<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the six months ended April 30, 1995 Commission file number 0-13880
ENGINEERED SUPPORT SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Missouri 43-1313242
(State of Incorporation) (IRS Employer Identification Number)
1270 North Price Road, St. Louis, Missouri 63132
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (314) 993-5880
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
The number of shares of the Registrant's common stock, $.01 par value,
outstanding at May 31, 1995 was 2,920,582.
<PAGE> 2
ENGINEERED SUPPORT SYSTEMS, INC.
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of April 30, 1995
and October 31, 1994 3
Condensed Consolidated Statements of Income for the three
months and six months ended April 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows for the
three months and six months ended April 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Items 1-6 9
Signatures 10
Exhibits 11
<PAGE> 3
ENGINEERED SUPPORT SYSTEMS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30 October 31
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 114,037 $ 417,748
Accounts receivable 3,687,935 5,614,224
Contracts in process and inventories 10,887,639 9,544,444
Other current assets 730,345 612,666
------------ ------------
Total Current Assets 15,419,956 16,189,082
Property, plant and equipment, less accumulated
depreciation of $10,890,231 and $10,127,359 14,924,701 15,289,970
Intangible assets 1,552,076 1,693,163
Other assets 975,030 1,213,544
------------ ------------
Total assets $ 32,871,763 $ 34,385,759
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 4,084,676 $ 5,042,399
Current maturities of long-term debt 827,371 855,897
Accounts payable 5,244,914 4,705,367
Other current liabilities 2,051,849 2,464,999
------------ ------------
Total Current Liabilities 12,208,810 13,068,662
Long-term debt 3,143,582 3,848,419
Deferred income taxes 2,834,818 2,834,818
ESOP guaranteed bank loan 1,242,300 1,303,800
Shareholders' Equity
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,392,898
and 3,391,898 shares issued 33,929 33,919
Additional paid-in capital 7,675,243 7,670,152
Retained earnings 8,778,208 7,773,365
------------ ------------
16,487,380 15,477,436
Less ESOP guaranteed bank loan 1,242,300 1,303,800
Less treasury stock at cost, 480,754
and 224,594 shares 1,802,827 843,576
------------ ------------
13,442,253 13,330,060
------------ ------------
Total Liabilities and Shareholders' Equity $ 32,871,763 $ 34,385,759
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
ENGINEERED SUPPORT SYSTEMS, INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
---------------------- ---------------------
1995 1994 1995 1994
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 17,654,978 $ 11,230,402 $ 32,998,669 $ 22,663,440
Cost of revenues 14,795,359 9,443,262 27,935,129 19,137,930
------------ ------------ ------------ ------------
Gross profit 2,859,619 1,787,140 5,063,540 3,525,510
Selling, general and
administrative expense 1,490,492 1,384,273 2,940,515 2,920,464
------------ ------------ ------------ ------------
Income from operations 1,369,127 402,867 2,123,025 605,046
Interest expense 242,897 204,767 447,182 358,054
------------ ------------ ------------ ------------
Income before income
taxes 1,126,230 198,100 1,675,843 246,992
Income tax provision 451,000 80,000 671,000 100,000
------------ ------------ ------------ ------------
Net income $ 675,230 $ 118,100 $ 1,004,843 $ 146,992
============ ============ ============ ============
Net income per share $ .20 $ .03 $ .30 $ .04
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
ENGINEERED SUPPORT SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
From operating activities:
Net income $ 1,004,843 $ 146,992
Depreciation and amortization 957,059 949,515
------------- --------------
Cash provided (used) before changes in
operating assets and liabilities 1,961,902 1,096,507
Net (increase) decrease in non-cash
current assets 465,415 (1,606,784)
Net increase (decrease) in non-cash current
liabilities 126,397 (776,515)
(Increase) decrease in other assets 185,414 (381,788)
------------- --------------
Net cash provided by (used in) operating
activities 2,739,128 (1,668,580)
------------- --------------
From investing activities:
Additions to property, plant and equipment (470,703) (1,520,444)
Disposals of property, plant and equipment 73,100
------------- --------------
Net cash provided by (used in) investing
activities (397,603) (1,520,444)
------------- --------------
From financing activities:
Net borrowings (payments) under
line-of-credit agreements (957,723) 3,475,392
Proceeds of long-term debt 1,500,000
Payments of long-term debt (733,363) (2,064,465)
Purchase of treasury stock (972,586)
Issuance of treasury stock 15,557
Exercise of stock options 2,879 55,663
------------- --------------
Net cash provided by (used in) financing
activities (2,645,236) 2,966,590
------------- --------------
Net increase (decrease) in cash (303,711) (222,434)
Cash at beginning of period 417,748 265,015
------------- --------------
Cash at end of period $ 114,037 $ 42,581
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
ENGINEERED SUPPORT SYSTEMS, INC.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
April 30, 1995
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit. In the opinion of management, all
adjustments (including normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six
month period ended April 30, 1995 are not necessarily indicative of the
results to be expected for the entire fiscal year.
