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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended October 31, 2003 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 No.)
201 Evans Lane, St. Louis, Missouri 63121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (314) 553-4000
Securities registered pursuant to Section 12(b) of the Securities Exchange
Act of 1934:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common stock, $.01 par value Over the counter
National Market System
National Association of
Security Dealers
No securities are registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
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 requirement for the past 90 days. Yes X No .
--- ---
Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities
Exchange Act of 1934).
Based on the closing price on January 16, 2004, the aggregate
market value of the voting stock held by non-affiliates of the Registrant
was approximately $1,233,645,000.
The number of shares of the Registrant's common stock, $.01 par
value, outstanding at January 16, 2004 was 25,864,074.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate by reference portions of the Engineered
Support Systems, Inc. Annual Report to Shareholders (the Annual Report) for
the year ended October 31, 2003. Part III incorporates by reference portions
of the Engineered Support Systems, Inc. Proxy Statement for the Annual
Shareholders Meeting to be held on March 2, 2004 (the Definitive Proxy
Statement) to be filed within 120 days after the close of the year ended
October 31, 2003.
PART I
ITEM 1. BUSINESS
- ------- --------
Engineered Support Systems, Inc. is a holding company for eleven
wholly-owned subsidiaries. These subsidiaries are organized within the
Company's two business segments: Support Systems and Support Services. The
Support Systems segment includes the operations of Systems & Electronics
Inc. (SEI), Keco Industries, Inc. (Keco), Engineered Air Systems, Inc.
(EASI), Engineered Coil Company d/b/a Marlo Coil (Marlo Coil), Engineered
Electric Company, d/b/a Fermont (Fermont), Universal Power Systems, Inc.
(UPSI), Engineered Environments, Inc. (EEi) and Pivotal Power Inc. (Pivotal
Power). The Support Services segment includes the operations of Technical
and Management Services Corporation (TAMSCO), Radian, Inc. (Radian) and
ESSIbuy.com, Inc. (ESSIbuy). The Company's Support Systems segment designs,
engineers and manufactures integrated military electronics and other support
equipment. The Company's Support Services segment provides engineering,
logistics support and systems integration services. Substantially all
revenues within these two segments are directly or indirectly derived from
contracts with the U.S. Department of Defense (DoD) and certain foreign
militaries.
Engineered Air was incorporated under the laws of the State of
Missouri on December 24, 1981 and acquired the assets of the Defense Systems
Division of Allis-Chalmers Corporation on March 30, 1982. The Company was
incorporated under the laws of the State of Missouri in December 1983, and
exchanged all of its outstanding common stock for two-thirds of the common
stock of Engineered Air held by the Company's founders. The Company
purchased the remaining one-third of the common stock of Engineered Air in
January 1984, effective as of November 1, 1983. The Company became a
publicly owned corporation on August 21, 1985. On March 9, 1993, the Company
purchased all of the outstanding stock of Associated Products, Inc.
(subsequently changed to Engineered Specialty Plastics, Inc.). Effective
February 1, 1998, Engineered Coil Company acquired substantially all of the
net assets of Nuclear Cooling, Inc., d/b/a Marlo Coil. On June 24, 1998, the
Company acquired all of the outstanding common stock of Keco. On February
22, 1999, Engineered Electric Company acquired substantially all of the net
assets of the Fermont Division of Dynamics Corporation of America, d/b/a
Fermont. On September 30, 1999, the Company acquired all of the outstanding
common stock of SEI. On May 10, 2002, the Company acquired all the
outstanding common stock of Radian. On June 27, 2002, the Company acquired
all the outstanding stock of UPSI. On May 1, 2003, the Company acquired all
of the outstanding stock of TAMSCO. On September 24, 2003, the Company
acquired all of the outstanding stock of EEi. On December 5, 2003, the
Company acquired all of the outstanding stock of Pivotal Power.
PRODUCTS
Products within the Company's Support Systems segment include
environmental control systems, load management and transport systems, power
generation, distribution and conditioning systems, airborne radar systems,
reconnaissance, surveillance and target acquisition systems, chemical and
biological protection systems, petroleum and water distribution systems and
other multipurpose military support equipment. The Support Services segment
provides engineering services, logistics and training services, advanced
technology services, asset protection systems and services,
telecommunication systems integration and information technology services
primarily for the DoD. The Support Services segment also provides certain
power generation and distribution equipment to the DoD.
See pages 12 through 24 of the 2003 Annual Report which are
incorporated herein by reference.
2
ENGINEERING AND DESIGN
As the Company has grown both internally and through acquisition,
it has significantly increased its engineering capabilities. The Company
currently has 821 people engaged in engineering activities that encompass
advanced development, engineering research and development, product
improvement and evolution, new product development, productionization,
logistic and life cycle support, product re-engineering and support
services. The Company's depth of engineering capabilities allows it to cover
all phases of a project from conception to full-life cycle support.
