costs 58,539 37,472
Accrued vacation 211,162 20,000
Accrued other 41,251 12,204
Payroll and other taxes withheld and accrued 116,211 43,360
Income taxes payable 62,987 --
------------ ------------
Total current liabilities 1,274,126 883,980
------------ ------------
Stockholders' equity:
Common stock, par value $.33-1/3 per share 504,979 504,979
Authorized 2,250,000 shares; issued 1,514,937 shares in 1999 and 1998
Outstanding 1,063,658 and 1,111,220 in 1999 and 1998, respectively
Capital in excess of par value 10,496,287 10,496,287
Accumulated other comprehensive income (38,175) 7,260
Retained earnings 23,193,297 22,671,840
------------ ------------
34,156,388 33,680,366
Less:
Common stock subscribed (2,793,312) (3,351,974)
Cost of 451,279 and 403,717 shares of common stock in treasury
in 1999 and 1998 (7,242,490) (6,638,264)
------------ ------------
Total stockholders' equity 24,120,586 23,690,128
------------ ------------
Total liabilities and stockholders' equity $ 25,394,712 $ 24,574,108
============ ============
The accompanying notes are an integral part of the financial statements.
13
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Income
Years Ended June 30, 1999, 1998 and 1997
1999 1998 1997
Net sales $ 13,629,692 $ 10,793,572 $ 15,166,075
Cost of sales 11,092,016 10,107,619 13,015,436
------------ ------------ ------------
Gross profit 2,537,676 685,953 2,150,639
Selling, general and administrative expenses 1,846,837 1,957,116 1,808,462
Other costs -- 479,500 --
------------ ------------ ------------
Operating income (loss) 690,839 (1,750,663) 342,177
------------ ------------ ------------
Other income:
Interest and dividend income 425,330 553,540 514,822
Other 16,432 42,151 10,224
------------ ------------ ------------
Total other income 441,762 595,691 525,046
------------ ------------ ------------
Income (loss) before income taxes 1,132,601 (1,154,972) 867,223
Provision (benefit) for income taxes 402,000 (415,370) 304,095
------------ ------------ ------------
Net income (loss) $ 730,601 $ (739,602) $ 563,128
============ ============ ============
Income per common share;
Net income (loss) per common share - basic and diluted $ .66 $ (0.67) $ 0.51
============ ============ ============
Weighted average outstanding shares 1,100,065 1,111,220 1,112,074
============ ============ ============
The accompanying notes are an integral part of the financial statements.
14
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 1999, 1998 and 1997
Accumulated
Capital in Other
Common Excess of Par Comprehensive Retained
Stock Value Income (Loss) Earnings
------------ ------------ ------------ ------------
Balance at June 30, 1996 $ 504,979 $ 10,496,287 $ -- $ 24,316,400
------------ ------------ ------------ ------------
Comprehensive income
Net income, 1997 563,128
Comprehensive income (loss)
Dividends paid on common stock, $.70 per share (777,855)
Tax effect of dividends on unallocated ESOP shares 46,732
Purchase of treasury stock (7,426 shares)
Reduction of common stock subscribed
------------ ------------ ------------ ------------
Balance at June 30, 1997 504,979 10,496,287 -- 24,148,405
------------ ------------ ------------ ------------
Comprehensive loss:
Net loss (739,602)
Other comprehensive income, net of tax of $3,740 7,260 7,260
Comprehensive loss (732,342)
Dividends paid on common stock, $.70 per share (777,854) (777,854)
Tax effect of dividends on unallocated ESOP shares (Note 8) 40,891 40,891
Reduction of common stock subscribed 558,662 558,662
------------ ------------ ------------ ------------
Balance at June 30, 1998 504,979 10,496,287 7,260 22,671,840
------------ ------------ ------------ ------------
Comprehensive income (loss):
Net income, 1999 730,601
Other comprehensive loss, net of tax benefit of $25,557 (45,435)
Comprehensive income
Dividends paid on common stock $.20 per share (217,112)
Tax effect of dividends on unallocated ESOP shares 7,968
Purchase of treasury stock (47,562 shares)
Reduction of common stock subscribed
------------ ------------ ------------ ------------
Balance at June 30, 1999 $ 504,979 $ 10,496,287 $ (38,175) $ 23,193,297
============ ============ ============ ============
Treasury Stock Total
Common Stock ----------------------------- Stockholders'
Subscribed Shares Amount Equity
------------ ------------ ------------ ------------
Balance at June 30, 1996 $ (4,469,299) 396,291 $ (6,522,232) $ 24,326,135
------------ ------------ ------------ ------------
Comprehensive income
Net income, 1997 563,128
------------
Comprehensive income (loss) 563,128
Dividends paid on common stock, $.70 per share (777,855)
Tax effect of dividends on unallocated ESOP shares 46,732
Purchase of treasury stock (7,426 shares) 7,426 (116,032) (116,032)
Reduction of common stock subscribed 558,663 558,663
------------ ------------ ------------ ------------
Balance at June 30, 1997 (3,910,636) 403,717 (6,638,264) 24,600,771
------------ ------------ ------------ ------------
Comprehensive loss:
Net loss (739,602)
Other comprehensive income, net of tax of $3,740 7,260
------------
Comprehensive loss (732,342)
Dividends paid on common stock, $.70 per share (777,854)
Tax effect of dividends on unallocated ESOP shares (Note 8) 40,891
Reduction of common stock subscribed 558,662
------------ ------------ ------------ ------------
Balance at June 30, 1998 (3,351,974) 403,717 (6,638,264) 23,690,128
------------ ------------ ------------ ------------
Comprehensive income (loss):
Net income, 1999 730,601
Other comprehensive loss, net of tax benefit of $25,557 (45,435)
------------
Comprehensive income 685,166
Dividends paid on common stock $.20 per share (217,112)
Tax effect of dividends on unallocated ESOP shares 7,968
Purchase of treasury stock (47,562 shares) 47,562 (604,226) (604,226)
Reduction of common stock subscribed 558,662 558,662
------------ ------------ ------------ ------------
Balance at June 30, 1999 $ (2,793,312) 451,279 $ (7,242,490) $ 24,120,586
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
15
Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 1999, 1998 and 1997
1999 1998 1997
Cash flows from operating activities:
Net income (loss) $ 730,601 $ (739,602) $ 563,128
Adjustments to reconcile net Income (loss) to net cash
provided by operating activities:
