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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, 1999 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, 1999 was 6,879,546.
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ENGINEERED SUPPORT SYSTEMS, INC.
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of April 30, 1999 and
October 31, 1998 3
Condensed Consolidated Statements of Income for the three and six months
ended April 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the three and six
months ended April 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Items 1-6 14
Signatures 15
Exhibits 16
</TABLE>
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<TABLE>
ENGINEERED SUPPORT SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30 October 31
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 182,670 $ 5,773,529
Accounts receivable 18,394,236 14,036,184
Contracts in process and inventories 28,791,000 18,686,810
Other current assets 1,402,119 1,542,973
------------ -----------
Total Current Assets 48,770,025 40,039,496
Property, plant and equipment, less accumulated
depreciation of $15,180,382 and $13,895,326 25,822,146 25,064,982
Cost in excess of net assets acquired, less accumulated
amortization of $1,596,460 and $1,073,176 24,392,608 25,835,892
Other assets 1,148,646 1,219,852
------------ -----------
Total Assets $100,133,425 $92,160,222
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 7,704,164 $ 7,204,172
Accounts payable 10,075,454 7,285,396
Other current liabilities 9,999,770 7,340,394
------------ -----------
Total Current Liabilities 27,779,388 21,829,962
Long-term debt 9,810,414 36,779,160
Deferred income taxes 2,659,699 2,659,699
ESOP guaranteed bank loan 651,900 725,700
Shareholders' Equity
Common stock, par value $.01 per share; 10,000,000
shares authorized; 7,503,854 and 5,490,604 shares issued 75,039 54,906
Additional paid-in capital 36,956,379 11,082,278
Retained earnings 26,776,169 23,682,931
------------ -----------
63,807,587 34,820,115
Less ESOP guaranteed bank loan 651,900 725,700
Less treasury stock at cost, 624,308 and 638,702 shares 3,923,663 3,928,714
------------ -----------
59,232,024 30,165,701
------------ -----------
Total Liabilities and Shareholders' Equity $100,133,425 $92,160,222
============ ===========
See notes to condensed consolidated financial statements.
</TABLE>
3
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<TABLE>
ENGINEERED SUPPORT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $40,697,195 $23,011,706 $68,934,170 $39,249,845
Cost of revenues 32,986,319 17,363,247 54,641,948 30,297,617
----------- ----------- ----------- -----------
Gross profit 7,710,876 5,648,459 14,292,222 8,952,228
Selling, general and administrative
expense 4,140,063 3,214,711 7,776,028 5,059,171
----------- ----------- ----------- -----------
Income from operations 3,570,813 2,433,748 6,516,194 3,893,057
Interest expense (671,423) (428,181) (1,365,184) (451,577)
Interest income 34,651 47,387 91,417 143,635
Gain on sale of assets 54,193 151,125 56,209 151,125
----------- ----------- ----------- -----------
Income before income taxes 2,988,234 2,204,079 5,298,636 3,736,240
Income tax provision 1,196,000 880,000 2,118,000 1,493,000
----------- ----------- ----------- -----------
Net income $ 1,792,234 $ 1,324,079 $ 3,180,636 $ 2,243,240
=========== =========== =========== ===========
Basic earnings per share $.35 $.28 $.64 $.47
=========== =========== =========== ===========
Diluted earnings per share $.34 $.27 $.62 $.45
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
ENGINEERED SUPPORT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
April 30
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
From operating activities:
Net income $ 3,180,636 $ 2,243,240
Depreciation and amortization 1,766,084 1,155,657
Gain on sale of assets (56,209) (151,125)
------------ ------------
Cash provided (used) before changes in operating
assets and liabilities 4,890,511 3,247,772
Net (increase) decrease in non-cash current assets (584,173) (1,015,931)
Net increase (decrease) in non-cash current liabilities 679,756 (110,579)
(Increase) decrease in other assets 1,239,771 1,042,612
------------ ------------
Net cash provided by (used in) operating activities 6,225,865 3,163,874
------------ ------------
From investing activities:
Purchase of Marlo Coil, net of cash acquired (25,297,717)
Purchase of Fermont, net of cash acquired (9,907,238)
Additions to property, plant and equipment (1,041,704) (157,041)
Proceeds from sale of property, plant and equipment 79,249 151,125
------------ ------------
Net cash provided by (used in) investing activities (10,869,693) (25,303,633)
------------ ------------
From financing activities:
Net payments under line-of-credit agreement (1,075,961)
Payments of long-term debt (26,468,754) (1,267,706)
Proceeds of long-term debt 22,500,000
Net proceeds from issuance of common stock 25,550,000
Purchase of treasury stock (65,052) (495,652)
Exercise of stock options 124,172 270,352
Cash dividends (87,397) (43,115)
------------ ------------
Net cash provided by (used in) financing activities (947,031) 19,887,918
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,590,859) (2,251,841)
Cash and cash equivalents at beginning of period 5,773,529 8,313,160
------------ ------------
Cash and cash equivalents at end of period $ 182,670 $ 6,061,319
============ ============
See notes to condensed consolidated financial statements.
