<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, 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 May 31, 1996 was 3,102,906.
<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, 1996
and October 31, 1995 3
Condensed Consolidated Statements of Income for the three
months and six months ended April 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 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 7
Part II - Other Information
Items 1-6 8
Signatures 9
Exhibits 10
<PAGE> 3
ENGINEERED SUPPORT SYSTEMS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30 October 31
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 132,524 $ 386,609
Accounts receivable 3,000,287 3,510,596
Contracts in process and inventories 12,778,155 12,117,479
Other current assets 916,591 614,295
------------ ------------
Total Current Assets 16,827,557 16,628,979
Property, plant and equipment, less accumulated
depreciation of $12,405,274 and $11,626,806 14,294,307 14,601,129
Intangible assets 1,093,299 1,219,699
Other assets 1,431,444 1,341,805
------------ ------------
Total assets $ 33,646,607 $ 33,791,612
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 285,705 $ 1,124,041
Current maturities of long-term debt 790,491 827,371
Accounts payable 7,396,237 7,702,941
Other current liabilities 2,279,443 2,274,919
------------ ------------
Total Current Liabilities 10,751,876 11,929,272
Long-term debt 2,392,273 2,755,157
Deferred income taxes 2,722,059 2,722,059
ESOP guaranteed bank loan 1,094,700 1,168,500
Shareholders' Equity
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,520,336
and 3,456,961 shares issued 35,203 34,570
Additional paid-in capital 8,175,312 7,917,844
Retained earnings 11,390,316 10,217,090
------------ ------------
19,600,831 18,169,504
Less ESOP guaranteed bank loan 1,094,700 1,168,500
Less treasury stock at cost, 478,367
and 475,835 shares 1,820,432 1,784,380
------------ ------------
16,685,699 15,216,624
------------ ------------
Total Liabilities and Shareholders' Equity $ 33,646,607 $ 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 Six Months Ended
April 30 April 30
---------------------- ---------------------
1996 1995 1996 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 18,923,798 $ 17,654,978 $ 35,971,371 $ 32,998,669
Cost of revenues 15,955,531 14,795,359 30,522,716 27,935,129
------------ ------------ ------------ ------------
Gross profit 2,968,267 2,859,619 5,448,655 5,063,540
Selling, general and
administrative expense 1,623,960 1,490,492 3,159,633 2,940,515
------------ ------------ ------------ ------------
Income from operations 1,344,307 1,369,127 2,289,022 2,123,025
Interest expense 150,099 242,897 285,986 447,182
------------ ------------ ------------ ------------
Income before income
taxes 1,194,208 1,126,230 2,003,036 1,675,843
Income tax provision 477,000 451,000 800,000 671,000
------------ ------------ ------------ ------------
Net income $ 717,208 $ 675,230 $ 1,203,036 $ 1,004,843
============ ============ ============ ============
Net income per share $ .22 $ .20 $ .37 $ .30
============ ============ ============ ============
</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
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
From operating activities:
Net income $ 1,203,036 $ 1,004,843
Depreciation and amortization 919,214 957,059
------------- --------------
Cash provided (used) before changes in
operating assets and liabilities 2,122,250 1,961,902
Net (increase) decrease in non-cash
current assets (452,663) 465,415
Net increase (decrease) in non-cash current
liabilities (302,180) 126,397
(Increase) decrease in other assets (76,052) 200,971
------------- --------------
Net cash provided by (used in) operating
activities 1,291,355 2,754,685
------------- --------------
From investing activities:
Additions to property, plant and equipment (471,646) (470,703)
Disposals of property, plant and equipment 73,100
------------- --------------
Net cash provided by (used in) investing
activities (471,646) (397,603)
------------- --------------
From financing activities:
Net payments under line-of-credit
agreement (838,336) (957,723)
Payments of long-term debt (399,764) (733,363)
Purchase of treasury stock (51,422) (972,586)
Exercise of stock options 245,539 2,879
Cash dividend (29,811)
------------- --------------
Net cash provided by (used in) financing
activities (1,073,794) (2,660,793)
------------- --------------
Net increase (decrease) in cash (254,085) (303,711)
Cash at beginning of period 386,609 417,748
------------- --------------
Cash at end of period $ 132,524 $ 114,037
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
ENGINEERED SUPPORT SYSTEMS, INC.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
April 30, 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 six
month period ended April 30, 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 is based on the weighted average number of common and
common equivalent shares outstanding of 3,256,495 and 3,313,480 for the
three months ended April 30, 1996 and 1995, respectively, and 3,247,858 and
3,366,268 for the six months ended April 30, 1996 and 1995, 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 - Contracts in Process and Inventories
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. Inventories of Engineered Specialty
Plastics, Inc. are valued at the lower of cost or market using the first-
in, first-out method. Contracts in process and inventories are comprised of
the following:
<TABLE>
<CAPTION>
April 30, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Raw materials $2,103,554 $1,594,199
Work-in-process 89,922 142,615
Finished goods 392,596 368,400
Inventories substantially applicable to
government contracts in process, less
progress payments of $23,491,318 and
$15,182,542 10,192,083 10,012,265
----------- -----------
$12,778,155 $12,117,479
=========== ===========
</TABLE>
<PAGE> 7
ENGINEERED SUPPORT SYSTEMS, INC.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Revenues increased 7% in the second quarter of 1996 to $18.9 million from
$17.7 million in the second quarter of 1995, and increased 9% to $36.0
million in the first six months of 1996 from $33.0 million in the first
half 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, Revetment Kits and Aviation
Ground Power Units.