The majority of development activities are conducted pursuant to,
and funded directly or indirectly through, DoD contracts in response to
designated performance specifications. The Company's expenditures on
internal research and development (IRAD) were approximately $2.9 million,
$1.8 million and $1.1 million for the years ended October 31, 2003, 2002 and
2001, respectively. The Company anticipates that IRAD will approximate $4
million in fiscal year 2004. The Company also anticipates a significant
increase in DoD contracted research and development (CRAD) in fiscal 2004
and beyond. The Company believes that its engineering expertise gives it a
significant competitive advantage in the development of differentiated
products.
The Company's engineering expertise is complimentary to the
military markets it serves, primarily the environmental control, power,
electronics, heavy mechanical and material handling, security,
communications, service and logistical support markets. The Company has
engineering capabilities in the areas of system design and analysis,
electronic signal processing, power electronics, software, firmware,
mechanical design, control, electro-mechanical, electro-optical,
electro-chemical, acoustics, thermodynamics, fluid and air flow, fluid
pumping, HVAC, liquid fuel combustion, chemical and biological hardened
environmental control, filtration and decontamination, power system
analysis, environmental control system analysis, stress analysis, water
treatment analysis, water purification technology, radar, target acquisition
systems, automatic test equipment, communication system analysis and all the
logistic support disciplines to include reliability, maintainability,
embedded diagnostics and prognostics, training and the development of
web-based interactive electronic technical manuals (IETM). Company
subsidiaries within the Support Services segment have engineering expertise
in such diverse fields as re-engineering obsolete mechanical and electronic
products, nano-hardened products, security system design, fuel cells and
super critical reformation. The Company's engineering expertise has
significant overlap throughout its operating subsidiaries, allowing it to
leverage engineering personnel and technologies, and to function as an
integrated team.
The Company's design and development of new products is enhanced by
a number of computer-aided design and manufacturing (CAD/CAM) systems as
well as a number of automated system design and analysis tools. CAD/CAM
tools are used by both engineers and draftsmen to design and validate
complex products and component parts. The Company utilizes both two- and
three-dimensional CAD/CAM tools, providing both design and production
engineers an interactive environment with which to view the final product
and all the relevant interfaces. These tools are compatible across all of
the Company's operating subsidiaries, allowing for virtual design and
development without regard to geographical location. The Company's
engineering technologies and expertise provide it with the ability to adapt
its production processes to new product needs on a timely basis. The Company
also has the capability to provide complete technical data support for the
products it manufactures to include integrated logistics support, spare
parts provisioning and preparation of technical manuals.
The Company intends to leverage its engineering and design
capabilities to continue to develop and evolve differentiated products and
services that address both the current and future needs of the DoD for rapid
deployment, smaller, lighter and more efficient equipment, and for
innovative, value-added service offerings.
3
MARKETING AND BUSINESS DEVELOPMENT
The Company's business development efforts are undertaken at two
functional levels. The Company's corporate operation focuses on long-term
strategic planning, policy development, best practice identification and
dissemination, and on major programs which require the bundling of products
and services across traditional subsidiary lines. In addition, the Company's
corporate Washington D.C. operations interface with Service staffs within
the Pentagon and liaisons with key Congressional delegations. At the
subsidiary level, a sales force is engaged to identify and pursue programs
with specific customers in a variety of markets. With increased emphasis on
the Company's vision for the future, efforts have begun to strengthen the
long-term strategic planning process. Market-based peer groups enable
experts throughout the Company to share knowledge and collectively recommend
direction and strategy. These peer groups also evaluate market intelligence,
customer knowledge and core competencies to refine the Company's growth
strategies.
The Company's Business Development Organization meets on a regular
basis to identify and disseminate best practices in the areas of proposal
development and market presence. The sales force shares customer and market
intelligence, identifies key opportunities and assesses campaign strategies.
The Company gathers information from primary sources such as the DoD budget
and its supporting documents, and military requirements documents such as
Initial Capabilities Documents, along with direct interface with its
customers. The Company analyzes this data through an established business
opportunity procedure and then determines whether or not to bid on specific
projects based upon determinations of potential profitability and the
likelihood of award.
Major marketing and business development efforts in fiscal 2004 can
be segmented into four areas. The first will be increasing the Company's
relationship with prime contractors. With continued emphasis from DoD for
Lead System Integrators (LSI) and few companies qualifying for that role,
the Company has developed marketing efforts to support specific companies in
their LSI roles. Secondly, the Company is engaging in new efforts with
non-traditional military customers, including the Coast Guard and Homeland
Security. Significant resources are also being devoted to opportunities from
the bundling of products and services for system solutions, and for reset
needs for military assets that have been `in theatre'.
PURCHASED COMPONENTS AND RAW MATERIALS
The Company's products require a wide variety of components and
materials. Although the Company has multiple sources of supply for most of
its material requirements, sole-source vendors supply certain components,
and the Company's ability to perform certain contracts depends on their
performance. In the past, these required raw materials and various purchased
components generally have been available in sufficient quantities.
GOVERNMENT CONTRACTING
The Company's government contracts are obtained through the DoD
procurement process as governed by the Federal Acquisition Regulations and
related agency supplements, and are typically fixed-price contracts. This
means that the price is agreed upon before the contract is awarded and the
Company assumes complete responsibility for any difference between estimated
and actual costs.
