PART I: FINANCIAL INFORMATION
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheet (Unaudited)
December 31, 2007
ASSETS:
Cash and cash equivalents $ 8,563,481
Short term investments 6,847,000
Trade accounts receivable, net 4,357,655
Other receivables 4,165
Income taxes receivable 5,273
Inventories:
Raw materials 1,665,173
Work-in-process 2,238,297
Costs relating to contracts in process, net of advance
payments of $50,000 at December 31, 2007 6,222,892
------------
Total inventories 10,126,362
Deferred income taxes 184,068
Prepaid expenses and other current assets 300,807
------------
Total current assets 30,388,811
------------
Property, plant and equipment, net 2,974,792
Loan receivable 80,000
------------
Total assets $ 33,443,603
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 850,176
Accrued expenses:
Salaries, wages and commissions 130,732
Vacation 476,854
ESOP payable 175,966
Other 49,560
Payroll and other taxes withheld and accrued 37,636
Income taxes payable --
------------
Total current liabilities 1,720,924
------------
Deferred income taxes 158,324
------------
Total liabilities 1,879,248
------------
Common stock, par value $.33-1/3 per share.
Authorized 10,000,000 shares; issued 3,029,874 shares
on December 31, 2007. Outstanding 2,312,773 (includes
237,084 Unearned ESOP Shares) on December 31, 2007 1,009,958
Capital in excess of par value 13,124,911
Retained earnings 27,720,425
Less: Unearned ESOP Shares (3,600,459)
Cost of 717,101 Treasury shares on December 31, 2007 (6,690,480)
------------
Total stockholders' equity 31,564,355
------------
Total liabilities and stockholders' equity $ 33,443,603
============
See accompanying notes to the financial statements.
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ESPEY MFG. & ELECTRONICS CORP.
Statements of Income (Unaudited)
Three and Six Months Ended December 31, 2007 and 2006
Three Months Six Months
2007 2006 2007 2006
------------------------- -------------------------
Net sales $ 6,732,144 $ 6,119,320 $13,033,930 $12,191,226
Cost of sales 5,049,559 4,861,099 10,002,235 9,535,697
----------- ----------- ----------- -----------
Gross profit 1,682,585 1,258,221 3,031,695 2,655,529
Selling, general and
administrative expenses 701,819 712,743 1,369,372 1,439,723
----------- ----------- ----------- -----------
Operating income 980,766 545,478 1,662,323 1,215,806
----------- ----------- ----------- -----------
Other income (expense)
Interest and dividend income 203,324 149,878 399,445 295,389
Other 29,077 30,725 48,562 34,350
----------- ----------- ----------- -----------
232,401 180,603 448,007 329,739
----------- ----------- ----------- -----------
Income before income taxes 1,213,167 726,081 2,110,330 1,545,545
Provision for income taxes 416,081 246,170 721,661 522,584
----------- ----------- ----------- -----------
Net income $ 797,086 $ 479,911 $ 1,388,669 $ 1,022,961
=========== =========== =========== ===========
Net income per share:
Basic $ .38 $ .23 $ .67 $ .50
Diluted $ .37 $ .23 $ .65 $ .49
----------- ----------- ----------- -----------
Weighted average number of shares outstanding:
Basic 2,074,789 2,047,803 2,070,334 2,040,909
Diluted 2,109,650 2,071,693 2,125,632 2,066,015
----------- ----------- ----------- -----------
Dividends per share: $ .1750 $ .1300 $ .3500 $ .2600
=========== =========== =========== ===========
See accompanying notes to the financial statements.
