-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ofrcc2Tfh2/9x+x9SyRxjW1Vwhy/SQ8MzViSALgsJSmPXxFrl/WbeGKGvoEMeNOx ZAMTr9RnePo7TDXZooN+WQ== 0000950114-97-000394.txt : 19970912 0000950114-97-000394.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950114-97-000394 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970829 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENGINEERED SUPPORT SYSTEMS INC CENTRAL INDEX KEY: 0000772891 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 431313242 STATE OF INCORPORATION: MO FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13880 FILM NUMBER: 97672523 BUSINESS ADDRESS: STREET 1: 1270 N PRICE RD CITY: ST LOUIS STATE: MO ZIP: 63132 BUSINESS PHONE: 3149935880 MAIL ADDRESS: STREET 1: 1270 N PRICE RD CITY: ST LOUIS STATE: MO ZIP: 63132 10-Q 1 QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the nine months ended July 31, 1997 Commission file number 0-13880 ENGINEERED SUPPORT SYSTEMS, INC. (Exact name of Registrant as specified in its charter) Missouri 43-1313242 (State of Incorporation) (IRS Employer Identification Number) 1270 North Price Road, St. Louis, Missouri 63132 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (314) 993-5880 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of the Registrant's common stock, $.01 par value, outstanding at August 15, 1997 was 3,165,500. 2 ENGINEERED SUPPORT SYSTEMS, INC. INDEX
Page ---- Part I - Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of July 31, 1997 and October 31, 1996. . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Income for the three months and nine months ended July 31, 1997 and 1996. . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 1997 and 1996. . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements. . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . 7 Part II - Other Information Items 1-6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2 3 ENGINEERED SUPPORT SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
July 31 October 31 1997 1996 ----------- ----------- (Unaudited) ASSETS Current Assets Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,406,312 $ 1,415,773 Accounts receivable . . . . . . . . . . . . . . . . . . . 4,280,998 4,855,330 Contracts in process and inventories. . . . . . . . . . . 5,555,776 10,014,627 Other current assets. . . . . . . . . . . . . . . . . . . 1,774,436 1,149,054 ----------- ----------- Total Current Assets . . . . . . . . . . . . . . . . . 18,017,522 17,434,784 Property, plant and equipment, less accumulated depreciation of $14,386,712 and $13,176,403 . . . . . . . 14,384,511 14,096,927 Intangible assets. . . . . . . . . . . . . . . . . . . . . . 776,634 966,234 Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,432,676 1,594,186 ----------- ----------- Total Assets. . . . . . . . . . . . . . . . . . . . $34,611,343 $34,092,131 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt. . . . . . . . . . . $ 61,978 $ 786,802 Accounts payable. . . . . . . . . . . . . . . . . . . . . 4,820,872 5,834,454 Other current liabilities . . . . . . . . . . . . . . . . 2,711,916 2,459,315 ----------- ----------- Total Current Liabilities. . . . . . . . . . . . . . . 7,594,766 9,080,571 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1,222,938 1,937,805 Deferred income taxes. . . . . . . . . . . . . . . . . . . . 2,801,639 2,801,639 ESOP guaranteed bank loan. . . . . . . . . . . . . . . . . . 910,200 1,020,900 Shareholder's Equity Common stock, par value $.01 per share; 10,000,000 shares. authorized; 3,762,773 and 3,687,273 shares issued. . . . 37,628 36,873 Additional paid-in capital . . . . . . . . . . . . . . . . 9,542,230 8,998,489 Retained earnings. . . . . . . . . . . . . . . . . . . . . 16,585,577 13,465,694 ----------- ----------- 26,165,435 22,501,056 Less ESOP guaranteed bank loan . . . . . . . . . . . . . . 910,200 1,020,900 Less treasury stock at cost, 601,454 and 522,313 shares. . 3,173,435 2,228,940 ----------- ----------- 22,081,800 19,251,216 ----------- ----------- Total Liabilities and Shareholders' Equity $34,611,343 $34,092,131 =========== =========== See notes to condensed consolidated financial statements.
3 4 ENGINEERED SUPPORT SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended July 31 July 31 -------------------------- -------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Net revenues. . . . . . . . . . . $23,926,087 $21,623,122 $67,508,389 $57,594,493 Cost of revenues. . . . . . . . . 19,852,518 18,359,046 56,640,821 48,881,762 ----------- ----------- ----------- ----------- Gross profit. . . . . . . . . . . 4,073,569 3,264,076 10,867,568 8,712,731 Selling, general and administrative expense. . . . . 1,935,323 1,661,494 5,534,028 4,821,127 ----------- ----------- ----------- ----------- Income from operations. . . . . . 2,138,246 1,602,582 5,333,540 3,891,604 Interest expense (income) . . . . (23,411) 77,188 5,747 363,174 ----------- ----------- ----------- ----------- Income before income taxes. . . . 2,161,657 1,525,394 5,327,793 3,528,430 Income tax provision. . . . . . . 864,000 609,000 2,129,000 1,409,000 ----------- ----------- ----------- ----------- Net income. . . . . . . . . . . . $ 1,297,657 $ 916,394 $ 3,198,793 $ 2,119,430 =========== =========== =========== =========== Net income per share. . . . . . . $ .39 $ .28 $ .96 $ .65 ===== ===== ===== ===== See notes to condensed consolidated financial statements.
