FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-7390
Aero Systems Engineering, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-0913117
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
358 East Fillmore Avenue, St. Paul, Minnesota 55107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 612-227-7515
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
As of March 31, 1995, 2,551,717 shares of common stock, par value $.20
per share, were outstanding.
AERO SYSTEMS ENGINEERING, INC.
(Subsidary of Celsius, Inc.)
Form 10Q
Quarter Ended March 31, 1995
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 9
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsius, Inc.)
CONSOLIDATED BALANCE SHEETS (Unaudited in Thousands)
March 31, December 31,
ASSETS 1995 1994
CURRENT ASSETS
Cash $ 152 $ 310
Accounts Receivable:
Billed Contracts 3,858 4,145
Sundry 551 540
4,409 4,685
Note Receivable 0 335
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts 7,482 6,723
Inventories
Materials and Supplies 881 786
Projects in Process 529 386
Prepaid Expenses 90 195
Deferred Income Tax Benefit 376 376
Income Tax Receivable 103 103
Total Current Assets 14,022 13,899
LONG TERM ASSETS
Land 486 486
Building 3,025 3,025
Furniture, Fixtures, & Equipment 5,175 5,032
Wind Tunnels & Instrumentation 2,270 2,270
Leasehold Improvements 1,176 1,156
12,132 11,969
Less accumulated Depreciation 5,803 5,561
6,329 6,408
Investments 436 436
Non-Compete Agreement 176 190
Other Long Term Assets 64 77
Total Long Term Assets 7,005 7,111
Total Assets $21,027 $21,010
LIABILITIES
CURRENT LIABILITIES
Current Maturities of
Long Term Obligations $ 28 $ 28
Current Maturites of Long-Term
Debt to Affiliated Company 800 800
Notes Payable - Banks 4,243 2,541
Accounts Payable:
Trade 1,667 1,929
Affiliated company 108 114
Billings on Uncompleted Contracts
in Excess of Costs and
Estimated Earnings 218 748
Accrued Warranty and Losses 947 1,022
Accrued Salaries and Wages 816 748
Other Accruals 1,594 2,070
Total Current Liabilities 10,421 10,000
Other Liabilities
Deferred Revenue 435 435
Deferred Income Taxes 376 376
Note Payable 127 127
Long Term Debt to Affiliated Company,
Less Current Maturities 2,400 2,800
Capital Lease Obligations,
Less Current Maturities 276 283
STOCKHOLDERS' EQUITY
Common Stock - Authorized 3,000,000
Shares of $.20 Par Value; Issued 2,551,717
on March 31, 1995 and December 31, 1994. 510 510
Additional Contributed Capital 517 517
Retained Earnings 5,965 5,962
Total Stockholders' Equity 6,992 6,989
Total Liabilities and
Stockholders' Equity $21,027 $21,010
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF EARNINGS
(Unaudited in Thousands)
Quarter Ended
March 31 March 31
1995 1994
Earned Revenues $ 5,782 $ 4,876
Cost of Earned Revenues 4,278 4,114
Gross Profit 1,504 762
Operating Expenses 1,314 1,180
Operating Profit(Loss) 190 (418)
Other Income (Expense)
Interest Income 8 11
Interest Expense (196) (184)
Other 1 1
(187) (172)
Income (Loss) Before Income Taxes 3 (590)
Income Tax Expense (Benefit) -- (206)
Net Income (Loss) $ 3 $ (384)
NET INCOME PER SHARE $ 0.00 $ (0.15)
Dividends per Share None None
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF CASH FLOW FROM OPERATING ACTIVITIES
(Unaudited in Thousands)
Three Months Three Months
Ended Ended
March 31, March 31,
1995 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 3 $ (384)
Adjustment to reconcile net income
to net cash provided by
operating activities:
Depreciation and Amortization 257 253
(Increase) Decrease in Assets:
Accounts Receivable 659 (1,756)
Cost and Estimated Earnings
in excess of billing on
uncompleted contracts (759) 2,336
Inventories (238) (312)
Prepaid Expenses 105 96
Deferred Income Tax Benefit -- 46
Increase (Decrease) in Liabilities:
Accounts Payable and
accrued expense (799) (1,467)
Income Taxes Payable -- (13)
Billings in Excess of Costs and
estimated earnings on
uncompleted contracts (530) 121
Net Cash Provided (Used) by
Operating Activities (1,302) (1,080)
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from the Sale of Fixed Assets -- 19
Capital Expenditures (164) (49)
Payment Received on Note Receivable 13 11
Net Cash Used in Investing Activities (151) (19)
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings under Line of
Credit Agreement 1,702 1,013
Capital Lease Assumed in Acquisition (7) (6)
Principal Payments, Long Term
Obligations (400) --
Net Cash Provided (Used) by
Financing Activities 1,295 1,007
NET CHANGE IN CASH (158) (92)
CASH AT BEGINNING OF YEAR 310 168
CASH AT END OF QUARTER $ 152 $ 76
AERO SYSTEMS ENGINEERING , INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
NOTE A - LONG TERM LEASE OBLIGATIONS
The Company has capitalized leases which expire through 2002. One
capitalized lease agreement, which relates to a warehouse facility in St.
Paul, contains several purchase options at various times during the lease
period. The most favorable option occurs at the end of the lease period.