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ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows (Unaudited)
Six Months Ended December 31, 2007 and 2006
December 31,
2007 2006
------------ ------------
Cash Flows From Operating Activities:
Net income $ 1,388,669 $ 1,022,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Excess tax benefits from share-based compensation 83,471 49,697
Stock-based compensation 83,331 76,020
Depreciation 246,473 243,022
ESOP compensation expense 263,174 218,625
Loss on disposal of assets 5,681 4,376
Deferred income tax (26,979) (36,262)
Changes in assets and liabilities:
(Increase) decrease in trade receivables, net (1,337,174) 1,200,435
(Increase) decrease in other receivables (717) 3,411
Increase in income taxes receivable (5,273) --
Decrease (increase) in inventories 1,022,965 (170,125)
Decrease (increase) in prepaid expenses and other current assets 247,405 (34,770)
(Decrease) increase in accounts payable (130,775) 173,805
(Decrease) increase in accrued salaries, wages and commissions (31,470) 12,990
Decrease in vacation accrual (105,627) (47,973)
Increase in other accrued expenses 3,512 3,705
Decrease in payroll & other taxes withheld and accrued (4,417) (13,530)
Decrease in income taxes payable (283,414) (661,414)
Decrease in ESOP payable (87,208) (71,284)
------------ ------------
Net cash provided by operating activities 1,331,627 1,973,689
------------ ------------
Cash Flows From Investing Activities:
Additions to property, plant & equipment (292,436) (200,871)
Payment for issuance of loan receivable (80,000) --
Purchase of short term investments (4,543,000) (2,400,000)
Maturity of short term investments 2,016,000 2,112,000
------------ ------------
Net cash used in investing activities (2,899,436) (488,871)
------------ ------------
Cash Flows From Financing Activities:
Dividends on common stock (722,569) (529,914)
Purchase of treasury stock (571,763) (110,203)
Proceeds from exercise of stock options 246,040 150,680
Excess tax benefits from share-based compensation 83,471 49,697
------------ ------------
Net cash used in financing activities (964,821) (439,740)
------------ ------------
(Decrease) increase in cash and cash equivalents (2,532,630) 1,045,078
Cash and cash equivalents, beginning of period 11,096,111 7,072,615
------------ ------------
Cash and cash equivalents, end of period 8,563,481 8,117,693
============ ============
Supplemental disclosures of cash flow information:
Income Taxes Paid $ 880,000 $ 1,121,159
============ ============
See accompanying notes to the financial statements.
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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 report on Form 10-KSB for
the year ended June 30, 2007.
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. As
Unearned ESOP shares are released or committed-to-be-released the shares become
outstanding for earnings-per-share computations.
Note 3. Stock Based Compensation
Effective July 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (Revised 2004),"Share-Based Payment" ("SFAS No. 123 (R)"),
which amends SFAS No. 123 and supersedes Accounting Principles Board Opinion
("APB") No. 25 in establishing standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services, as well
as transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that maybe settled by the issuance of those equity instruments. SFAS No. 123(R)
requires that the cost resulting from all share-based payment transactions be
recognized in the financial statements based on the fair value of the
share-based payment. SFAS No.123(R) establishes fair value as the measurement
objective in accounting for share-based payment transactions with employees,
except for equity instruments held by employee share ownership plans. As allowed
under SFAS No. 123(R), the Company elected the modified prospective method of
adoption, under which compensation cost is recognized in the financial
statements beginning with the effective date of SFAS No. 123(R) for all
share-based payments granted after that date, and for all unvested awards
granted prior to the effective date of SFAS No. 123(R). Accordingly, prior
period amounts have not been restated.
Total stock-based compensation expense recognized in the Statement of Income for
the three months ended December 31, 2007 and 2006, was $32,491 and $36,831,
respectively, before income taxes. The related total deferred tax benefit was
approximately $2,487 and $2,923, for the three months ended December 31, 2007
and 2006, respectively. Total stock-based compensation expense recognized in the
Statement of Income for the six months ended December 31, 2007 and 2006, was
$83,331 and $76,020, respectively, before income taxes. The related total
deferred tax benefit was approximately $6,504 and $5,992, for the six months
ended December 31, 2007 and 2006, respectively. Prior to the adoption of SFAS
No. 123(R), the Company presented all tax benefits for deductions resulting from
the exercise of stock options as operating cash flows in the Statements of Cash
Flows. SFAS No. 123(R) requires the tax benefits resulting from tax deductions
in excess of the compensation cost recognized for those options to be classified
and reported as both an operating cash outflow and a financing cash inflow on a
prospective basis upon adoption.
As of December 31, 2007, there was approximately $87,692 of unrecognized
compensation cost related to stock option awards that is expected to be
recognized as expense over a period of 1.25 years.