Gross profit for the second quarter of 1996 increased $0.1 million, or 4%,
over the amount for the comparable 1995 period primarily reflecting the
increase in production volume at Engineered Air. The gross margin for the
second quarter of 1996 was 15.7% as compared to 16.2% for the second
quarter of 1995.
Selling, general and administrative expense was $1.62 million and $1.49
million in the second quarter of 1996 and 1995, respectively. As a percent
of net revenues, selling, general and administrative expense increased from
8.4% in the second quarter of 1995 to 8.6% in 1996. For the six months
ended April 30, 1996, this percentage was 8.8% compared to 8.9% for the
first half of 1995.
Interest expense decreased $93,000, or 38%, in the second quarter of 1996
as compared with the second quarter of 1995. This was primarily the result
of continuing strong cash flow at Engineered Air.
Liquidity and Capital Resources
At April 30, 1996, the Company's working capital and ratio of current
assets to current liabilities were $6.1 million and 1.57 to 1 as compared
to $4.7 million and 1.39 to 1 at October 31, 1995. As of April 30, 1996,
the Company had $5.3 million of unused credit related to its loan
agreement.
Business and Market Considerations
As of April 30, 1996, Engineered Air's funded backlog of defense orders was
$104 million compared to $82 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 has 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> 8
PART II
Other Information
Items 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.
27. Statement Re: Summary Financial Information.
(b) No reports on Form 8-K were filed during the six months ended April 30,
1996.
<PAGE> 9
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: June 14, 1996 By: /s/ MICHAEL F. SHANAHAN SR.
------------- --------------------------------------
MICHAEL F. SHANAHAN SR.
Chairman of the Board, President
and Chief Executive Officer
Date: June 14, 1996 By: /s/ GARY C. GERHARDT
------------- --------------------------------------
GARY C. GERHARDT
Executive Vice President and
Chief Financial Officer
<PAGE> 10
Exhibit 11
ENGINEERED SUPPORT SYSTEMS, INC.
Statement Re: Comp utation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
--------------------------- -----------------------
1996 1995 1996 1995
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME $ 717,208 $ 675,230 $ 1,203,036 $ 1,004,843
============= ============= =========== ===========
NET INCOME PER SHARE
Average shares
outstanding 3,025,947 3,075,471 3,004,461 3,122,149
============= ============= =========== ===========
Net income $ .24 $ .22 $ .40 $ .32
============= ============= =========== ===========
PRIMARY EARNINGS
PER SHARE
Average shares
outstanding 3,025,947 3,075,471 3,004,461 3,122,149
Net effect of
dilutive stock
options (1) 212,821 214,677 221,730 208,908
------------- ------------- ----------- -----------
3,238,768 3,290,148 3,226,191 3,331,057
============= ============= =========== ===========
Net income $ .22 $ .21 $ .37 $ .30
============= ============= =========== ===========
FULLY DILUTED EARNINGS
PER SHARE
Average shares
outstanding 3,025,947 3,075,471 3,004,461 3,122,149
Net effect of dilutive
stock options (1) 230,548 238,009 243,397 244,119
------------- ------------- ----------- -----------
3,256,495 3,315,480 3,247,858 3,366,268
============= ============= =========== ===========
Net income $ .22 $ .20 $ .37 $ .30
============= ============= =========== ===========
</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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> APR-30-1996
<CASH> 132,524
<SECURITIES> 0
<RECEIVABLES> 3,185,039
<ALLOWANCES> 184,752
<INVENTORY> 12,778,155
<CURRENT-ASSETS> 16,827,557
<PP&E> 26,699,581
<DEPRECIATION> 12,405,274
<TOTAL-ASSETS> 33,646,607
<CURRENT-LIABILITIES> 10,751,876
<BONDS> 3,486,973
<COMMON> 35,203
0
0
<OTHER-SE> 19,565,628
<TOTAL-LIABILITY-AND-EQUITY> 33,646,607
<SALES> 35,971,371
<TOTAL-REVENUES> 35,971,371
<CGS> 30,522,716
<TOTAL-COSTS> 30,522,716
<OTHER-EXPENSES> 3,131,133
<LOSS-PROVISION> 28,500
<INTEREST-EXPENSE> 285,986
<INCOME-PRETAX> 2,003,036
<INCOME-TAX> 800,000
<INCOME-CONTINUING> 1,203,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,203,036
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
