<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
Annual Report Pursuant to Section 15 (d)
of the Securities Exchange Act of 1934
For the year ended December 31, 1995 Commission file number 0-13880
A. Full title of the Plan:
ENGINEERED SUPPORT SYSTEMS, INC. EMPLOYEE STOCK OWNERSHIP PLAN
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
ENGINEERED SUPPORT SYSTEMS, INC.
1270 N. PRICE ROAD
ST. LOUIS, MISSOURI 63132
(314)993-5880
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Administrator has duly caused this Annual Report to be signed by the
undersigned, thereunto duly authorized.
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Date: 6/20/96 /s/ Gary C. Gerhardt
- ------------- --------------------------------
Gary C. Gerhardt
Executive Vice President and
Chief Financial Officer
Engineered Support Systems, Inc.
and Member of the Administrative
Committee of the Plan
<PAGE> 3
June 6, 1996
To the Participants and Administrator of the
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
In our opinion, the accompanying statements of net assets available for plan
benefits with fund information and the related statements of changes in net
assets available for plan benefits with fund information present fairly, in
all material respects, the net assets available for plan benefits of the
Engineered Support Systems, Inc. Employee Stock Ownership Plan at December
31, 1995 and 1994, and the changes in the net assets available for plan
benefits for the year ended December 31, 1995 and for the six months ended
December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Plan
Administrator; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by the Plan Administrator, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The fund information in the statements
of net assets available for plan benefits with fund information and the
statements of changes in net assets available for plan benefits with fund
information is presented for purposes of additional analysis rather than to
present the net assets available for plan benefits and changes in net assets
available for plan benefits of each fund. Such information has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
<PAGE> 4
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1995
<TABLE>
<CAPTION>
Fund Information
----------------------------------------------------------------------------------
ESSI Strategic Target Balanced Guaranteed
Stock Growth Value Asset Investment Loan
Total Fund Portfolio Portfolio Portfolio Portfolio Fund
---------- ---------- --------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 109,117 $ 6,806 $ 10,023 $ 24,269 $ 37,751 $ 30,268
Investments, at fair value 6,438,108 3,239,635 291,439 801,309 573,138 1,297,792 $234,795
Contributions receivable:
Employer 10,258 10,258
---------- ---------- -------- -------- -------- ---------- --------
6,557,483 3,256,699 301,462 825,578 610,889 1,328,060 234,795
Liabilities:
Accrued Interest 10,258 10,258
Long-term debt 1,143,900 1,143,900
---------- ---------- -------- -------- -------- ---------- --------
1,154,158 1,154,158
---------- ---------- -------- -------- -------- ---------- --------
Net Assets Available
for Plan Benefits $5,403,325 $2,102,541 $301,462 $825,578 $610,889 $1,328,060 $234,795
========== ========== ======== ======== ======== ========== ========
</TABLE>
See notes to financial statements.
<PAGE> 5
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1994
<TABLE>
<CAPTION>
Fund Information
---------------------------------------------------------------------
ESSI Government Guaranteed
Stock Equity Mutual Income Loan
Total Fund Fund Fund Fund Fund
---------- ----------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $1,231,672 $ (45,074) $621,078 $60,866 $ 594,802
Investments, at fair value 3,625,460 1,968,020 1,365,670 $291,770
---------- ---------- -------- ------- ---------- --------
4,857,132 1,922,946 621,078 60,866 1,960,472 291,770
Liabilities:
Long-term debt 1,279,200 1,279,200
---------- ---------- -------- ------- ---------- --------
Net Assets Available
for Plan Benefits $3,577,932 $ 643,746 $621,078 $60,866 $1,960,472 $291,770
========== ========== ======== ======= ========== ========
</TABLE>
See notes to financial statements.
