<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 quarter ended January 31, 1996 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 February 29, 1996 was 3,034,133.
<PAGE> 2
ENGINEERED SUPPORT SYSTEMS, INC.
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of January 31, 1996
and October 31, 1995 3
Condensed Consolidated Statements of Income for the three
months ended January 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
three months ended January 31, 1996 and 1995 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>
January 31 October 31
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 348,047 $ 386,609
Accounts receivable 4,284,884 3,510,596
Contract in process and inventories 13,793,072 12,117,479
Other current assets 757,791 614,295
------------ ------------
Total Current Assets 19,183,794 16,628,979
Property, plant and equipment, less accumulated
depreciation of $12,024,269 and $11,626,806 14,471,820 14,601,129
Intangible assets 1,156,499 1,219,699
Other assets 1,391,177 1,341,805
------------ ------------
Total Assets $ 36,203,290 $ 33,791,612
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 39,326 $ 1,124,041
Current maturities of long-term debt 790,491 827,371
Accounts payable 11,174,734 7,702,941
Other current liabilities 2,002,335 2,274,919
------------ ------------
Total Current Liabilities 14,006,886 11,929,272
Long-term debt 2,590,281 2,755,157
Deferred income taxes 2,722,059 2,722,059
ESOP guaranteed bank loan 1,131,600 1,168,500
Shareholders' Equity
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,463,961
and 3,456,961 shares issued 34,640 34,570
Additional paid-in capital 7,953,172 7,917,844
Retained earnings 10,673,107 10,217,090
------------ ------------
18,660,919 18,169,504
Less ESOP guaranteed bank loan 1,131,600 1,168,500
Less treasury stock at cost, 473,828
and 475,835 shares 1,776,855 1,784,380
------------ ------------
15,752,464 15,216,624
------------ ------------
Total Liabilities and Shareholders' Equity $ 36,203,290 $ 33,791,612
============ ============
</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
January 31
-----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net revenues $ 17,047,573 $ 15,343,691
Cost of revenues 14,567,185 13,139,770
------------ ------------
Gross profit 2,480,388 2,203,921
Selling, general and
administrative expense 1,535,673 1,450,023
------------ ------------
Income from operations 944,715 753,898
Interest expense 135,887 204,285
------------ ------------
Income before income taxes 808,828 549,613
Income tax provision 323,000 220,000
------------ ------------
Net income $ 485,828 $ 329,613
============ ============
Net income per share $ .15 $ .10
===== =====
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
ENGINEERED SUPPORT SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
From operating activities:
Net income $ 485,828 $ 329,613
Depreciation and amortization 467,836 472,677
------------- --------------
Cash provided (used) before changes in
operating assets and liabilities 953,664 802,290
Net (increase) decrease in non-cash
current assets (2,593,377) 1,863,554
Net increase (decrease) in non-cash
current liabilities 3,199,210 (1,086,536)
(Increase) decrease in other assets (42,997) (53,871)
------------- --------------
Net cash provided by (used in) operating
activities 1,516,500 1,525,437
------------- --------------
From investing activities:
Additions to property, plant and equipment (268,155) (140,790)
Disposal of property, plant and equipment 68,850
------------- --------------
Net cash provided by (used in) investing
activities (268,155) (71,940)
------------- --------------
From financing activities:
Net payments under line-of-credit
agreements (1,084,715) (1,591,031)
Payments of long-term debt (201,756) (253,303)
Exercise of stock options 29,375
Cash dividend (29,811)
------------- --------------
Net cash provided by (used in) financing
activities (1,286,907) (1,844,334)
------------- --------------
Net increase (decrease) in cash (38,562) (390,837)
Cash at beginning of period 386,609 417,748
------------- --------------
Cash at end of period $ 348,047 $ 26,911
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
ENGINEERED SUPPORT SYSTEMS, INC.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
January 31, 1996
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 three
month period ended January 31, 1996 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, 1995.
Note B - Net Income per Share
Net income per share for the three months ended January 31, 1996 and 1995
is based on the weighted average number of common and common equivalent
shares outstanding of 3,221,091 and 3,370,632, 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, as amended in September 1995, bears interest at the
bank's prime rate and is payable in monthly installments of $60,402 plus
interest through 1998.
