<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, 1996 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 principle 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: 6/20/97 /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
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Price Waterhouse LLP
June 13, 1997
To the Participants and Administrator of
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,
1996 and 1995, and the changes in the net assets available for plan benefits
for the years ended December 31, 1996 and 1995, 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
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<TABLE>
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1996
<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 $ 101,511 $ (2,563) $ 33,827 $ 13,293 $(12,518) $ 69,472
Investments, at fair value 10,814,801 6,860,063 633,152 1,048,754 997,866 1,072,276 $202,690
Contributions receivable:
Employer 7,078 7,078
----------- ---------- -------- ---------- -------- ---------- --------
10,923,390 6,864,578 666,979 1,062,047 985,348 1,141,748 202,690
Liabilities:
Accrued interest 7,078 7,078
Long-term debt 996,300 996,300
----------- ---------- -------- ---------- -------- ---------- --------
1,003,378 1,003,378
----------- ---------- -------- ---------- -------- ---------- --------
Net Assets Available
for Plan Benefits $ 9,920,012 $5,861,200 $666,979 $1,062,047 $985,348 $1,141,748 $202,690
=========== ========== ======== ========== ======== ========== ========
See notes to financial statements.
</TABLE>
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<TABLE>
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
ENGINEERED AIR SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1995
<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
========== ========== ======== ======== ======== ========== ========
See notes to financial statements.
</TABLE>
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<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
ENGINEERED AIR SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1996
<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>
Additions:
Employee contributions $ 379,447 $ 49,992 $ 80,418 $ 89,482 $ 91,622 $ 67,933
Employer contributions 288,870 288,870
Realized and unrealized
gains, net 3,734,272 3,734,272
Net gain from common/
collective trusts 431,307 81,421 168,682 106,380 74,824
Interest & dividend income 28,944 7,352 472 699 645 858 $ 18,918
Transfers (to) from other
funds (82,433) 209,105 12,714 218,474 (306,837) (51,023)
---------- ---------- -------- ---------- -------- ---------- --------
4,862,840 3,998,053 371,416 271,577 417,121 (163,222) (32,105)
---------- ---------- -------- ---------- -------- ---------- --------
Deductions:
Participant withdrawals 262,776 156,017 5,899 35,108 42,662 23,090
Interest expense 83,377 83,377
---------- ---------- -------- ---------- -------- ---------- --------
346,153 239,394 5,899 35,108 42,662 23,090
---------- ---------- -------- ---------- -------- ---------- --------
Net increase (decrease) 4,516,687 3,758,659 365,517 236,469 374,459 (186,312) (32,105)
Net Assets Available
for Plan Benefits at
Beginning of Year 5,403,325 2,102,541 301,462 825,578 610,889 1,328,060 234,795
---------- ---------- -------- ---------- -------- ---------- --------
Net Assets Available
for Plan Benefits at
End of Year $9,920,012 $5,861,200 $666,979 $1,062,047 $985,348 $1,141,748 $202,690
========== ========== ======== ========== ======== ========== ========
See notes to financial statements.
</TABLE>
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<TABLE>
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
<CAPTION>
Fund Information
--------------------------------------------------------------
ESSI Strategic Target Balanced Guaranteed
Stock Growth Value Asset Investment
Total Fund Portfolio Portfolio Portfolio Portfolio
---------- ---------- --------- --------- --------- -----------
<S> <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
Transfers (to) from
other funds 37,098 211,732 613,736 432,447 1,283,684
---------- ---------- -------- -------- -------- ----------
2,452,226 1,756,582 305,976 838,406 615,279 1,493,835
---------- ---------- -------- -------- -------- ----------
Deductions:
Participant withdrawals 496,896 167,850 4,514 12,828 4,390 165,775
Interest expense 129,937 129,937
---------- ---------- -------- -------- -------- ----------
626,833 297,787 4,514 12,828 4,390 165,775
---------- ---------- -------- -------- -------- ----------
Net increase (decrease) 1,825,393 1,458,795 301,462 825,578 610,889 1,328,060
Net Assets Available
for Plan Benefits at
Beginning of Year 3,577,932 643,746
---------- ---------- -------- -------- -------- ----------
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
========== ========== ======== ======== ======== ==========
See notes to financial statements.