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 Rule 10-01 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. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report to shareholders for the year ended
October 31, 1994.
Note B - Net Income per Share
Net income per share is based on the weighted average number of common and
common equivalent shares outstanding of 3,313,480 and 3,595,003 for the
three months ended April 30, 1995 and 1994, respectively, and 3,366,268 and
3,592,632 for the six months ended April 30, 1995 and 1994, respectively.
Common equivalent shares represent common stock options as computed based
on the treasury stock method. Primary and fully diluted earnings per share
are substantially the same for each of the periods presented.
Note C - Long-Term Debt
In December 1994, the Company retired the outstanding balance of the
Industrial Development Refunding Revenue Bonds with proceeds generated upon
restructuring its existing bank term loan. As a result, the balance of the
term loan increased from $865,091 at October 31, 1994 to $2,768,088. The
restructured term loan bears interest at 1.75% above the bank's prime rate
and is payable in 45 monthly installments of $60,402 plus interest
commencing January 1, 1995.
<PAGE> 7
Note D - Contracts in Process and Inventories
Contracts in process and inventories are comprised of the following:
<TABLE>
<CAPTION>
April 30, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
Raw materials $1,878,253 $1,790,459
Work-in-process 86,484 91,945
Finished goods 366,791 241,730
Inventories substantially applicable to
government contracts in process, less
progress payments of $10,669,774 and
$11,682,475 8,556,111 7,420,310
---------- ---------
$10,887,639 $9,544,444
=========== ==========
</TABLE>
The contracts in process and inventories of Engineered Air Systems, Inc.
represent accumulated contract costs, estimated earnings thereon based upon
the percentage of completion method and contract inventories reduced by the
contract value of delivered items. The inventories of Engineered Specialty
Plastics, Inc. are valued at the lower of cost or market using the first-
in, first-out method.
<PAGE> 8
ENGINEERED SUPPORT SYSTEMS, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Revenues increased 57% in the second quarter of 1995 to $17.7 million from
$11.2 million in the second quarter of 1994, and increased 46% to $33.0
million in the first six months of 1995 from $22.7 million in the first
half of 1994. The increase in revenues was generated primarily by the
Company's defense subsidiary, Engineered Air Systems, Inc. (Engineered
Air). After several years of significant first article testing and
development, Engineered Air is now in full production on several major
contracts, primarily its MA-3D and C-5 flight line air conditioners.
Gross profit for the second quarter of 1995 increased $1.1 million, or 60%,
over the amount for the comparable 1994 period primarily reflecting an
increase in production volume at Engineered Air. The gross margin for the
second quarter of 1995 was 16.2% as compared to 15.9% for the second
quarter of 1994.
Selling, general and administrative expense was $1.49 million and $1.38
million in the second quarter of 1995 and 1994, respectively. Although
this represents an overall increase of 8%, selling, general and
administrative expense as a percentage of net revenues decreased from 12.3%
in the second quarter of 1994 to 8.4% in the second quarter of 1995. This
decrease reflects management's continuing efforts to limit the growth of
overhead expenses in spite of significantly higher levels of production
volume.
Net interest expense increased $38,000, or 19%, in the second quarter of
1995 as compared with the second quarter of 1994. This was primarily the
result of increased borrowing levels due to significant capital
expenditures by ESP in 1994.
Liquidity and Capital Resources
At April 30, 1995, the Company's working capital and ratio of current
assets to current liabilities were $3.2 million and 1.26 to 1 as compared
to $3.1 million and 1.24 to 1 at October 31, 1994. In spite of $1.0
million of net income for the first half of 1995, the Company's current
position reflects only a slight improvement from October 31, 1994 primarily
due to the $1.0 million purchase of 259,716 shares of treasury stock during
the second quarter of 1995. As of April 30, 1995, the Company had $1.9
million of unused credit related to its loan agreement.
Business and Market Considerations
As of April 30, 1995, Engineered Air's funded backlog of defense orders was
$82 million compared to $63 million a year ago. Options to existing
contracts total approximately $121 million as of the end of the second
quarter.
Historically, the Company has been heavily dependent on the U.S. Government
for business. However, because of declining defense budgets and increased
competition within the current defense market, the Company began a plan of
diversification in 1993 with the acquisition of ESP. This acquisition
provided expansion into the commercial marketplace. Management intends to
continue to pursue new acquisitions and business opportunities to
complement existing product lines and provide strategic diversification.
