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 September 30, 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 September 30, 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 September 30, 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 10
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsius, Inc.)
CONSOLIDATED BALANCE SHEETS (Unaudited in Thousands)
September 30, December 31,
ASSETS 1995 1994
CURRENT ASSETS
Cash $ 54 $ 310
Accounts Receivable:
Billed Contracts 4,967 4,145
Sundry 45 540
5,012 4,685
Note Receivable 91 335
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts 7,416 6,723
Inventories
Materials and Supplies 754 786
Projects in Process 466 386
Prepaid Expenses 132 195
Deferred Income Tax Benefit 376 376
Income Tax Receivable 103 103
Total Current Assets 14,404 13,899
LONG TERM ASSETS
Land 486 486
Building 3,025 3,025
Furniture, Fixtures, & Equipment 5,521 5,032
Wind Tunnels & Instrumentation 2,270 2,270
Leasehold Improvements 1,195 1,156
12,497 11,969
Less accumulated Depreciation 6,289 5,561
6,208 6,408
Investments 436 436
Non-Compete Agreement 149 190
Other Long Term Assets 0 77
Total Long Term Assets 6,793 7,111
Total Assets $21,197 $21,010
AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsuis, Inc.)
CONSOLIDATED BALANCE SHEETS (Unaudited in thousands)
(cont.)
September 30, December 31,
1995 1994
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 4,797 2,541
Accounts Payable:
Trade 1,931 1,929
Affiliated company 212 114
Billings on Uncompleted Contracts
in Excess of Costs and
Estimated Earnings 852 748
Accrued Warranty and Losses 546 1,022
Accrued Salaries and Wages 759 748
Other Accruals 1,713 2,070
Total Current Liabilities 11,638 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 2,000 2,800
Capital Lease Obligations,
Less Current Maturities 262 283
STOCKHOLDERS' EQUITY
Common Stock - Authorized 3,000,000
Shares of $.20 Par Value; Issued
2,551,717 on September 30, 1995
and December 31, 1994. 510 510
Additional Contributed Capital 517 517
Retained Earnings 5,332 5,962
Total Stockholders' Equity 6,359 6,989
Total Liabilities and
Stockholders' Equity $21,197 $21,010
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF EARNINGS
(Unaudited in Thousands)
Three Months Ended Three Months Ended
Sept. 30, 1995 Sept. 30, 1994
Earned Revenues $ 7,178 $ 6,093
Cost of Earned Revenues 5,684 4,817
Gross Profit 1,494 1,276
Operating Expenses 1,439 1,238
Operating Profit(Loss) 55 38
Other Income (Expense)
Interest Income 6 141
Interest Expense (98) (158)
Other (2) 17
(94) --
Income (Loss) Before Income Taxes (39) 38
Income Tax Expense (Benefit) -- 13
Net Income (Loss) $ (39) $ 25
NET INCOME PER SHARE $ (0.02) $ 0.01
Dividends per Share None None
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF EARNINGS
(Unaudited in Thousands)
Nine Months Ended Nine Months Ended
Sept. 30, 1995 Sept. 30, 1994
Earned Revenues $ 17,613 $ 17,979
Cost of Earned Revenues 13,514 14,481
Gross Profit 4,099 3,498
Operating Expenses 4,264 3,864
Operating Profit(Loss) (165) (366)
Other Income (Expense)
Interest Income 48 211
Interest Expense (510) (513)
Other (3) 18
(465) (284)
Income (Loss) Before Income Taxes (630) (650)
Income Tax Expense (Benefit) -- (219)
Net Income (Loss) $ (630) $ (431)
NET INCOME PER SHARE $ (0.25) $ (0.17)
Dividends per Share None None
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF CASH FLOW FROM OPERATING ACTIVITIES
(Unaudited in Thousands)
Nine Months Nine Months
Ended Ended
Sept. 30, 1995 Sept. 30, 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ (630) $ (431)
Adjustment to reconcile net income
to net cash provided by
operating activities:
Depreciation and Amortization 769 739
(Increase) Decrease in Assets:
Accounts Receivable (83) 3,211
Cost and Estimated Earnings
in excess of billing on
uncompleted contracts (693) (1,250)
Inventories (48) (125)
Prepaid Expenses 63 140
Deferred Income Tax Benefit (12)
Increase (Decrease) in Liabilities:
Accounts Payable and
accrued expense (722) (1,840)
Income Taxes Payable (19)
Billings in Excess of Costs and
estimated earnings on
uncompleted contracts 104 (627)
Net Cash Provided (Used) by
Operating Activities (1,240) (214)
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from the Sale of Fixed Assets 46
Capital Expenditures (528) (287)
Payment Received on Note Receivable 77 33
Net Cash Used in Investing Activities (451) (208)
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings under Line of
Credit Agreement 2,256 967
Capital Lease Assumed in Acquisition (21) --
Principal Payments, Long Term
Obligations (800) (692)
Net Cash Provided (Used) by
Financing Activities 1,435 275
NET CHANGE IN CASH (256) (147)
CASH AT BEGINNING OF YEAR 310 168
CASH AT END OF QUARTER $ 54 $ 21
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30 1995
NOTE A - BASIS OF PRESENTATION
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 Article 10 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. In the opinion of management,
all adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine-month periods ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Aero Systems
Engineering, Inc. and Subsidiaries' annual report on Form 10-K for the year
ended December 31, 1994.
