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, 1996
( ) 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, 1996, 2,551,717 shares of common stock, par value $.20 per
share, were outstanding.
AERO SYSTEMS ENGINEERING, INC.
(Subsidary of Celsius, Inc.)
Form 10-Q
Quarter Ended March 31, 1996
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operation 8
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
March 31, December 31,
ASSETS 1996 1995
------ ------- -------
(Unaudited) (Note)
(000's omitted, except share data)
CURRENT ASSETS
Cash $ 37 $ 141
Accounts Receivable, net 6,412 7,374
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts 7,190 7,678
Inventories
Materials and Supplies 876 780
Projects in Process 676 631
Prepaid Expenses 133 183
Deferred Income Tax Benefit 502 502
Income Tax Receivable 103 103
------- -------
Total Current Assets 15,929 17,392
LONG TERM ASSETS
Land 486 486
Buildings 3,025 3,025
Furniture, Fixtures, & Equipment 5,626 5,577
Wind Tunnels & Instrumentation 2,270 2,270
Building Improvements 1,265 1,255
------- -------
12,672 12,613
Less accumulated Depreciation 6,679 6,431
------- -------
Property, plant, and equipment, net 5,993 6,182
Investments 465 465
Non-Compete Agreement, net 123 137
------- -------
Total Long Term Assets 6,581 6,784
Total Assets $22,510 $24,176
======= =======
AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsuis, Inc.)
CONSOLIDATED BALANCE SHEETS
(cont.)
March 31, December 31,
1996 1995
------- -------
(Unaudited) (Note)
(000's omitted, except share data)
LIABILITIES
CURRENT LIABILITIES
Current Maturities of
Capital Lease Obligations $ 21 $ 27
Current Maturites of Long-Term
Debt to Affiliated Companies 800 800
Notes Payable - Banks 5,615 4,930
Notes Payable 127 127
Accounts Payable:
Trade 1,170 2,878
Affiliated Company 124 118
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts 1,808 1,972
Accrued Warranty and Losses 701 702
Accrued Salaries and Wages 787 765
Income Taxes Payable 2 3
Other Accrued Liabilities 1,354 1,454
------- -------
Total Current Liabilities 12,509 13,776
Other Liabilities
Deferred Revenue 465 465
Deferred Income Taxes 502 502
Long Term Debt to Affiliated Company,
Less Current Maturities 1,600 2,000
Capital Lease Obligations,
Less Current Maturities 245 255
STOCKHOLDERS' EQUITY
Common Stock - Authorized 3,000,000
Shares of $.20 Par Value; Issued
2,551,717 on March 31, 1996
and December 31, 1995 510 510
Additional Contributed Capital 517 517
Retained Earnings 6,162 6,151
------- -------
Total Stockholders' Equity 7,189 7,178
------- -------
Total Liabilities and
Stockholders' Equity $22,510 $24,176
======= =======
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF EARNINGS
(Unaudited in Thousands)
Three Months Three Months
Ended Ended
March 31 1996 March 31 1995
------- -------
Earned Revenue $ 5,927 $ 5,782
Cost of Earned Revenue 4,169 4,278
------- -------
Gross Profit 1,758 1,504
Operating Expenses 1,544 1,314
------- -------
Operating Profit(Loss) 214 190
Other Income (Expense)
Interest Income 2 8
Interest Expense (196) (196)
Other (9) 1
------- -------
(203) (187)
------- -------
Income (Loss) Before Income Taxes 11 3
Income Tax Expense (Benefit) -- --
------- -------
Net Income (Loss) $ 11 $ 3
======= =======
NET INCOME PER SHARE $ 0.00 $ 0.00
======= =======
Dividends per Share None None
AERO SYSTEMS ENGINEERING, INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
STATEMENTS OF CASH FLOW FROM OPERATING ACTIVITIES
(Unaudited in Thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31 1996 March 31 1995
------- -------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 11 $ 3
Adjustment to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and Amortization 262 257
(Increase) Decrease in Assets:
Accounts Receivable 962 659
Cost and Estimated Earnings
in excess of billing on
uncompleted contracts 488 (759)
Inventories (141) (238)
Prepaid Expenses 50 105
Increase (Decrease) in Liabilities:
Accounts payable and accrued expenses (1,782) (799)
