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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, 1999 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.
201 EVANS LANE
ST. LOUIS, MISSOURI 63121
(314) 553-4000
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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: 6/28/00 Gary C. Gerhardt
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Gary C. Gerhardt
Vice Chairman-Administration and
Chief Financial Officer of
Engineered Support Systems, Inc.
and Member of the Administrative
Committee of the Plan
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REPORT OF INDEPENDENT ACCOUNTANTS
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
benefits and the related statements of changes in net assets available for
benefits present fairly, in all material respects, the net assets available
for benefits of the Engineered Support Systems, Inc. Employee Stock Ownership
Plan (the "Plan") at December 31, 1999 and 1998, and the changes in net
assets available for benefits for the years then ended in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Plan's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States 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 management, 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 supplemental schedules
of Assets Held for Investment Purposes and Reportable Transactions are
presented for the purpose of additional analysis and are not a required part
of the basic financial statements but are supplementary information
required by the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act of 1974.
These supplemental schedules are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
June 23, 2000
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STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
<TABLE>
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
<CAPTION>
December 31
--------------------------
1999 1998
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<S> <C> <C>
Assets:
Cash and cash equivalents $ 99,037 $ 246,879
Investments, at fair value 26,855,829 18,811,177
Contributions receivable:
Employer 3,813 4,377
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Total assets 26,958,679 19,062,433
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Liabilities:
Accrued interest 3,813 4,377
Long-term debt 553,500 701,100
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Total liabilities 557,313 705,477
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Net Assets Available for
Plan Benefits $26,401,366 $18,356,956
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See notes to financial statements
</TABLE>
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STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
<TABLE>
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
<CAPTION>
Year Ended December 31
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Additions:
Investment income:
Net realized and unrealized
gain (loss) on Engineered Support
Systems, Inc. common stock $(2,108,837) $ 1,455,290
Net gain from common
collective trusts 2,008,826 746,488
Interest and dividend income 92,485 51,785
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(7,526) 2,253,563
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Contributions:
Participant 1,748,625 594,884
Employer 1,335,079 513,240
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3,083,704 1,108,124
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Transfer from Marlo Coil
Employees Retirement Plan 5,999,140
Transfer from Keco Industries
401(k) Profit Sharing Plan 6,633,179
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Total additions 9,709,357 9,360,827
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Deductions:
Benefits paid to participants 1,617,877 2,882,640
Interest expense 47,070 61,272
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Total deductions 1,664,947 2,943,912
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Net increase 8,044,410 6,416,915
Net Assets Available for Plan
Benefits at Beginning of Year 18,356,956 11,940,041
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Net Assets Available for Plan
Benefits at End of Year $26,401,366 $18,356,956
=========== ===========
See notes to financial statements
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
December 31, 1999
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 participants are recorded as
a reduction in net assets available for Plan benefits when paid. At
December 31, 1999 and 1998, undistributed withdrawals to participants
totaled $932,744 and $206,053, respectively, representing allocations
of net assets available for Plan benefits.
Investments in Engineered Support Systems, Inc. (the Company) common
stock are stated at fair value based on the last reported sales price on
December 31, 1999 and 1998, respectively. Investments in common collective
trusts, including the Overseas Equity Portfolio (managed by Brandes
Investment Partners), the Mid-Cap Value Portfolio, formerly the Target
Value Portfolio (managed by Ariel Capital Management Inc.), the Small
Company Growth Portfolio, formerly the Emerging Growth Portfolio
(managed by Credit Suisse Asset Management), the Large Company Value
Portfolio, formerly the Value Equity Portfolio (managed by Scudder
Kemper Investments), the Capital Growth Portfolio (managed by Montag &
Caldwell), the Strategic Bond Portfolio (managed by Lazard Asset
Management) and the Guaranteed Investment Contract 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.
Investments are exposed to various risks, such as interest rate, market,
and credit. Due to the level of risk associated with certain investments
and the level of uncertainty related to changes in the value of investments,
it is at least reasonably possible that changes in risks in the near term
could materially affect the amounts reported in the Statement of Net Assets
Available for Benefits.
Notes receivable, representing loans to participants, are valued at
their outstanding principal amount. These notes bear interest at a rate
equal to the prime interest rate as of the effective date of the loan plus
one percentage point.
Administrative expenses of the Plan are paid by the Company.