Tax effect of dividends on unallocated ESOP shares 7,968 40,891 46,732
Depreciation 430,111 422,013 488,617
Deferred income tax expense (benefit) 85,000 (220,618) (202,545)
Change in assets and liabilities:
Decrease (increase) in trade accounts receivable (2,566,142) (721,148) 410,751
and other receivables, net
Decrease (increase) in inventories, net (2,253,233) (586,836) 2,831,471
Decrease (increase) in income tax refund receivable 270,408 (270,408) --
Decrease in prepaid expenses and other current assets (42,491) 3,294 79,955
Increase (decrease) in accounts payable 77,397 (37,917) 87,172
Increase (decrease) in accrued salaries, wages and (64,363) 475,418 (8,711)
commissions
Increase (decrease) in accrued employee insurance 21,066 (3,101) (14,166)
costs
Increase (decrease) in other accrued expenses 29,048 3,210 (8,446)
Increase in accrued vacation 191,161
Increase (decrease) in payroll and other taxes 72,851 (4,204) (109,326)
withheld and accrued
Increase (decrease) in income taxes payable 62,987 (148,606) 28,749
------------ ------------ ------------
Net cash provided by (used in) operating activities (2,947,631) (1,787,614) 4,193,381
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturity of investment securities 10,000,000 -- 7,949,583
Additions to property, plant and equipment (507,684) (300,289) (352,848)
Purchases of investment securities (6,509,413) (7,224,749) (4,928,388)
Reduction of common stock subscribed 558,662 558,662 558,663
------------ ------------ ------------
Net cash provided by (used in) investing activities 3,541,565 (6,966,376) 3,227,010
------------ ------------ ------------
Cash flows from financing activities:
Dividends on common stock (217,112) (777,854) (777,855)
Purchase of treasury stock (604,226) -- (116,032)
------------ ------------ ------------
Net cash used in financing activities (821,338) (777,854) (893,887)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (227,404) (9,531,844) 6,526,504
Cash and cash equivalents, beginning of year 2,591,739 12,123,583 5,597,079
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,364,335 $ 2,591,739 $ 12,123,583
============ ============ ============
Supplemental disclosures of cash flow information:
Income taxes paid $ 331,045 $ 224,262 $ 431,160
============ ============ ============
The accompanying notes are an integral part of the financial statements.
16
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Operations
Espey Mfg. & Electronics Corp. and Subsidiary (the Company) is a
manufacturer of electronic equipment used primarily in military and
industrial applications. The principal markets for the Company's
products are companies that provide electronic support to both military
and industrial applications. During 1999, the Company established a
foreign sales corporation (subsidiary).
Inventory Valuation and Revenue Recognition
Raw materials are valued at the lower of cost or market value, on the
first-in, first-out method.
Inventoried work relating to contracts in process and work in process
is valued at actual production cost, including factory overhead and
initial set-up costs incurred to date. Work in process represents spare
units and parts and other inventory items acquired or produced to
service units previously sold or to meet anticipated future orders.
Provision for losses on contracts is made when existence of such losses
becomes evident. The costs attributed to units delivered under
contracts are based on the estimated average cost of all units expected
to be produced. Certain contracts are expected to extend beyond twelve
months.
The cost elements of contracts in process consist of production costs
of goods and services currently in process and overhead relative to
those contracts where such costs are reimbursable under the terms of
the contracts. General and administrative expenses are charged to
operations in the period in which they are incurred.
Revenue is recognized on contracts in the period in which the units are
delivered and billed (unit-of-delivery method).
Depreciation
Depreciation of plant and equipment is computed on a straight-line
basis over the estimated useful lives of the assets.
Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the provisions of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. In
addition, SFAS No. 109 requires that the tax benefit of tax deductible
dividends on unallocated ESOP shares be recorded as a direct addition
to retained earnings rather than as a reduction of income tax expense.
17
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
1. Summary of Significant Accounting Policies, Continued
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, certificates of
deposit, money market accounts, and U.S. Treasury bills with original
maturities of three months or less.
Investment Securities
The Company accounts for its investments in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." Investment securities at June 30, 1999 and 1998 consist of
U.S. Treasury securities and corporate equity securities. The Company
classifies U.S. Treasury securities and corporate equity securities as
available-for-sale. Unrealized holding gains and losses, net of related
tax effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity until
realized. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are determined using
the specific identification method. Interest income is recognized when
earned.
Comprehensive Income
In 1999, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
statement establishes rules for the reporting of comprehensive income
and its components. Comprehensive income consists of net income and
unrealized gains (losses) on securities available for sale and is
presented in the Statement of Changes in Stockholders' Equity. Prior
year financial statements have been reclassified to conform to the SFAS
130 requirements. Components of other comprehensive income include
unrealized gains (losses) on securities available for sale and there
were no realized gains (losses) included in net income requiring
reclassification adjustments to other comprehensive income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Investment Tax Credits
Investment tax credits are accounted for as a reduction of income tax
expense in the year taxes payable are reduced.