Under the Truth in Negotiations Act of 1962 (Negotiations Act), the
U.S. government has the right for three years after final payment on certain
negotiated contracts, subcontracts and modifications thereto, to determine
whether the Company furnished the U.S. government with complete, accurate
and current cost or pricing data as defined by the Negotiations Act. In the
event the Company fails to satisfy this requirement, the U.S. government has
the right to adjust a contract or subcontract price by the amount of any
overstatement as defined by the Negotiations Act.
4
U.S. government contracts typically contain terms permitting the
contract to be terminated at the convenience of the U.S. government. In the
event of such termination, the Company is entitled to reimbursement for
certain expenditures and overhead as provided for in applicable U.S.
government procurement regulations. Generally, this results in the
contractor being reasonably compensated for work actually done, but not for
anticipated profits. The U.S. government may also terminate contracts for
cause if the Company fails to perform in strict accordance with contract
terms. The Company has never had a contract terminated by the U.S.
government for failure to perform in accordance with contract terms.
Termination of, or elimination of appropriation for, a significant
government contract could have a material adverse effect on the Company's
business, financial condition and results of operations in subsequent
periods. Similarly, U.S. government contracts typically permit the U.S.
government to change, alter or modify the contract at its discretion. If the
U.S. government were to exercise this right, the Company would be entitled
to reimbursement of all allowable and allocable costs incurred in making the
change plus a reasonable profit.
For manufactured items, the U.S. government typically finances a
substantial portion of the Company's contract costs through progress
payments. As such, the Company receives progress payments in accordance with
DoD contract terms which provide progress payments at 75% to 90% of costs
incurred.
INTELLECTUAL PROPERTY
The Company owns various patents and other forms of intellectual
property. From time to time, the Company develops proprietary information
and trade secrets regarding the design and manufacture of various products.
The Company considers its proprietary information and intellectual property
to be valuable assets. However, the Company's business is not materially
dependent on their protection.
COMPETITION
The markets for all of the Company's products are highly
competitive. In order to obtain U.S. government contracts, the Company must
comply with detailed and complex procurement procedures adopted by the DoD
pursuant to regulations promulgated by the U.S. government. The regulations
and procurement procedures are adopted to promote competitive bidding. In
addition, the Company competes with a number of businesses with plastic
injection molding capabilities and competes with a large number of suppliers
to commercial and industrial air handling customers. In all phases of its
operations, the Company competes in both performance and price with
companies, some of which are considerably larger, more diversified and have
greater financial resources than the Company.
BACKLOG
The Company records its backlog as either funded or unfunded
backlog. The Company's funded backlog as of October 31, 2003 was
approximately $533.4 million. The Company's funded backlog is subject to
fluctuations and is not necessarily indicative of future revenues. Funded
backlog represents products or services that the customer has committed by
contract to purchase from the Company. Unfunded backlog includes products or
services that the customer has the option to purchase under contract with
the Company, including, with respect to contracts which include a maximum
amount purchasable by the customer thereunder, such maximum amount, and with
respect to contracts without a specified maximum amount, the Company's
estimate of the amount it expects the customer to purchase using the Best
Estimated Quantity (BEQ) as a guide where a BEQ is specified. There are no
commitments by the customer to purchase products or services included in
unfunded backlog and there can be no assurance that any or all amounts
included therein will generate revenue for the Company. Moreover,
cancellations of purchase orders or reductions of product quantities or
levels of service to be provided in existing contracts could substantially
reduce the Company's funded backlog and, consequently, future net revenues.
Failure of the Company to replace canceled or reduced backlog, whether
funded or unfunded, could have a material adverse effect on the Company's
business, financial condition and results of operations in subsequent
periods.
5
The following table summarizes funded and unfunded defense backlog
(in millions) as of the indicated dates:
Funded Unfunded
Defense Backlog Defense Backlog
--------------- ---------------
October 31, 2003 $533.4 $922.8
October 31, 2002 350.1 868.6
October 31, 2001 291.7 681.8
October 31, 2000 307.3 598.1
October 31, 1999 286.8 850.5
EMPLOYEES
As of October 31, 2003, the Company employed 2,950 persons, of
which 1,056 were engaged in manufacturing activities, 821 in engineering
activities and 1,072 in services activities, office administration and
management functions. District No. 9 of the International Association of
Machinists and Aerospace Workers (AFL-CIO) represents 264 employees under a
collective bargaining agreement, which expires March 21, 2008.
The Company considers its overall employee relations to be
satisfactory.
FILING OF PERIODIC REPORTS
The Company regularly files periodic reports with the Securities
and Exchange Commission (SEC), including annual reports on Form 10-K and
quarterly reports on Form 10-Q, as well as, from time to time, current
reports on Form 8-K and amendments to those reports. These filings
are available free of charge on the Company's website at
www.engineeredsupport.com, as soon as reasonably practicable after their
electronic filing with the SEC.