The Company has one employee stock option plan under which options may be
granted, the 2007 Stock Option and Restricted Stock Plan (the "2007 Plan"). The
Board of Directors may grant options to acquire shares of common stock to
employees of the Company at the fair market value of the common stock on the
date of grant. Generally, options granted have a two-year vesting period based
on two years of continuous service and have a ten-year
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contractual life. Option grants provide for accelerated vesting if there is a
change in control. Shares issued upon the exercise of options are from those
held in Treasury. The 2007 Plan was approved by the Company's shareholders at
the Company's Annual Meeting on November 30, 2007 and supercedes the Company's
2000 Stock Option Plan (the "2000 Plan"). Options covering 400,000 shares are
authorized for issuance under the 2007 Plan, of which zero have been granted as
of December 31, 2007. While no further grants of options may be made under the
2000 Plan, as of December 31, 2007, 115,600 options were outstanding of which
48,200 are vested and exercisable.
SFAS No. 123(R) requires the use of a valuation model to calculate the fair
value of stock-based awards. The Company has elected to use the Black-Scholes
option valuation model, which incorporates various assumptions including those
for volatility, expected life and interest rates.
The table below outlines the weighted average assumptions that the Company used
to calculate stock-based employee compensation for the three and six months
ended December 31, 2007:
Three Months Ended Six Months Ended
December 31, 2007 December 31, 2007
----------------- -----------------
Dividend yield 2.59% 2.40%
Expected stock price volatility 20.50% 22.29%
Risk-free interest rate 4.80% 4.54%
Expected option life (in years) 5 5
Weighted average fair value per share
of options granted during the period $3.95 $4.04
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The Company pays dividends quarterly and does plan to pay dividends in the
foreseeable future. Expected stock price volatility is based on the historical
volatility of the Company's stock. The risk-free interest rate is based on the
implied yield available on U.S. Treasury issues with an equivalent term
approximating the expected life of the options. The expected option life (in
years) represents the estimated period of time until exercise and is based on
the safe harbor calculation under SFAS No. 123.
The following table summarizes stock option activity during the six months ended
December 31, 2007:
Employee Stock Options Plan
----------------------------------------
Weighted
Number of Weighted Average
Shares Average Remaining
Subject Exercise Contractual
To Option Price Term
----------------------------------------
Balance at July 1, 2007 138,800 $15.77 7.63
Granted -- -- --
Exercised (21,600) $11.39 --
Forfeited or expired (1,600) $18.05 --
----------------------------------------
Balance at December 31, 2007 115,600 $16.55 7.97
========================================
Exercisable at December 31, 2007 48,200 $14.47 6.86
========================================
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The intrinsic value of stock options exercised was $35,521, during the six
months ended December 31, 2007. The intrinsic value of stock options outstanding
and exercisable as of December 31, 2007 and 2006 was $207,917 and $436,975,
respectively.
Note 4. Commitments and Contingencies
The Company at certain times enters 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 to zero at December 31, 2007. As a
government contractor, the Company is continually subject to audit by various
agencies of the U.S. Government to determine compliance with various procurement
laws and regulations. As a result of such audits and as part of normal business
operations of the Company, various claims and charges can be asserted against
the Company. It is not possible to predict the outcome of such actions.
Currently the Company has no claims or assertions against it.
5
Note 5. Recently Issued Accounting Standards
In July 2006, the FASB issued Interpretation No. ("FIN") 48, Accounting for
Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109, which
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. In particular, this interpretation requires uncertain tax
positions to be recognized only if they are "more-likely-than-not" to be upheld
based on their technical merits. Additionally, the measurement of the tax
position will be based on the largest amount that is determined to have greater
than a 50% likelihood of realization upon ultimate settlement. Any resulting
cumulative effect of applying the provisions of FIN 48 upon adoption would be
reported as an adjustment to the beginning balance of retained earnings in the
period of adoption. FIN 48 was effective beginning July 1, 2007. The adoption of
FIN 48 did not have a material effect on the Company's financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 157, Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements, but does not require any new
fair value measurements. SFAS 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those years. The Company is currently evaluating the effect of the guidance
contained in SFAS 157 and does not expect the implementation to have a material
effect on the Company's financial statements.