</TABLE>
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ENGINEERED SUPPORT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
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 and six month periods ended April 30, 1999 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 statements 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, 1998.
NOTE B - EARNINGS PER SHARE
All earnings per share amounts have been computed after giving effect
to the stock split described in Note E. Average diluted common shares
outstanding include common stock equivalents, which represent common stock
options as computed based on the treasury stock method.
Basic earnings per share for the three months ended April 30, 1999
and 1998 is based on average basic common shares outstanding of 5,052,423
and 4,747,826, respectively. Diluted earnings per share for the three
months ended April 30, 1999 and 1998 is based on average diluted common
shares outstanding of 5,230,602 and 4,970,508, respectively.
Basic earnings per share for the six months ended April 30, 1999 and
1998 is based on average basic common shares outstanding of 4,950,724 and
4,755,098, respectively. Diluted earnings per share for the six months
ended April 30, 1999 and 1998 is based on average diluted common shares
outstanding of 5,129,827 and 4,968,911, respectively.
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NOTE C - CONTRACTS IN PROCESS AND INVENTORIES
Contracts in process and inventories of Engineered Air Systems, Inc.,
Keco Industries, Inc. and Engineered Electric Company 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. and
Engineered Coil Company 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, 1999 October 31, 1998
-------------- ----------------
<S> <C> <C>
Raw materials $ 4,351,086 $ 4,578,766
Work-in-process 1,339,746 1,397,593
Finished goods 661,231 845,607
Inventories substantially applicable to
government contracts in process, less
progress payments of $13,894,955 and
$15,932,239 22,438,937 11,864,844
----------- -----------
$28,791,000 $18,686,810
=========== ===========
</TABLE>
NOTE D - ACQUISITIONS
Effective February 1, 1998, Engineered Coil Company, a wholly-owned
subsidiary of Engineered Support Systems, Inc., acquired substantially all
of the net assets of Nuclear Cooling, Inc., d/b/a Marlo Coil, a
manufacturer of heat transfer and air movement equipment, from an investor
group for approximately $25.4 million. The fair value of assets acquired,
including goodwill of $17.1 million, was $31.0 million and liabilities
assumed totaled $5.6 million. The purchase price was financed with
approximately $2.9 million of available cash resources and bank term debt
of $22.5 million. The operating results of Engineered Coil Company (Marlo
Coil) are included in the Company's consolidated results of operations from
the date of acquisition.
On May 29, 1998, Marlo Coil purchased the exclusive rights to
manufacture and distribute the U.S. Navy/Marine products of Edge
Electronics Corporation, d/b/a McIntyre Engineering, for approximately $1.5
million. The fair value of the assets acquired was $1.5 million, including
goodwill of $1.4 million and a seven-year covenant not to compete of $0.1
million. The purchase price was financed with available cash resources.
On June 24, 1998, the Company acquired all of the outstanding stock
of Keco Industries, Inc. (Keco), a manufacturer of military ground support
equipment, from an investor group for approximately $26.7 million. ($1.2
million of this amount relates to consideration paid to Keco's previous
shareholders in order for the Company to elect treatment of the transaction
as an asset purchase pursuant to Section 338(h)(10) of the Internal Revenue
Code. This election allows the Company to generate deductions for goodwill
amortization and additional depreciation for federal income tax purposes.)
The fair value of the assets acquired, including goodwill of $6.5 million,
was $29.6 million and liabilities assumed totaled $2.9 million. The
purchase price was financed with
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approximately $4.2 million of available cash resources and bank term debt
of $22.5 million. The operating results of Keco are included in the
Company's consolidated results of operations from the date of acquisition.