6
ITEM 2. PROPERTIES
- ------- ----------
The Company conducts its business from 17 manufacturing and office
facilities. All owned facilities are owned by the Company and are subject to
deeds of trust in favor of the Company's lender.
Location Description Square Footage
-------- ----------- --------------
West Plains, Missouri (1) Manufacturing/Office 445,000
Florence, Kentucky (1) Manufacturing/Office 265,000
St. Louis County, Missouri (1) Subassembly/Office 264,000
High Ridge, Missouri (1) Manufacturing/Office 185,000
Bridgeport, Connecticut (1) Manufacturing/Office 109,000
Alexandria, Virginia (2) Office 34,000
Cincinnati, Ohio (1) Manufacturing/Office 31,000
Bridgeport, Connecticut (2) Manufacturing 26,000
St. Louis County, Missouri (1) Manufacturing 25,000
Polson, Montana (2) Manufacturing/Office 24,000
Troy, Michigan (2) Office 20,000
Calverton, Maryland (2) Office 16,000
Chantilly, Virginia (2) Office 16,000
Tinton Falls, New Jersey (2) Office 15,000
Warner Robins, Georgia (2) Office 13,000
Warner Robins, Georgia (1) Office 11,000
Newington, Virginia (2) Office 10,200
(1) - Owned
(2) - Leased
The Company also leases certain small product support and service
facilities located throughout the United States and abroad. The Company
believes that its current facilities are sufficient for the conduct of its
current level of operations.
The Company also owns the following three facilities which were
vacated during the year ended October 31, 2003 in conjunction with the
operational restructuring initiatives discussed in Note D of the Notes to
Consolidated Financial Statements of the 2003 Annual Report, as incorporated
herein by reference.
Location Square Footage
-------- --------------
Sanford, Florida (1) 177,000
St. Louis County, Missouri (1) 171,000
Blue Ash, Ohio (1) 132,000
The carrying value of each of these properties has been adjusted to
reflect management's estimated loss on disposal. Estimated loss on disposal
has been included in Restructuring Expense in the Consolidated Statements of
Income of the 2003 Annual Report.
7
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company and its subsidiaries are from time to time parties to
various legal proceedings arising out of their business. Management believes
that there are no such proceedings pending or threatened against them which,
if determined adversely, would have a material adverse effect on the
consolidated financial position, results of operations or cash flows of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
- ------- -----------------------------------------------
There were no matters submitted to a vote of shareholders during
the fourth quarter of the year ended October 31, 2003.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- ------- ----------------------------------------------------
SHAREHOLDER MATTERS
-------------------
The Company's common stock trades on the NASDAQ Stock Market under
the symbol EASI. As of December 31, 2003, the approximate number of common
shareholders was 14,700. The following table sets forth the high and low
stock prices for each quarter as provided by the NASDAQ Stock Market, as
adjusted to reflect a three-for-two stock split effected by the Company on
October 31, 2003 and a three-for-two stock split effected by the Company on
October 31, 2002.
2003 2002
-------------------- -------------------
High Low High Low
---- --- ---- ---
QUARTER ENDED:
January 31 $26.60 $21.00 $23.78 $12.93
April 30 27.25 20.90 22.77 15.35
July 31 31.20 22.47 23.97 18.51
October 31 46.13 26.80 27.49 20.00
The Company pays a semi-annual dividend. The most recently declared
dividend was in the amount of $.018 per share payable January 30, 2004 to
shareholders of record on December 31, 2003.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Selected financial data for each of the Company's last five fiscal
years is as follows:
Year Ended October 31 (in thousands, except per share amounts)
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net revenues $572,701 $407,945 $365,198 $335,342 $146,526
Operating income from continuing operations $ 72,469 $ 48,592 $ 35,847 $ 30,171 $ 14,080
Depreciation and amortization 8,961 7,038 9,001 9,398 3,465
---------------------------------------------------------
EBITDA (Earnings before interest, taxes,
depreciation and amortization) $ 81,430 $ 55,630 $ 44,848 $ 39,569 $ 17,545
---------------------------------------------------------
Net income from continuing operations $ 43,283 $ 27,666 $ 18,269 $ 12,711 $ 6,962
Net income $ 43,408 $ 23,533 $ 18,576 $ 13,040 $ 7,309
Diluted shares outstanding 25,838 24,314 22,824 20,433 17,105
Diluted earnings per share:
Continuing operations $ 1.68 $ 1.14 $ 0.80 $ 0.62 $ 0.41
Total $ 1.68 $ 0.97 $ 0.81 $ 0.64 $ 0.43
Cash dividends per share $ 0.04 $ 0.04 $ 0.04 $ 0.04 $ 0.04
- -------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $419,301 $290,147 $240,435 $238,352 $239,396
Bank debt $ 73,190 $ 55,000 $ 63,738 $ 96,797 $114,591
Shareholders' equity $197,167 $134,857 $109,392 $ 78,500 $ 63,422
- -------------------------------------------------------------------------------------------------------
Funded backlog $533,439 $350,063 $291,745 $307,274 $286,789
Total backlog $1,456,174 $1,218,706 $973,552 $905,421 $1,137,268
9
In order to analyze the comparability of the information reflected
in the above selected financial data, Notes B, D and E of the Notes to
