Espey Manufacturing & Electronics Corp. (ESP) 2016年年度報告「AMEX」.pdf

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1、 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30,2016 Commission File Number I-4383 ESPEY MFG.&ELECTRONICS CORP.(Exact name of registrant as specified

2、 in its charter)NEW YORK(State of incorporation)14-1387171(I.R.S.Employers Identification No.)233 Ballston Avenue,Saratoga Springs,New York 12866(Address of principal executive offices)518-584-4100(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the

3、 ActTitle of each class Common Stock$.33-1/3 par value Common Stock Purchase Rights Name of each exchange on which registered NYSE MKT NYSE MKTSecurities registered pursuant to Section 12(g)of the Act None Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 40

4、5 of the Securities Act.?Yes?No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.?Yes?No 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 Exchan

5、ge Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.?Yes?No Indicate by check mark whether the registrant has submitted electronically and posted on its

6、 corporate Web site,if any,every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files.?Yes?No Indicate by check mark if disclosure of d

7、elinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of registrants 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.?Indicate by check m

8、ark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company:?Large accelerated filer?Accelerated filer?Non-accelerated filer?Smaller reporting company Indicate by check mark whether the registrant is a shell company.?Yes?No The

9、aggregate market value of the voting stock held by non-affiliates of the registrant was$42,825,456 based upon the closing sale price of$25.75 on the NYSE MKT on December 31,2015.At September 12,2016 there were 2,364,684 shares outstanding of the registrants Common stock,$.33-1/3 par value.1 DOCUMENT

10、S INCORPORATED BY REFERENCE Portions of the registrants definitive proxy statement relating to the 2016 Annual Meeting of Shareholders,to be filed with the Securities and Exchange Commission,are incorporated by reference in Part III,Items 10 through 14 on Form 10-K as indicated herein.Forward-Lookin

11、g Statements This Annual Report on Form 10-K contains forward-looking statements that are based on managements expectations,estimates,projections and assumptions.Words such as“expects,”“anticipates,”“plans,”“believes,”“scheduled,”“estimates”and variations of these words and similar expressions are i

12、ntended to identify forward-looking statements.Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,as amended.These statements are not guarantees of future performance and involve certain risks and uncertainties that are

13、difficult to predict.Therefore,actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors,including,without limitation:Changing priorities or decreases in the U.S.governments defense budget(including changes in priorities in

14、 response to terrorist threats,improvement of homeland security and general U.S.Government budgetary issues);Termination of government contracts due to unilateral government action;Differences in anticipated and actual program performance,including the ability to perform under long-term fixed-price

15、contracts within estimated costs,and performance issues with key suppliers and subcontractors;Potential of changing prices for energy and raw materials.All forward-looking statements speak only as of the date of this report or,in the case of any document incorporated by reference,the date of that do

16、cument.All subsequent written and oral forward-looking statements attributable to the Company or any person acting on the Companys behalf are qualified by the cautionary statements in this section.The Company does not undertake any obligation to update or publicly release any revisions to forward-lo

17、oking statements to reflect events,circumstances or changes in expectations after the date of this report.2 PART I Item 1.Business General Espey Mfg.&Electronics Corp.(“Espey”)is a power electronics design and original equipment manufacturing(OEM)company with a long history of developing and deliver

18、ing highly reliable products for use in military and severe industrial environment applications.Design,manufacturing,and testing is performed in our 150,000+square foot facility located at 233 Ballston Ave,Saratoga Springs,New York.Espey is classified as a“smaller reporting company”for purposes of t

19、he reporting requirements under the Securities Exchange Act of 1934,as amended.Espeys common stock is publicly-traded on the NYSE MKT under the symbol“ESP.”Espey began operations after incorporation in New York in 1928.We strive to remain competitive as a leader in high power energy conversion and t

20、ransformer solutions through the design and manufacture of new and improved products by using advanced and“cutting edge”electronics technologies.Espey is ISO 9001:2008 and AS9100:2009 certified.Our primary products are power supplies,power converters,filters,power transformers,magnetic components,po

21、wer distribution equipment,UPS systems,antennas and high power radar systems.The applications of these products include AC and DC locomotives,shipboard power,shipboard radar,airborne power,ground-based radar,and ground mobile power.Espey services include design and development to specification,build

22、 to print,design services,design studies,environmental testing services,metal fabrication,painting services,and development of automatic testing equipment.Espey is vertically integrated,meaning that the Company produces individual components(including inductors),populates printed circuit boards,fabr

23、icates metalwork,paints,wires,qualifies,and fully tests items,mechanically,electrically and environmentally,in house.Portions of the manufacturing and testing process are subcontracted to vendors from time to time.In fiscal years ended June 30,2016 and 2015,the Companys total sales were$27,471,365 a

24、nd$26,831,705,respectively.Sales to two domestic customers accounted for 37%and 12%of total sales in 2016.Sales to three domestic customers accounted for 36%,15%and 10%of total sales in 2015.A loss of a significant customer would negatively impact the financial performance of the Company.One signifi

25、cant customer is experiencing a significant decline in sales due to falling demand in its core locomotive business.This is discussed further in Item.7 Managements Discussion and Analysis of Financial Condition and Results of Operations.Export sales in 2016 and 2015 were approximately$2,125,000 and$2

26、,384,000,respectively.This decrease is primarily due to the reduction in power supply shipments to specific customers.Sources of 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 i

27、ts products,and has at least two potential sources of supply for a majority of its raw materials.However,certain components used in its products are available from only a limited number of sources,and other components are only available from a single source.Despite the risk associated with limited o

28、r single source suppliers,the benefits of higher quality goods and timely delivery minimize and often limit any potential risk and can eliminate problems with part failures during production.Sales Backlog The total backlog at June 30,2016 was approximately$39.1 million compared to approximately$36.4

29、 million at June 30,2015.The Companys total backlog represents the estimated remaining sales value of work to be performed under firm contracts.The backlog was fully funded at June 30,2016 and 2015.Funded backlog means items that have been authorized and appropriated by Congress and/or funded by the

30、 customer.There is no guarantee that future budgets and appropriations will provide funding for follow-on orders for a given program.The Companys backlog and risks associated with government contracts is discussed in greater detail in Managements Discussion and Analysis of Financial Condition and Re

31、sults of Operations,contained in Item 7 below.It is presently anticipated that a minimum of$23 million of orders comprising the June 30,2016 backlog will be filled during the fiscal year ending June 30,2017.The minimum of$23 million does not include any shipments,which may be made against orders sub

32、sequently received during the fiscal year ending June 30,2017.The estimate of the June 30,2016 backlog to be shipped in fiscal 2017 is subject to future events,which may cause the amount of the backlog actually shipped to differ from such estimate.3 Marketing and Competition The Company markets its

33、products primarily through its own direct sales organization and through outside sales representatives.Business is solicited from large industrial manufacturers and defense companies,the government of the United States,foreign governments and major foreign electronic equipment companies.In certain c

34、ountries the Company has external sales representatives to help solicit and coordinate foreign contracts.Espey is also on the eligible list of contractors with the United States Department of Defense and generally is automatically solicited by Defense Department procurement agencies for their needs

35、falling within the major classes of products produced by the Company.In addition,the Company directly pursues opportunities from the United States Department of Defense for prime contracts.Espey contracts with the Federal Government under cage code 20950 as Espey Mfg.&Electronics Corp.There is compe

36、tition in all classes of products manufactured by the Company from divisions of the largest electronic companies,as well as many small companies.The Companys sales do not represent a significant share of the industrys market for any class of its products.The principal methods of competition for elec

37、tronic 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.Our business is not seasonal.However,the concentration of our business in equipment for military and in

38、dustrial applications and our customer concentrations expose us to on-going associated risks including,without limitation,dependence on appropriations from the United States Government and the governments of foreign nations,program allocations,and the potential of governmental termination of orders

39、for convenience.Uncertainty in federal defense spending and the current decline in the rail industry continues to drive competition.Many of our competitors have been aggressively investing in upfront product design costs and lowering profit margins as a strategic means of maintaining existing busine

40、ss and enhancing market share at the expense of short term profit.This change in the market place has put pressure on the pricing of our current products and will result in lower margins on new business and some of our legacy business.In order to compete effectively for new business,in some cases we

41、 invest in upfront design costs,thereby reducing initial profitability as a means of procuring new long-term programs.Accordingly,we have adjusted our pricing strategy in order to achieve a balance which enables us both to retain repeat programs while being more competitive in bidding on new program

42、s.This trend will continue into fiscal 2017 and we continue to invest in new programs and aggressively quote long-term programs in an effort to grow the business.Moreover,to address current elements of competition and foster growth we have made targeted hires of experienced personnel to support enha

43、nced sales,program fulfillment,engineering,quality control and supply chain management.Research and Development The Companys expenditures for research and development were approximately$49,236 and$234,812 in fiscal 2016 and 2015,respectively.Some of the Companys engineers and technicians spend varyi

44、ng degrees of time on either development of new products or improvements of existing products.A majority of these expenditures relate to research that is required by Espey engineers to support a request for a quotation from a customer having a product-specific custom need usually associated with str

45、ingent size and weight requirements.We do very little pure research as our business primarily is driven by customer product needs as opposed to new product development.Employees The Company had 145 employees as of September 12,2016.Approximately 40%of these employees are represented by the Internati