4 5 ENGINEERED SUPPORT SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended July 31 --------------------------- 1997 1996 ----------- ----------- From operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 3,198,793 $ 2,119,430 Depreciation and amortization . . . . . . . . . . . . . . 1,421,428 1,352,261 ----------- ----------- Cash provided (used) before changes in operating assets and liabilities . . . . . . . . . . . . . . . 4,620,221 3,471,691 Net (increase) decrease in non-cash current assets . . . . 4,407,801 101,074 Net increase (decrease) in non-cash current liabilities. . (760,981) (1,808,618) (Increase) decrease in other assets. . . . . . . . . . . . 180,856 (83,231) ----------- ----------- Net cash provided by (used in) operating activities. . 8,447,897 1,680,916 ----------- ----------- From investing activities: Additions to property, plant and equipment. . . . . . . . (1,497,893) (622,784) ----------- ----------- Net cash provided by (used in) investing activities. . (1,497,893) (622,784) ----------- ----------- From financing activities: Net payments under line-of-credit agreement . . . . . . . (1,112,152) Payments of long-term debt. . . . . . . . . . . . . . . . (1,439,691) (597,516) Purchase of treasury stock. . . . . . . . . . . . . . . . (957,091) (250,544) Exercise of stock options . . . . . . . . . . . . . . . . 516,228 715,568 Cash dividends. . . . . . . . . . . . . . . . . . . . . . (78,911) (65,754) ----------- ----------- Net cash provided by (used in) financing activities . . (1,959,465) (1,310,398) ----------- ----------- Net increase (decrease) in cash and cash equivalents . . . . 4,990,539 (252,266) Cash and cash equivalents at beginning of period . . . . . . 1,415,773 386,609 ----------- ----------- Cash and cash equivalents at end of period . . . . . . . . . $ 6,406,312 $ 134,343 =========== =========== See notes to condensed consolidated financial statements.
5 6 ENGINEERED SUPPORT SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JULY 31, 1997 NOTE A - BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended July 31, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report to shareholders for the year ended October 31, 1996. NOTE B - NET INCOME PER SHARE Net income per share is based on the weighted average number of common and common equivalent shares outstanding of 3,302,337 and 3,269,781 for the three months ended July 31, 1997 and 1996, respectively, and 3,330,430 and 3,250,222 for the nine months ended July 31, 1997 and 1996, respectively. Common equivalent shares represent common stock options as computed based on the treasury stock method. Primary and fully diluted earnings per share are substantially the same for each of the periods presented. NOTE C - CONTRACTS IN PROCESS AND INVENTORIES Contracts in process and inventories of Engineered Air Systems, Inc. represent accumulated contract costs, estimated earnings thereon based upon the percentage of completion method and contract inventories reduced by the contract value of delivered items. Inventories of Engineered Specialty Plastics, Inc. are valued at the lower of cost or market using the first-in, first-out method. Contracts in process and inventories are comprised of the following:
July 31, 1997 October 31, 1996 ------------- ---------------- Raw materials $1,410,348 $ 1,643,824 Work-in-process 156,456 142,604 Finished goods 656,178 557,900 Inventories substantially applicable to government contracts in process, less progress payments of $12,079,182 and $17,619,487 3,332,794 7,670,299 ---------- ----------- $5,555,776 $10,014,627 ========== ===========
6 7 ENGINEERED SUPPORT SYSTEMS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues increased 11% in the third quarter of 1997 to $23.9 million from $21.6 million in the third quarter of 1996, and increased 17% to $67.5 million in the first nine months of 1997 from $57.6 million in the first nine months of 1996. The increase in revenues was a result of higher volume at both subsidiaries. Revenues for Engineered Specialty Plastics, Inc. (ESP) increased 19% to $5.9 million in the third quarter of 1997 and increased 21% to $19.0 million in the first nine months of 1997. These strong gains are the direct result of an intensified marketing effort at this subsidiary. Revenues for Engineered Air Systems, Inc. (Engineered Air) increased 8% to $18.1 million in the third quarter of 1997 and increased 16% to $48.5 in the first nine months of 1997. The most significant production contracts for Engineered Air included the Aviation Ground Power Units, C-5 and MA-3D Flight Line Air Conditioners, Revetment Kits and B-1B Air Conditioners. In addition, the defense subsidiary performed significant developmental work during the period on the Chemical and Biological Protected Shelter System (CBPSS) and the Chemically/Biologically Hardened Air Management Plant (CHAMP). Gross profit for the third quarter of 1997 increased $0.8 million, or 25%, over the amount for the comparable 1996 period, reflecting both the increase in production volume and significantly higher margins at ESP. The gross margin for the third