Consolidated Financial Statements of the 2003 Annual Report are incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations, shown on pages 25 through 31 of the 2003 Annual
Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Market risks relating to the Company's operations result primarily
from changes in interest rates. In order to manage this risk, the Company
periodically converts its variable-rate debt to fixed rates via interest
rate swaps. In November 2002, Company interest rate swaps on $23.6 million
of variable-rate debt, matured. Given outstanding debt levels, significant
cash flows and anticipated expenditures during fiscal years 2003 and 2004,
Company management has not utilized interest rate swaps or other derivative
contracts to hedge this risk since November 2002. Management does not
believe its exposure to interest rate fluctuations has had, or will have, a
significant impact on the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
Consolidated Balance Sheets at October 31, 2003 and 2002
Consolidated Statements of Income for the years ended
October 31, 2003, 2002 and 2001
Consolidated Statements of Shareholders' Equity for the years
ended October 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years
ended October 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Report of Independent Accountants
All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial statements or
the notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
- -------- -----------------------
Gerald E. Daniels, Vice Chairman and Chief Executive Officer, and
Gary C. Gerhardt, Vice Chairman and Chief Financial Officer, evaluated the
Company's disclosure controls and procedures as of October 31, 2003, the end
of the Company's 2003 fiscal year, and determined that such controls and
procedures were effective and sufficient to ensure compliance with
applicable laws and regulations regarding appropriate disclosure in the
Annual Report, and that there were no material weaknesses in those
disclosure controls and procedures. They have also indicated that there were
no significant changes in internal controls or other factors that could
significantly affect internal controls subsequent to the date of their most
recent evaluation of disclosure controls and procedures, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- ---------------------------------------------------------------
The information set forth under the captions "Election of
Directors" and "Director Meetings and Committees" in the registrant's
Definitive Proxy Statement (to be filed within 120 days after the close of
its fiscal year ended October 31, 2002) is incorporated herein by reference.
Executive officers and key employees of the Company as of January 16, 2004
are as follows:
10
Name Age Position
---- --- --------
Michael F. Shanahan, Sr. 64 Chairman
Gerald E. Daniels 58 Vice Chairman and Chief Executive Officer
Gerald A. Potthoff 63 President and Chief Operating Officer
Gary C. Gerhardt 58 Vice Charman and Chief Financial Officer
Ronald W. Davis 57 President - Business Development
Nicholas R. Innerbichler 61 Group President - Support Services
Daniel A. Rodrigues 48 Group President - Support Systems
Larry K. Brewer 61 President - Washington D.C. Operations
Karen A. Bedell 44 Senior Vice President - Marketing and Strategic Planning
Dan D. Jura 51 Senior Vice President - Sales
Ronald W. Hauser 57 Vice President - Strategy, Plans and Market Research
Allan K. Kaste 57 Vice President - Human Resources
Robert L. Klautzer 59 Vice President - Management Information Systems
Daniel E. Kreher 39 Vice President - Acquisitions and Investor Relations
Steven J. Landmann 44 Vice President - Finance & Controller
David D. Mattern 45 Secretary and General Counsel
John R. Wootton 56 Vice President - Advanced Development and Technology
Thomas G. Cornwell 48 President (Engineered Air)
Joseph H. Creaghead 60 President (Keco)
Richard P. Dacey 62 President (Radian)
David R. Gust 61 President (TAMSCO)
Frederic D. Knight 47 President (UPSI)
James T. Myrick 58 President (SEI)
Gerald A. Nicholson 57 President (Marlo Coil)
Thomas C. Santoro 50 President (Fermont)
Carlo M. Shimoon 42 President (Pivotal Power)
Gerald W. Solomon 61 President (EEi)
Frank A. Tricomi 58 President (ESSIbuy)
EXECUTIVE OFFICERS
- ------------------
The officers serve at the discretion of the Board of Directors,
subject to the terms and conditions of their employment agreements.
Michael F. Shanahan, Sr. has been Chairman of the Board of the
Company since 1987. He served as Chief Executive Officer of the Company from
1985 to 2003. Mr. Shanahan also serves on the Board of Directors of Falcon
Products, Inc.
Gerald E. Daniels has been Vice Chairman and Chief Executive
Officer of the Company since 2003. Prior thereto, he served as Senior Vice
President of the Boeing Company, a designer and manufacturer of commercial
airplanes, military aircraft and missile systems, and space and
communications systems, since 2000. In addition, he was President since 2000
and Chief Executive Officer since 2001 of Boeing Military Aircraft and
Missile Systems. Prior thereto, he was Vice President and General Manager of
Boeing's U.S. Navy and Marine Corps Programs for Military Aircraft and
Missile Systems since 1997. Mr. Daniels is also on the Board of Directors of
PRG-Schultz International, Inc.
Gerald A. Potthoff has been President and Chief Operating Officer
of the Company since 1999. Prior thereto, Mr. Potthoff served as President
of Systems & Electronics Inc. from 1991 to 2000.
