<PAGE> 1
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, 2000
( ) 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
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
358 East Fillmore Avenue, St. Paul, Minnesota 55107
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 651-227-7515
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, 2000, 4,401,625 shares of common stock, par value $.20
per share, were outstanding.
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AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsius Inc.)
Form 10-Q
Quarter Ended March 31, 2000
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsius Inc.)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
------ =================== ==================
(Unaudited) (Note)
(000's omitted, except share data)
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and cash equivalents $ 39 $ 48
Accounts Receivable, net 6,414 8,305
Costs and Estimated Earnings in
Excess of Billings on Uncompleted
Contracts 4,571 4,768
Inventories:
Materials and Supplies 878 842
Projects in Process 407 249
Prepaid Expenses 312 116
Deferred and Prepaid Income Taxes 725 727
=================== ==================
Total Current Assets 13,346 15,055
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
Land 486 486
Buildings 3,025 3,025
Furniture, Fixtures, & Equipment 7,886 7,832
Wind Tunnels & Instrumentation 2,973 2,967
Building Improvements 1,338 1,338
=================== ==================
15,708 15,648
Less Accumulated Depreciation 10,299 10,019
=================== ==================
Property, Plant, and Equipment, net 5,409 5,629
Total Assets $ 18,755 $ 20,684
=================== ==================
</TABLE>
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AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsuis Inc.)
CONDENSED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES 2000 1999
----------- =================== ==================
(Unaudited) (Note)
(000's omitted, except share data)
<S> <C> <C>
CURRENT LIABILITIES
- -------------------
Current Maturities of
Capital Lease Obligations $ 79 $ 79
Notes Payable 3,066 3,647
Accounts Payable:
Trade 1,699 916
Affiliated Companies 48 8
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts 4,013 5,238
Accrued Warranty and Losses 804 793
Accrued Salaries and Wages 900 847
Income Taxes Payable 0 0
Other Accrued Liabilities 3,569 4,093
=================== ==================
Total Current Liabilities 14,178 15,621
OTHER LIABILITIES
- -----------------
Deferred Income Taxes 623 623
Capital Lease Obligations,
Less Current Maturities 151 171
Commitments and Contingencies
STOCKHOLDERS' EQUITY
- --------------------
Common Stock - Authorized 10,000,000 Shares
of $.20 Par Value; Issued 4,401,625 on
March 31, 2000 and December 31, 1999. 880 880
Additional Paid-in Capital 900 900
Retained Earnings 2,023 2,489
=================== ==================
Total Stockholders' Equity 3,803 4,269
=================== ==================
Total Liabilities and Stockholders' Equity $ 18,755 $ 20,684
=================== ==================
</TABLE>
Note: The balance sheet at December 31, 1999 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.
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AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsius Inc.)
CONDENSED STATEMENTS OF EARNINGS
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
==============================================
<S> <C> <C>
Earned Revenue $ 6,760 $ 6,396
Cost of Earned Revenue 5,367 5,435
===================== =====================
Gross Profit 1,393 961
Operating Expenses 1,758 1,220
===================== =====================
Operating Profit(Loss) (365) (259)
Other Income (Expense)
Interest Expense (101) (203)
Other - (6)
===================== =====================
(101) (209)
===================== =====================
Income (Loss) Before Income Taxes (466) (468)
Income Tax Expense - (8)
===================== =====================
Net Income (Loss) $ (466) $ (476)
===================== =====================
NET INCOME (LOSS) PER SHARE $ (0.11) $ (0.11)
===================== =====================
Dividends per Share None None
</TABLE>
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AERO SYSTEMS ENGINEERING, INC.
