Business Context and Reporting Period
Company: Espey Mfg. & Electronics Corp.
Filing Type: Form 10-K (Annual Report)
Period Ended: June 30, 2001
Business Overview: The Company operates as a one-segment business engaged in the development, design, production, and sales of specialized electronic power supplies, transformers, iron-core components, and electronic system components. Products are primarily used in military applications (radar, missile guidance, nuclear submarine control) and industrial sectors (locomotives, communication systems). The Company does not generally manufacture standardized components.
Key Financial Metrics
| Metric | Fiscal 2001 | Fiscal 2000 | Fiscal 1999 |
|---|---|---|---|
| Net Sales | $17,251,640 | $14,719,818 | $13,629,692 |
| Gross Profit | $3,061,730 | $2,735,934 | $2,537,676 |
| Gross Margin | 17.8% | 18.6% | 18.6% |
| Operating Income | $1,169,271 | $733,617 | $690,839 |
| Net Income | $1,033,069 | $782,943 | $730,601 |
| Earnings Per Share (Basic) | $1.00 | $0.75 | $0.66 |
| Working Capital | $22,673,493 | $21,211,145 | $20,816,988 |
| Cash & Equivalents | $5,200,736 | $2,367,191 | $2,364,335 |
| Long-term Debt | $0 | $0 | $0 |
| Operating Cash Flow | $3,073,481 | ($2,076,644) | ($2,947,631) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 17.2% to $17.25 million, driven by intensified sales efforts and new customer relationships. Export sales more than doubled to approximately $8.7 million from $4.2 million in 2000.
- Profitability: Net income rose 32% to $1.03 million. Earnings per share increased 33% to $1.00. This was achieved through higher sales volume and reduced Selling, General, and Administrative (SG&A) expenses, which declined 5.5% to $1.89 million.
- Liquidity: Operating cash flow turned strongly positive at $3.07 million, a significant improvement from a negative $2.08 million in 2000. This shift was primarily due to a $1.58 million decrease in trade accounts receivable and improved net income.
- Backlog: Sales backlog decreased slightly to $27.5 million at June 30, 2001, from $29.1 million in 2000, though management anticipates filling at least $16 million of this backlog in fiscal 2002.
Outlook, Risks, and Management Commentary
- Outlook: Management anticipates increased revenues and income in fiscal 2002. As of September 18, 2001, the backlog stood at $28.0 million, with outstanding quotations exceeding $22 million for repeat and new programs.
- Capital Resources: The Company maintains a $3.0 million line of credit but has not borrowed funds in the last three years. It expects to fund operations and capital expenditures (budgeted at $350,000 for 2002) from cash flows and existing cash equivalents.
- Risks:
- Customer Concentration: Three customers accounted for 72% of total sales in 2001 (40%, 20%, and 12%).
- Government Dependence: Significant reliance on U.S. and foreign government appropriations and defense budget allocations.
- Competition: Faces competition from large electronic companies and smaller firms; sales do not represent a significant market share in any product class.
- Unusual Items: The Company closed a manufacturing facility in Gloversville, NY, in 2001 due to economic reasons, consolidating operations in Saratoga Springs. A management succession plan implemented in 1998 continues to incur payments, with approximately $39,000 remaining as of June 30, 2001.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the top three customers, who collectively represent 72% of revenue.
- Backlog Realization: Monitor the conversion of the $28 million backlog and $22 million in outstanding quotations into actual revenue, noting the risks associated with government budget allocations.
- Export Exposure: Assess the impact of foreign government political stability on the growing export segment, which now represents approximately 50% of total sales.
- ESOP Obligations: Review the annual ESOP loan repayment obligations ($1.04 million) and the impact of unallocated share dividends on cash flow.
- Stock Repurchases: Note the reduction in treasury stock purchases in 2001 ($70,891) compared to prior years, and the remaining authorization of $854,860 for future buybacks.