46、onal Brotherhood of Electrical Workers Local#1799.A new collective bargaining agreement was approved in July 2015.The three-year agreement expires on June 30,2018.Relations with the Union are considered good.Government Regulations Compliance with federal,state and local laws regulating the discharge

47、 of materials into the environment,or otherwise relating to the protection of the environment,did not in fiscal year 2016,and the Company believes will not in fiscal year 2017,have a material effect upon the capital expenditures,net income,or competitive position of the Company.The Companys U.S.Gove

48、rnment contract and subcontract orders are funded by government budgets,which operate on an October-to-September fiscal year.Normally,in February of each year,the President of the United States presents to Congress a proposed budget for the upcoming fiscal year.This budget includes recommended appro

49、priations for every federal agency and is the result of months of policy and program reviews throughout the executive branch.From February through September of each year,the appropriations and authorization committees of Congress review the Presidents budget proposals and establish the funding level

50、s for the upcoming fiscal year in 4 appropriations and authorization legislation.Once these levels are enacted into law,the Executive Office of the President administers the funds to the agencies.There are two primary risks associated with this process.First,the process may be delayed or disrupted b

51、ecause of congressional schedules,negotiations over funding levels for programs or unforeseen world events,which could,in turn,alter the funding for a program or contract.Second,funding for multi-year contracts can be changed by future appropriations,which could affect the timing of funds,schedules

52、and program content.Also,our international sales are denominated in United States dollars.Consequently,changes in exchange rates that strengthen the United States dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive th

53、an competitors products.U.S.Government Defense Contracts and Subcontracts Generally,U.S.Government contracts are subject to procurement laws and regulations.Some of the Companys contracts are governed by the Federal Acquisition Regulation(FAR),which lays out uniform policies and procedures for acqui

54、ring goods and services by the U.S.Government,and agency-specific acquisition regulations that implement or supplement the FAR.For example,the Department of Defense implements the FAR through the Defense Federal Acquisition Regulation(DFAR).The FAR also contains guidelines and regulations for managi

55、ng a contract after award,including conditions under which contracts may be terminated,in whole or in part,at the governments convenience or for default.If a contract is terminated for the convenience of the government,a contractor is entitled to receive payments for its allowable costs and,in gener

56、al,the proportionate share of fees or earnings for the work done.If a contract is terminated for default,the government generally pays for only the work it has accepted.These regulations also subject the Company to financial audits and other reviews by the government of its costs,performance,account

57、ing and general business practices relating to its contracts,which may result in adjustment of the Companys contract-related costs and fees.Item 2.Property The Companys entire operation,including administrative,manufacturing and engineering facilities,is located in Saratoga Springs,New York.The Sara

58、toga Springs plant,which the Company owns,consists of various adjoining buildings on a 22 acre site,approximately eight acres of which is unimproved.The property is not subject to mortgage indebtedness or any other material encumbrance.The plant has a sprinkler system throughout and contains approxi

59、mately 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

60、,the plant includes facilities for varnishing,potting,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 Companys current operations.Besides normal test

61、 equipment,the Company maintains a sophisticated on-site environmental test facility.In addition to meeting all of the Companys in-house needs,the machine shop and environmental facilities are available to other companies on a contract basis.Item 3.Legal Proceedings None Item 4.Mine Safety Disclosur

62、es Not applicable 5 PART II Item 5.Market for the Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock The table below shows the range of high and low prices for the Companys common stock on the NYSE MKT(symbol ESP),the princ

63、ipal market for trading in the common stock,for each quarterly period for the last two fiscal years ended June 30:2016 High Low First Quarter$27.77$24.00 Second Quarter 27.00 21.93 Third Quarter 26.20 23.10 Fourth Quarter 26.76 23.90 2015 First Quarter$25.99$19.69 Second Quarter 25.00 16.57 Third Qu

64、arter 31.50 23.02 Fourth Quarter 29.68 24.28 Holders The approximate number of holders of record of the common stock was 78 on September 12,2016 according to records of the Companys transfer agent.Included in this number are shares held in nominee or street name and,therefore,the number of beneficia

65、l owners of the common stock is believed to be substantially in excess of the foregoing number.Dividends The Company paid cash dividends on common stock of$1.00 per share for each of the fiscal years ended June 30,2016 and 2015.The Board of Directors has authorized the payment of a fiscal 2017 first

66、 quarter dividend of$0.25 payable September 29,2016 to shareholders of record on September 22,2016.Our Board of Directors assesses the Companys dividend policy periodically.There is no assurance that the Board of Directors will either maintain the amount of the regular cash dividend or declare a spe

67、cial dividend during any future years.During fiscal 2016,the Company sold common stock to certain employees and directors as they exercised existing stock options granted under a shareholder approved plan.During the year,16,300 shares were sold at prices that ranged from$17.09 a share to$21.54 a sha

68、re.The securities were sold for cash.Proceeds are used for general working capital purposes.The Company did not make any open market purchases of equity securities in the fiscal 2016 fourth quarter.The following table sets forth information as of June 30,2016 with respect to compensation plans under

69、 which equity securities of the Company may be issued.Equity Compensation Plan Information Number of securities to Weighted-average Number of Securities remaining be issued upon exercise exercise price of available for future issuance under of outstanding options,outstanding options,equity compensat

70、ion plan(excluding Plan Category warrants and rights warrants and rights securities reflected in column(a)(a)(b)(c)Equity compensation plans approved by security holders 170,450$23.84 193,600 Equity compensation plans not approved by security holders -Total 170,450 193,600 6 Item 7.Managements Discu

71、ssion and Analysis of Financial Condition and Results of Operations Business Outlook Management expects revenues in fiscal year 2017 to be less than revenues during fiscal year 2016.This expectation is driven primarily by recent communications with a significant customer in the industrial sector who

72、 has advised us of a significantly scaled-back purchase plan resulting from falling demand in the rail industry.This negative development may be offset,in part,by a new product for another customer which is currently in the final stages of design development and qualification testing.If the testing

73、is successful,shipments of the product are expected to begin in the third quarter of the fiscal year.During fiscal 2016 the Company received approximately$30.2 million in new orders.Our total backlog at June 30,2016 was approximately$39.1 million,as compared to$36.4 million at June 30,2015.Currently

74、,we expect a minimum of$23 million of orders comprising the June 30,2016 backlog will be filled during the fiscal year ending June 30,2017.This$23 million will be supplemented by shipments which may be made against orders received during the fiscal year.In addition to the backlog,the Company current

75、ly has outstanding opportunities representing in excess of$50 million in the aggregate as of September 8,2016,for both repeat and new programs.The outstanding quotations encompass various new and previously manufactured power supplies,transformers,and subassemblies.However,there can be no assurance

76、that the Company will acquire any 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 industrial locomotive power supply procurement of a single customer.Two significant customers incl

77、uding the one which advised us of the intent to reduce orders during fiscal year 2017,represented 49%of the Companys total sales in fiscal 2016 and three significant customers represented 61%of the Companys total sales in fiscal 2015.These sales are in connection with multiyear programs in which the

78、 Company is a significant contractor.The June 30,2016 backlog of$39.1 million includes orders from two customers that represent 35%and 27%,respectively,of the total backlog.This high customer concentration level presents significant risk.A loss of one of these customers or programs related to these

79、customers,or customer requested deferrals of product delivery could significantly impact the Company.Historically,a small number of customers have accounted for a large percentage of the Companys total sales in any given fiscal year.Management continues to pursue opportunities with current and new c

80、ustomers with an overall objective of lowering the concentration of sales,mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer.We continue to evaluate the Companys business development functions and t

81、he implementation of potential alternative courses of action in order to diversity the Companys customer base.The quotations for non-repeat programs referred to above include several new customers.As market factors impact revenues,management will continue to evaluate our sales strategy,employment le

82、vels,and facility costs.Management is currently participating in a plant layout optimization review with an objective to improve capacity and maximum cost savings as product moves through the facility.Recommendations from the review are currently being implemented and expect to be completed in fisca

83、l 2017 and 2018.Management,along with the Board of Directors,continues to evaluate the need and use of the Companys working capital.Capital expenditures are expected to be approximately$750,000 for fiscal 2017.A majority of these expenditures will be made to optimize the production flow as noted abo

84、ve and to upgrade existing equipment and add needed technology to stay competitive in the marketplace.Expectations are that the working capital will be required to fund orders,dividend payments,and general operations of the business.From time to time,management along with the Mergers and Acquisition

85、s Committee of the Board of Directors examine opportunities involving acquisitions or other strategic options,including buying certain products or product lines.The criteria for consideration are synergies with the Companys existing product base and accretion to earnings.Results of Operations Net sa

86、les for fiscal years ended June 30,2016 and 2015,were$27,471,365 and$26,831,705,respectively,a 2.4%increase.The slight increase in sales can be attributed to the contract specific nature of the Companys business and the timing of deliveries on these contracts.Specifically,the increase in net sales i

87、s primarily due to an increase in magnetic shipments of$1.1 million,offset by a decrease in build-to-print sales.For the fiscal years ended June 30,2016 and 2015 gross profits were$7,371,682 and$7,141,573,respectively.Gross profit as a percentage of sales increased slightly to 26.8%for fiscal 2016,u