Reclassifications
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
18
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
2. Marketable Investment Securities
Marketable investment securities at June 30, 1999, consist of U.S.
Treasury bills and corporate equity securities, which are classified as
available-for-sale securities, and recorded at market value. The cost,
gross unrealized gains, gross unrealized losses and fair value of
available-for-sale securities by major security type at June 30, 1999 are
as follows:
1999 Gross Gross
Unrealized Unrealized
Holding Holding Fair
Cost Gains Losses Value
U.S. Treasury bills $2,915,161 $ -- $ -- $2,915,161
Corporate equity securities 819,005 -- 59,997 759,008
---------- ---------- ---------- ----------
$3,734,166 $ -- $ 59,997 $3,674,169
========== ========== ========== ==========
1998 Gross Gross
Unrealized Unrealized
Holding Holding Fair
Cost Gains Losses Value
U.S. Treasury bills $6,805,744 $ -- $ -- $6,805,744
Corporate equity securities 419,005 11,000 -- 430,005
---------- ---------- ---------- ----------
$7,224,749 $ 11,000 $ -- $7,235,749
========== ========== ========== ==========
The U.S. Treasury bills classified as available-for-sale at June 30,
1999 mature during 2000. The change in net unrealized gain (loss) on
available for sale investment securities was ($45,435) and $7,260 in
1999 and 1998, respectively.
3. Inventories and Cost of Sales
Included in costs relating to contracts in process at June 30, 1999, 1998
and 1997 are costs of $298,814, $310,724, and $368,687, respectively,
relative to contracts that may not be completed within the ensuing year.
Under the unit-of-delivery method, the related sale and cost of sales
will not be reflected in the statement of income until the units under
contract are shipped.
4. Contracts in Process
Contracts in process at June 30, 1999 and 1998 are as follows:
1999 1998
Gross contract value $16,961,238 $12,167,932
=========== ===========
Carrying value of contracts in process included in current assets $ 7,856,607 $ 5,324,491
=========== ===========
19
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
5. Property, Plant and Equipment
A summary of the original cost of property, plant and equipment at June
30, 1999 and 1998 is as follows:
1999 1998
Land $ 50,000 $ 50,000
Buildings and improvements 3,952,869 3,863,413
Machinery and equipment 8,477,396 8,078,787
Furniture, fixtures and office equipment 371,560 351,939
----------- -----------
$12,851,825 $12,344,139
=========== ===========
Estimated useful lives of depreciable assets are as follows:
Buildings and improvements 15-20 years
Machinery and equipment 10 years
Furniture, fixtures and office equipment 10 years
6. Research and Development Costs
Research and development costs charged to operations during the years
ended June 30, 1999, 1998 and 1997 were approximately $291,000, $244,000,
and $223,000, respectively.
7. Pension Expense
Under terms of a negotiated union contract, the Company is obligated to
make contributions to a union-sponsored defined benefit pension plan
covering eligible employees. Such contributions are based upon hours
worked at a specified rate and amounted to $64,829 in 1999, $54,269 in
1998, and $66,642 in 1997.
8. Provision (Benefit) for Income Taxes
A summary of the components of the provision (benefit) for income taxes
for the years ended June 30, 1999, 1998 and 1997 is as follows:
1999 1998 1997
Current tax expense (benefit) - federal $ 313,000 $(195,179) $ 481,729
Current tax expense - state 4,000 427 24,911
Deferred tax expense (benefit) 85,000 (220,618) (202,545)
--------- --------- ---------
$ 402,000 $(415,370) $ 304,095
========= ========= =========
20
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
8. Provision (Benefit) for Income Taxes, Continued
Deferred income taxes reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting
purposes and such amounts measured by tax laws and regulations. These
"temporary differences" are determined in accordance with SFAS No. 109.
The combined U.S. federal and state effective income tax rates of 35.5%,
(36.0)% and 35.1% for 1999, 1998 and 1997, respectively, differed from
the statutory U.S. federal income tax rate for the following reasons:
1999 1998 1997
U.S. federal statutory income tax rate 34% (34.0)% 34.0%
Increase (reduction) in rate resulting from:
Dividends received deduction (0.5) -- (.3)
State franchise tax, net of federal
income tax benefit 2.3 (2.4) 1.9
Foreign sales corporation benefit (1.1) -- --
Other 0.8 .4 (.5)
---- ---- ----
Effective tax rate 35.5% (36.0)% 35.1%
==== ==== ====
For the years ended June 30, 1999 and 1998 deferred income tax (expense)
benefit of $(85,000) and $202,545, respectively, result from the changes
in temporary differences for each year. The tax effects of temporary
differences that give rise to deferred tax assets and deferred tax
liabilities as of June 30, 1999 and 1998 are presented as follows:
1998 1997
Deferred tax assets:
Inventory - differences in valuation methods $161,194 $169,521
Unrealized loss on available-for-sale investment securities 25,557 --
Common stock subscribed - due to difference in
interest recognition 449,891 471,882
Non-deductible accruals 154,810 172,524
Other 13,353 37,626
-------- --------
Total gross deferred tax assets 804,805 851,553
-------- --------
Deferred tax liabilities:
Property, plant and equipment - principally due to
differences in depreciation methods 407,524 391,089
Inventory - effect of uniform capitalization 27,417 27,417
Unrealized gain on available-for-sale investment securities -- 3,740
-------- --------
Total gross deferred tax liabilities 434,941 422,246
-------- --------
Net deferred tax asset $369,864 $429,307
======== ========
21
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
8. Provision (Benefit) for Income Taxes, Continued
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the schedule reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable
income and projection for future taxable income over the period in which
the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these
temporary differences without consideration of a valuation allowance.