<CAPTION>
Fund Information
----------------------------------------------------------
Government Guaranteed
Equity Mutual Income Loan
Fund Fund Fund Fund
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Additions:
Employee contributions
Employer contributions
Realized and unrealized
gains, net
Net gain from common/
collective trusts
Interest & dividend income 20,845
Transfers (to) from
other funds (617,200) (60,866) (1,854,487) (46,144)
-------- ------- ---------- --------
(617,200) (60,866) (1,854,487) (25,299)
-------- ------- ---------- --------
Deductions:
Participant withdrawals 3,878 105,985 31,676
Interest expense
-------- ------- ---------- --------
3,878 105,985 31,676
-------- ------- ---------- --------
Net increase (decrease) (621,078) (60,866) (1,960,472) (56,975)
Net Assets Available
for Plan Benefits at
Beginning of Year 621,078 60,866 1,960,472 291,770
-------- ------- ---------- --------
Net Assets Available
for Plan Benefits
at End of Year $0 $0 $0 $234,795
======== ======= ========== ========
See notes to financial statements.
</TABLE>
-7-
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
December 31, 1996
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, 1996 and 1995
undistributed withdrawals to former participants totaled $428,811 and $4,346,
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, 1996 and 1995, 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.
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 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 $9,500 for the year ended December 31, 1996. Under current Internal
Revenue Service regulations, this maximum amount is adjusted annually for cost
increases.
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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.
Participants vested at a rate of 20% per year in employer discretionary
contributions prior to January 1, 1997 at which point these contributions also
became 100% vested.
At December 31, 1996, 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
Chairman, 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 years ended December 31, 1995 or 1996.
Information about the Plan, including provisions for vesting, allocation of
earnings, 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, 1996, Plan participants had elective account balances in the
following funds:
<TABLE>
<S> <C>
ESSI Stock Fund 54
Strategic Growth Portfolio 78
Target Value Portfolio 88
Balanced Asset Portfolio 97
Guaranteed Investment Portfolio 77
</TABLE>
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<PAGE> 10
<TABLE>
NOTE C--INVESTMENTS
The following schedule presents information regarding assets held for
investment:
<CAPTION>
Shares Cost Fair Value
------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996:
- -----------------------------
ESSI Stock Fund
Engineered Support Systems, Inc.
common stock 465,089 $3,221,849 $6,860,063
Strategic Growth Portfolio, managed by
Nicholas-Applegate Capital Management 43,036 505,074 633,152
Target Value Portfolio, managed by
Jurika & Voyles, Inc. Investment
Management 74,338 776,595 1,048,754
Balanced Asset Portfolio, managed by
Avatar Associates Investment Counsel 69,402 801,883 997,866
Guaranteed Investment Contract Portfolio,
managed by Mitchell Hutchins Asset
Management 56,770 957,599 1,072,276
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 202,690 202,690
---------- -----------
$6,465,690 $10,814,801
========== ===========
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
========== ==========
</TABLE>
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<PAGE> 11
NOTE D--CHANGES IN THE PLAN
The Plan has pledged shares of the Company's common stock, purchased with bank
loan proceeds, as collateral for its loan with Boatmen's National Bank of
St. Louis (Boatmen's). 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 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, 1996, 63,629 shares of the Company's common stock with a fair value
of $939,000 are held in suspense and are pledged as collateral for the bank
loan. 11,631 and 13,180 shares of the Company's common stock were released
from suspense and allocated to participant accounts for the years ended
December 31, 1996 and 1995, 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 also became effective at this time.
NOTE E--INCOME TAX STATUS
The Plan received a favorable letter of determination from the Internal Revenue
Service dated September 20, 1996 indicating compliance with section 401(a) of
the Internal Revenue Code and exemption under the provisions of section 501(a).
Therefore, it is the opinion of the Plan Administrator that, as of December 31,
1996, 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.
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CONSENT OF INDEPENDENT ACCOUNTANTS
June 20, 1997
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-14504) of our report dated June 13, 1997
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, 1996.
/s/ Price Waterhouse LLP
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