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 June 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 June 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 June 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)
June 30, December 31,
ASSETS 1995 1994
CURRENT ASSETS
Cash $ 10 $ 310
Accounts Receivable:
Billed Contracts 5,229 4,145
Sundry 38 540
5,267 4,685
Note Receivable 105 335
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts 7,721 6,723
Inventories
Materials and Supplies 855 786
Projects in Process 779 386
Prepaid Expenses 41 195
Deferred Income Tax Benefit 376 376
Income Tax Receivable 103 103
Total Current Assets 15,257 13,899
LONG TERM ASSETS
Land 486 486
Building 3,025 3,025
Furniture, Fixtures, & Equipment 5,220 5,032
Wind Tunnels & Instrumentation 2,270 2,270
Leasehold Improvements 1,195 1,156
12,196 11,969
Less accumulated Depreciation 6,047 5,561
6,149 6,408
Investments 436 436
Non-Compete Agreement 163 190
Other Long Term Assets 0 77
Total Long Term Assets 6,748 7,111
Total Assets $22,005 $21,010
AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsuis, Inc.)
CONSOLIDATED BALANCE SHEETS (Unaudited in thousands)
(cont.)
June 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 4,834 2,541
Accounts Payable:
Trade 1,719 1,929
Affiliated company 204 114
Billings on Uncompleted Contracts
in Excess of Costs and
Estimated Earnings 1,619 748
Accrued Warranty and Losses 659 1,022
Accrued Salaries and Wages 761 748
Other Accruals 1,376 2,070
Total Current Liabilities 12,000 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 269 283
STOCKHOLDERS' EQUITY
Common Stock - Authorized 3,000,000
Shares of $.20 Par Value; Issued
2,551,717 on June 30, 1995 and
December 31, 1994. 510 510
Additional Contributed Capital 517 517
Retained Earnings 5,371 5,962
Total Stockholders' Equity 6,398 6,989
Total Liabilities and
Stockholders' Equity $22,005 $21,010
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF EARNINGS
(Unaudited in Thousands)
Quarter Quarter
Ended Ended
June 30, June 30,
1995 1994
Earned Revenues $ 4,653 $ 7,010
Cost of Earned Revenues 3,552 5,550
Gross Profit 1,101 1,460
Operating Expenses 1,511 1,446
Operating Profit(Loss) (410) 14
Other Income (Expense)
Interest Income 34 59
Interest Expense (216) (171)
Other (2) 0
(184) (112)
Income (Loss) Before Income Taxes (594) (98)
Income Tax Expense (Benefit) -- (26)
Net Income (Loss) $ (594) $ (72)
NET INCOME PER SHARE $ (0.23) $ (0.03)
Dividends per Share None None
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF EARNINGS
(Unaudited in Thousands)
Six Months Six Months
Ended Ended
June 30, June 30,
1995 1994
Earned Revenues $ 10,435 $ 11,886
Cost of Earned Revenues 7,830 9,664
Gross Profit 2,605 2,222
Operating Expenses 2,825 2,626
Operating Profit(Loss) (220) (404)
Other Income (Expense)
Interest Income 42 70
Interest Expense (412) (355)
Other (1) 1
(371) (284)
Income (Loss) Before Income Taxes (591) (688)
Income Tax Expense (Benefit) -- (232)
Net Income (Loss) $ (591) $ (456)
NET INCOME PER SHARE $ (0.23) $ (0.18)
Dividends per Share None None
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF CASH FLOW FROM OPERATING ACTIVITIES
(Unaudited in Thousands)
Six Months Six Months
Ended Ended
June 30, June 30,
1995 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ (591) $ (456)
Adjustment to reconcile net income
to net cash provided by
operating activities:
Depreciation and Amortization 513 506
(Increase) Decrease in Assets:
Accounts Receivable (352) 1,881
Cost and Estimated Earnings
in excess of billing on
uncompleted contracts (998) 573
Inventories (462) (101)
Prepaid Expenses 154 135
Deferred Income Tax Benefit 91
Increase (Decrease) in Liabilities:
Accounts Payable and
accrued expense (1,164) (1,271)
Income Taxes Payable (15)
Billings in Excess of Costs and
estimated earnings on
uncompleted contracts 871 (747)
Net Cash Provided (Used) by
Operating Activities (2,029) 596
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from the Sale of Fixed Assets 44
Capital Expenditures (227) (141)
Payment Received on Note Receivable 77 21
Net Cash Used in Investing Activities (150) (76)
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings under Line of
Credit Agreement 2,293 (656)
Capital Lease Assumed in Acquisition (14) (13)
Principal Payments, Long Term
Obligations (400) 0
Net Cash Provided (Used) by
Financing Activities 1,879 (669)
NET CHANGE IN CASH (300) (149)
CASH AT BEGINNING OF YEAR 310 168