9. Common Stock and Income Per Share
Income per share information is based on the weighted average number of
common shares outstanding during the respective periods. The weighted
average number of shares used in the computation was 1,100,065 in 1999,
1,111,220 in 1998, and 1,112,074 in 1997.
10. Significant Customers
A significant portion of the Company's business is the production of
military and industrial electronic equipment for use by the U.S.
Government and its agencies and certain industrial customers. Sales to
two domestic customers and one foreign customer accounted for 37.6%,
25.4% and 11.2%, respectively of total sales in 1999. Sales to three
domestic customers accounted for 47.9%, 14.7% and 12.5%, respectively, of
total sales in 1998. Sales to two domestic customers accounted for 19.9%,
and 61.4%, respectively, of total sales in 1997.
Export sales in 1999 aggregated approximately $2,500,000. Export sales in
1998 and 1997 were not significant.
11. Stock Rights Plan
During 1989, the Company adopted a Shareholder Rights Plan which expires
on December 31, 1999. Under this plan, common stock purchase rights were
distributed as a dividend at the rate of one right for each share of
common stock outstanding as of or issued subsequent to April 14, 1989.
Each right entitles the holder thereof to buy one-half share of common
stock of the Company at an exercise price of $75 per share subject to
adjustment. The rights are exercisable only if a person or group acquires
beneficial ownership of 25% or more of the Company's common stock or
commences a tender or exchange offer which, if consummated, would result
in the offeror, together with all affiliates and associates thereof,
being the beneficial owner of 30% or more of the Company's common stock.
22
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
11. Stock Rights Plan, Continued
If a 25% or larger shareholder should engage in certain self-dealing
transactions or a merger with the Company in which the Company is the
surviving corporation and its shares of common stock are not changed or
converted into equity securities of any other person, or if any person
were to become the beneficial owner of 30% or more of the Company's
common stock, than each right not owned by such shareholder or related
parties of such shareholder (all of which will be void) will entitle its
holder to purchase, at the right's then current exercise price, shares of
the Company's common stock having a value of twice the right's exercise
price. In addition, if the Company is involved in any other merger or
consolidation with, or sells 50% or more of its assets or earning power
to, another person, each right will entitle its holder to purchase, at
the right's then current exercise price, shares of common stock of such
other person having a value of twice the right's exercise price.
The Company generally is entitled to redeem the rights at one cent per
right at any time until the 15th day (or 25th day if extended by the
Company's Board of Directors) following public announcement that a 25%
position has been acquired or the commencement of a tender or exchange
offer which, if consummated, would result in the offeror, together with
all affiliates and associates thereof, being the beneficial owner of 30%
or more of the Company's common stock.
12. Employee Stock Ownership Plan
In 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 in 1989 to the ESOP which was used by the ESOP to purchase an
additional 15,000 shares of the Company's common stock. Since inception
of the Plan, the ESOP has sold or distributed 58,532 shares of the
Company's common stock to pay benefits to participants. At June 30, 1999
and 1998, the ESOP held a total of 272,692 and 291,210 shares,
respectively, of the Company's common stock, of which 167,632 and 165,139
shares, respectively, were allocated to participants in the Plan.
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 balance
sheets. The Company recognizes the principal payments of the ESOP debt,
on a straight-line basis over the term of the note, as compensation
expense.
Each year, the Company makes contributions to the ESOP which are used to
make loan payments. With each loan payment, a portion of the common stock
is allocated to participating employees. For the periods ended June 30,
1999, 1998 and 1997, 20,012 shares were allocated to participants. In
1999, the Company's required contribution of $1,039,605 was reduced by
$25,214 which represents the dividends paid on the unallocated ESOP
shares. The resulting payment of $1,014,391 includes $533,449 classified
as compensation expense. In 1998, the Company's required contribution of
$1,039,605 was reduced by $102,959, which represents the dividends paid
on the unallocated ESOP shares. The resulting payment of $936,646
includes $455,704 classified as compensation expense. In 1997, the
Company's required contribution of $1,039,605 was reduced by $117,667,
which represents the dividends paid on the unallocated ESOP shares. The
resulting payment of $921,938 includes $440,996 classified as
compensation expense. All shares purchased by the ESOP are considered to
be outstanding for the income per share computations.
23
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
13. Financial Instruments/Concentration of Credit Risk
The carrying amounts of financial instruments, including cash, short-term
investments, investment securities, accounts receivable, accounts payable
and accrued expenses, approximated fair value as of June 30, 1999 and
1998 because of the relatively short maturities of these instruments.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and short-term
investments and accounts receivable. The Company maintains cash and
short-term investments with various financial institutions. At times such
investments may be in excess of FDIC insurance limits. As disclosed in
Note 10, a significant portion of the Company's sales are made to the
U.S. Government and its agencies and certain industrial customers. The
related accounts receivable balance represented 93.2% and 76.2% of the
Company's total trade accounts receivable balance at June 30, 1999 and
1998, respectively.
Although the Company's exposure to credit risk associated with nonpayment
of these balances is affected by conditions or occurrences within the
U.S. Government, the Company believes that its trade accounts receivable
credit risk exposure is limited. The Company performs ongoing credit
evaluations of its customers' financial conditions and requires
collateral, such as progress payments, in certain circumstances. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and
other information.
14. Commitments
The Company under an operating lease agreement rents a sales office in
Great Neck, New York. This lease, which expires on September 9, 2001,
requires future minimum lease payments of $14,222 payable as follows:
Year ending June 30,
2000 12,190
2001 2,032
----------
$ 14,222
==========
Rent expense for the years ended June 30, 1999, 1998 and 1997 was
$18,674, $12,398, and $14,156, respectively.