11
Gary C. Gerhardt has been Vice Chairman of the Company since 1999
and prior thereto served as Executive Vice President since 1994. He has been
Chief Financial Officer of the Company since 1993.
Ronald W. Davis has been President, Business Development since
2002. Previously, he served as Vice President - Planning & Development since
1999. Prior thereto, he served as Vice President - Marketing for the Company
since 1999 and for Engineered Air Systems, Inc. since 1990.
Nicholas R. Innerbichler was named Group President - Support
Services in 2004. Prior thereto, he was Co-Chairman and Chief Executive
Officer of TAMSCO, which he co-founded in 1982. TAMSCO was acquired by the
Company in 2003.
Daniel A. Rodrigues was named Group President - Support Systems in
2002. Prior thereto, he served as President of SEI since 2000 and as Senior
Vice President and General Manager of SEI since 1999 and as its Vice
President of Program Administration since 1995.
Larry K. Brewer has been President - Washington D.C. Operations
since 2003. Previously, he was Senior Vice President-Business Development of
the Company since 2000. Prior thereto, he served SEI as Vice
President-Business Development since 1998, Vice President-Corporate
Marketing & Washington DC Operations since 1997 and Vice
President-Government Relations since 1995.
Karen A. Bedell has been Senior Vice President - Marketing and
Strategic Planning of the Company since 2003. Prior thereto, she served as
Vice President of Community and Education Relations and President of the
Boeing-McDonnell Foundation for the Integrated Defense Group of the Boeing
Company since 2001 and, prior thereto, as Director - Naval Missile Systems
International Programs since 2000. She was F/A-18 Program Manager for
Australia from 1996 to 1999.
Dan D. Jura was named Senior Vice President-Sales of the Company in
2002. Prior thereto, he served as Vice President-Sales for the Company since
1999 and for Engineered Air since 1993.
Ronald W. Hauser has been Vice President - Strategy, Plans and
Market Research of the Company since 2003. Prior thereto, he served as
Director - Market Research of the Company since 2001, as Director - Business
Development of the Company since 2000 and as Program Director of the
Battlefield & Integration Group for SEI from 1999. He served as Director -
Domestic Marketing for SEI from 1995 to 1999.
Allan K. Kaste has been Vice President-Human Resources of the
Company since 2000. He has served as Vice President-Human Resources for SEI
since 1994.
Robert L. Klautzer has been Vice President-Management Information
Systems of the Company since 2000. He has served as Vice
President-Management Information Systems for SEI since 1997.
Daniel E. Kreher has been Vice President - Acquisitions and
Investor Relations of the Company since 2003. Prior thereto, he served as
Director - Acquisitions and Investor Relations since 1999. Prior thereto, he
was Vice President - Finance and Administration of D&K Healthcore Resources,
Inc. since 1996.
Steven J. Landmann has been Vice President-Finance & Controller of
the Company since 1999. Prior thereto, he served as Controller for the
Company since 1998 and for Engineered Air since 1994.
David D. Mattern has been Secretary and General Counsel for the
Company since 1999. Prior thereto, he served as the Company's Secretary
since 1992 and as outside legal counsel to the Company.
12
John R. Wooton has been Vice President-Technology of the Company
since 2000. He has served as Vice President-Technology for SEI since 1997
and, prior thereto, as its Director-Technology since 1994.
Thomas G. Cornwell has been President of Engineered Air since 2000.
Prior thereto, he served as Director-Program Management for SEI since 1992.
Joseph H. Creaghead has been President of Keco since 2002. Prior
thereto, he was General Manager - Managing Director of Husco International
Ltd since 1997.
Richard P. Dacey was named President of Radian in 2002. Prior
thereto, he served as its Executive Vice President and Chief Operating
Officer since 1995 after a distinguished career with the U.S. Army.
David R. Gust (U.S. Army, Retired) has been President of TAMSCO
since 2000. He served in the U.S. Army for 34 years until his retirement in
2000. From 1999 to 2000, he served as Deputy Chief of Staff for Research,
Development and Acquisition at Headquarters, Army Material Command. Prior
thereto, he served as the Army's Program Executive Office for Intelligence,
Electronic Warfare and Sensors from 1995.
Frederic D. Knight has been President of UPSI since 2002.
Previously, he served as its Chief Technology Officer since 2000, and, prior
thereto, as its President and Chief Executive Officer since 1989.
James T. Myrick has been President of SEI since 2002. Prior
thereto, he served as its Executive Vice President since 2001 and as its
Vice President - Finance since 1997.
Gerald A. Nicholson has been President of Marlo Coil since 2001.
Prior thereto, he was Executive Vice President for the Tweco/Arcair and
Coyne Cylinder divisions of Thermadyne Industries from 1995 to 1998.
Thomas C. Santoro has been President of Fermont since 1995.
Carlo M. Shimoon has been President of Pivotal Power since 2000.
Prior thereto, he was President and Chief Executive Officer of Senstar
Stellar from 1999 and President and Chief Executive Office of Newhaven Media
from 1995 to 1998.