On February 22, 1999, Engineered Electric Company, a wholly-owned
subsidiary of the Company, acquired substantially all of the net assets of
the Fermont division of Dynamics Corporation of America, a manufacturer of
electrical generator sets primarily for the Department of Defense, for
approximately $9.9 million. The fair value of assets acquired was $14.7
million and liabilities assumed totaled $4.8 million. The purchase price
was financed with available cash resources and short-term borrowings under
the Company's revolving credit facility. The operating results of
Engineered Electric Company (Fermont) are included in the Company's
consolidated results of operations from the date of acquisition.
The following unaudited pro forma summary presents the combined
historical results of operations for the six months ended April 30, 1999
and 1998 as adjusted to reflect the purchase transactions assuming the
acquisitions had occurred at November 1, 1997. These pro forma results are
not necessarily indicative of the combined results that would have occurred
had the acquisitions actually taken place on November 1, 1997, nor are they
necessarily indicative of the combined results that may occur in the
future.
<TABLE>
<CAPTION>
Six Months Ended
April 30
--------
1999 1998
----------- -----------
<S> <C> <C>
Net revenues $81,498,848 $94,652,533
=========== ===========
Net income $ 2,775,281 $ 1,799,057
=========== ===========
Basic earnings per share $.56 $.38
=========== ===========
Diluted earnings per share $.54 $.36
=========== ===========
</TABLE>
NOTE E - STOCK SPLIT
On June 26, 1998, the Company effected a 3-for-2 stock split in the
form of a 50% stock dividend. All earnings per share amounts in this Form
10-Q have been restated to reflect this stock split.
NOTE F - PUBLIC OFFERING OF COMMON STOCK
On April 23, 1999, the Company issued an additional 2,000,000 shares
of common stock through a public offering, resulting in net proceeds of
$25,550,000. A portion of the proceeds was used to repay borrowings under
the Company's line-of-credit agreement with the remainder used to repay a
portion of the Company's long-term debt. Shares outstanding at April 30,
1999 and October 31, 1998 were 6,879,546 and 4,851,902, respectively.
8
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ENGINEERED SUPPORT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased 76.9% in the second quarter of
1999 to $40.7 million from $23.0 million in the second quarter of 1998. Net
revenues from military support and related industrial/commercial equipment
increased by $20.6 million to $36.1 million in the second quarter of 1999
from $15.5 million in the second quarter of 1998. This increase was due to
an additional $19.1 million of net revenues generated by the acquisitions
of Keco Industries, Inc. (Keco) and of Fermont. (See Note D of the April
30, 1999 condensed consolidated financial statements for further
discussion). Net revenues from sales of custom molded plastic products
through Engineered Specialty Plastics, Inc. (ESP) decreased $2.9 million to
$4.6 million in the second quarter of 1999 from $7.5 million in the second
quarter of 1998. This decrease was the result of an anticipated decrease
in orders from a significant customer which the Company expects will return
to more normalized levels in the fourth quarter of 1999.
Net revenues increased 75.6% in the first six months of 1999 to $68.9
million from $39.2 million in the first six months of 1998. Net revenues
from military support and related industrial/commercial equipment increased
by $31.6 million to $58.5 million in the first half of 1999 from $26.9
million in the comparable 1998 period. This increase was due to an
additional $34.1 million of net revenues generated by the acquisitions of
Marlo Coil, Keco and Fermont. Net revenues from the sales of custom molded
plastic products through ESP decreased $1.9 million in the six months ended
April 30, 1999 compared to the prior year period as a result of the
decrease in orders described above.