15. Other Costs
During 1998 the Company implemented a management succession plan that
involves agreements with five members of management. These agreements
require the Company to pay certain amounts for a period of approximately
two years after the employees' resignations from the Company in exchange
for the employees' agreements to be available to the Company on an
as-needed basis. Since there is no minimum service required by the
agreements, the Company accrued for these payments on the effective date
of the plan as the employees are eligible for the benefit at that date.
At June 30, 1998, $479,500 was accrued to record the liabilities relating
to these agreements. At June 30, 1999, approximately $306,000 was left to
be paid to these individuals.
24
Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements, Continued
16. Related Parties
The Company paid a law firm in which a director of the Company is a
partner, a total of $42,000 for legal services during each fiscal year
ended June 30, 1999, 1998 and 1997. The Company paid a director of the
Company, a total of approximately $29,000 for consulting services during
the fiscal year ended June 30, 1999.
17. Quarterly Financial Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1999:
Net sales $ 2,523,984 $ 3,134,377 $ 3,089,547 $ 4,881,784
Gross profit 398,705 625,453 451,815 1,061,703
Net income 84,042 166,109 99,723 380,727
----------- ----------- ----------- -----------
Net income (per share - basic
and diluted) .08 .15 .09 .34
----------- ----------- ----------- -----------
1998:
Net sales $ 2,503,584 $ 3,549,697 $ 2,240,347 $ 2,499,944
Gross profit 428,603 401,300 (457,608) 313,658
Net income (loss) 45,009 24,955 (507,426) (302,140)
----------- ----------- ----------- -----------
Net income (loss) per share - basic
and diluted 0.04 0.02 (0.46) (0.27)
----------- ----------- ----------- -----------
1997:
Net sales $ 4,586,892 $ 4,066,386 $ 3,805,569 $ 2,707,228
Gross profit 698,018 729,221 544,037 179,363
Net earnings (loss) 228,719 244,126 127,370 (37,087)
----------- ----------- ----------- -----------
Net income (per share - basic
and diluted) .21 .21 .12 (.03)
----------- ----------- ----------- -----------
Financial information for the fourth quarter of 1997 reflects a pre-tax
write off of approximately $385,000 related to inventory for which the
Company expected to receive orders during the year. In the fourth quarter
of 1997, management's assessment of this inventory resulted in the
aforementioned write-off as previously anticipated orders did not
materialize.
25
PART III
Item 10. Directors and Executive Officers of the Registrant.
Identification of Directors
Date Present Term Other Positions
Expires and Period and Offices Held
Name Served as Director With Registrant Age
- ---- ------------------ --------------- ---
Paul J. Corr Annual Meeting in None 55
December 1999
Director since
April 3, 1992
William P. Greene Annual Meeting in Executive Vice 69
December 2001 President of Operations
Director since
April 3, 1992
Barry Pinsley Annual Meeting in None 57
December 1999
Director since
March 25, 1994
Howard Pinsley Annual Meeting in President and Chief 59
December 2000 Executive Officer
Director since
December 11, 1992
Gerald B.H. Solomon Annual meeting 2001 None 69
Director since
March 25, 1999
Seymour Saslow Annual Meeting in Senior Vice President 78
December 2001
Director since
December 11, 1992
Michael W. Wool Annual Meeting in None 53
December 1999
Director since 1990
26
Identification of Executive Officers
Positions and
Offices Held Period Served As
Name With Company Executive Officer Age
- ---- ------------------ --------------- ---
Howard Pinsley President and Served as Vice President- 59
Chief Executive Special Power Supplies
Officer from April 3, 1992 until
being elected as Executive
Vice President on December
6, 1997. Elected to present
office on June 9, 1998
William P. Greene Executive Vice Since February 1, 1999 69
President of
Operations
Seymour Saslow Senior Vice President Served as Vice 78
President from April 3,
1992 until being elected
to present position on
December 6, 1997
John J. Pompay, Jr. Vice President- Since December 6, 1996 64
Marketing and Sales
David A. O'Neil Controller and Asst. Since December 11, 1998 34
Treasurer
Garry M. Jones Assistant Treasurer Since August 4, 1988; 59
and Principal Accounting Principal Financial
Officer Officer from August 4,
1988 to September 10,
1993
Peggy A. Murphy Secretary Since December 11, 1998 41
The terms of office of Mr. Howard Pinsley, Mr. William P. Greene, Ms. Peggy A.
Murphy, Mr. David A. O'Neil and Mr. Garry M. Jones are until the next annual
meeting of the Board of Directors unless successors are sooner appointed by the
Board of Directors. The terms of office of Mr. Saslow and Mr. Pompay are subject
to the provisions of agreements between each officer and the Company. See
"Executive Compensation-Employment Contracts and Termination of Employment and
Change in Control Agreements."
Family Relationships
Barry Pinsley and Howard Pinsley are cousins. Herbert Potoker and Howard Pinsley
are cousins.
27
Business Experience of Directors and Officers
Paul J. Corr is a Certified Public Accountant and has been a Professor of
Business at Skidmore College in Saratoga Springs, New York since 1981. Mr. Corr
currently holds the position of Associate Professor. Mr. Corr is also a
shareholder in the Latham, New York accounting firm of Rutnik, Matt & Corr, P.C.
William P. Greene, D.B.A. prior to joining the Company's management team was
Vice President of Finance for ComCierge, LLC, San Diego, CA since August 1997.
Prior to that position, Dr.Greene held the position of Vice President Operations
for Bulk Materials International., Newtown, CT from 1993 to July 1997. From 1991
to 1993, Dr. Greene was Associate Professor of Finance and International
Business at Pennsylvania State University Kutztown, Kutztown, PA. From 1985 to
1990, he was Associate Dean of the School of Business, United States
International University, San Diego, CA. From 1992 to 1995, he was Chairman of
the Department of Business, Skidmore College, Saratoga Springs, NY. Prior to
that time, he had been employed as an officer with several financial
institutions.