88、p from 26.6%in fiscal 2015.The primary factors in determining gross profit and net income are overall sales levels and product mix.The gross profits on mature products and build to print contracts are typically higher as compared to products which are still in the engineering development stage or in

89、 early stages of production.In the case of the latter,the Company can incur what it refers to as“loss contracts,”meaning engineering design contracts in which the Company invests with the 7 objective of developing future product sales.In any given accounting period the mix of product shipments betwe

90、en higher margin programs and less mature programs,and expenditures associated with loss contracts,has a significant impact on gross profit and net income.In total,the gross profit percentage remained consistent for the twelve months ended June 30,2016,as compared to the twelve months ended June 30,

91、2015.Fiscal 2016 profit margins on shipments were up slightly due to product mix and less incidents of“loss contracts”as compared to the prior fiscal year.In addition,fiscal 2015 included a favorable one-time reduction to cost of sales of$560,000 for a contract settlement related to a previously can

92、celled program.Selling,general,and administrative expenses were$3,028,449 for the fiscal year ended June 30,2016,an increase of$316,642,or 11.7%as compared to the prior year.The increase for fiscal 2016 relates primarily to an increase in compensation costs due to an increase in the number of employ

93、ees supporting sales and program management.Employment of full time equivalents at June 30,2016 was 149 people compared with 145 people at June 30,2015.Employees were hired in sales,engineering,quality control and program management both to support the Companys current backlog and to build a team th

94、at can augment and diversify our business and effectively manage the Company.Other income for the fiscal years ended June 30,2016 and 2015 was$119,274 and$68,050,respectively.The increase is due to an increase in scrap sales offset by a slight decrease in interest income.Interest income is a functio

95、n of the level of investments and investment strategies which generally tend to be conservative.The effective income tax rate has remained consistent with the prior year and was 28.8%in fiscal 2016 and 29.2%in fiscal 2015.The effective tax rate is less than the statutory tax rate mainly due to the b

96、enefit the Company receives on its“qualified production activities”under The American Jobs Creation Act of 2004 and the benefit derived from the dividends paid on allocated ESOP shares.Net income for fiscal 2016,was$3,175,801 or$1.39 and$1.38 per share,basic and diluted,respectively,compared to net

97、income of$3,183,127 or$1.40 and$1.39 per share,basic and diluted,respectively,for fiscal 2015.The decrease in net income per share for the twelve months ended June 30,2016,was primarily due to higher selling,general and administrative expenses offset by an increase in sales and the gross profit perc

98、entage resulting from product mix.Also,impacting the comparison is a prior year favorable one-time$560,000 reduction to cost of sales referred to above.Liquidity and Capital Resources The Companys working capital is an appropriate indicator of the liquidity of its business,and during the past two fi

99、scal 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 two fiscal years.Management has available a$3,000,000 line of credi

100、t to help fund further growth or working capital needs,if necessary,but does not anticipate the need for any borrowed funds in the foreseeable future.The Companys working capital as of June 30,2016 and 2015 was$30,242,950 and$28,656,762,respectively.During the three and twelve months ended June 30,2

101、016 the Company repurchased 0 and 14,303 shares of its common stock,respectively,from the Companys Employee Retirement Plan and Trust(“ESOP”)for a purchase price of$0 and$355,418,respectively.During the three and twelve months ended June 30,2015 the Company repurchased 0 and 13,553 shares of its com

102、mon stock,respectively,from the Companys ESOP for a purchase price of$0 and$320,504,respectively.Under existing authorizations from the Companys Board of Directors,as of June 30,2016,management is authorized to purchase an additional$1,030,326 of Company stock.The table below presents the summary of

103、 cash flow information for the fiscal year indicated:2016 2015 Net cash provided by operating activities$5,759,602$671,742 Net cash(used in)provided by investing activities(1,699,359)481,270 Net cash used in financing activities (2,888,004)(1,850,498)Net cash provided by operating activities fluctua

104、tes between periods primarily as a result of differences in sales and net income,provisions for income taxes,the timing of the collection of accounts receivable,purchase of inventory,and payment of accounts payable.The increase in net cash provided by operating activities primarily relates to an inc

105、rease in trade receivable collections and a decline in inventory purchases due to the timing of production jobs,offset by an increase in cash paid for both federal income tax deposits and payments to vendors.Net cash provided by investing activities decreased in the twelve months of fiscal 2016 due

106、to the timing and reinvestment of matured investment securities.The increase in cash used in financing activities is due primarily to the dividend payable at June 30,2015,paid in the twelve months ended June 30,2016.8 The Company currently believes that the cash flow generated from operations and wh

107、en necessary,from cash and cash equivalents will be sufficient to meet its long-term funding requirements for the foreseeable future.Management believes that the Companys reserve for bad debts of$3,000 is adequate given the customers with whom the Company does business.Historically,bad debt expense

108、has been minimal.During fiscal years 2016 and 2015,the Company expended$284,210 and$266,029,respectively,for plant improvements and new equipment.The Company has budgeted approximately$750,000 for new equipment and plant improvements in fiscal 2017.Management anticipates that the funds required will

109、 be available from current operations.Item 8.Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Espey Mfg.&Electronics Corp.We have audited the accompanying balance sheets of Espey Mfg.&Electronics Corp.as

110、 of June 30,2016 and 2015,and the related statements of comprehensive income,changes in stockholders equity,and cash flows for the years then ended.These financial statements are the responsibility of the Companys management.Our responsibility is to express an opinion on these financial statements b

111、ased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States).Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatem

112、ent.The Company is not required to have,nor were we engaged to perform,an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not

113、for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting.Accordingly,we express no such opinion.An audit also includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the ac

114、counting 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 resp

115、ects,the financial position of Espey Mfg.&Electronics Corp.as of June 30,2016 and 2015,and the results of its operations and its cash flows for the years then ended,in conformity with U.S.generally accepted accounting principles./s/Freed Maxick CPAs,P.C.Freed Maxick CPAs,P.C.Rochester,New York Septe

116、mber 12,2016 9 Espey Mfg.&Electronics Corp.Balance Sheets June 30,2016 and 2015 2016 2015 ASSETS Cash and cash equivalents.$10,031,644$8,859,405 Investment securities.5,580,059 4,159,057 Trade accounts receivable,net of allowance of$3,000.4,957,464 6,694,401 Income tax receivable.329,298 -Inventorie

117、s:Raw materials.1,418,862 1,481,792 Work-in-process.504,674 561,682 Costs related to contracts in process,net of advance payments of$18,313 and$19,626 and as of June 30,2016 and 2015,respectively.8,810,145 9,542,423 Total inventories.10,733,681 11,585,897 Deferred tax assets.252,558 334,681 Prepaid

118、expenses and other current assets.219,688 211,940 Total current assets.32,104,392 31,845,381 Property,plant and equipment,net.2,348,525 2,498,863 Total assets.$34,452,917$34,344,244 LIABILITIES AND STOCKHOLDERS EQUITY Accounts payable.$552,787$976,112 Accrued expenses:Salaries and wages.357,910 332,

119、387 Vacation.704,761 690,833 Dividends payable.-590,672 Other.196,631 548,817 Payroll and other taxes withheld.49,353 47,082 Income taxes payable.-2,716 Total current liabilities.1,861,442 3,188,619 Deferred tax liabilities.203,237 224,751 Total liabilities.2,064,679 3,413,370 Commitments and Contin

120、gencies(See Note 14)Common stock,par value$.33-1/3 per share Authorized 10,000,000 shares;Issued 3,029,874 shares as of June 30,2016 and 2015.Outstanding 2,364,684 and 2,362,687 as of June 30,2016 and 2015,respectively (includes 61,667 and 79,167 Unearned ESOP Shares,respectively).1,009,958 1,009,95

121、8 Capital in excess of par value.17,253,072 16,785,604 Accumulated other comprehensive loss.(1,408)(4,386)Retained earnings.22,820,938 21,865,951 41,082,560 39,657,127 Less:Unearned ESOP shares.(891,083)(1,143,957)Cost of 665,190 and 667,187 shares of common stock in treasury as of June 30,2016 and

122、2015,respectively.(7,803,239)(7,582,296)Total stockholders equity.32,388,238 30,930,874 Total liabilities and stockholders equity.$34,452,917$34,344,244 The accompanying notes are an integral part of the financial statements.10 Espey Mfg.&Electronics Corp.Statements of Comprehensive Income Years end

123、ed June 30,2016 and 2015 2016 2015 Net sales.$27,471,365$26,831,705 Cost of sales.20,099,683 19,690,132 Gross profit.7,371,682 7,141,573 Selling,general and administrative expenses.3,028,449 2,711,807 Operating Income.4,343,233 4,429,766 Other income Interest income.33,782 36,424 Other.85,492 31,626

124、 Total other income.119,274 68,050 Income before provision for income taxes.4,462,507 4,497,816 Provision for income taxes.1,286,706 1,314,689 Net income.$3,175,801$3,183,127 Other comprehensive income,net of tax:Unrealized gain/(loss)on investment securities.2,978 (2,949)Total comprehensive income.