CASH AT END OF QUARTER $ 10 $ 19
AERO SYSTEMS ENGINEERING , INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six-month periods ended June 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:
June 30, June 30,
1995 1994
Costs Incurred on Uncompleted Contracts $ 30,530 $ 36,547
Estimated Earnings Thereon 10,309 15,974
Total Earned Revenue on
Uncompleted Contracts 40,839 52,521
Less Billings Applicable thereto 34,737 45,736
$ 6,102 $ 6,785
Included in Accompanying Balance
Sheet Under Following Captions:
Costs and Estimated Earnings
in Excess of Billings on
Uncompleted Contracts $ 7,721 $ 8,431
Billings in excess of Costs
and Estimated Earnings on
Uncompleted Contracts 1,619 1,646
$ 6,102 $ 6,785
NOTE D - CONTINGENCIES AND COMMITMENT
Standby letters of credit totaling approximately $1,815,000 were
outstanding on June 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.
(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 a loss of $594,000 after tax during
the second quarter of 1995 and a loss of $591,000 after tax for the first six
months of 1995 as compared with a loss of $72,000 and $456,000 after tax during
the same periods in 1994, respectively. The losses during these periods in 1995
are primarily attributed to lower earned revenue and increased operating
expenses partially offset by improved margins on projects in process, as
described below.
The Company's backlog of orders as of June 30, 1995 was $30,200,000 as compared
with $18,455,000 as of December 31, 1994, which represents a 64% increase during
the first six months of 1995. This increase is primarily related to several
large wind tunnel orders being received in recent months.
Earned revenue for the second quarter of 1995 decreased $2,357,000 or 34% as
compared with the same period in 1994. Year to date earned revenue for the first
six months of 1995 decreased $1,451,000 or 12% as compared with the same period
in 1994. These decreases are primarily related to the decreased backlog at the
beginning of 1995 in the Company's test cell business as a result of the
continued low level of business in the airline industry. 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 fourth quarter of 1994 and
early 1995.
The cost of earned revenue, as a percentage of earned revenue, decreased to 76%
during the second quarter of 1995 as compared with 79% during the same period in
1994. The cost of earned revenue, as a percentage of earned revenue, decreased
to 75% for the first six months of 1995 as compared with 81% during the same
period in 1994. These decreases are the result of improved project mix during
the first six months of 1995. 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 and overhead level 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 $65,000 or 5% during the second quarter of 1995 as
compared with the second quarter of 1994 and $199,000 or 8% during the first six
months of 1995 as compared with the same period in 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.
Accounts receivable as of June 30, 1995 increased $1,084,000 as compared with
December 31, 1994. The increase was the result of a large downpayment invoiced
during June. This increase is offset by the increase in billings in excess of
costs and estimated earnings on uncompleted contracts as of June 30, 1995 of
$871,000 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 June 30, 1995 increased $998,000 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 six months of 1995 which had not yet
reached billing milestones as of June 30, 1995.
Accounts payable and accrued expenses decreased $1,164,000 as of June 30, 1995
as compared with December 31, 1994 as a result of the stages of completion of
projects during the first six months of 1995.
Notes payable to banks increased $2,293,000 as of June 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. Celsius, Inc., a United States corporation which owns approximately
80% of the common stock of the Company, is a wholly-owned subsidiary of Celsius
Invest which is wholly-owned by Celsius AB. The Company currently has a bank
lines of credit which enable it to borrow up to a total of $6,500,000 under
which $1,666,000 was available as of June 30, 1995. The Company believes that
these bank 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
June 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: August 9, 1995 Charles L. Rooks
(Chief Finance and Accounting Officer)
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