<PAGE> 6
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND
INFORMATION
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Fund Information
---------------------------------------------------------------------------------------------
ESSI Strategic Target Balanced Guaranteed Government Guaranteed
Stock Growth Value Asset Investment Equity Mutual Income Loan
Total Fund Portfolio Portfolio Portfolio Portfolio Fund Fund Fund Fund
---------- --------- --------- --------- --------- ---------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions:
Employee contributions $ 396,909 $ 61,273 $ 42,032 $ 100,411 $ 77,161 $ 116,032
Employer contributions 323,095 323,095
Realized and unrealized
gains, net 1,327,376 1,327,376
Net gain from common/
collective trusts 363,622 51,250 121,316 103,372 87,684
Interest & dividend
income 41,224 7,740 962 2,943 2,299 6,435 $ 20,845
Transfers (to) from
other funds 37,098 211,732 613,736 432,447 1,283,684 (617,200) (60,866) (1,854,487) (46,144)
---------- ---------- -------- --------- -------- ---------- -------- -------- ---------- --------
2,452,226 1,756,582 305,976 838,406 615,279 1,493,835 (617,200) (60,866) (1,854,487) (25,299)
---------- ---------- -------- --------- -------- ---------- -------- -------- ---------- --------
Deductions:
Participant withdrawals 496,896 167,850 4,514 12,828 4,390 165,775 3,878 105,985 31,676
Interest expense 129,937 129,937
---------- ---------- -------- --------- -------- ---------- -------- -------- ---------- --------
626,833 297,787 4,514 12,828 4,390 165,775 3,878 105,985 31,676
---------- ---------- -------- --------- -------- ---------- -------- -------- ---------- -------
Net increase (decrease) 1,825,393 1,458,795 301,462 825,578 610,889 1,328,060 (621,078) (60,866) (1,960,472) (56,975)
Net Assets Available
for Plan Benefits at
Beginning of Year 3,577,932 643,746 621,078 60,866 1,960,472 291,770
---------- ---------- -------- --------- -------- ---------- -------- -------- ---------- --------
Net Assets Available
for Plan Benefits
at End of Year $5,403,325 $2,102,541 $301,462 $ 825,578 $610,889 $1,328,060 $0 $0 $0 $234,795
========== ========== ======== ========= ======== ========== ======== ======== ========== ========
</TABLE>
See notes to financial statements.
<PAGE> 7
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND
INFORMATION
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Six Months Ended December 31, 1994
<TABLE>
<CAPTION>
Fund Information
---------------------------------------------------------------------------
ESSI Government Guaranteed
Stock Equity Mutual Income Loan
Total Fund Fund Fund Fund Fund
---------- -------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employee contributions $ 130,944 $ 15,814 $ 41,486 $ 7,590 $ 66,054
Employer contributions 138,373 138,373
Realized and unrealized
gains (losses), net 7,489 (5,270) 15,181 (2,422)
Interest and dividend
income 91,752 (40) 196 2,438 77,785 $ 11,373
Transfers (to) from
other funds 16,895 (24,152) (9,094) 6,571 9,780
---------- -------- -------- -------- ---------- --------
368,558 165,772 32,711 (1,488) 150,410 21,153
---------- -------- -------- -------- ---------- --------
Deductions:
Participant withdrawals 99,305 47,519 10,732 1,307 39,747
Interest expense 64,573 64,573
---------- -------- -------- -------- ---------- --------
163,878 112,092 10,732 1,307 39,747
---------- -------- -------- -------- ---------- --------
Net increase (decrease) 204,680 53,680 21,979 (2,795) 110,663 21,153
Net Assets Available
for Plan Benefits at
Beginning of Period 3,373,252 590,066 599,099 63,661 1,849,809 270,617
---------- -------- -------- -------- ---------- --------
Net Assets Available
for Plan Benefits
at End of Period $3,577,932 $643,746 $621,078 $ 60,866 $1,960,472 $291,770
========== ======== ======== ======== ========== ========
</TABLE>
See notes to financial statements.
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1995
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Engineered Support Systems, Inc. Employee
Stock Ownership Plan (the Plan) are presented on the accrual basis of
accounting. Benefits due to former participants are recorded as a reduction
in net assets available for Plan benefits when paid. At December 31, 1995
and 1994, undistributed withdrawals to former participants totaled $4,346 and
$157,845, respectively, representing allocations of net assets available for
Plan benefits.
Investments in the ESSI Stock Fund are stated at fair value based on the last
reported sales price of Engineered Support Systems, Inc. (the Company) common
stock on December 31, 1995 and 1994, respectively. Investments in the
Strategic Growth Portfolio (managed by Nicholas-Applegate Capital Management),
the Target Value Portfolio (managed by Jurika & Voyles, Inc. Investment
Management), the Balanced Asset Portfolio (managed by Avatar Associates
Investment Counsel) and the Guaranteed Investment Portfolio (managed by
Mitchell Hutchins Asset Management) are stated at the fair value of the
underlying portfolio of securities, as determined by the respective manager.
Insurance contracts in the Guaranteed Income Fund are valued at cost plus
accrued interest earned to date as calculated by the Hartford Life Insurance
Company. Investments in the Equity Fund and in the Government Mutual Fund
are stated at fair value based on the closing net asset values of the funds.