NOTE B - CONTRACTS IN PROCESS
Information with resepect to contracts in process follows:
March 31 March 31
1995 1994
Costs Incurred on Uncompleted
Contracts $31,629 $33,575
Estimated Earnings Thereon 14,446 15,198
Total Earned Revenue on
Uncompleted Contracts 46,075 48,773
Less Billings Applicable thereto 38,811 44,619
$ 7,264 $ 4,154
Included in Accompanying Balance
Sheet Under Following Captions:
Costs and Estimated Earnings
in Excess of Billings on
Uncompleted Contracts $ 7,482 $ 6,668
Billings in excess of Costs
and Estimated Earnings on
Uncompleted Contracts 218 2,514
$ 7,264 $ 4,154
NOTE C - INCOME TAXES
The components of the provision for income taxes are:
March 31 March 31
1995 1994
Income Taxes Currently
Payable (Refundable) $(150) $(252)
Deferred 150 46
Income Tax Expense $ 0 $(206)
Tax effect of timing differences results from the following item:
Warranty and Vacation costs,
treated on a cash basis for
tax purposes and the accrual
basis for financial
accounting purposes $150 $ 46
Other 0 0
$150 $ 46
NOTE D - CONTINGENCIES AND COMMITMENT
Letter of Credit
Standby letters of credit totaling $1,855,000 were outstanding on
March 31, 1995 to various customers in exchange for down payments or
warranty performance bonds.
NOTE E - RECLASSIFICATION
Certain amounts in the 1994 unaudited financial statements have been
reclassified to conform with the presentation of similar amounts in
the 1995 unaudited financial statements.
AERO SYSTEMS ENGINEERING, INC.
(A Subsidiary of Celsius, Inc.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Aero Systems Engineering, Inc. ("ASE") had net income of $3,000 after tax during
the first quarter of 1995 as compared with a loss of $384,000 after tax during
the same period in the prior year. The income during the first quarter of 1995
was the result of improved margins on the projects in process during the period.
Earned revenue for the first quarter of 1995 increased $906,000 or 19% as
compared with the same period in 1994. This increase is primarily the result of
an increased backlog at the beginning of 1995 in the Company's wind tunnel
business as several wind tunnel orders were received in the fourth quarter of
1994. This additional wind tunnel backlog generated earned revenue during the
first quarter of 1995.
The cost of earned revenue, as a percentage of earned revenue, decreased to 74%
during the first quarter of 1995 as compared with 84% during the same period in
1994 due to improved project mix. In addition, during the first quarter of 1994
the Company's overhead level was too high as compared to the level of revenue.
The Company reduced its' workforce in early March 1994 to address the lower
level of work in process during that period.
The Company recognizes revenue using the percentage of completion method for its
long-term contracts. Estimates of revenues earned and expenses to be incurred to
complete the contracts are made in conjunction with the preparation of the
quarterly financial statements. However, final determination of the
profitability of the contracts are subject to settlement of any final claims
which may develop at the time the completed contract is accepted by the customer
as well as risks inherent in estimates which are made during the course of the
contract work.
Operating expenses increased $134,000 or 11% during the first quarter of 1995 as
compared with the first quarter of 1994. This increase is the result of research
and development activity as the Company recognized the need to make a
significant commitment in order to maintain a leadership role in the industry.
Costs and estimated earnings in excess of billings on uncompleted contracts as
of March 31, 1995 increased $759,000 compared with December 31, 1994. The
Company recognizes profit on long-term projects on the percentage of completion
basis, which permits earned revenue to be recognized prior to the time that
progress payments are billed. When this occurs, amounts are added to this asset
account for the recognition of earned revenue prior to the billing of progress
payments. The increase since December 31, 1994 is due to the recognition of
earned revenue on several projects during the first quarter of 1995 which had
not yet reached billing milestones as of March 31, 1995.
Accounts payable and accrued expenses decreased $799,000 as of March 31, 1995 as
compared with December 31, 1994 as a result of the stages of completion of
projects during the first quarter of 1995.
Billings in excess of costs and estimated earnings on uncompleted contracts
decreased $530,000 as of March 31, 1995 as compared with December 31,1994.
Billings are a function of contract terms and do not necessarily relate to the
percentage of completion of a project. The balance on March 31, 1995 decreased
because no significant advanced billings were made during the first quarter of
1995.
Notes payable to banks increased $1,702,000 as of March 31, 1995 as compared
with December 31, 1994. This increase is directly related to the increase in
costs and estimated earnings in excess of billings on uncompleted contracts and
the decrease in accounts payable noted above, which has increased current
working capital needs.
The Company has relied upon bank credit lines during recent years as a source of
its capital resources and liquidity. These lines of credit are guaranteed by
Celsius Industries AB. Celsius, Inc., a United States corporation which owns
approximately 80% of the common stock of the Company, is a wholly-owned
subsidiary of Celsius Industries AB. the Company currently has two bank lines of
credit which enable it to borrow up to a total of $8,000,000 under which
$3,757,000 was available as of March 31, 1995. The Company believes that these
lines of credit, along with cash flows from operations, will be adequate to
support the Company's future cash needs at least through 1995. the Company has
no material commitments for capital expenditures in 1995.
Highly competitive market conditions have minimized the effect of inflation on
both the contract prices and the cost of the Company's purchased materials.
Productivity improvements and cost reduction programs have largely offset the
effect of inflation on other costs and expenses.
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) No exhibits are filed as part of this Report.
(b) No current reports on Form 8-K were filed during the quarter
ended March 31, 1995.
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.
Date: May 8, 1995 Charles L. Rooks
(Chief Financial and Accounting Officer)
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