Barry Pinsley is a Certified Public Accountant who for five years acted as a
consultant to the Company prior to his election as a Vice President-Special
Projects on March 25, 1994. On December 6, 1997, Mr. Pinsley was elected to the
position of Vice President-Investor Relations and Human Resources, from which he
resigned on June 9, 1998. Mr. Pinsley has been a practicing Certified Public
Accountant in Saratoga Springs, New York since 1975.
Howard Pinsley for more than the past five years has been employed by the
Company on a full-time basis as Program Director prior to being elected Vice
President-Special Power Supplies on April 3, 1992. On December 6, 1996, Mr.
Pinsley was elected to the position of Executive Vice President. On June 9,1998
he was elected to the positions of President and Chief Operating Officer.
Subsequently he was also elected Treasurer and became the Chief Executive
Officer.
Seymour Saslow has been Senior Vice President since December 6, 1996. Prior to
being elected to his present position, Mr. Saslow served as Vice
President-Engineering since April 3, 1992.
Gerald B.H. Solomon is currently President and Chief Executive Officer of the
Solomon Group. The Solomon Group is an international consulting firm providing
strategic advice and counsel to corporations worldwide. Prior to becoming
President of the Solomon Group he retired from the United States Congress were
he served as a congressman from New York State for twenty years.
Michael W. Wool has been an attorney in private practice and a partner in the
law firm of Langrock, Sperry & Wool in Burlington, Vermont for more than the
past five years.
Peggy Murphy has been Secretary of the Company since December 11, 1998. She has
been employed by the Company as Director of Human Resources since October 1998.
David A. O'Neil is a Certified Public Accountant who joined the Company as
Controller and Assistant Treasurer on November 16, 1998. Prior to joining the
Company Mr. O'Neil was a Senior Manager at the accounting firm of KPMG LLP.
28
John J. Pompay, Jr. for more than the past five years has been employed by the
Company on a full-time basis as Director of Marketing and Sales prior to being
elected Vice President-Marketing and Sales on December 6, 1996.
Garry M. Jones for more than the past five years has been employed by the
Company on a full-time basis as Senior Accountant prior to being elected
Assistant Treasurer and Principal Financial and Accounting Officer on August 4,
1988.
Directorships
None of the directors holds a directorship in any other company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
the requirements of Section 15(d) of that Act or any company registered as an
Investment company under the Investment Company Act of 1940.
Legal Proceedings
None of the directors or executive officers of the Company were involved during
the past five years in any legal proceedings specified under Item 401(f) of
Regulation S-K.
29
Item 11. Executive Compensation.
Executive Compensation Table
The following table summarizes the annual compensation for each of the fiscal
years ended June 30, 1999, 1998, and 1997 received by the Company's Chief
Executive Officer and the other highest paid executive
officers of the Company that received over $100,000 in total compensation as of
June 30, 1999.
SUMMARY COMPENSATION TABLE
Name and Fiscal Annual All Other
Principal Position Year Salary Bonus Compensation(1)
- ------------------ ---- ------ ----- ---------------
Howard Pinsley 1999 $127,700 $ 0 $11,492
President and 1998 $120,125 $25,000 $15,961
Chief Executive Officer 1997 $109,600 $25,000 $16,455
Seymour Saslow 1999 $124,625 $ 0 $10,568
Senior Vice President 1998 $119,625 $25,000 $15,024
1997 $117,075 $25,000 $15,353
Herbert Potoker(2) 1999 $ 98,475 $ 0 $ 8,612
Former Treasurer and 1998 $113,226 $25,000 $12,314
Principal Financial 1997 $109,855 $25,000 $13,289
Officer
John J. Pompay, Jr. 1999 $189,399 $ 0 $ 8,679
Vice President-Sales 1998 $176,297 $ 0 $12,314
1997 $172,963 $ 0 $13,289
(1) Represents (a) the cash and market value of the shares allocated for the
respective fiscal years under the Company's ESOP to the extent to which
each named executive officer is vested, and (b) directors' fees except for
Mr. Potoker and Mr. Pompay through April 1, 1999. Effective April 1, 1999
employees of the Company that also serve on the Board do not receive
director's fees.
(2) Represents wages as both an executive officer and non-executive officer.
Mr. Potoker resigned as Treasurer and Principal Financial Officer on
December 31, 1998.
Insurance
The executive officers of the Company are covered under group life and medical
and health plans which do not discriminate in favor of the officers or directors
of the Company and which are available generally to all salaried employees.
30
The Company maintains insurance coverage, as authorized by Section 727 of the
New York Business Corporation Law, providing for (a) reimbursement of the
Company for payments it makes to indemnify officers and directors of the
Company, and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by them in any actions.
Employee Retirement Plan and Trust
Under the Company's ESOP, approved by the Board of Directors on June 2, 1989,
effective July 1, 1988, all non-union employees of the Company, including the
Company's executive and non-executive officers are eligible to participate. The
ESOP is a non-contributory plan which is designed to invest primarily in shares
of common stock of the Company. Reference is made to, and there is incorporated
by reference, the description of the ESOP, its implementation and pertinent
documents attached as exhibits in the Company's Form 8-K dated June 16, 1989,
filed with the Commission on June 20, 1989, and to the amendments thereto filed
as an Exhibit to the 10-K Report for the fiscal year ended June 30, 1991.
Certain technical amendments not considered material were adopted during the
year effective as of June 30, 1994.
Of the 167,632 shares of common stock of the Company allocated to participants
of the ESOP as of June 30, 1999, 6,000 shares were allocated to Herbert Potoker,
6,005 shares were allocated to John J. Pompay, Jr., 5,869 shares were allocated
to Howard Pinsley, 5,655 shares were allocated to Seymour Saslow and 2,404
shares were allocated to Barry Pinsley.