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NOTE B - DESCRIPTION OF THE PLAN
The Plan is a combined 401(k) savings plan and a payroll-based employee
stock ownership plan covering all salaried employees and the non-
salaried employees not otherwise covered by a collective bargaining
agreement of the Company's following wholly-owned subsidiaries: Engineered
Air Systems, Inc., Engineered Specialty Plastics, Inc., Engineered Coil
Company, d/b/a Marlo Coil, Keco Industries, Inc. and Engineered Electric
Company, d/b/a Fermont. 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 $10,000 for the years ended December 31,
1999 and 1998, respectively. Under current Internal Revenue Service
regulations, this maximum amount is adjusted annually for cost of living
increases.
Contributions under the Plan consist of the following:
1. The amount of the salary deferrals 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 and employer contributions are 100% vested.
At December 31, 1999, the following investment options existed with
respect to employee contributions:
Engineered Support Systems, Inc. common stock.
Small Company Growth Portfolio, which invests in equity securities
of small market capitalization companies that the manager believes
have significant growth potential.
Capital Growth Portfolio, which invests in equity securities of
large market capitalization companies which the manager believes
have significant growth potential.
Overseas Equity Portfolio, which invests in equity securities of
non-U.S. companies in both mature and emerging economies around
the world.
Mid-Cap Value Portfolio, which invests in equity securities of
medium market capitalization companies which the manager believes
sell at a discount to actual value.
Large Company Value Portfolio, which invests in equity securities
of large market capitalization companies which the manager
believes sell at a discount to actual value.
Strategic Bond Portfolio, which invests in a diversified range of
bonds and other fixed income securities.
Guaranteed Investment Contract Portfolio, which invests in fixed income
securities, primarily insurance and bank investment contracts.
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All contributions by the Company are made in the form of Engineered
Support Systems, Inc. common stock.
The Plan allows participants to borrow from existing balances in their
Plan investments. These loans are to be repaid with interest 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,
1999 or 1998.
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, 1999, Plan participants had elective account balances in
the following investments:
Engineered Support Systems, Inc. common stock 380
Small Company Growth Portfolio 178
Capital Growth Portfolio 469
Overseas Equity Portfolio 379
Mid-Cap Value Portfolio 179
Large Company Value Portfolio 400
Strategic Bond Portfolio 140
Guaranteed Investment Contract Portfolio 163
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NOTE C - INVESTMENTS
The following schedule presents information regarding Plan investments:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
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Fair Value Cost Fair Value Cost
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Engineered Support Systems, Inc.
common stock, 766,249 and 638,512
shares, respectively $ 9,194,988 $ 4,606,842 $ 9,497,866 $ 2,891,817
Capital Growth Portfolio, managed by
Montag & Caldwell, 146,903 and
70,204 shares, respectively 5,312,592 4,245,621 2,055,934 1,912,524
Large Company Value Portfolio,
managed by Scudder Kemper
Investments, 75,525 and 39,720
shares, respectively 3,758,746 4,032,518 2,219,888 2,086,605
Overseas Equity Portfolio, managed by
Brandes Investment Partners, 123,089
and 72,437 shares, respectively 2,980,350 2,027,925 1,111,479 1,046,802
Guaranteed Investment Contract
Portfolio, managed by Mitchell
Hutchins Asset Management, 75,350
and 44,604 shares, respectively 1,710,434 1,540,553 955,409 833,853
Small Company Growth Portfolio,
managed by Credit Suisse Asset
Management, 17,553 and 15,777
shares, respectively 1,330,782 889,741 779,017 808,705
Mid-Cap Value Portfolio, managed by
Ariel Capital Management, Inc.,
57,968 and 48,397 shares, respectively 1,116,005 877,064 919,342 684,098
Strategic Bond Portfolio, managed by
Lazard Asset Management, 53,913 and
59,024 shares, respectively 774,833 771,277 866,943 839,865
Notes receivable from participants with
remaining maturities of 1 month to
5 years bearing interest rates ranging
from 8.75% to 10.00% at December 31,
1999 and from 8.25% to 10.00% at
December 31, 1998 677,099 677,099 405,299 405,299
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Total $26,855,829 $19,668,640 $18,811,177 $11,509,568
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</TABLE>
Engineered Support Systems, Inc. common stock includes both
participant-directed and nonparticipant-directed investments. All
other investments are solely participant-directed.