125、$3,178,779$3,180,178 Net income per share:Basic.$1.39$1.40 Diluted.$1.38$1.39 Weighted average number of shares outstanding:Basic.2,285,686 2,271,426 Diluted.2,302,034 2,290,542 The accompanying notes are an integral part of the financial statements.11 Espey Mfg.&Electronics Corp.Statements of Chang

126、es in Stockholders Equity Years Ended June 30,2016 and 2015 Accumulated Capital in Other Outstanding Common Excess of Comprehensive Retained Shares Amount Par Value Income(Loss)Earnings Balance as of June 30,2014 2,368,110$1,009,958$16,429,220$(1,437)$20,946,940 Comprehensive income:Net income 3,183

127、,127 Other comprehensive loss,net of tax of$(1,588)(2,949)Total comprehensive income Stock options exercised 8,130 74,405 Stock option expense 62,416 Dividends paid on common stock$1.00 per share (2,288,978)Tax effect of stock options exercised 26,835 Tax effect of dividends on unallocated ESOP shar

128、es 24,862 Purchase of treasury stock (13,553)Reduction of unearned ESOP shares 192,728 Balance as of June 30,2015 2,362,687$1,009,958$16,785,604$(4,386)$21,865,951 Comprehensive income:Net income 3,175,801 Other comprehensive income,net of tax of$2,874 2,978 Total comprehensive income Stock options

129、exercised 16,300 162,488 Stock option expense 97,045 Dividends paid on common stock$1.00 per share (2,256,018)Tax effect of stock options exercised 17,141 Tax effect of dividends on unallocated ESOP shares 35,204 Purchase of treasury stock (14,303)Reduction of unearned ESOP shares 190,794 Balance as

130、 of June 30,2016 2,364,684$1,009,958$17,253,072$(1,408)$22,820,938 (Continued)12 The accompanying notes are an integral part of the financial statements.13 Espey Mfg.&Electronics Corp.Statements of Changes in Stockholders Equity Years Ended June 30,2016 and 2015 Unearned Total Treasury Stock ESOP St

131、ockholders Shares Amount Shares Equity Balance as of June 30,2014 661,764$(7,328,864)$(1,408,872)$29,646,945 Comprehensive income:Net income 3,183,127 Other comprehensive loss,net of tax of$(1,588)(2,949)Total comprehensive income 3,180,178 Stock options exercised (8,130)67,072 141,477 Stock option

132、expense 62,416 Dividends paid on common stock$1.00 per share (2,288,978)Tax effect of stock options exercised 26,835 Tax effect of dividends on unallocated ESOP shares 24,862 Purchase of treasury stock 13,553 (320,504)(320,504)Reduction of unearned ESOP shares 264,915 457,643 Balance as of June 30,2

133、015 667,187$(7,582,296)$(1,143,957)$30,930,874 Comprehensive income:Net income 3,175,801 Other comprehensive income,net of tax of$2,874 2,978 Total comprehensive income 3,178,779 Stock options exercised (16,300)134,475 296,963 Stock option expense 97,045 Dividends paid on common stock$1.00 per share

134、 (2,256,018)Tax effect of stock options exercised 17,141 Tax effect of dividends on unallocated ESOP shares 35,204 Purchase of treasury stock 14,303 (355,418)(355,418)Reduction of unearned ESOP shares 252,874 443,668 Balance as of June 30,2016 665,190$(7,803,239)$(891,083)$32,388,238 The accompanyin

135、g notes are an integral part of the financial statements.14 Espey Mfg.&Electronics Corp.Statements of Cash Flows Years Ended June 30,2016 and 2015 2016 2015 Cash Flows from Operating Activities:Net income.$3,175,801$3,183,127 Adjustments to reconcile net income to net cash provided by operating acti

136、vities:Excess tax benefits from share-based compensation.(17,141)(26,835)Tax effect of dividends on unallocated ESOP shares.35,204 24,862 Stock-based compensation.97,045 62,416 Depreciation.434,401 445,687 ESOP compensation expense.443,668 457,643 Loss on disposal of assets.147 380 Deferred income t

137、ax expense(benefit).57,735 (66,958)Changes in assets and liabilities:Decrease(increase)in trade receivables,net.1,736,937 (3,499,723)(Increase)decrease in income tax receivable.(329,298)943,234 Decrease(increase)in inventories,net .852,216 (974,647)Increase in prepaid expenses and other current asse

138、ts.(7,748)(34,164)(Decrease)increase in accounts payable.(423,325)248,831 Increase(decrease)in accrued salaries and wages.25,523 (81,602)Increase(decrease)in vacation accrual.13,928 (2,453)Decrease in other accrued expenses.(352,186)(31,136)Increase(decrease)in payroll and other taxes withheld.2,271

139、 (6,471)Increase in income taxes payable.14,424 29,551 Net cash provided by operating activities.$5,759,602$671,742 (Continued)The accompanying notes are an integral part of the financial statements.15 Espey Mfg.&Electronics Corp.Statements of Cash Flows Years Ended June 30,2016 and 2015 2016 2015 C

140、ash Flows from Investing Activities:Additions to property,plant and equipment.(284,210)(266,029)Purchase of investment securities.(4,930,146)(3,921,537)Proceeds from sale/maturity of investment securities.3,514,997 4,668,836 Net cash(used in)provided by investing activities.(1,699,359)481,270 Cash F

141、lows from Financing Activities:Dividends on common stock.(2,846,690)(1,698,306)Purchase of treasury stock.(355,418)(320,504)Proceeds from exercise of stock options.296,963 141,477 Excess tax benefits from share-based compensation.17,141 26,835 Net cash used in financing activities.(2,888,004)(1,850,

142、498)Increase(decrease)in cash and short term Investments.1,172,239 (697,486)Cash and cash equivalents,beginning of the year.8,859,405 9,556,891 Cash and cash equivalents,end of the year.$10,031,644$8,859,405 Supplemental Schedule of Cash Flow Information:Income taxes paid.$1,511,000$384,000 Suppleme

143、ntal Schedule of Non-cash Financing Activities:Accrual of dividends.$-$590,672 The accompanying notes are an integral part of the financial statements.16 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 1.Nature of operations Espey Mfg.&Electronics Corp.(the Company)is a manufacturer o

144、f electronic equipment used primarily in military and industrial applications.The principal markets for the Companys products are companies that provide electronic support to both military and industrial applications across the United States and at some international locations.Note 2.Summary of Sign

145、ificant Accounting Policies Inventory Valuation,Cost Estimation and Revenue Recognition Raw materials are valued at the lower of weighted average cost or market.Inventoried work relating to contracts in process and work in process is valued at actual production cost,including factory overhead incurr

146、ed to date.Work in process represents spare units;parts and other inventory items acquired or produced to service units previously sold or to meet anticipated future orders.The cost elements of contracts in process and work in process consist of production costs of goods and services currently in pr

147、ocess and overhead.Provision for losses on contracts is made when the existence of such losses becomes probable and estimable.The provision for losses on contracts is included in other accrued expenses on the Companys balance sheet.The costs attributed to units delivered under contracts are based on

148、 the estimated average cost of all units expected to be produced.Certain contracts are expected to extend beyond twelve months.Revenue is recognized on contracts in the period in which the units are delivered and billed(units-of-delivery method).A significant portion of our business is comprised of

149、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

150、,estimating costs and making assumptions related to technical issues and delivery schedules.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 est

151、imates 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 cir

152、cumstances,in the estimation process.When a change in expected sales value or estimated cost is determined,changes are reflected in current period earnings.Depreciation Depreciation of plant and equipment is computed on a straight-line basis over the estimated useful lives of the assets.Estimated us

153、eful lives of depreciable assets are as follows:Buildings and improvements 10 40 years Machinery and equipment 3 20 years Furniture and fixtures 7 10 years Income Taxes The Company follows the provisions of Accounting Standards Codification(“ASC”)Topic 740-10,Accounting for Income Taxes.Under the pr

154、ovisions of ASC 740-10,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 us

155、ing enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.The effect on deferred taxes and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.In additi

156、on,ASC 740-10 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.Cash and Cash Equivalents Cash and cash equivalents consist of cash and money market funds.The Com

157、pany considers all highly liquid investments with original maturities of three months or less to be cash equivalents.17 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 2.Summary of Significant Accounting Policies,Continued Investment Securities The Company accounts for its investment

158、securities in accordance with ASC 320-10-25,“Accounting for Certain Investments in Debt and Equity Securities.”Investment securities at June 30,2016 and June 30,2015 consist of certificates of deposit and municipal bonds.The Company classifies investment securities as available-for-sale.Unrealized h

159、olding 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 dete

160、rmined using the specific identification method.Interest income is recognized when earned.Fair values are based on quoted market prices available as of the balance sheet date,and are therefore considered a Level 1 valuation.Fair Value of Financial Instruments ASC 820 establishes a fair value hierarc

161、hy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.The standard describes three levels of inputs that may be used to measure fair value:?Level 1:Quoted prices(unadjusted)for identical assets or liabilities in act

162、ive markets that the entity has the ability to access as of the measurement date.?Level 2:Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active;or other inputs that are observable or can be c

163、orroborated by observable market data.?Level 3:Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability.The carrying amounts of financial instruments,including cash and cash equivalents,