quarter was 17.0% and 15.1% in 1997 and 1996, respectively. The gross margin for the first nine months of the year was 16.1% and 15.1% in 1997 and 1996, respectively. Selling, general and administrative expense was $1.94 million and $1.67 million in the third quarter of 1997 and 1996, respectively. As a percent of net revenues, selling, general and administrative expense decreased from 8.4% in the nine months ended July 31, 1996 to 8.2% in 1997. Interest expense decreased $101,000 in the third quarter of 1997 as compared with the third quarter of 1996. This was the result of strong cash flow at both subsidiaries. LIQUIDITY AND CAPITAL RESOURCES At July 31, 1997, the Company's working capital and ratio of current assets to current liabilities were $10.4 million and 2.37 to 1 as compared to $8.4 million and 1.92 to 1 at October 31, 1996. As of July 31, 1997, the Company had cash and cash equivalents of $6.4 million and unused credit related to its loan agreement of $6.4 million. BUSINESS AND MARKET CONSIDERATIONS As of July 31, 1997, Engineered Air's funded backlog of defense orders was $55 million compared to $92 million a year ago. The Company is heavily dependent on the U.S. Government for business. (Approximately 72 of consolidated net revenues for the nine months ended July 31, 1997 were derived from contracts with the U.S. Government and its agencies). The Company began a plan of diversification in 1993 with the acquisition of ESP. This acquisition provided expansion into the commercial marketplace. Management is currently pursuing potential acquisitions, primarily within the defense industry. 7 8 PART II OTHER INFORMATION Items 1-5 Not applicable. Item 6 (a) Exhibits 4. (i) Registration Statement Number 33-14504 on Form S-8 dated May 22, 1987 for the registration of 340,000 shares of Engineered Support Systems, Inc. common stock, $.01 par value, pursuant to the Amended and Restated Engineered Air Systems, Inc. Employee Equity Plan, is incorporated herein by reference. (ii) Registration Statement Number 33-77338 on Form S-8 dated March 25, 1994 for the registration of 150,000 shares of Engineered Support Systems, Inc. common stock, $0.01 par value, pursuant to the Engineered Support Systems, Inc. 1993 Stock Option Plan, is incorporated herein by reference. (iii) Registration Statement Number 333-27695 on Form S-8 dated May 23, 1997 for the registration of 50,000 shares of Engineered Support Systems, Inc. common stock, $.01 par value, pursuant to the Engineered Support Systems, Inc. 1997 Stock Option Plan for Non-employee Directors, is incorporated herein by reference. 11. Statement Re: Computation of Net Income Per Share. 27. Statement Re: Summary Financial Information (b) No reports on Form 8-K were filed during the nine months ended July 31, 1997. 8 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENGINEERED SUPPORT SYSTEMS, INC. Date: August 29, 1997 By: /s/ Michael F. Shanahan Sr. ---------------- --------------------------------------- MICHAEL F. SHANAHAN SR. Chairman of the Board, President and Chief Executive Officer Date: August 29, 1997 By: /s/ Gary C. Gerhardt ---------------- --------------------------------------- GARY C. GERHARDT Executive Vice President and Chief Financial Officer 9 EX-11 2 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 ENGINEERED SUPPORT SYSTEMS, INC. STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE
Three Months Ended Nine Months Ended July 31 July 31 ------------------------ ------------------------ 1997 1996 1997 1996 ---------- ---------- ---------- ---------- NET INCOME $1,297,657 $ 916,394 $3,198,793 $2,119,430 ========== ========== ========== ========== NET INCOME PER SHARE Average shares outstanding 3,150,989 3,098,075 3,170,092 3,035,894 ========== ========== ========== ========== Net income $ .41 $ .30 $1.01 $ .70 ========== ========== ========== ========== PRIMARY EARNINGS PER SHARE Average shares outstanding 3,150,989 3,098,075 3,170,092 3,035,894 Net effect of dilutive stock options 135,583 171,881 126,619 204,992 ---------- ---------- ---------- ---------- 3,286,572 3,269,956 3,296,711 3,240,886 ========== ========== ========== ========== Net income $ .39 $ .28 $ .97 $ .65 ========== ========== ========== ========== FULLY DILUTED EARNINGS PER SHARE Average shares outstanding 3,150,989 3,098,075 3,170,092 3,035,894 Net effect of dilutive stock options 151,348 171,706 160,338 214,328 ---------- ---------- ---------- ---------- 3,302,337 3,269,781 3,330,430 3,250,222 ========== ========== ========== ========== Net income $ .39 $ .28 $ .96 $ .65 ========== ========== ========== ========== Based on the treasury stock method.
10 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE NINE MONTHS ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS OCT-31-1997 NOV-01-1996 JUL-31-1997 6,406,312 0 4,554,075 273,077 5,555,776 18,017,522 28,771,223 14,386,712 34,611,343 7,594,766 2,133,138 37,628 0 0 22,044,172 34,611,343 67,508,389 67,508,389 56,640,821 56,640,821 5,515,703 18,325 5,747 5,327,793 2,129,000 3,198,793 0 0 0 3,198,793 .97 .96
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