Note 6. Employee Stock Ownership Plan
The Company sponsors a leveraged employee stock ownership plan (the "ESOP") that
covers all nonunion employees who work 1,000 or more hours per year and are
employed on June 30.
The Company makes annual contributions to the ESOP equal to the ESOP's debt
service less dividends on unallocated shares received by the ESOP. All dividends
on unallocated shares received by the ESOP are used to pay debt service.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings. As the debt is repaid, shares are released and allocated to active
employees, based on the proportion of debt service paid in the year. The Company
accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the shares purchased by the ESOP are reported as Unearned ESOP
Shares in the statement of financial position. As shares are released or
committed-to-be-released, the Company reports compensation expense equal to the
current average market price of the shares, and the shares become outstanding
for earnings-per-share (EPS) computations. ESOP compensation expense was
$128,927 for the quarter ended December 31, 2007 and $263,174 for the six-month
period ending December 31, 2007. The ESOP shares as of December 31, 2007 were as
follows:
Allocated Shares 425,576
Committed-to-be-released shares 12,083
Unreleased shares 237,084
----------
Total shares held by the ESOP 674,743
==========
Fair value of unreleased shares at December 31, 2007 $4,452,438
==========
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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 and
does not have a product line. 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 agency
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.
In the first half of fiscal 2008, the Company received approximately $8.2
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. The Company has received a preliminary agreement to commence
performance on a contract for military power supplies expected to be in the
approximate amount of $6 million. A definitive agreement is expected by April
30, 2008. Excluding the above preliminary contract, the Company's backlog is
$34.5 million at February 12, 2008.
The sales backlog of approximately $31.4 million at December 31, 2007 gives the
Company a solid base of future sales and, therefore, management expects sales
for fiscal 2008 to equal or exceed sales for fiscal 2007. In addition to the
backlog, the Company currently has outstanding quotations and expected business
representing approximately $38.0 million in the aggregate for both repeat and
new programs.
Sales to two significant customers in the first half of fiscal 2008 represented
57.7%, while sales to three significant customers in the first half of fiscal
2007 represented 69.0%, respectively, of the Company's total sales. While the
Company has always had a small number of customers that account for a large
percentage of its total sales in any given year, management is pursuing business
opportunities involving significant product programs with new and current
customers with an overall objective of lowering the concentration of sales and
minimizing the impact of a significant customer or excessive reliance upon a
single major product program of a particular customer. The current backlog at
December 31, 2007 of $31.4 million includes $21.9 million from the two most
significant customers in the first half of fiscal 2008.
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.
7
The total backlog for the Company of $31.4 million at December 31, 2007, down
$2.3 million from December 31, 2006, represents the estimated remaining sales
value of work to be performed under firm contracts. These contracts include
significant orders for military and industrial power supplies, and contracts to
manufacture certain customer products in accordance with pre-engineered
requirements.
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 any 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 of Directors continues to
evaluate potential strategic options on a periodic basis.
Critical Accounting Policies and Estimates
Management believes our most critical accounting policies include revenue
recognition and estimates to completion.
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
Net sales for the three months ended December 31, 2007 were $6,732,144 as
compared to $6,119,320 for the same period in 2006, representing a 10.0%
increase. Net sales for the six months ended December 31, 2007 were $13,033,930
as compared to $12,191,226 for the same period in 2006, representing a 6.9%
increase. Generally, these increases can be attributed to the contract specific
nature of the Company's business. The Company continues to deliver product on
its single largest order for power supplies and the increase in sales for the
six months is largely attributable to an increase in shipments on this order.
New orders received in the first six months of fiscal 2008 were approximately
$8.2 million, the same as the amount of new orders received in the first six
months of fiscal 2007. The sales order backlog has been over $30 million for
eleven consecutive fiscal quarters and expectations are this trend will
continue.
The primary factor in determining gross profit and net income is product mix.
The gross profits on mature products and build to print contracts are higher as
compared to products which are still in the engineering development stage or in
the early stages of production. In any given accounting period the mix of
product shipments between higher margin mature programs and less mature programs
including loss contracts, has a significant impact on gross profit and net
income.