Gross Profit. Gross profit for the second quarter of 1999 increased
36.5% to $7.7 million (18.9% of net revenues) from $5.6 million (24.5% of
net revenues) in the second quarter of 1998. Gross profit for the six
months ended April 30, 1999 increased 59.6% to $14.3 million (20.7% of net
revenues) from $9.0 million (22.8% of net revenues) in the first half of
1998. The increases in gross profit were primarily a result of the
businesses acquired, net of a volume-driven decrease in gross profit at
ESP. The decreases in gross margins were primarily due to lower gross
margins generated by Keco and Fermont as compared to those experienced by
historical operations, as well as to a gross margin decrease at ESP.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased by $0.9 million to $4.1 million (10.2% of
net revenues) for the quarter ended April 30, 1999 from $3.2 million (14.0%
of net revenues) for the second quarter of 1998. Selling general and
administrative expense increased by $2.7 million to $7.8 million (11.3% of
net revenues) for the six months ended April 30, 1999 from $5.1 million
(12.9% of net revenues) in 1998. These increases were due to the addition
of selling, general and administrative expense generated by the businesses
acquired, including additional goodwill amortization of $0.1 million for
the second quarter of 1999 compared to the second quarter of 1998 and $0.3
million for the first half of 1999 compared to the same period in 1998.
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Interest Expense and Interest Income. Interest expense increased by
$0.2 million to $0.7 million for the quarter ended April 30, 1999 as
compared to the prior year period as a result of debt incurred in
conjunction with the Keco and Fermont acquisitions. Interest expense
increased $0.9 million to $1.4 million for the first half of 1999 as
compared to the same period in 1998 as a result of debt incurred in
conjunction with the Marlo Coil, Keco and Fermont acquisitions. Interest
income was comparable for all periods presented.
Income Tax Provision. The effective income tax rate was 40.0% for
the quarter ended April 30, 1999 and 39.9% for the quarter ended April 30,
1998. The effective income tax rate for the six month periods ended April
30, 1999 and 1998 was 40.0%
Net Income. As a result of the foregoing, net income of the Company
increased by 35.4% to $1.8 million (4.4% of net revenues) for the quarter
ended April 30, 1999 from $1.3 million (5.8% of net revenues) for the
second quarter of 1998, and increased by 41.8% to $3.2 million (4.6% of net
revenues) for the first half of 1999 from $2.2 million (5.7% of net
revenues) for the first half of 1998.
LIQUIDITY AND CAPITAL RESOURCES
In March 1998, the Company restated and amended its credit facility
to provide a $45.0 million term loan to finance the Marlo Coil and Keco
acquisitions and to provide a $10.0 million revolving credit facility.
(The revolving credit facility was subsequently increased to $15.0 million
as of April 13, 1999). Principal payments on the term loan began September
1, 1998, with the final payment due May 1, 2003. The Company may choose an
interest rate calculated at either LIBOR plus an applicable margin or at
the prime rate less 0.5%. The margin applicable to LIBOR varies from 0.5%
to 1.5% depending upon the Company's ratio of total indebtedness to
earnings before interest, taxes, depreciation and amortization (leverage
ratio). Pursuant to the terms of the restated and amended credit facility,
the Company is subject to various financial and operating covenants.
Although the Company is currently in compliance with all such covenants,
the failure of the Company to comply with any of these covenants would
constitute a default which, if not timely corrected or waived, could result
in an acceleration of the maturity of certain of the debt obligations of
the Company.
On April 23, 1999, the Company issued an additional 2,000,000 shares
of common stock through a public offering, resulting in net proceeds of
$25,550,000. A portion of the proceeds were used to repay outstanding
borrowings under the Company's line-of-credit agreement with the remainder
used to repay a portion of the Company's long-term debt. The Company
ultimately expects that funds generated through the public offering will
provide additional flexibility as it continues to pursue strategic
acquisitions within the defense industry.
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The Company's primary sources of short-term financing are from cost
reimbursements under contracts with the U.S. government via receipt of
progress payments, billings for delivered products and bank borrowings
under its revolving line of credit. On April 30, 1999, the Company's
working capital and ratio of current assets to current liabilities were
$21.0 million and 1.76 to 1 as compared to $18.2 million and 1.83 to 1,
respectively, at October 31, 1998. During 1998, the Company purchased
Marlo Coil, net of cash acquired, for $25.3 million and purchased Keco, net
of cash acquired, for $24.1 million. During 1999, the Company purchased
Fermont, net of cash acquired, for $9.9 million. These acquisitions were
financed with term loan borrowings under the restated and amended credit
facility and with available cash resources. See Note D of the April 30,
1999 condensed consolidated financial statements for further discussion.
The Company invested $1.0 million in property, plant and equipment
during the six months ended April 30, 1999 and anticipates that capital
expenditures will not exceed $2.0 million for the year ended October 31,
1999. Management believes that cash flow generated by existing operations,
together with the available line of credit, will provide the necessary
resources to meet the existing needs of the Company in the foreseeable
future.