Compensation of Directors
The Company's standard arrangement compensates each director of the Company an
annual fee in the amount of $10,000 for being a member of the Board of
Directors. Each Director that also serves as a member of the Audit Committee is
compensated an additional annual fee of $5,000. These fees are paid monthly to
the Directors. Paul J. Corr and Barry Pinsley were paid $3,774, and $28,456,
respectively, for additional services in connection with their duties as
directors for the fiscal year ended June 30, 1999. Executive officers that also
serve on the Company's Board of Directors do not receive director's fees.
Employment Contracts and Termination of Employment and
Change in Control Agreements
The Company has entered into an employment contract with John J. Pompay Jr. in
connection with his duties as Vice President-Marketing and Sales. The contract
is effective as of January 4, 1999 and terminates on December 31, 1999 subject
to a one year option. The contract provides for a minimum base annual salary of
$117,000 plus commissions at the rate of 3% on all payments received by the
Company against Mr. Pompay's open orders booked up to and including December 31,
1996, and 1% on all payments received against orders booked by the Company
between January 1, 1997 and December 31, 1998. The contract further provides
that if Mr. Pompay's employment is terminated by the Company prior to the
expiration date, other than for cause, he will continue to receive his full
salary for six months after the termination date and the Company will pay him
commissions due on all orders when payment is received. The contract also
provides for a restrictive covenant of non-competition by Mr. Pompay for a
period of two years upon termination for cause or termination of the contract by
Mr. Pompay.
31
As part of a management succession plan as implemented by the Board of Directors
in June 1998, the Company has entered into agreements with the following named
executive officers: Joseph Canterino, Barry Pinsley, Seymour Saslow and Herbert
Potoker. The contracts provide for the resignation of the above officers from
their positions as executive officers and for them to be compensated in
accordance with their respective agreements. The effective date of the
resignations of Mr. Canterino and Mr. Barry Pinsley as executive
officers was June 9, 1998. The effective date of the resignation of Mr. Potoker
as an executive officer was December 31, 1998. The effective date of the
resignation of Mr. Saslow as an executive officer is December 31, 1999.
The compensation to be paid under the agreements is $1,000 per week for Messrs.
Canterino, Saslow and Potoker and $500 per week for Mr. Pinsley during such two
year period. In the event of a named executive officer's death, the Company is
obligated to continue the payments as scheduled under the terms of the
agreements.
All of the named executive officers' contracts contain a restrictive covenant
regarding non-competition with the Company during the term of the agreement and
for a period of five years after the termination of the agreement and an
agreement regarding the treatment of confidential information.
32
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Security Ownership of Certain Beneficial Owners
The following information is furnished as of September 14, 1999 (unless
otherwise indicated) with respect to any person (including any "group" as that
term is used in Section 13(d)(3) of the Act) who is known to the Company to be
the beneficial owner of more than five percent of any class of the Company's
voting securities:
Amount and
Nature of
Title of Name and Address Beneficial Percent of
Class of Beneficial Owner Ownership Class
- ----- ------------------- --------- -----
Common Stock Barry Pinsley 2,600 -Direct 7.8640%
$.33-1/3 p.v. P.O. Box 422 79,865 -Indirect(1)
Saratoga Springs,
NY 12866
" Dimensional Fund 74,100 -Direct(2) 7.0664%
Advisors Inc.
1299 Ocean Avenue
11th Floor
Santa Monica,
CA 90401
" Franklin Resources, Inc. 108,000 -Direct(3) 10.2991%
777 Mariners Island
Blvd., P.O. Box 7777
San Mateo,
CA 94403-7777
The Adirondack Trust 267,565 -Direct(4) 25.5156%
" Company, as Trustee of
the Company's Employee
Retirement Plan and Trust
473 Broadway
Saratoga Springs,
NY 12866
(1) Does not include 2,000 shares of common stock of the Company owned by the
spouse of Barry Pinsley, beneficial ownership of which is disclaimed by Mr.
Pinsley. The shares listed as indirectly owned by Barry Pinsley are 2,404 shares
allocated to him as of June 30, 1999 as a participant in the Company's ESOP and
77,461 shares owned by the trust under the will of Ruth Pinsley of which Mr.
Pinsley is trustee. Mr. Pinsley has the right to direct the manner in which such
shares are to be voted.
(2) The information as to the number of shares of common stock of the Company
that may be deemed beneficially owned by Dimensional Fund Advisors Inc.
("Dimensional") is from the Schedule 13G dated February 11, 1999 filed with the
Securities and Exchange Commission (the "SEC"). Dimensional, a registered
investment advisor, is deemed to have beneficial ownership of 74,100 shares of
Espey Mfg. & Electronics Corp. stock as of December 31, 1998, all of which
shares are held in portfolios of DFA Investment Dimensions Group, Inc., a
registered open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares. Dimensional reported sole
voting power with respect to 74,100 shares.
33
(3) The information as to the number of shares of common stock of the Company
that may be deemed beneficially owned by Franklin Resources, Inc. ("Franklin")
is from the Schedule 13G, dated January 16,1998 filed with the SEC. The Franklin
statement indicated that Franklin's investment advisory subsidiary, Franklin
Advisory Services, Inc.("Franklin Advisory") has sole voting and dispositive
power with respect to all of the shares of common stock shown in the table above
for Franklin. The Franklin statement indicates that the common stock set forth
in the table is beneficially owned by one or more open or closed-end investment
companies or other managed accounts which are advised by direct and indirect
Franklin investment advisory subsidiaries, including Franklin Advisory. The
statement also indicated that it filed the Schedule 13G on behalf of itself,
Franklin Advisory, and Franklin's principal shareholders, Charles B. Johnson and
Rupert H. Johnson, Jr.(the "Principal Shareholders"), all of which are deemed
beneficial owners of the shares of common stock shown in the above table for
Franklin. Franklin, the Principal Shareholders and Franklin Advisory disclaim
any economic interest or beneficial ownership in any of the common stock shown
in the table for Franklin.