For the three months ended December 31, 2007 and 2006 gross profits were
$1,682,585 and $1,258,221, respectively. Gross profit as a percentage of sales
was 25.0% and 20.6%, for the three months ended December 31, 2007 and 2006,
respectively. For the six months ended December 31, 2007 and 2006 gross profits
were $3,031,695 and $2,655,529, respectively. Gross profit as a percentage of
sales was 23.3% and 21.8%, for the six months ended December 31, 2007 and 2006,
respectively. The improved gross profit and gross profit percentage in the three
and six months ended December 31, 2007, was the result of increased net sales
and a favorable mature product mix on those shipments. 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
obtained and executed. Employment of full time equivalents at December 31, 2007
was 175 compared to 174 people at December 31, 2006.
Selling, general and administrative expenses were $701,819 for the three months
ended December 31, 2007, a decrease of $10,924 compared to the three months
ended December 31, 2006. Selling, general and administrative
8
expenses were $1,369,372 for the six months ended December 31, 2007, a decrease
of $70,351 compared to the six months ended December 31, 2006. The decrease is
primarily due to lower selling costs due to reduced headcount.
Other income for three and six months ended December 31, 2007 increased as
compared to the three months ended December 31, 2006 due to increased interest
income on the Company's cash and cash equivalents and short-term investments due
to higher balances in each category. The Company does not believe that there is
a significant risk associated with its investment policy, since at December 31,
2007 all of the investments are primarily represented by short-term liquid
investments including certificates of deposit and money market funds.
The effective income tax rate at December 31, 2007 and 2006 was 34.3% and 33.9%,
respectively. The effective tax rate is less than the statutory tax rate mainly
due to the foreign exportation benefit the Company receives on its international
sales, the Qualified Production Activities benefit, and the benefit derived from
the ESOP dividends paid on allocated shares.
Net income for the three months ended December 31, 2007, was $797,086 or $.38
and $.37 per share, basic and diluted, compared to $479,911 or $.23 per share,
both basic and diluted, for the three months ended December 31, 2006. Net income
for the six months ended December 31, 2007, was $1,388,669 or $.67 and $.65 per
share, basic and diluted, compared to $1,022,961 or $.50 and $.49 per share,
basic and diluted, for the six months ended December 31, 2006. The increase in
net income per share was due to higher gross profit as a percentage of sales, a
decrease in selling, general and administrative expenses, and increased interest
income.
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.
Management had available a $3,000,000 line of credit to help fund further growth
or working capital needs, but did not anticipate the need for any borrowed funds
in the foreseeable future and therefore did not renew the line of credit which
expired November 30, 2007.
The Company's working capital as of December 31, 2007 was approximately $28.7
million. During the three months ended December 31, 2007 and 2006 the Company
repurchased 8,977 and 4,307 shares, respectively, of its common stock from the
Company's Employee Retirement Plan and Trust ("ESOP"), for a total purchase
price of $200,905 and $79,077, respectively. During the six months ended
December 31, 2007 and 2006 the Company repurchased 25,720 and 6,073 shares,
respectively, of its common stock for a total purchase price of $571,763 and
$110,202, respectively. Under existing authorizations from the Company's Board
of Directors, as of December 31, 2007, management is authorized to purchase an
additional $1,428,237 million of Company stock.
Six Months Ended December 31,
2007 2006
----------- ------------
Net cash provided by operating activities $ 1,331,627 $ 1,973,689
Net cash used in investing activities (2,899,436) (488,871)
Net cash used in financing activities (964,821) (439,740)
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Net cash provided by operating activities fluctuates between periods primarily
as a result of differences in net income, the timing of the collection of
accounts receivable, purchase of inventory, level of sales and payment of
accounts payable. Net cash used in investing activities increased in the first
half of fiscal 2008 due to the increase in purchases of short-term investments.
The increase in cash used in financing activities is due primarily to the
increase in purchases of treasury stock and the increase in dividends paid.
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 for the foreseeable future.
During the six months ended December 31, 2007 and 2006, the Company expended
$292,436 and $200,871, respectively, for plant improvements and new equipment.
The Company has budgeted approximately $400,000 for new equipment and plant
improvements in fiscal 2008, and expects to spend the remaining amount in the
second half of the year. Management presently anticipates that the funds
required will be available from current operations.
9
The Company at certain times enters 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 to zero at December 31, 2007.
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.