164、short term investments,accounts receivable,accounts payable and accrued expenses,approximated fair value as of June 30,2016 and 2015 because of the immediate or short-term maturity of these financial instruments.Accounts receivable and allowance for doubtful accounts The Company extends credit to it

165、s customers in the normal course of business and collateral is generally not required for trade receivables.Exposure to credit risk is controlled through the use of credit approvals,credit limits,and monitoring procedures.Accounts receivable are reported net of an allowance for doubtful accounts.The

166、 Company estimates the allowance based on its analysis of specific balances.An account is generally considered past due after thirty(30)days from the invoice date.Interest is not charged on past due balances.Based on these factors,there was an allowance for doubtful accounts of$3,000 at June 30,2016

167、 and 2015.Changes to the allowance for doubtful accounts are charged to expense and reduced by charge-offs,net of recoveries.Per Share Amounts ASC 260-10“Earnings Per Share”requires the Company to calculate net income(loss)per share based on basic and diluted net income(loss)per share,as defined.Bas

168、ic EPS excludes dilution and is computed by dividing net income(loss)by the weighted average number of shares outstanding for the period.Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.T

169、he dilutive effect of outstanding options issued by the Company are reflected in diluted EPS using the treasury stock method.Under the treasury stock method,options will only have a dilutive effect when the average market price of common stock during the period exceeds the exercise price of the opti

170、ons.Comprehensive Income Comprehensive income consists of net income and other comprehensive income.Other comprehensive income for fiscal years ended June 30,2016 and 2015 consists of unrealized holding gains and losses on available-for-sale securities.Use of Estimates The preparation of financial s

171、tatements in conformity with accounting principles generally accepted in the United States of America 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 state

172、ments and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.18 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 2.Summary of Significant Accounting Policies,Continued Investment Tax Credits Investment tax credits

173、are accounted for as a reduction of income tax expense in the year taxes payable are reduced.Reclassifications Certain reclassifications may have been made to the prior year financial statements to conform to the current year presentation.Recently Issued Accounting Standards In July 2015,the Financi

174、al Accounting Standards Board(“FASB”)issued Accounting Standards Update(“ASU”)No.2015-11,“Inventory(Topic 330):Simplifying the Measurement of Inventory.”ASU No.2015-11 requires inventory measured using any method other than last-in,first out or the retail inventory method to be subsequently measured

175、 at the lower of cost and net realizable value,rather than at the lower of cost or market.Net realizable value is defined as the estimated selling price,less the estimated costs to complete,dispose,and transport such inventory.ASU No.2015-11 will be effective for fiscal years and interim periods beg

176、inning after December 15,2016.ASU No.2015-11 is required to be applied prospectively and early adoption is permitted.The Companys adoption of ASU No.2015-11 is not expected to have a material impact on the Companys financial position or results of operations.In May 2014,the FASB issued ASU No.2014-0

177、9,“Revenue from Contracts with Customers,”which supersedes nearly all existing revenue recognition guidance under U.S.GAAP.The core principle of ASU No.2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which

178、an entity expects to be entitled for those goods or services.ASU No.2014-09 defines a five step process to achieve this core principle and,in doing so,more judgment and estimates may be required within the revenue recognition process than are required under existing U.S.GAAP.In subsequent periods,th

179、e FASB issued additional ASUs intended to clarify specific aspects related to the interpretation and implementation of ASU No.2014-09.In March 2016,the FASB issued ASU No.2016-08,“Revenue from Contracts with Customers Principal versus Agent Considerations(Reporting Revenue Gross versus Net)”to provi

180、de guidance on principal versus agent considerations by an entity as discussed in ASU No.2014-09.ASU No.2016-08 provides criteria to be assessed by an entity when determining whether it is the principal or agent in relation to the goods or services which the company is contractually obligated to pro

181、vide to the customer.Among these considerations are;identifying the unit of account at which the entity should assess whether it is a principal or an agent,identifying the nature of the good or service provided to the customer;applying the control principle to certain types of transactions;and,inter

182、action of the control principle with the indicators provided to assist in the principle versus agent evaluation.In April 2016,the FASB issued ASU No.2016-10,“Revenue from Contracts with Customers (Topic 606):Identifying Performance Obligations and Licensing”to provide implementation guidance related

183、 to the necessary judgements required in identifying performance obligations of a contract and guidance related to recognition of licensing revenues.In May 2016,the FASB issued ASU No.2016-12,“Revenue from Contracts with Customers (Topic 606):Narrow-Scope Improvements and Practical Expedients”to pro

184、vide guidance related to the implementation of ASU No.2014-09 in the following areas;assessing collectability for contracts that do not meet Step 1 of revenue recognition,presentation of sales taxes,noncash consideration,contract modifications at transition,and completed contracts at transition.Thes

185、e standards are effective for annual periods beginning after December 15,2017,and interim periods therein,using either of the following transition methods:(i)a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain pract

186、ical expedients,or(ii)a retrospective approach with the cumulative effect of initially adopting ASU No.2014-09 recognized at the date of adoption(which includes additional footnote disclosures).Early adoption is permitted for annual periods beginning after December 15,2016 and interim periods therei

187、n.We are currently evaluating the impact of our pending adoption of ASU No.2014-09 on our financial statements and have not yet determined the method by which we will adopt the standard in fiscal 2019.In November 2015,the FASB issued ASU No.2015-17,“Income Taxes(Topic 740):Balance Sheet Classificati

188、on of Deferred Taxes”.The guidance requires the classification of deferred tax assets and liabilities as non-current in a classified balance sheet.The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not

189、 affected by this update.ASU No.2015-17 will be effective for annual periods beginning after December 15,2016,and interim periods within those annual periods.ASU No.2015-17 may be applied prospectively or retrospectively,and early adoption is permitted.Adoption of ASU No.2015-17 would have the follo

190、wing impact on the Companys financial statements at June 30,2016;a 19 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 2.Summary of Significant Accounting Policies,Continued decrease in current assets of$252,558,a decrease in non-current liabilities of$203,237 and an increase in non-cu

191、rrent assets of$49,321.In January 2016,the FASB issued ASU No.2016-01,“Financial Instruments Overall(Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial Liabilities”.The amendments in this Update address certain aspects of recognition,measurement,presentation and disclosur

192、e of financial instruments(primarily equity securities)in order to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information.ASU No.2016-01 will be effective for annual periods beginning after December 15,2017,and interim per

193、iods within those annual periods.The Company is evaluating the impact that ASU No.2016-01 will have on the Companys financial statements.In March 2016,the FASB issued ASU No.2016-09,“Compensation Stock Compensation(Topic 718):Improvements to Employee Share-Based Payment Accounting”.The areas for sim

194、plification in this update involve several aspects of the accounting for share-based payment transactions,including the income tax consequences,classification of awards as either equity or liabilities,and classification on the statement of cash flows.Additionally,this ASU allows an entity to make an

195、 accounting policy election to either estimate the number of awards that are expected to vest(current GAAP)or account for forfeitures as they occur.ASU No.2016-09 will be effective for annual periods beginning after December 15,2016,and interim periods within those annual periods.ASU No.2016-09 may

196、be applied prospectively or retrospectively,and early adoption is permitted.The Company is evaluating the impact that ASU No.2016-09 will have on the Companys financial statements.Impairment of Long-Lived Assets Long-lived assets,including property,plant,and equipment,are reviewed for impairment whe

197、never events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

198、If the carrying amount of an asset exceeds its estimated future cash flows,an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.There were no impairments of long-lived assets in fiscal 2016 and 2015.Assets to be disposed of ar

199、e separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell,and no longer depreciated.The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections

200、of the balance sheet,if applicable.Concentrations of Risk The market for our defense electronics products is largely dependent on the availability of new contracts from the United States and foreign governments to prime contractors to which we provide components.Any decline in expenditures by the Un

201、ited States or foreign governments may have an adverse effect on our financial performance.Generally,U.S.Government contracts are subject to procurement laws and regulations.Some of the Companys contracts are governed by the Federal Acquisition Regulation(FAR),which lays out uniform policies and pro

202、cedures for acquiring goods and services by the U.S.Government,and agency-specific acquisition regulations that implement or supplement the FAR.For example,the Department of Defense implements the FAR through the Defense Federal Acquisition Regulation(DFAR).The FAR also contains guidelines and regul

203、ations for managing a contract after award,including conditions under which contracts may be terminated,in whole or in part,at the governments convenience or for default.If a contract is terminated for the convenience of the government,a contractor is entitled to receive payments for its allowable c

204、osts and,in general,the proportionate share of fees or earnings for the work done.If a contract is terminated for default,the government generally pays for only the work it has accepted.These regulations also subject the Company to financial audits and other reviews by the government of its costs,pe

205、rformance,accounting and general business practices relating to its contracts,which may result in adjustment of the Companys contract-related costs and fees.Note 3.Investment Securities Investment securities at June 30,2016 and June 30,2015 consist of certificates of deposit and municipal bonds whic

206、h are classified as available-for-sale securities and have been determined to be level 1 assets.The cost,gross unrealized gains,gross unrealized losses and fair value of available-for-sale securities by major security type at June 30,2016 and June 30,2015 are as follows:20 Espey Mfg.&Electronics Cor