Billings in Excess of Costs and
estimated earnings on
uncompleted contracts (164) (530)
------- -------
Net Cash Provided (Used) by
Operating Activities (314) (1,302)
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital Expenditures (59) (164)
Payment Received on Note Receivable -- 13
------- -------
Net Cash Used in Investing Activities (59) (151)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings under Line of
Credit Agreement 685 1,702
Principle Payments under Capital
Lease Obligations (16) (7)
Principal Payments on Borrowings
From Affiliates (400) (400)
------- -------
Net Cash Provided (Used) by
Financing Activities 269 1,295
------- -------
NET CHANGE IN CASH (104) (158)
CASH AT BEGINNING OF YEAR 141 310
------- -------
CASH AT END OF QUARTER $ 37 $ 152
======= =======
</TABLE>
AERO SYSTEMS ENGINEERING , INC. -- CONSOLIDATED
(Subsidiary of Celsius, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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-month
period ending March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant Company and
Subsidiaries' annual report on Form 10-K for the year ended December
31, 1995.
NOTE B - CONTRACTS IN PROCESS
Information with respect to contracts in process follows:
March 31 March 31
1996 1995
------- -------
Costs Incurred on Uncompleted
Contracts $28,487 $31,629
Estimated Earnings Thereon 8,122 14,446
------- -------
Total Earned Revenue on
Uncompleted Contracts 36,609 46,075
Less Billings Applicable thereto 31,227 38,811
------- -------
$ 5,382 $ 7,264
======= =======
Included in Accompanying Balance
Sheet Under Following Captions:
Costs and Estimated Earnings
in Excess of Billings on
Uncompleted Contracts $ 7,190 $ 7,482
Billings in Excess of Costs
and Estimated Earnings on
Uncompleted Contracts 1,808 218
------- -------
$ 5,382 $ 7,264
======= =======
NOTE C - CONTINGENCIES AND COMMITMENT
Letter of Credit
Standby letters of credit totaling $5,347,817 were outstanding
on March 31, 1996 to various customers in exchange for down
payments or warranty performance bonds.
AERO SYSTEMS ENGINEERING , INC.
(Subsidiary of Celsius, Inc.)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
First Quarter 1996 (All dollar amounts are in thousands)
Worldwide revenue for the first quarter 1996 totaled $ 5,927, which was a 2.5%
increase from $ 5,782 in the first quarter of last year. Net income after taxes
was $ 11 which was an increase of $ 8 as compared to the first quarter of last
year. The small sales and profit increase was attributable primarily to the
level of business activity in the worldwide airline industry, research
institutions, and government agencies.
Backlog of orders was $ 17,015 as compared with $ 15,240 at the end of the first
quarter from the previous year. This 12 % increase is related to orders of
several wind tunnel projects and jet engine test cell facilities. It should be
noted that in February 1996, a large wind tunnel contract was canceled by a
customer (NASA) and the backlog was then reduced by $ 7,027 as compared to the
December 31, 1995 balance of $ 27,016.
The cost of earned revenue, which includes manufacturing and engineering was 70%
as compared to 74% during the same period of last year. The decrease in cost of
sales is a result of improved project management and cost controls of ongoing
projects.
Selling, general and administrative expenses of $ 1,544 was 26% of sales during
the first quarter. This amount was an increase of $ 230 or 18% as compared with
the same period last year. Most of this increase is due to a higher level of
marketing activity and contract proposal opportunities.
Research and development expenses were $94 during the first quarter. This was a
decrease of $ 95 or 49% as compared to the same period in 1995 during which a
high level of expenditures was necessary to develop the new ASE2000 data
acquisition computer system. In 1996, R&D will be incurred for additional
enhancements to the ASE2000 in order to maintain a leadership role in the
marketplace.