Gerald W. Solomon has been President of EEi since 1990 when he
founded it. EEi was acquired by the Company in 2003.
Frank A. Tricomi was named President of ESSIbuy in 2004. Prior
thereto, he served as Director of ESSIbuy since 2000, and was Director of
Program Management for EASI from 1996 to 2000.
CODE OF ETHICS
- --------------
The Company has adopted a code of ethics which applies to the
directors, officers, all other employees and contract workers of the
Company and each of its subsidiaries. The Engineered Support Systems, Inc.
Code of Business Ethics and Conduct is available free of charge upon written
request to Engineered Support Systems, Inc., Attention: Investor Relations,
201 Evans Lane, St. Louis, Missouri 63121.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information concerning executive compensation as shown in the
Company's Definitive Proxy Statement (to be filed within 120 days after the
close of the fiscal year ended October 31, 2003) is incorporated herein by
reference.
13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Information relating to the ownership of the Company's securities
by certain beneficial owners and management as shown in the Definitive Proxy
Statement (to be filed within 120 days after the close of the year ended
October 31, 2003) is incorporated herein by reference.
The following table provides information, in thousands except per
share amounts, as of October 31, 2003 with respect to the shares of common
stock that may be issued under the Company's existing equity compensation
plans:
Number of shares
remaining
Number available for
of shares future issuance
to be under equity
issued upon compensation
exercise Weighted-average plans (excluding
of exercise price of securities
outstanding outstanding reflected in
Plan category options options column (a))
(a) (b) (c)
- ------------------------------------------------------- ------------ ------------------ ------------------
Equity compensation plans approved by shareholders 4,042 $20.18 754
Equity compensation plans not approved by shareholders 390 $23.12 -
----- ---
Total 4,432 $20.44 754
===== ===
All shares and per share amounts have been restated to reflect a
three-for-two stock split effected by the Company On October 31, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information on certain relationships, related transactions and
affiliation of directors as shown in the Definitive Proxy Statement (to be
filed within 120 days after the close of the year ended October 31, 2003) is
incorporated herein by reference.
PART IV
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
- -------- --------------------------------------
Information appearing under "Relationship with Independent Public
Accountants" on page 18 of the Company's Definitive Proxy Statement dated
February 2, 2004, is hereby incorporated by reference.
14
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- -------- -----------------------------------------------------------------
(a)(1) Financial Statements. See Item 8 above.
(2) The following financial statement schedule and accounants' report
are included as Exhibit 99.3.
Schedule II -Valuation and Qualifying Accounts - years ended
October 31, 2003, 2002 and 2001
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits.
Lists of Exhibits (listed by numbers corresponding to exhibit table
of Item 601 in regulation S-K)
3.1 Articles of Incorporation of Engineered Support Systems, Inc. (1)
3.2 Amendment of Articles of Incorporation
3.3 Amended and Restated By-Laws of Engineered Support Systems, Inc.
4.1 Credit Agreement dated as of April 23, 2003 among Engineered
Support Systems, Inc., Bank of America, NA and the Other
Lenders Party Hereto (3)
4.2 Engineered Air Systems, Inc. Employee Stock Ownership Plan,
subsequently renamed the Engineered Support Systems, Inc.
Employee Stock Ownership Plan (4)
4.3 Engineered Support Systems, Inc. 2000 Stock Option Plan (6)
4.4 Engineered Support Systems, Inc. 2000 Stock Option Plan for
Nonemployee Directors (7)
4.5 Engineered Support Systems, Inc. Employee Stock Purchase Plan (8)
4.6 Engineered Support Systems, Inc. Stock Purchase Plan for
Nonemployee Directors (9)
4.7 Engineered Support Systems, Inc. 2002 Stock Option Plan (10)
4.8 Engineered Support Systems, Inc. 2002 Stock Option Plan for
Non-Employee Directors (11)
4.9 Engineered Support Systems, Inc. 2002 Non-Executive Stock
Option Plan (12)
4.10 Engineered Support Systems, Inc. 2003 Stock Option Plan (13)
4.11 Engineered Support Systems, Inc. 2003 Non-Executive Stock
Option Plan (14)
10.1 Employment Agreement with Michael F. Shanahan, Sr. (5)
10.2 Employment Agreement with Gerald E. Daniels (15)
15
10.3 Employment Agreement with Gerald A. Potthoff (5)
10.4 Employment Agreement with Gary C. Gerhardt (5)
10.5 Employment Agreement with Ronald W. Davis (5)
10.6 Form of Indemnification Agreement with Directors (2)
11 Statement Re: Computation of Earnings Per Share
13 Engineered Support Systems, Inc. Annual Report for the year
ended October 31, 2003 (the Annual Report). Except for the
portions incorporated herein by reference as evidenced in
the Form 10-K, the Annual Report is furnished for the
information of the Securities and Exchange Commission and
is not deemed filed as part of this 10-K
21 Subsidiaries of Registrant
23 Consent of PricewaterhouseCoopers LLP, Independent Accountants
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
99.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.3 Valuation and Qualifying Accounts (Schedule II)
(1) This information is incorporated by reference from
Form S-1 Registration Statement filed on July 10,
1985, registration number 2-98909 as amended on
August 13, 1985 and August 21, 1985.