Investment income is recorded as earned. Net realized gains or losses on
security transactions represent the difference between proceeds received and
cost. In accordance with the policy of stating investments at fair value,
net unrealized appreciation or depreciation is reflected in the Statements of
Net Assets Available for Plan Benefits and the change in the net unrealized
appreciation or depreciation is reflected in the Statements of Changes in Net
Assets Available for Plan Benefits.
Notes receivable, which represent all investments in the Loan Fund, are
valued at their outstanding principal amount plus any accrued interest at a
rate equal to the prime interest rate plus one percentage point.
Administrative expenses of the Plan are paid by the Company.
NOTE B--DESCRIPTION OF THE PLAN
The Plan is a combined 401(k) savings plan and a payroll-based employee stock
ownership plan covering the salaried employees and all non-salaried employees
not otherwise covered by a collective bargaining agreement of the Company and
its wholly-owned subsidiaries, Engineered Air Systems, Inc. and Engineered
Specialty Plastics, Inc. Eligible employees age 21 or older who have attained
one year of service may enroll in the Plan. Upon enrollment, participants
may elect to defer from 1% to 15% of their compensation in the Plan, up to a
maximum of $9,240 for the year ending December 31, 1995. Under current
Internal Revenue Service regulations, this maximum amount is adjusted for
cost of living increases.
<PAGE> 9
Contributions under the Plan consist of the following:
1. The amount of the salary reduction elections of all Plan participants
(the employee contribution).
2. The Company's discretionary contribution of an amount no less than the
amount sufficient to pay the monthly installments of the bank loan (the
employer discretionary contribution).
3. The Company's matching contribution of no less than 25% of each
employee's contribution up to a maximum of 6% of the employee's
earnings (the employer matching contribution).
Employee contributions and employer matching contributions are 100% vested,
and participants vest at a rate of 20% per year in employer discretionary
contributions.
At December 31, 1995, the following investment options existed with respect
to employee contributions:
ESSI Stock Fund, which invests in the Company's common stock.
Strategic Growth Portfolio, which invests in equity securities of
growth companies as defined by the manager.
Target Value Portfolio, which invests in equity securities of companies
which the manager believes sell at a discount to actual value.
Balanced Asset Portfolio, which invests in both equity and fixed
income securities.
Guaranteed Investment Portfolio, which invests in fixed income
securities, primarily insurance and bank investment contracts.
All contributions by the Company are made to the ESSI Stock Fund.
The Plan also maintains a Loan Fund, which represents participant borrowings
from existing balances in other Plan funds. These loans are to be repaid
over a period not to exceed five years.
The Plan Administrator is Engineered Air Systems, Inc. acting through its
Chief Executive Officer, Michael F. Shanahan Sr. Mr. Shanahan has appointed
an Administrative Committee to administer the Plan. The Company bears all
expenses of administering the Plan, including any compensation of the
trustee, PW Trust Company. No trustee fees or other administrative expenses
were paid from Plan assets during the six months ended December 31, 1994 or
the year ended December 31, 1995.
Information about the Plan, including provisions for vesting, allocation of
earnings, effects of forfeitures, withdrawal provisions and the impact of
Plan termination is contained in the Summary Plan Description. Copies of the
Summary Plan Description are available from the Company.
At December 31, 1995, Plan participants had elective account balances in the
following funds:
ESSI Stock Fund 53
Strategic Growth Portfolio 67
<PAGE> 10
Target Value Portfolio 85
Balanced Asset Portfolio 93
Guaranteed Investment Portfolio 93
NOTE C--CHANGES IN THE PLAN
On March 12, 1987, the Board of Directors of the Company and Engineered Air
approved the Amendment and Restatement of the Savings & Protection Plan for
Employees of Engineered Air Systems, Inc. into the Plan, and approved the
merger of the EASI Profit Sharing Plan into the Plan. The merger and
conversion into the Plan were effective April 1, 1987. Concurrent with the
merger, and based on participant elections, a portion of the assets
transferred from the EASI Profit Sharing Plan into the Plan were used to
purchase 51,500 shares of the Company's common stock from its two
principal shareholders for $566,500.
On May 1, 1987, the Plan entered into a loan agreement with First Wisconsin
National Bank of Milwaukee (FWNB) to borrow $2,640,000 to acquire 240,000
shares of the Company's common stock from the two principal shareholders.
During 1987, the Company advanced $360,000 to the Plan for additional market
purchases of the Company's common stock. This advance was subsequently
repaid when the Plan borrowed an additional $360,000 from FWNB.
On December 13, 1989, the Plan entered into a loan agreement with MNC
Commercial Corp. (MNC) to refinance the remaining balance of the FWNB loan.