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NOTE D - NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to nonparticipant-directed investments,
primarily all of which represent investments in Engineered Support
Systems, Inc. common stock, is a follows:
<TABLE>
<CAPTION>
Year Ended December 31
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1999 1998
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<S> <C> <C>
Net Assets at Beginning of Year $5,666,823 $5,012,504
Contributions 1,335,079 513,240
Realized and unrealized gain (loss), net (1,212,353) 1,270,714
Transfers to participant-directed
investments (25,949)
Benefits paid to participants (298,805) (1,042,414)
Interest expense (47,070) (61,272)
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Net Assets at End of Year $5,443,674 $5,666,823
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</TABLE>
NOTE E - CHANGES IN THE PLAN
Effective February 1, 1998, the Company acquired substantially all of
the net assets of Nuclear Cooling, Inc., d/b/a Marlo Coil. Marlo Coil
had previously sponsored the Marlo Coil Employees Retirement Plan, a
qualified defined contribution plan which last received a favorable
determination letter from the Internal Revenue Service in October 1996.
As of June 30, 1998, the Marlo Coil Employees Retirement Plan had net
assets available for plan benefits totaling $5,999,140. Effective July
1, 1998, this plan was merged into the Engineered Support Systems, Inc.
Employee Stock Ownership Plan.
Effective June 24, 1998, the Company acquired all of the outstanding
stock of Keco Industries, Inc. (Keco). Keco had previously sponsored
the Keco Industries 401(k) Profit Sharing Plan, a qualified defined
contribution plan which last received a favorable determination letter
from the Internal Revenue Service in August 1993. As of February 28,
1999, the Keco Industries 401(k) Profit Sharing Plan had net assets
available for plan benefits totaling $6,633,179. Effective March 1,
1999, this plan was merged into the Engineered Support Systems, Inc.
Employee Stock Ownership Plan.
The Plan has pledged shares of the Company's common stock, purchased
with bank loan proceeds, as collateral for the loan. Each year, the
bank 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, 1999, 48,176 shares of the Company's common stock with a
fair value of $578,112 are held in suspense and are pledged as
collateral for the bank loan. 14,707 and 15,883 shares of the Company's
common stock were released from suspense and allocated to participant
accounts for the years ended December 31, 1999 and 1998, respectively.
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NOTE F - 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, 1999, 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 a federal income tax
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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<TABLE>
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
Schedule I
Schedule of Assets Held for Investment Purposes
Year Ended December 31, 1999
<CAPTION>
(a) (b) (c) Description of Asset (d) Cost (e) Current Value
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<C> <C> <S> <C> <C>
<F*> Engineered Support Systems, Inc. Common Stock, $.01 par value $4,606,842 $9,194,988
Small Company Growth Portfolio Equity Fund managed by Credit Suisse Asset
Management 889,741 1,330,782
Capital Growth Portfolio Equity Fund managed by Montag & Caldwell 4,245,621 5,312,592
Overseas Equity Portfolio Non-U.S. Equity Fund managed by Brandes
Investment Partners 2,027,925 2,980,350
Mid-Cap Value Portfolio Equity Fund managed by Ariel Capital
Management, Inc. 877,064 1,116,005
Large Company Value Portfolio Equity Fund managed by Scudder Kemper
Investments 4,032,518 3,758,746
Strategic Bond Portfolio Fixed Income Fund managed by Lazard Asset
Management 771,277 774,833
Guaranteed Investment Fund investing in fixed income securities,
Contract Portfolio primarily insurance and bank investment
contracts, and managed by Mitchell Hutchins
Asset Management 1,540,553 1,710,434
Participant Loans Loans to Plan participants bearing interest
rates from 8.75% to 10.00% with remaining
maturities of 1 month to 5 years. 677,099 677,099
<FN>
<F*> Investments in securities of parties-in-interest to the Plan
</TABLE>
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<TABLE>
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
Schedule II
Schedule of Reportable Transactions<F1>
Year Ended December 31, 1999
<CAPTION>
(h) Current
(f) Expense value of asset (i) Net
(a) Identity of (b) Description (c) Purchase (d) Selling (e) Lease incurred with (g) Cost on transaction gain or
party involved of Asset Price Price Rental transaction of asset date (loss)
------------------------ --------------- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series of Transactions
------------------------
Engineered Support Engineered
Systems, Inc. Support Systems,
Inc. common stock $1,140,398 $ - $ - $ - $1,140,398 $1,140,398 $ -
<FN>
<F1> Transactions or series of transaction in excess of five percent of the current value of the Plan's assets as of
December 31, 1998 as defined in Section 2520.103-6 of the Department of Labor Rules & Regulations for Reporting
and Disclosure under ERISA
</TABLE>
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-14504) of our report dated June 23, 2000
relating to the financial statements and schedules of Engineered Support
Systems, Inc. Employee Stock Ownership Plan, which appears in this Form 11-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
June 28, 2000