(Subsidiary of Celsius Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, 000's omitted)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
=====================================
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (466) $ (476)
Adjustment to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and Amortization 280 269
(Increase) Decrease in Assets:
Accounts Receivable 1,891 2,540
Cost and Estimated Earnings in Excess of
Billings on Uncompleted Contracts 197 (1,746)
Inventories (194) (646)
Prepaid Expenses (194) 42
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 363 (67)
Billings in Excess of Costs and Estimated Earnings
on Uncompleted Contracts (1,225) 413
============== ==============
Net Cash Provided (Used) by
Operating Activities 652 329
CASH FLOW FROM INVESTING ACTIVITIES:
Capital Expenditures (60) (246)
============== ==============
Net Cash Used in Investing Activities (60) (246)
CASH FLOW FROM FINANCING ACTIVITIES:
Net Borrowings under Line of Credit Agreement (581) 458
Principal Payments under Capital Lease Obligations (20) (34)
Principal Payments on Borrowings From Affiliates - (400)
============== ==============
Net Cash Provided (Used) by Financing Activities (601) 24
============== ==============
NET CHANGE IN CASH (9) 107
CASH AT BEGINNING OF YEAR 48 16
============== ==============
CASH AT END OF QUARTER $ 39 $ 123
============== ==============
</TABLE>
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AERO SYSTEMS ENGINEERING , INC.
(Subsidiary of Celsius Inc.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited, 000's omitted)
March 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed 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, 2000 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.
NOTE B - CONTRACTS IN PROCESS
Information with respect to contracts in process follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
================== ==================
<S> <C> <C>
Costs Incurred on Uncompleted Contracts $ 39,030 $ 43,858
Estimated Earnings Thereon 7,940 10,293
================== ==================
Total Earned Revenue on Uncompleted Contracts 46,970 54,151
Less Billings Applicable thereto 46,412 47,523
================== ==================
$ 558 $ 6,628
================== ==================
Included in Accompanying Balance Sheet
Under Following Captions:
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts $ 4,571 $ 8,457
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts 4,013 1,829
================== ==================
$ 558 $ 6,628
================== ==================
</TABLE>
NOTE C - CONTINGENCIES AND COMMITMENT
Guarantees of approximately $1,245,449 were outstanding on March 31,
2000 to various customers as bid bonds or in exchange for down payments
or warranty performance bonds.
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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
First quarter 2000 (All dollar amounts are in thousands.)
Worldwide revenue for the first quarter 2000 totaled $6,760, which was a 6%
increase from $6,396 in the first quarter of last year. Net loss for the first
quarter was $466 as compared to first quarter loss of $476 last year.
The revenue increase was mostly attributable to the timing of new projects
received in late 1999 and early 2000 that are now recording revenue, and due to
the fact that during the first quarter of 1999 a major wind tunnel project had
not yet achieved the 10% threshold for revenue recognition.
Backlog of orders as of March 31, 2000 was $18,619 as compared with $18,759 and
$27,012 as of December 31, 1999 and March 31, 1999, respectively. This 31%
decrease from the first quarter 1999 is the result of a major wind tunnel
project converting large portions of backlog to revenue over the last four
quarters.
Cost of earned revenue for the first quarter, which includes manufacturing and
engineering costs, was 79% of revenue as compared to 85% during the same period
of last year. This decrease is mostly the result of the fact that the first
quarter 1999 included a significant contract cost-to-complete adjustment on one
wind tunnel project causing an increase in the cost of earned revenue
percentage.
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 is subject to any final adjustments that may
develop at the time the completed contract is accepted by the customer.
Selling, general and administrative expenses of $1,562 were 23% of revenues
during the first quarter 2000 as compared to $998 and 16% during the same period
of last year. This increase of $564 is mostly related to ASE electing to
aggressively pursue a number of major turnkey projects that if ultimately
awarded to the Company should increase revenues in later months. This resulted
in approximately $500 of bid and proposal costs in excess of those incurred in
the first quarter of 1999.
Research and development expenses were $196 during the first quarter of 2000 as
compared to $222 in the same period in 1999. This decrease of $26 or 12% is
mostly related to the focus of certain resources in the first quarter 2000 on
bid and proposal activities and project work rather than on R&D activities.
During 2000, additional R & D will be incurred for continued enhancements to the
ASE2000 in order to maintain a leadership role in the marketplace.
Interest expense of $101 was incurred during the quarter as compared to $203
from the same period in the prior year. The average rate of interest on
short-term borrowings has had little change, while the average amount of
borrowings outstanding has decreased in the first quarter as compared to the
first quarter of last year.
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AERO SYSTEMS ENGINEERING, INC.
(A Subsidiary of Celsius Inc.)
Capital expenditures were $60 as compared to $246 for the same period of last
year. This decrease of $186 is attributed to the reduction of activities related
to the purchase of equipment during 1999 for the new ERP computer system.