(2) This information is incorporated by reference from
Form 10-K Annual Report filed on January 30, 1989.
(3) This information is incorporated herein by
reference from Form 10-Q Quarterly Report filed on
June 16, 2003.
(4) This information is incorporated by reference from
Form S-8 registration statement, effective June 11,
1987, registration number 33-14504.
(5) This information is incorporated by reference from
Form 10-K/A Annual Report filed on January 29, 2003.
(6) This information is incorporated by reference from
Form S-8 registration statement, effective September
1, 2000, registration number 333-45022.
(7) This information is incorporated by reference from
Form S-8 registration statement, effective September
1, 2000, registration number 333-45020.
(8) This information is incorporated by reference from
Form S-8 registration statement, effective June 29,
2001, registration number 333-64126.
(9) This information is incorporated by reference from Form
S-8 registration statement, effective July 20, 2001,
registration number 333-65490.
(10) This information is incorporated by reference from
Form S-8 registration statement, effective August 9,
2002, registration number 333-97859.
16
(11) This information is incorporated by reference from
Form S-8 registration statement, effective August 9,
2002, registration number 333-97861.
(12) This information is incorporated by reference from Form
S-8 registration statement, effective November 12, 2002,
registration number 333-101161.
(13) This information is incorporated by reference from
Form S-8 registration statement, effective October
31, 2003, registration number 333-110166.
(14) This information is incorporated by reference from
Form S-8 registration statement, effective October
31, 2003, registration number 333-110165.
(15) This information is incorporated by reference form
Form 10-Q/A Quarterly Report filed on June 19, 2003.
(b) Reports on Form 8-K.
During the fourth quarter of 2003, the Company filed no reports on
Form 8-K.
(c) Exhibits
See list of Exhibits in this Part IV, Item 15(a)3 above.
(d) Financial Statement Schedules
See Part IV, Item 15(a)2 above.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to
be signed on its behalf by the undersigned thereunto duly authorized.
ENGINEERED SUPPORT SYSTEMS, INC.
Dated: January 30, 2004 By: /s/ Gary C. Gerhardt
------------------------- ---------------------------------
GARY C. GERHARDT
Vice Chairman and Chief Financial
Officer
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gerald E. Daniels Vice Chairman and January 30, 2004
- ---------------------------------- Chief Executive Officer ----------------
GERALD E. DANIELS
/s/ Gary C. Gerhardt Vice Chairman and January 30, 2004
- ---------------------------------- Chief Financial Officer ----------------
GARY C. GERHARDT
/s/ Steven J. Landmann Vice President - Finance January 30, 2004
- ---------------------------------- and Controller ----------------
STEVEN J. LANDMANN
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
DIRECTORS
---------
/s/ Michael F. Shanahan, Sr. January 30, 2004 /s/ Thomas J. Guilfoil January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
MICHAEL F. SHANAHAN, SR. THOMAS J. GUILFOIL
/s/ Gerald E. Daniels January 30, 2004 /s/ S. Lee Kling January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
GERALD E. DANIELS S. LEE KLING
/s/ Gerald A. Potthoff January 30, 2004 /s/ Kenneth E. Lewi January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
GERALD A. POTTHOFF KENNETH E. LEWI
/s/ Gary C. Gerhardt January 30, 2004 /s/ Charles T. Robertson, Jr. January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
GARY C. GERHARDT CHARLES T. ROBERTSON, JR.
/s/ Ronald W. Davis January 19, 2004 /s/ Crosbie E. Saint January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
RONALD W. DAVIS CROSBIE E. SAINT
/s/ William H. T. Bush January 30, 2004 /s/ Michael F. Shanahan, Jr. January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
WILLIAM H. T. BUSH MICHAEL F. SHANAHAN, JR.
/s/ Michael P. C. Carns January 30, 2004 /s/ Earl W. Wims January 30, 2004
- -------------------------------------- ---------------- -------------------------------- ----------------
MICHAEL P. C. CARNS EARL W. WIMS
/s/ George E. Friel January 30, 2004
- -------------------------------------- ----------------
GEORGE E. FRIEL
19
ENGINEERED SUPPORT SYSTEMS, INC.
EXHIBIT INDEX
3.2 Amendment of Articles of Incorporation
3.3 Amended and Restated By-Laws of Engineered Support Systems, Inc.
11. Statement Re: Computation of Earnings Per Share
13. Engineered Support Systems, Inc. Annual Report for year ended
October 31, 2003 (the Annual Report). Except for the portions
incorporated herein by reference as evidenced in the Form 10-K,
the Annual Report is furnished for the information of the
Securities and Exchange Commission and is not deemed filed as
part of this Form 10-K.
21. Subsidiaries of Registrant
23. Consent of PricewaterhouseCoopers LLP, Independent Accountants
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
99.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.3 Valuation and Qualifying Accounts (Schedule II)
20