BUSINESS AND MARKET CONSIDERATIONS
Approximately 74% of consolidated net revenues for the six months
ended April 30, 1999 were directly or indirectly derived from defense
orders by the U.S. government and its agencies. As of April 30, 1999, the
Company's combined backlog of defense orders at Engineered Air, Keco,
Fermont and Marlo Coil totaled $172.2 million, with related government
options of an additional $455.7 million.
Management continues to pursue potential acquisitions, primarily of
those companies providing strategic consolidation within the defense
industry.
YEAR 2000 READINESS DISCLOSURE
We are dependent upon computer hardware and software for internal
operations and for processing product orders with our customers and
suppliers. We rely on computerized systems for nearly every component of
our business operations including: production scheduling and control;
purchasing and receiving; inventory control; sales orders and invoicing;
accounting (including accounts payable, accounts receivable, general ledger
and payroll); engineering; quality control and inspection; word processing;
and, in some cases, product testing.
We have developed and are implementing a plan to address Year 2000
issues which may impact our business. This plan includes: (a) surveys of
information technology systems, non-information technology or non-IT
systems and product categories; (b) assessment of required replacement or
other Year 2000 remediation; (c) implementation and subsequent testing of
systems for Year 2000 compliance; and (d) review of material suppliers' and
customers' Year 2000 status or impact on our ability to avoid business
interruption.
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We have completed Year 2000 compliance testing on substantially all
of our information technology systems and expect to have such testing
completed by September 30, 1999. Such testing to date has not revealed any
material noncompliance. We are in the process of upgrading or replacing
those systems we believe may be noncompliant and expect to have such work
completed by September 30, 1999.
With respect to non-IT systems such as security/alarm, fire control
and telephone systems, we have surveyed and evaluated these systems for
Year 2000 problems. In some instances, this evaluation has included
communications with the original manufacturers or suppliers for
representations regarding the equipment. We believe that the majority of
these non-IT systems do not function on date-sensitive software or
hardware. We therefore do not anticipate that Year 2000 poses a
significant risk to non-IT systems.
We do not generally manufacture products which contain date-sensitive
computerized components other than control units for some air handling
units manufactured by Marlo. We obtain these control units from third-
party suppliers and test them for Year 2000 compliance at the time of
installation. Accordingly, we do not anticipate significant Year 2000
risks associated with our products.
We may be affected by the Year 2000 readiness of our major suppliers
and customers, over which we have no direct control. We believe that there
is no single supplier which is critical to our business as a whole or which
could cause a significant disruption in our production, although some of
our business could be affected if a particular supplier on a particular
contract were to fail to perform due to a Year 2000 failure within that
supplier's business at a critical time. We have contacted some of our
significant suppliers with Year 2000 surveys designed to assess supplier
Year 2000 readiness and may contact other significant suppliers we conclude
present a material Year 2000 risk. Of the suppliers responding, a
significant number have indicated that they consider themselves Year 2000
compliant. We anticipate Year 2000 compliance of our significant suppliers
by September 30, 1999 and may replace any such suppliers who have failed to
respond to surveys or who cannot provide reasonable Year 2000 assurances.
Approximately 75% of our revenues come directly or indirectly from
the Department of Defense. Year 2000 compliance by government agencies is
difficult to assess. However, according to published reports, which we
have not verified, the government may not be fully Year 2000 compliant on a
timely basis. A disruption in the day-to-day functions of the Department
of Defense or other government agencies (and more particularly, a
disruption in the ability to pay accounts payable) could have a material
adverse impact on our business.
We expect to expend a total of approximately $0.3 million on Year
2000 compliance, of which approximately $0.2 million had been expended
through April 30, 1999.
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In addition to the risks identified in the foregoing discussion, we
face material risks that (i) automated business functions could falter due
to undetected or unaddressed Year 2000 issues which, for instance, could
increase the cost of operations and cause delays in product shipment, and
(ii) interruption in utilities could cause plant shutdowns. Any one of
these scenarios could have a material adverse impact on our operations,
liquidity and financial condition.
To date, we have not developed a formal Year 2000 contingency plan.