Additional capital expenditures will be used to acquire additional equipment for
R & D projects, and desktop upgrades.
Accounts receivable at the end of the first quarter was $6,414 as compared with
the year end balance of $8,305. This decrease of $1,891 was due mainly to the
collection of several large invoices outstanding at the end of 1999.
Costs and estimated earnings in excess of billings on uncompleted contracts at
the end of the first quarter was $4,571, which is a decreased of $197 or 4%, as
compared with the year-end 1999 balance. 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
year-end is due to the timing of billing milestones related to the contracts.
Billings are a function of contract terms and do not necessarily relate to the
percentage of completion of a project.
Accounts payable and accrued expenses at the end of the first quarter increased
$363 or 5% as compared to the year end balance. This was primarily due to the
increased procurement expenditures related to the new contracts starting in the
first quarter.
Notes payable balance was $3,066 as compared to the year end balance of $3,647,
which is a decrease of $581 or 16%. This decrease is primarily the result of
timing of project expenditures as compared to invoicing milestones.
The Company operates on a global basis and, during an average year, generates
approximately 50% 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 of them are denominated in the
customer's local currency. Therefore, the Company has entered into several
foreign exchange forward contracts 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 cash flows to offset the expected
gains 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. Funds under these
lines of credit are actually provided by Celsius Inc. and ultimately are
guaranteed by Saab AB. Celsius Inc., a United States corporation, is a wholly
owned subsidiary of Saab AB. Celsius Inc. owns approximately 80% of the
outstanding shares of common stock of ASE. A first security interest in all
assets of ASE has been granted to Celsius Inc., and a fee is paid through
Celsius Inc.
Prior to the first quarter 2000, Celsius Inc. a U.S. company, was a wholly owned
subsidiary of Celsius AB, a Swedish company, but now is ultimately owned by SAAB
AB, also a Swedish company. During the fourth quarter of 1999, Saab AB issued a
tender offer to acquire all of the outstanding shares of Celsius AB. Saab AB
completed the acquisition of Celsius AB during March 2000.
<PAGE> 10
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AERO SYSTEMS ENGINEERING, INC.
(A Subsidiary of Celsius Inc.)
ASE currently has bank lines of credit which enable it to borrow up to a total
of $6,000. As of March 31, 2000, $3,066 was used, with a $2,934 available
balance remaining. Although the line of credit has a $6,000 limit, Celsius Inc.
has allowed the Company to exceed this limit for short periods of time. The
portion over $6,000 is assessed a higher interest rate of 10.75%. 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 margins on new
contracts. Productivity improvements and cost reduction programs are continually
being initiated to increase margins. In 1997 the Company received ISO9001
certification, an international quality systems standard. This is expected to
continue to enhance our marketing efforts on an international basis.
Looking ahead throughout the remainder of 2000, the contracts awarded to the
Company in the first quarter of 2000 and the strong bid and proposal activity
could potentially result in a significant backlog increase and provide a solid
base for the remainder of the year.
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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 included in this filing.
(b) No Current Reports on Form 8-K were filed during the quarter
ended March 31, 2000.
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 thereto duly authorized.
Date: May 5, 2000
/s/ Charles Loux
-----------------------------------------------
Charles Loux, President and CEO
/s/ Steven R. Hedberg
-----------------------------------------------
Steven R. Hedberg, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000002589
<NAME> AERO SYSTEMS ENGINEERING, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.A.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 39
<SECURITIES> 0
<RECEIVABLES> 6,414
<ALLOWANCES> 0
<INVENTORY> 1,285
<CURRENT-ASSETS> 13,346
<PP&E> 15,708
<DEPRECIATION> 10,299
<TOTAL-ASSETS> 18,755
<CURRENT-LIABILITIES> 14,178
<BONDS> 0
0
0
<COMMON> 880
<OTHER-SE> 900
<TOTAL-LIABILITY-AND-EQUITY> 18,755
<SALES> 6,760
<TOTAL-REVENUES> 6,760
<CGS> 5,367
<TOTAL-COSTS> 5,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (466)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (466)
<EPS-BASIC> (.11)
<EPS-DILUTED> 0
</TABLE>