NOTE B - 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 C - CONTRACTS IN PROCESS
Information with resepect to contracts in process follows:
Sept. 30, 1995 Sept. 30, 1994
Costs Incurred on Uncompleted
Contracts $34,384 $36,486
Estimated Earnings Thereon 9,925 15,315
Total Earned Revenue on
Uncompleted Contracts 44,309 51,801
Less Billings Applicable thereto 37,745 43,313
$ 6,564 $ 8,488
Included in Accompanying Balance
Sheet Under Following Captions:
Costs and Estimated Earnings
in Excess of Billings on
Uncompleted Contracts $ 7,416 $10,254
Billings in excess of Costs
and Estimated Earnings on
Uncompleted Contracts 852 1,766
$ 6,564 $ 8,488
NOTE D - CONTINGENCIES AND COMMITMENT
Standby letters of credit totaling approximately $4,707,470 were
outstanding on September 30, 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") incurred a loss of $39,000 after taxes
during the third quarter of 1995 and a loss of $630,000 after taxes for the
first nine months of 1995 as compared with 1994 results of a gain of $38,000 and
a year to date loss of $431,000 after tax for the same periods during 1994. The
losses during the nine month period in 1995 are primarily attributed to lower
earned revenue and increased operating expenses partially offset by improved
margins on projects in process.
The Company's backlog of orders as of September 30, 1995 was $31,972,737 as
compared with $18,455,000 as of December 31, 1994, which represents a 73%
increase during the first nine months of 1995. This increase is related to
orders for several large wind tunnel orders and jet engine test cell facilities
received.
Earned revenue for the third quarter of 1995 was $7,178,000 versus $6,093,000
for the same period in 1994, an increase of $1,085,000 or 18%. September 1995
year to date revenues were $17,613,301 versus $17,979,122 for the same period in
1994, which is a decrease of 2%. The decreases in revenues are primarily due the
continued low level of business in the airline industry and government agencies.
Lower revenue in the test cell business was partially offset by an increase in
wind tunnel revenue as a result of several orders being received in the second
quarter 1995.
The cost of earned revenue as a percentage of earned revenue remained the same
at 79% during the third quarter of 1995 and 79% during the same period in 1994.
For the September 1995 year to date, the cost of sales as a percentage of earned
revenue, decreased to 77% as compared with 81% during the same period in 1994.
These decreases are the result of improved project margins and project cost
management during the first nine months of 1995.
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 $201,000 or 16% during the third quarter of 1995 as
compared with the third quarter of 1994 and increased $400,000 or 10% during the
first nine months of 1995 as compared with the same period in 1994. This
increase is the result of research and development activity and general and
administrative costs as the Company recognized the need to make commitments in
order to maintain a leadership role in the industry.
Accounts receivable as of September 30, 1995 was $5,012,000 as compared with the
December 31, 1994 balance of $4,685,000. This increase of 7% was the result of
several large downpayments invoiced during the period. This increase is offset
by the increase in billings in excess of costs and estimated earnings on
uncompleted contracts as of September 30, 1995 of $852,296 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.
Costs and estimated earnings in excess of billings on uncompleted contracts as
of September 30, 1995 increased $692,210 to $7,416,000 as 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 nine months
of 1995 which had not yet reached billing scheduled dates as of September 30,
1995.
Accounts payable and accrued expenses decreased $722,000 as of September 30,
1995 as compared with December 31, 1994 as a result of completion of projects
during the first nine months of 1995.
Notes payable to banks increased $2,254,053 as of September 30, 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 AB, a Swedish corporation. Celsius, Inc., a United States corporation
which owns approximately 80% of the common stock of ASE, is a wholly-owned
subsidiary of Celsius Invest which is wholly-owned by Celsius AB. ASE currently
has bank lines of credit which enable it to borrow up to a total of $6,000,000
under which $1,200,000 was available as of September 30, 1995. The Company
believes that these bank lines of credit, along with cash flows from continuing
operations, are adequate to support the Company's cash needs through 1995. The
Company has no future 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.
AERO SYSTEMS ENGINEERING, INC.
(A Subsidiary of Celsius, Inc.)
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 September 30,1995.
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: November 13, 1995
__________________________________
Charles L. Rooks
(Chief Financial and Accounting Officer)
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