During the first half of calendar 1999, we will continue our Year 2000
compliance efforts as described above and, in conjunction therewith, intend
to research and develop alternative plans designed to mitigate the
potential adverse consequences of either an internal or external Year 2000
problem. These plans will include, for instance: (i) securing funding
sources to cover our cash needs in the event we suffer payment delays from
a major customer, and (ii) identifying alternative supply sources in the
event significant suppliers are unable to deliver products on a timely
basis.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this report includes certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. The forward-looking statements involve
certain risks and uncertainties, including, but not limited to
acquisitions, additional financing requirements, the decision of any of the
Company's key customers (including the U.S. government) to reduce or
terminate orders with the Company, cutbacks in defense spending by the U.S.
government, increased competition in the Company's markets and the impact
of any Year 2000 problems, which could cause the Company's actual results
to differ materially from those projected in, or inferred by, the forward-
looking statements.
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PART II
OTHER INFORMATION
Items 1-3 Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Company's annual shareholders meeting was held
on March 8, 1999.
(b) The following individuals were nominated and
elected to the Board of Directors for a term of
three years (2002):
MG George E. Friel (Retired)
Thomas J. Guilfoil
The following directors continued in service of
their terms following the meeting:
Michael F. Shanahan Sr.
Gary C. Gerhardt
R. Bruce Earls
John J. Wichlenski
LTG Kenneth E. Lewi (Retired)
Michael F. Shanahan Jr.
Earl E. Walker
Earl W. Wims
Item 5 Not applicable.
Item 6 (a) Exhibits
11. Statement Re: Computation of Earnings Per Share.
27. Statement Re: Financial Data Schedule
(b) Form 8-K was filed on March 8, 1999 related to the acquisition
by Engineered Electric Company, a wholly-owned subsidiary of
the Company, on February 22, 1999 of substantially all of the
net assets of the Fermont division of Dynamics Corporation of
America.
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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, 1999 By: Michael F. Shanahan Sr.
------------------ --------------------------------
Michael F. Shanahan Sr.
Chairman of the Board, President
and Chief Executive Officer
Date: June 14, 1999 By: Gary C. Gerhardt
------------------ --------------------------------
Gary C. Gerhardt
Executive Vice President and
Chief Financial Officer
15
<PAGE>
Exhibit 11
<TABLE>
ENGINEERED SUPPORT SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended Six Months Ended
April 30 April 30
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME $1,792,234 $1,324,079 $3,180,636 $2,243,240
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
Average basic shares outstanding 5,052,423 4,747,826 4,950,724 4,755,098
========== ========== ========== ==========
$.35 $.28 $.64 $.47
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Average basic shares outstanding 5,052,423 4,747,826 4,950,724 4,755,098
Net effect of dilutive stock options<F1> 178,179 222,682 179,103 213,813
---------- ---------- ---------- ----------
5,230,602 4,970,508 5,129,827 4,968,911
========== ========== ========== ==========
$.34 $.27 $.62 $.45
========== ========== ========== ==========
<FN>
<F1> Based on the treasury stock method.
Note: On June 26, 1998, the Company effected a 3-for-2 stock split in the
form on a 50% stock dividend. All share and per share amounts included on
this schedule reflect this stock split.
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-Q FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 182,670
<SECURITIES> 0
<RECEIVABLES> 18,485,376
<ALLOWANCES> 91,140
<INVENTORY> 28,791,000
<CURRENT-ASSETS> 48,770,025
<PP&E> 41,002,528
<DEPRECIATION> 15,180,382
<TOTAL-ASSETS> 100,133,425
<CURRENT-LIABILITIES> 27,779,388
<BONDS> 10,462,314
<COMMON> 75,039
0
0
<OTHER-SE> 59,156,985
<TOTAL-LIABILITY-AND-EQUITY> 100,133,425
<SALES> 68,934,170
<TOTAL-REVENUES> 68,934,170
<CGS> 54,641,948
<TOTAL-COSTS> 54,641,948
<OTHER-EXPENSES> 7,885,498
<LOSS-PROVISION> (53,261)
<INTEREST-EXPENSE> 1,273,767
<INCOME-PRETAX> 5,298,636
<INCOME-TAX> 2,118,000
<INCOME-CONTINUING> 3,180,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,180,636
<EPS-BASIC> .64
<EPS-DILUTED> .62
</TABLE>