(4) This information is from the Form 4 dated September 8, 1999 filed with the
SEC by the Trustee on behalf of the Company's ESOP. The ESOP Trustee has sole
voting power with respect to unallocated common shares owned by the Trust,
105,060 shares as of August 28, 1999, as directed by the Plan Administrator
appointed by the Company's Board of Directors. As to the common shares allocated
to participants, 162,505 shares as of August 28, 1999, the ESOP Trustee has the
power to vote such shares as directed by such Plan Administrator to the extent
the participants do not direct the manner in which such shares are to be voted.
34
Security Ownership of Management
The following information is furnished as of September 14, 1999 (unless
otherwise indicated), as to each class of equity securities of the Company
beneficially owned by all Directors and Executive Officers and by Directors and
Executive Officers of the Company as a Group:
Amount and
Nature of
Title of Name of Beneficial Percent of
Class Beneficial Owner Ownership Class
- ----- ---------------- --------- -----
Common Stock
$.33-1/3 p.v. Paul J. Corr 2,500-Direct .2384%
" William P. Greene 100-Direct .0095%
" Michael W. Wool 100-Direct .0095%
" Barry Pinsley 2,600-Direct 7.8641%
79,865-Indirect
(1)(2)(3)
Seymour Saslow 351-Direct .5727%
5,655-Indirect(2)
" John J. Pompay, Jr. 6,006-Indirect(2) .5727%
" Howard Pinsley 42,134-Direct 4.5603%
5,687-Indirect(2)
" Garry M. Jones 2,838-Indirect(2) .2706%
" Peggy Murphy 1,662-Indirect(2) .1585%
" Officers and Directors 47,785-Direct 14.2563%
as a Group 101,713-Indirect (6)
- -------------
(1) Excludes 2,000 shares owned by the spouse of Barry Pinsley. Beneficial
ownership of the shares is disclaimed by Mr. Pinsley.
(2) Includes shares allocated to named director or executive officer as of June
30, 1999 as a participant in the Company's ESOP. Each such person has the right
to direct the manner in which such shares allocated to him or her are to be
voted by the ESOP Trustee.
(3) Includes 77,461 shares owned by a testamentary trust of Ruth Pinsley, the
deceased spouse of Sol Pinsley. As trustee of the trust, Barry Pinsley is deemed
the beneficial owner, as defined in Rule 13d-3, of the shares held by the trust.
(4) Includes shares allocated to all directors and executive officers as a group
as of June 30, 1999 who participate in the Company's ESOP. Each such person has
the right to direct the manner in which such shares allocated to him or her are
to be voted by the ESOP Trustee.
There are no arrangements known to the Company the execution of which may at a
subsequent date result in change of control of the Company.
35
Item 13. Certain Relationships and Related Transactions.
As previously reported, the Company established and sold to the ESOP Trust on
June 5, 1989, 331,224 shares of the Company's treasury stock at a price of
$26.50 per share, which purchase price was funded by the Company making a cash
contribution and loan. Each year, the Company makes contributions to the ESOP
which are used to make loan interest and principal payments to the Company. With
each such payment, a portion of the common stock held by the ESOP is allocated
to participating employees. As of June 30, 1999, there were 167,632 shares
allocated to participants. The loan from the Company to the ESOP is repayable in
annual installments of $1,039,605, including interest, through June 30, 2004.
Officers of the Company, including three (Seymour Saslow, Howard Pinsley and
Bill Greene) who are also directors, are eligible to participate in the ESOP and
to have shares and cash allocated to their accounts and distributed to them in
accordance with the terms of the ESOP.
The Company paid the law firm of Langrock, Sperry & Wool, of which Michael W.
Wool, a director of the Company, is a partner, a total of $42,000 for legal
services during the fiscal year ended June 30, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
Included in Part II, Item 8, of this report:
Reports of Independent Accountants
Balance Sheets at June 30, 1999 and 1998
Statements of Income for the years ended
June 30, 1999, 1998 and 1997
Statements of Changes in Stockholders' Equity
for the years ended June 30, 1999, 1998 and 1997
Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997
Notes to Financial Statements
36
2. Financial Statement Schedules
Schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
financial statements or notes thereto.
3. Exhibits
11.1 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
none
S I G N A T U R E S
Pursuant to the requirements of Section 13 and 15(d) 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 Excutive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/Howard Pinsley President
- ----------------- (Principal Executive Officer)
Howard Pinsley September 17, 1999
/s/ David O'Neil Controller
- ---------------- (Principal Financial Officer)
David O'Neil September 17, 1999
37
/s/ Garry M. Jones Assistant Treasurer
- ------------------ (Principal Accounting Officer)
Garry M. Jones September 17, 1999
/s/ Barry Pinsley Director
- ----------------- September 17, 1999
Barry Pinsley
/s/ Seymour Saslow Senior Vice President and Director
- ------------------ September 17, 1999
Seymour Saslow
/s/ William P. Greene Vice President of
- --------------------- operations and Director
William P. Greene September 17, 1999
/s/ Michael W. Wool Director
- ------------------- September 17, 1999
Michael W. Wool
/s/ Paul J. Corr Director
- ---------------- September 17, 1999
Paul J. Corr
/s/ Gerald B.H. Solomon Director
- ----------------------- September 17, 1999
Gerald B. H. Solomon
38