207、p.Notes to Financial Statements Note 3.Investments Securities,Continued Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value 2016 Certificates of deposit$4,871,000$-$-$4,871,000 Municipal bonds 707,593 1,466 -709,059 2016 Total investment securities$5,578,593$1,466$-$5,580,059 20

208、15 Certificates of deposit$3,272,000$-$-$3,272,000 Municipal bonds 893,804 1,288 (8,035)887,057 2015 Total investment securities$4,165,804$1,288$(8,035)$4,159,057 The portfolio is diversified and highly liquid and primarily consists of investment grade fixed income instruments.At June 30,2016,the Co

209、mpany did not have any investments in individual securities that have been in a continuous loss position considered to be other than temporary.As of June 30,2016 and June 30,2015,the contractual maturities of available-for-sale securities were as follows:Years to Maturity Less than One to One Year F

210、ive Years Total 2016 Available-for-sale$4,811,511$768,548$5,580,059 2015 Available-for-sale$3,522,728$636,329$4,159,057 Note 4.Contracts in Process Contracts in process at June 30,2016 and 2015 are as follows:2016 2015 Gross contract value$39,061,415$36,424,194 Costs related to contracts in process,

211、net of progress payments of$18,313 and$19,626 in fiscal 2016 and 2015$8,810,145$9,542,423 Included in costs relating to contracts in process at June 30,2016 and 2015 are costs of$3,944,035 and$3,515,008,respectively,relative to contracts that may not be completed within the ensuing year.Under the un

212、its-of-delivery method,the related sale and cost of sales will not be reflected in the statement of comprehensive income until the units under contract are shipped.Note 5.Property,Plant and Equipment Property,plant and equipment at June 30,2016 and 2015 is as follows:2016 2015 Land$45,000$45,000 Bui

213、lding and improvements 4,259,266 4,252,354 Machinery and equipment 8,735,432 8,506,662 Furniture and fixtures 159,951 160,867 13,199,649 12,964,883 Accumulated depreciation (10,851,124)(10,466,020)Property,plant and equipment,net$2,348,525$2,498,863 Depreciation expense was$434,401 and$445,687 durin

214、g the years ended June 30,2016 and 2015,respectively.21 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 6.Pension Expense Under terms of a negotiated union contract which expires on June 30,2018,the Company is obligated to make contributions to a union-sponsored International Brotherh

215、ood of Electrical Workers Local 1799 defined benefit pension plan(Plan identifying number is 14-6065199)covering eligible employees.Such contributions and expenses are based upon hours worked at a specified rate and amounted to$97,336 in fiscal 2016 and$89,198 in fiscal 2015.These contributions repr

216、esent more than five percent of the total plan contributions.For the years beginning January 1,2016 and 2015,the Plan was in the“green zone”which means it is neither endangered nor critical status.A Funding Improvement Plan,entered into by Plan Trustees in fiscal 2013,when the plan was in“critical s

217、tatus,”calls for an increase in contributions starting January 1,2016 of$0.04 per hour for each year for five years thereafter.The increase did not and will not have a material impact on the Companys financial statements.The Company sponsors a 401(k)plan for non-union workers with employee and emplo

218、yer matching contributions.The employer match is 10%of the employee contribution and was$47,175 and$37,703,for fiscal years 2016 and 2015,respectively.Note 7.Provision for Income Taxes A summary of the components of the provision for income taxes for the years ended June 30,2016 and 2015 is as follo

219、ws:2016 2015 Current tax expense-federal$1,230,367$1,402,033 Current tax(benefit)-state (1,396)(20,386)Deferred tax expense(benefit)57,735 (66,958)Provision for income taxes$1,286,706$1,314,689 Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabili

220、ties for financial reporting purposes and such amounts measured by tax laws and regulations.These temporary differences are determined in accordance with ASC 740-10.The combined U.S.federal and state effective income tax rates of 28.8%and 29.2%,for 2016 and 2015 respectively,differed from the statut

221、ory U.S.federal income tax rate for the following reasons:2016 2015 U.S.federal statutory income tax rate 34.0%34.0%Increase(reduction)in rate resulting from:State franchise tax,net of federal income tax benefit -0.1 ESOP cost versus Fair Market Value 1.5 1.5 Dividend on allocated ESOP shares (3.2)(

222、6.7)Qualified production activities (2.7)(2.7)Stock-based compensation (0.2)(0.3)Other (0.6)3.3 Effective tax rate 28.8%29.2%For the years ended June 30,2016 and 2015 deferred income tax expense(benefit)of$57,735 and($66,958),respectively,result from the changes in temporary differences for each yea

223、r.The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of June 30,2016 and 2015 are presented as follows:2016 2015 Deferred tax assets:Accrued expenses$151,210$295,673 ESOP 90,072 102,355 Stock-based compensation 74,287 23,602 Inventory-effec

224、t on uniform capitalization 27,266 12,407 Unrealized(gain)/loss on investment securities (513)2,361 Other 308 638 Total deferred tax assets$342,630$437,036 Deferred tax liability:Property,plant and equipment-principally due to differences in depreciation methods$293,309$327,106 Total deferred tax li

225、ability 293,309 327,106 22 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 7.Provision for Income Taxes,Continued Net deferred tax asset$49,321$109,930 In assessing the realizability of deferred tax assets,management considers whether it is more likely than not that some portion or al

226、l 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 scheduled reversal of deferred tax liabilities,pr

227、ojected 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 Compa

228、ny will realize the benefits of these temporary differences without consideration of a valuation allowance.As of June 30,2016 and 2015,the Company has no unrecognized tax benefits.The Company recognizes interest and penalties related to uncertain tax positions,if any,in general and administrative ex

229、pense.As of June 30,2016,the Company has not recorded any provision for accrued interest and penalties related to uncertain tax positions.By federal and state tax statue,federal and state tax returns are subject to audit for three years from date of filing,unless the return was audited within that p

230、eriod.As such,federal returns for tax years ending June 30,2016,2015,2014,and 2013 remain open to examination by the IRS.State returns for tax years ending June 30,2016,2015 and 2014 remain open to examination by the State of New York.Note 8.Significant Customers A significant portion of the Company

231、s business is the production of military and industrial electronic equipment for use by the U.S.and foreign governments and certain industrial customers.Sales to two domestic customers accounted for approximately 49%total sales in fiscal 2016.Sales to three domestic customers accounted for approxima

232、tely 61%of total sales in fiscal 2015.Export sales in fiscal 2016 and fiscal 2015 were approximately$2,125,000 and$2,384,000,respectively.Note 9.Stock Rights Plan The Company has a Shareholder Rights Plan that expires on December 31,2019.Under this plan,common stock purchase rights were distributed

233、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$25 per share subject to adjustment.The rights are exercisa

234、ble only if a person or group acquires beneficial ownership of 15%or more of the Companys common stock or commences a tender or exchange offer which,if consummated,would result in the offeror individually or,together with all affiliates and associates thereof,being the beneficial owner of 15%or more

235、 of the Companys common stock.If a 15%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 a

236、ny person were to become the beneficial owner of 15%or more of the Companys common stock,then 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 rights then current exercise price,shares of the Companys

237、 common stock having a value of twice the rights 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 rights then current exercise pri

238、ce,shares of common stock of such other person having a value of twice the rights 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 Companys Board of Directors)following public announcement that a

239、 15%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 15%or more of the Companys common stock.23 Espey Mfg.&Electronics Corp.Notes to Financia

240、l Statements Note 10.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 ESOPs debt s

241、ervice 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

242、 employees,based on the proportion of debt service paid in the year.The Company accounts for its ESOP in accordance with FASB ASC 718-40.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-

243、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$443,668 and$457,643 for the years ended June 30,2016 and 2015,respectively.The ESOP shares

244、 as of June 30,2016 and 2015 were as follows:2016 2015 Allocated shares 441,095 459,864 Unreleased shares 61,667 79,167 Total shares held by the ESOP 502,762 539,031 Fair value of unreleased shares$1,603,959$2,058,342 During the twelve months ended June 30,2016,the Company repurchased 14,303 shares

245、previously held in the ESOP for$355,418.During the twelve months ended June 30,2015 the Company repurchased 13,553 shares previously held by the ESOP for$320,504.Note 11.Stock-based Compensation The Company follows ASC 718 in establishing standards for the accounting for transactions in which an ent

246、ity 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 entitys equity instruments or that may be settled by the issuance of those equity instruments.ASC 718 req

247、uires 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.ASC 718 establishes fair value as the measurement objective in accounting for share-based payment transactions with employees,except fo

248、r equity instruments held by employee share ownership plans.Total stock-based compensation expense recognized in the statement of comprehensive income for the fiscal years ended June 30,2016 and 2015,was$97,045 and$62,416,respectively,before income taxes.The related total deferred tax benefit was ap

249、proximately$7,971 and$5,779,for the same periods.ASC 718 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.As of June 30,2016,there was ap

250、proximately$85,085 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over the next 2 years.The total deferred tax benefit related to these awards is approximately$6,766.The Company has one employee stock option plan under which options may

251、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

252、based on two years of continuous service and have a ten-year 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 Companys shareholders at the Compan