<PAGE> 9
PART II
Other Information
Items 1-5 Not applicable
Item 6 (a) Exhibits
(i) Registration Statement Number 33-14504 on Form S-8 dated May 22,
1987 for the registration of 340,000 shares of Engineered Support
Systems, Inc. common stock, $.01 par value, pursuant to the Amended
and Restated Engineered Air Systems, Inc. Employee Equity Plan, is
incorporated herein by reference.
(ii) Registration Statement Number 33-36818 on Form S-8 dated October 3,
1990, for the registration of 150,000 shares of Engineered Support
Systems, Inc. common stock, $.01 par value, pursuant to the
Engineered Air Systems, Inc. 1990 Stock Equity Plan, is incorporated
herein by reference.
(iii) Registration Statement Number 33-77340 on Form S-8 dated March 25,
1994 for the registration of 150,000 shares of Engineered Support
Systems, Inc. common stock, $.01 par value, pursuant to the
Engineered Air Systems, Inc. 1991 Stock Equity Plan, is incorporated
herein by reference.
(iv) Registration Statement Number 33-77342 on Form S-8 dated March 25,
1994 for the registration of 30,000 shares of Engineered Support
Systems, Inc. common stock, $.01 par value, pursuant to the
Engineered Support Systems, Inc. 1992 Stock Option Plan for
Non-employee Directors, is incorporated herein by reference.
(v) Registration Statement Number 33-77338 on Form S-8 dated March 25,
1994 for the registration of 150,000 shares of Engineered Support
Systems, Inc. common stock, $.01 par value, pursuant to the
Engineered Support Systems, Inc. 1993 Stock Option Plan, is
incorporated herein by reference.
11. Statement Re: Computation of Net Income Per Share.
27. Statement Re: Summary Financial Information.
(b) No reports on Form 8-K were filed during the six months ended April 30,
1995.
<PAGE> 10
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.
ENGINEERED SUPPORT SYSTEMS, INC.
Date: May 31, 1995 By: /s/ MICHAEL F. SHANAHAN SR.
-------------- --------------------------------------
MICHAEL F. SHANAHAN SR.
Chairman of the Board, President
and Chief Executive Officer
Date: May 31, 1995 By: /s/ GARY C. GERHARDT
-------------- --------------------------------------
GARY C. GERHARDT
Executive Vice President and
Chief Financial Officer
<PAGE> 11
Exhibit 11
ENGINEERED SUPPORT SYSTEMS, INC.
Statement Re: Com putation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
--------------------------- -----------------------
1995 1994 1995 1994
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME $ 675,230 $ 118,100 $ 1,004,843 $ 146,992
============= ============= =========== ===========
NET INCOME PER SHARE
Average shares
outstanding 3,075,471 3,370,404 3,122,149 3,364,581
============= ============= =========== ===========
Net income $ .22 $ .03 $ .32 $ .04
============= ============= =========== ===========
PRIMARY EARNINGS
PER SHARE
Average shares
outstanding 3,075,471 3,370,404 3,122,149 3,364,581
Net effect of
dilutive stock
options (1) 214,677 209,192 208,908 204,715
------------- ------------- ----------- -----------
3,290,148 3,579,596 3,331,057 3,569,296
============= ============= =========== ===========
Net income $ .21 $ .03 $ .30 $ .04
============= ============= =========== ===========
FULLY DILUTED EARNINGS
PER SHARE
Average shares
outstanding 3,075,471 3,370,404 3,122,149 3,364,581
Net effect of dilutive
stock options (1) 238,009 224,599 244,119 228,051
------------- ------------- ----------- -----------
3,313,480 3,595,003 3,366,268 3,592,632
============= ============= =========== ===========
Net income $ .20 $ .03 $ .30 $ .04
============= ============= =========== ===========
</TABLE>
(1) Based on the treasury stock method
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED APRIL 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<CASH> 114,037
<SECURITIES> 0
<RECEIVABLES> 3,769,292
<ALLOWANCES> 81,357
<INVENTORY> 10,887,639
<CURRENT-ASSETS> 15,419,956
<PP&E> 25,814,932
<DEPRECIATION> 10,890,231
<TOTAL-ASSETS> 32,871,763
<CURRENT-LIABILITIES> 12,208,810
<BONDS> 4,385,882
<COMMON> 33,919
0
0
<OTHER-SE> 13,408,344
<TOTAL-LIABILITY-AND-EQUITY> 32,871,763
<SALES> 32,998,669
<TOTAL-REVENUES> 32,998,669
<CGS> 27,935,129
<TOTAL-COSTS> 27,935,129
<OTHER-EXPENSES> 2,919,274
<LOSS-PROVISION> 21,241
<INTEREST-EXPENSE> 447,182
<INCOME-PRETAX> 1,675,843
<INCOME-TAX> 671,000
<INCOME-CONTINUING> 1,004,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,004,843
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