<PAGE> 7
Note D - Contracts in Process and Inventories
Contracts in process and inventories are comprised of the following:
<TABLE>
<CAPTION>
January 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Raw materials $1,635,381 $1,594,199
Work-in-process 176,272 142,615
Finished goods 488,049 368,400
Inventories substantially applicable to
government contracts in process, less
progress payments of $20,963,133 and
$15,182,542 11,493,370 10,012,265
----------- -----------
$13,793,072 $12,117,479
=========== ===========
</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 11% in the first quarter of 1996 to $17.0 million from
$15.3 million in the first quarter of 1995. The increase in revenues was
generated primarily by the Company's defense subsidiary, Engineered Air
Systems, Inc. (Engineered Air). Production levels remained high at
Engineered Air, driven by its contracts for C-5 and MA-3D Flight Line Air
Conditioners, Harvest Falcon Water Distribution Systems, Army Space Heaters
and Revetment Kits.
Gross profit for the first quarter of 1996 increased $0.3 million, or 13%,
over the amount for the comparable 1995 period primarily reflecting the
increase in production volume at Engineered Air. The gross margin for the
first quarter of 1996 was 14.5% as compared to 14.4% for the first quarter
of 1995.
Selling, general and administrative expense was $1.54 million and $1.45
million in the first quarter of 1996 and 1995, respectively. As a percent
of net revenues, selling, general and administrative expense decreased from
9.5% in 1995 to 9.0% in 1996 as a result of management's continuing efforts
to limit the growth of overhead expenses while increasing consolidated
revenues.
Interest expense decreased $68,000, or 33%, in the first quarter of
1996 as compared with the first quarter of 1995. This was primarily the
result of continuing strong cash flow at Engineered Air.
Liquidity and Capital Resources
At January 31, 1996, the Company's working capital and ratio of current
assets to current liabilities were $5.2 million and 1.37 to 1 as compared
to $4.7 million and 1.39 to 1 at October 31, 1995. As of January 31,
1996, the Company had $6.3 million of unused credit related to its loan
agreement.
Business and Market Considerations
As of January 31, 1996, Engineered Air's funded backlog of defense orders
was $102 million compared to $92 million a year ago.
Historically, the Company has been heavily dependent on the U.S. Government
for business. However, 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
Item 1-5 Not applicable
Item 6 (a) Exhibits
4. (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.
25. Statement Re: Summary Financial Information
(b) No reports on Form 8-K were filed during the quarter ended January 31,
1996.
<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: March 15, 1996 By: /s/ MICHAEL F. SHANAHAN SR.
-------------- --------------------------------------
MICHAEL F. SHANAHAN SR.
Chairman of the Board, President
and Chief Executive Officer
Date: March 15, 1996 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: Computation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended
January 31
----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
NET INCOME $ 485,828 $ 329,613
============= ============
NET INCOME PER SHARE
Average shares outstanding 2,983,443 3,167,304
============= ============
Net income $ .16 $ .10
============= ============
PRIMARY EARNINGS PER SHARE
Average shares outstanding 2,983,443 3,167,304
Net effect of dilutive
stock options (1) 230,445 203,328
------------- ------------
3,213,888 3,370,632
============= ============
Net income $ .15 $ .10
============= ============
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 2,983,443 3,167,304
Net effect of dilutive stock
options (1) 237,648 203,328
------------- ------------
3,221,091 3,370,632
============= ============
Net income $ .15 $ .10
============= ============
</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 THREE MONTHS ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 348,047
<SECURITIES> 0
<RECEIVABLES> 4,454,036
<ALLOWANCES> 169,152
<INVENTORY> 13,793,072
<CURRENT-ASSETS> 19,183,794
<PP&E> 26,496,089
<DEPRECIATION> 12,024,269
<TOTAL-ASSETS> 36,203,290
<CURRENT-LIABILITIES> 14,006,886
<BONDS> 3,721,881
<COMMON> 34,640
0
0
<OTHER-SE> 15,717,824
<TOTAL-LIABILITY-AND-EQUITY> 36,203,290
<SALES> 17,047,573
<TOTAL-REVENUES> 17,047,573
<CGS> 14,567,185
<TOTAL-COSTS> 14,567,185
<OTHER-EXPENSES> 1,522,773
<LOSS-PROVISION> 12,900
<INTEREST-EXPENSE> 135,887
<INCOME-PRETAX> 808,828
<INCOME-TAX> 323,000
<INCOME-CONTINUING> 485,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 485,828
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