253、ys Annual Meeting on November 30,2007 and supersedes the Companys 2000 Stock Option Plan(the 2000 Plan).Options covering 400,000 shares are authorized for issuance under the 2007 Plan,of which 237,150 have been granted and 163,250 are outstanding as of June 30,2016.While no further grants of options

254、 may be made under the 2000 Plan,as of June 30,2016,7,200 options remain outstanding,vested,and exercisable from the 2000 Plan.ASC 718 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

255、 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 the fair value of each option award for the year ended June 30,2016 and 2015.24 Espey Mfg.&Electronics Corp.N

256、otes to Financial Statements Note 11.Stock-based Compensation,Continued 2016 2015 Dividend yield 3.99%3.85%Expected stock price volatility 27.80%31.27%Risk-free interest rate 1.20%1.34%Expected option life(in years)4.2 yrs 4.1 yrs Weighted average fair value per share of options granted during the p

257、eriod$3.866$4.616 The Company pays dividends quarterly and paid cash dividends totaling$1.00 per share for the twelve months ended June 30,2016 and 2015.Expected stock price volatility is based on the historical volatility of the Companys stock.The risk-free interest rate is based on the implied yie

258、ld 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 actual historical experience.The following table summarizes stock option activity during

259、 the twelve months ended June 30,2016:Employee Stock Options Plan Weighted Number of Weighted Average Shares Average Remaining Aggregate Subject Exercise Contractual Intrinsic to Option Price Term Value Balance at July 1,2015 187,500$23.38 6.26 Granted 3,000$25.12 9.69 Exercised (16,300)$18.22-Forfe

260、ited or expired (3,750)$26.02-Outstanding at June 30,2016 170,450$23.84 5.73$469,132 Vested or expected to vest at June 30,2016 163,794$23.75 5.60$457,193 Exercisable at June 30,2016 124,650$23.00 4.56$469,132 The aggregate intrinsic value in the table above represents the total pretax intrinsic val

261、ue(the difference between the closing sale price of the Companys common stock as reported on the NYSE MKT on June 30,2016 and the exercise price,multiplied by the number of in-the-money options)that would have been received by the option holders if all option holders had exercised their options on J

262、une 30,2016.This amount changes based on the fair market value of the Companys common stock.The total intrinsic values of the options exercised during the twelve months ended June 30,2016 and 2015 was$40,981 and$53,936,respectively.The following table summarizes changes in non-vested stock options d

263、uring the twelve months ended June 30,2016:Weighted Number of Average Shares Grant Date Subject Fair Value to Option (per Option)Non-Vested at July 1,2015 69,300$4.310 Granted 3,000 3.866 Vested(25,250)3.777 Forfeited or expired (1,250)4.710 Non-Vested at June 30,2016 45,800$4.564 Note 12.Concentrat

264、ion of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,short-term investments and accounts receivable.The Company maintains cash and cash equivalents with various financial institutions.At times

265、such investments may be in excess of FDIC insurance limits.As disclosed in Note 8,a significant portion of the Companys business is the production of military and industrial electronic equipment for use by the U.S.and foreign governments and certain industrial customers.The related accounts receivab

266、le balance,as a percentage of the Companys total trade accounts receivable balance,was 40%represented by two customers at June 30,2016 and 60%represented by three customers at June 30,2015.25 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 12.Concentration of Credit Risk,Continued Alt

267、hough the Companys exposure to credit risk associated with nonpayment of these concentrated balances is affected by the conditions or occurrences within the U.S.and foreign governments,the Company believes that its trade accounts receivable credit risk exposure is limited.The Company performs ongoin

268、g 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 informatio

269、n.Note 13.Related Parties The administration of the shares of common stock held by the ESOP Trust is subject to the Second Amended and Restated Plan,effective as of July 1,2002,creating the Trust,and a Trust Agreement dated July 15,2005.The Espey Mfg.&Electronics Corp.Notes to Financial Statements N

270、ote 13.Related Parties,Continued Trustees rights with respect to the disposition of shares are governed by the terms of the Plan and the Trust Agreement.As to shares that have been allocated to the accounts of participants in the ESOP Trust,the Plan provides that the Trustees are required to vote su

271、ch shares in accordance with instructions received from the participants.As to unallocated shares and allocated shares for which voting instructions have not been received from participants,the Plan provides that the Trustees are required to vote such shares in accordance with the direction of a Com

272、mittee,appointed by the Board of Directors of the Company under the terms of the Plan and Trust Agreement.See Note 10 for additional information regarding the ESOP.Note 14.Commitments and Contingencies The Company at certain times enters into standby letters of credit agreements with financial insti

273、tutions primarily relating to the guarantee of future performance on certain contracts.Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30,2016 and 2015.The Company,as a U.S.Government contractor,is subject to audits,reviews,and investigations by

274、the U.S.Government related to its negotiation and performance of government contracts and its accounting for such contracts.Failure to comply with applicable U.S.Government standards by a contractor may result in suspension from eligibility for award of any new government contract and a guilty plea

275、or conviction may result in debarment from eligibility for awards.The government may,in certain cases,also terminate existing contracts,recover damages,and impose other sanctions and penalties.As a result of contract audits the Company will determine a range of possible outcomes and in accordance wi

276、th ASC 450“Contingencies”the Company will accrue amounts within a range that appears to be its best estimate of a possible outcome.Adjustments are made to accruals,if any,periodically based on current information.Note 15.Stockholders Equity Reservation of Shares The Company has reserved common share

277、s for future issuance as follows as of June 30,2016:Stock options outstanding 170,450 Stock options available for issuance 193,600 Number of common shares reserved 364,050 The following table sets forth the reconciliation of the numerators and denominators of the basic and diluted earnings per share

278、 computations for continuing operations for the years ended June 30:2016 2015 Numerator:Net Income$3,175,801$3,183,127 Denominator:Basic EPS:Common shares outstanding,beginning of period 2,362,687 2,368,110 Unearned ESOP shares (79,167)(97,500)Weighted average common shares issued during the period

279、5,975 3,364 26 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 15.Stockholders Equity,Continued Weighted average common shares purchased during the period (10,395)(9,442)Weighted average ESOP shares earned during the period 6,586 6,894 Denominator for basic earnings per common shares

280、Weighted average common shares 2,285,686 2,271,426 Diluted EPS:Common shares outstanding,beginning of period 2,362,687 2,368,110 Unearned ESOP shares (79,167)(97,500)Weighted average common shares issued during the period 5,975 3,364 Weighted average common shares purchased during the period (10,395

281、)(9,442)Weighted average ESOP shares earned during the period 6,586 6,894 Weighted average dilutive effect of stock options 16,348 19,116 Denominator for diluted earnings per common shares Weighted average common shares 2,302,034 2,290,542 Not included in this computation of earnings per share for t

282、he year ended June 30,2016 and 2015 were options to purchase 113,250 and 25,250 shares,respectively,of the Companys common stock.These options were excluded because their inclusion would have been anti-dilutive due to the average strike price exceeding the average market price of those shares.The Co

283、mpany paid cash dividends on common stock of$1.00 per share for the fiscal year ended June 30,2016 and 2015(of which$0.25 per share was accrued at June 30,2015).Subsequent to June 30,2016,the Board of Directors has authorized the payment of a fiscal 2017 first quarter dividend of$0.25 payable Septem

284、ber 29,2016 to shareholders of record on September 22,2016.Our Board of Directors assesses the Companys dividend policy periodically.There is no assurance that the Board of Directors will either maintain the amount of the regular cash dividend or declare a special dividend during any future years.No

285、te 16.Line of Credit At June 30,2016,the Company has an uncommitted and unused Line of Credit with a financial institution.The agreement provides that the Company may borrow up to$3,000,000.The line provides for interest payments equal to the LIBOR Daily Floating Rate plus 2.00%.Any borrowing under

286、the line of credit will be collateralized by accounts receivable.The line will be reviewed annually for renewal.All outstanding balances are payable no later than the expiration date of the agreement,unless other terms are agreed to by the lender.Note 17.Quarterly Financial Information(Unaudited)Fir

287、st Second Third Fourth 2016 Quarter Quarter Quarter Quarter Net sales$6,279,436$7,242,020$7,217,922$6,731,987 Gross profit.1,968,320 1,588,043 2,148,223 1,667,096 Net income.878,530 614,427 972,468 710,376 Net income per share-Basic .0.38 0.27 0.43 0.31 Diluted.0.38 0.27 0.43 0.30 2015 Net sales$5,6

288、93,472$5,697,083$6,470,286$8,970,864 Gross profit.1,810,079 2,258,735 1,437,534 1,635,225 Net income.911,221 1,219,082 506,369 546,455 Net income per share-Basic .0.40 0.54 0.22 0.24 Diluted.0.40 0.54 0.22 0.23 27 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Discl

289、osure None Item 9A.Controls and Procedures Evaluation of Controls and Procedures(a)The Companys management,with the participation of the Companys chief executive officer and chief financial officer,carried out an evaluation of the effectiveness of our disclosure controls and procedures(as defined in

290、 Rule 13a-15(e)and 15d-15(e)under the Securities Exchange Act of 1934)as of the end of the period covered by this Annual Report on Form 10-K.Based on such evaluation,our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as o

291、f the end of the period covered by this report.(b)There have been no changes in our internal controls over financial reporting during the period covered by this report that have materially affected,or are reasonably likely to materially affect,our internal controls over financial reporting.Managemen