The loan was payable in quarterly installments at an interest rate of 95% of
the MNC prime rate. Under the terms of the loan agreement, the Company and
Engineered Air were required to make contributions to the Plan sufficient to
fund the quarterly installments.
On August 21, 1993, the Plan entered into a loan agreement with Boatmen's
National Bank of St. Louis (Boatmen's) to refinance the MNC loan. As with
prior loans, the Company guaranteed the loan between the Plan and Boatmen's.
The loan is payable in monthly installments through September 1, 2003 and
bears interest at prime. These installments, which began in October 1, 1993,
include a level principal payment of $12,300 per month.
The Plan has pledged the shares purchased with the loan proceeds as
collateral for the Boatmen's loan. Each year, Boatmen's releases a
proportionate number of shares equal to the ratio of principal and interest
paid during the year to the total of principal and interest paid to date and
to be paid on the loan. The shares released are allocated to the participant
accounts in relation to each participant's compensation to total participant
compensation for the year. At December 31, 1995, 75,260 shares of the
Company's common stock with a fair value of $508,000 are held in suspense and
are pledged as collateral for the bank loan. 13,180 and 6,181 shares of the
Company's common stock were released from suspense and allocated to
participants accounts for the year ended December 31, 1995 and the six months
ended December 31, 1994, respectively.
Effective January 1, 1995, the Company amended the Plan to allow the
participation of all eligible employees of Engineered Specialty Plastics, Inc.
and all eligible non-salaried employees of Engineered Air not covered by a
collective bargaining agreement. The Plan was amended to provide for a
matching contribution by the Company of no less than 25% of each eligible
employee's contributions up to a maximum of 6% of the employee's earnings.
The current investment options were also selected by the Administrative
<PAGE> 11
Committee and the Plan year end was changed to December 31 from June 30 in
conjunction with this amendment.
NOTE D--INVESTMENTS
The following schedule presents information regarding assets held for
investment:
<TABLE>
<CAPTION>
Shares Cost Fair Value
------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1995:
- -----------------------------
ESSI Stock Fund
Engineered Support Systems, Inc.
common stock 479,946 $3,291,840 $3,239,635
Strategic Growth Portfolio, managed by
Nicholas-Applegate Capital Management 23,426 240,837 291,439
Target Value Portfolio, managed by
Jurika & Voyles, Inc. Investment
Management 67,908 682,581 801,309
Balanced Asset Portfolio, managed by
Avatar Associates Investment Counsel 45,257 472,713 573,138
Guaranteed Investment Contract Portfolio,
managed by Mitchell Hutchins Asset
Management 73,144 1,220,726 1,297,792
Loan Fund
Notes receivable from participants
bearing interest rates ranging from
7.0% to 10.0% with remaining maturities
of 1 month to 5 years N/A 234,795 234,795
---------- ----------
$6,143,492 $6,438,108
========== ==========
Balance at December 31, 1994:
- -----------------------------
Guaranteed Income Fund
Hartford Group Insurance Contract,
7.9% interest rate for the year
ended December 31, 1994 N/A $1,365,670 $1,365,670
ESSI Stock Fund
Engineered Support Systems, Inc.
common stock 492,005 3,291,818 1,968,020
<PAGE> 12
Loan Fund
Notes receivable from participants
bearing interest rates ranging from
7.0% to 9.5% with remaining maturities
of 1 month to 5 years N/A 291,770 291,770
---------- ----------
$4,949,258 $3,625,460
========== ==========
</TABLE>
NOTE E--INCOME TAX STATUS
The Plan received a favorable letter of determination from the Internal
Revenue Service dated August 25, 1994 indicating compliance with section
401(a) of the Internal Revenue Code and exemption under the provisions of
section 501(a). However, the Plan was amended December 15, 1994 and a new
letter of determination has not yet been received from the Internal Revenue
Service. It is the opinion of the Plan Administrator that, as of December 31,
1995, the Plan is in compliance with section 401(a) of the Internal Revenue
Code and is exempt under the provisions of section 501(a). Thus, provision
for federal income taxes is not required in the accompanying financial
statements.
Participants are not subject to federal income tax on amounts contributed to
their accounts under the 401(k) provisions of the Plan, or on earnings
attributable to such contributions, until such time as these amounts are
distributed to or withdrawn by the participants.
<PAGE> 13
CONSENT OF INDEPENDENT ACCOUNTANTS
June 12, 1996
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-14504) of our report dated June 6, 1996
appearing on page 3 of the Annual Report of the Engineered Support Systems,
Inc. Employee Stock Ownership Plan on Form 11-K for the year ended
December 31, 1995.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