Capital expenditures were $ 59 which was a 65% decrease as compared to the same
period of last year. It is expected that for 1996, the total amount of capital
expenditures will be slightly less than the amount spent in 1995. In 1996,
capital resources will be used to further enhance the AeroTest Laboratory
capabilities and also additional equipment will be purchased for the engineering
departments.
Interest expense of $ 196 was incurred during the quarter and it was unchanged
from the same period in the prior year. However, the rate of interest on the
borrowings has increased and the average amount of borrowings outstanding has
been lower than in the first quarter 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.
Accounts receivable at the end of the quarter was $ 6,412 as compared with the
December 31, 1995 balance of $ 7,374. This decrease of $ 962 as compared to
December 1995 was the result of several large collections being received during
the period and a more aggressive approach to collection of past due amounts.
Accounts payable and accrued expenses have decreased $ 1,782 or 30% as compared
with December 31, 1995. This was primarily due to the completion of several
projects and a minimal amount of new orders being received during the first
quarter.
Notes payable to banks increased $ 685 as compared with December 31, 1995. This
amount is related to the reduction of accounts payable during the recent
quarter.
Costs and estimated earnings in excess of billings on uncompleted contracts at
the end of the first quarter decreased $ 488 to $ 7,190 as compared with
December 31, 1995. 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 decrease since December 31, 1995 is due to
an increase in billings relative to the recognition of earned revenue on several
projects. Billings are a function of contract terms and do not necessarily
relate to the percentage of completion of a project.
The Company operates on a global basis and during an average year, generates 45%
- - 65% of its revenues from international customers. This trend has continued for
the last five years as foreign airlines and government agencies purchase
products that ASE designs and produces. Most of the Company's contracts are
denominated in U.S. dollars, however a few are denominated in the local
currency. Therefore the Company has entered into foreign exchange forward
contracts with most of these having maturities within the next eighteen months.
The face amounts represent U.S. dollar equivalents of a non-U.S. dollar
denominated forward contract. The amounts at risk are not material and the
Company has the financial ability to generate foreign currency cash flows to
offset the expected gain or losses when the contracts mature.
The Company has consistently relied upon bank credit lines during recent years
as a source of its working capital resources and liquidity. These lines of
credit are ultimately guaranteed by AB Celsius Finance, the financial division
of Celsius AB, a Swedish corporation. Celsius, Inc., a United States
corporation, is a wholly-owned subsidiary of Celsius Invest which is
wholly-owned by Celsius AB. Celsius, Inc. owns approximately 80% of the
outstanding shares of common stock of ASE. ASE currently has bank lines of
credit which enable it to borrow up to a total of $ 6,000 and at March 31, 1996
$ 5,615 was used and $385 was available. 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 for the immediate future.
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.
Looking ahead throughout the remainder of 1996, the marketplace has been weak
during the first quarter, however, several commercial aircraft test cell
projects are expected to be contracted during the latter half of 1996 as
international airlines invest in facilities to support the Boeing 777 aircraft.
ASE has also continued its ongoing productivity and process improvements in
order to lower operating costs. ASE is in the beginning process of becoming ISO
9001 certified and the majority of this effort will be concluded in the current
year.
Full time employee equivalents as of March 31, 1996 were 196 as compared to 197
at December 31, 1995 and 190 at March 31, 1995.
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 March 31,1996.
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: April 15, 1996
----------------------------------
Charles L. Rooks
(Chief Financial and Accounting Officer)
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<PERIOD-END> MAR-31-1996
<CASH> 37
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<RECEIVABLES> 6,412
<ALLOWANCES> 0
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<PP&E> 12,672
<DEPRECIATION> 6,679
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 22,510
<SALES> 5,927
<TOTAL-REVENUES> 5,927
<CGS> 4,169
<TOTAL-COSTS> 4,169
<OTHER-EXPENSES> 7
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<INTEREST-EXPENSE> 196
<INCOME-PRETAX> 11
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> .00
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