292、ts Report on Internal Control over Financial Reporting Management of our Company is responsible for establishing and maintaining adequate internal control over financial reporting,as that term is defined in Exchange Act Rules 13a-15(f)and 15d-15(f).Our internal control over financial reporting is a

293、process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Because of its inherent limitations,internal control over financial reportin

294、g may not prevent or detect misstatements.Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures may deteriorate.Under the supe

295、rvision and with the participation of our management,including the principal executive officer and principal financial officer,we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth in Internal Control-Integrated Framework issued

296、 by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.Based on our evaluation using the criteria set forth in Internal Control-Integrated Framework,management has concluded that our internal control over financial reporting was effective as of June 30,2016.This annual repo

297、rt does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.Our report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only managements report in

298、this annual report.Item 9B.Other information None PART III The information called for by Item 10.Directors,Executive Officers,and Corporate Governance,Item 11.Executive Compensation,Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,Item 13.Certain

299、 Relationships and Related Transactions,and Director Independence and Item 14.Principal Accountant Fees and Services,is hereby incorporated by reference to the Companys Proxy Statement for its Annual Meeting of Shareholders,(scheduled to be held on December 2,2016)to be filed with the SEC pursuant t

300、o Regulation 14A under the Securities Exchange Act of 1934,as amended.28 PART IV Item 15.Exhibits,Financial Statement Schedules,Signatures 3.1 Certificate of incorporation and all amendments thereto(incorporated by reference to Exhibit 3.1 to Espeys Report on Form 10-K for the year ended June 30,200

301、4 and Report on Form 10-Q for the quarter ended December 31,2004)3.2 Amended and Restated By-Laws(incorporated by reference to Exhibit 3.2 to Espeys Report on Form 8-K dated February 26,2009)4.1 Second Amended and Restated Rights Agreement,dated December 18,2009,between Espey Mfg.&Electronics Corp.a

302、nd Registrar and Transfer Company(incorporated by reference to Exhibit 4.01 to Espeys Report on Form 8-K dated December 18,2009)4.2 Description of Capital Stock(incorporated by reference to Espeys Report on Form 8-K dated October 7,2005)10.1 2000 Stock Option Plan(incorporated by reference to Espeys

303、 Definitive Proxy Statement dated December 6,1999 for the January 4,2000 Annual Meeting)10.3 2007 Stock Option and Restricted Stock Plan(incorporated by reference to Espeys Proxy Statement dated October 23,2007 for the November 30,2007 Annual Meeting)10.5 Retired Director Compensation Program and Ma

304、ndatory Retirement Agreement(incorporated by reference to Exhibit 10.5 to Espeys Report on Form 10-Q dated May 12,2011)10.6 Retired Director Compensation Program and Mandatory Retirement Agreement Paul Corr(incorporated by reference to Exhibit 10.6 to Espeys Report on Form 10-Q dated May 12,2011)10.

305、7 Retired Director Compensation Program and Mandatory Retirement Agreement Carl Helmetag(incorporated by reference to Exhibit 10.7 to Espeys Report on Form 10-Q dated May 12,2011)10.8 Retired Director Compensation Program and Mandatory Retirement Agreement Barry Pinsley(incorporated by reference to

306、Exhibit 10.8 to Espeys Report on Form 10-Q dated May 12,2011)10.9 Retired Director Compensation Program and Mandatory Retirement Agreement Howard Pinsley(incorporated by reference to Exhibit 10.9 to Espeys Report on Form 10-Q dated May 12,2011)10.10 Retired Director Compensation Program and Mandator

307、y Retirement Agreement Alvin Sabo(incorporated by reference to Exhibit 10.10 to Espeys Report on Form 10-Q dated May 12,2011)10.11 Retired Director Compensation Program and Mandatory Retirement Agreement Michael Wool(incorporated by reference to Exhibit 10.11 to Espeys Report on Form 10-Q dated May

308、12,2011)10.13 Executive Employment Agreement with David ONeil(incorporated by reference to Exhibit 10.13 on Espeys Report on Form 8-K dated March 4,2014)10.14 Executive Employment Agreement with Peggy Murphy(incorporated by reference to Exhibit 10.14 on Espeys Report on Form 8-K dated March 4,2014)1

309、0.15 Executive Employment Agreement with Patrick Enright,Jr.(incorporated by reference to Exhibit 10.15 on Espeys Report on Form 8-K dated January 20,2015)10.15a First Amendment to Employment Agreement with Patrick Enright,Jr.(incorporated by reference to Exhibit 10.15a on Espeys Report on Form 8-K

310、dated March 7,2016)11.1 Statement re:Computation of Per Share Net income(filed herewith)14.1 Code of ethics(incorporated by reference to Espeys website )29 23.1 Consent of Freed Maxick CPAs,P.C.(filed herewith)31.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(a)and 15d-14(a)

311、under the Securities Exchange Act of 1934,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(filed herewith)31.2 Certification of the Principal Financial Officer pursuant to Rules 13a-14(a)and 15d-14(a)under the Securities Exchange Act of 1934,as adopted pursuant to Section 302 of

312、the Sarbanes-Oxley Act of 2002(filed herewith)32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(filed herewith)32.2 Certification of the Principal Financial Officer pursuant to 18 U.S.C.Section 135

313、0,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(filed herewith)30 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 d

314、uly authorized.ESPEY MFG.&ELECTRONICS CORP./s/Patrick Enright Jr.Patrick Enright Jr.President and Chief Executive Officer September 12,2016 Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of the registrant and i

315、n the capacities and on the dates indicated./s/Patrick Enright Jr.President and Chief Executive Officer Patrick Enright Jr.September 12,2016 /s/David ONeil Treasurer and Principal Financial Officer David ONeil September 12,2016 /s/Katrina Sparano Assistant Treasurer Katrina Sparano September 12,2016

316、 /s/Howard Pinsley Chairman of the Board Howard Pinsley September 12,2016 /s/Barry Pinsley Director Barry Pinsley September 12,2016 /s/Michael W.Wool Director Michael W.Wool September 12,2016 /s/Paul J.Corr Director Paul J.Corr September 12,2016 /s/Alvin O.Sabo Director Alvin O.Sabo September 12,201

317、6 /s/Carl Helmetag Director Carl Helmetag September 12,2016 31 EXHIBIT 11.1 ESPEY MFG.&ELECTRONICS CORP.Computation of per Share Net Income Five years ended June 30,2016 2015 2014 2013 2012 Computation of net income per share:BASIC Weighted average number of primary shares outstanding.2,285,686 2,27

318、1,426 2,245,222 2,206,937 2,172,589 Net income.$3,175,801$3,183,127$1,167,885$5,562,425$4,390,268 Per share-basic.$1.39$1.40$0.52$2.52$2.02 DILUTED Weighted average number of primary shares outstanding.2,302,034 2,290,542 2,285,535 2,242,648 2,203,060 Net effect of dilutive stock options based on tr

319、easury stock method.16,348 19,116 40,313 35,711 30,471 Net income.$3,175,801$3,183,127$1,167,885$5,562,425$4,390,268 Per share-diluted.$1.38$1.39$0.51$2.48$1.99 32 EXHIBIT 23.1 ESPEY MFG.&ELECTRONICS CORP.Consent of Freed Maxick CPAs,P.C.CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Espey

320、 Mfg.&Electronics Corp.Saratoga Springs,New York We hereby consent to the incorporation by reference in the Registration Statements on Form S-8(No.333-128922 and 333-148678)pertaining to the 2000 and 2007 Stock Option Plans of Espey Mfg.&Electronics Corp.of our report dated September 12,2016,with re

321、spect to the financial statements of Espey Mfg.&Electronics Corp.included in its Annual Report(Form 10-K)for the year ended June 30,2016,filed with the Securities and Exchange Commission./s/Freed Maxick CPAs,P.C.Rochester,New York September 12,2016 33 EXHIBIT 31.1 Certification of the Chief Executiv

322、e Officer Pursuant to Rules 13a-14(a)and 15d-14(a)under the Securities Exchange Act of 1934,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I,Patrick Enright Jr.,certify that:1.I have reviewed this annual report on Form 10-K of Espey Mfg.&Electronics Corp;2.Based on my knowledge

323、,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge,th

324、e financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report;4.The registrants other certifying officer and I ar

325、e responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e)and 15(d)-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15(d)-15(f)for the registrant and have:(a)Designed such disclosure co

326、ntrols and procedures,or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Des

327、igned such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in acc

328、ordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report

329、 based on such evaluation;and(d)Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is re

330、asonably likely to materially affect,the registrants internal control over financial reporting;and 5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to the registrants auditors and the audit committee of r

331、egistrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,process,summ

332、arize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the registrants internal control over financial reporting.Date:September 12,2016 /s/Patrick Enright Jr.Patrick Enright Jr.President and Chief Exec

333、utive Officer 34 EXHIBIT 31.2 Certification of the Principal Financial Officer Pursuant to Rules 13a-14(a)and 15d-14(a)under the Securities Exchange Act of 1934,as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I,David ONeil,certify that:1.I have reviewed this annual report on Form 10-K of Espey Mfg.&Electronics Corp;2.Based on my knowledge,this report does not contain any untru