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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, 1998 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.)
1270 North Price Road, St. Louis, Missouri 63132
(Address of principal executive officer) (Zip Code)
Registrant's telephone number including area code: (314) 993-5880
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 .
--- ---
Based on the closing price on January 18, 1999, the aggregate
market value of the voting stock held by non-affiliates of the
Registrant was approximately $50,685,000.
The number of shares of the Registrant's common stock, $.01 par
value, outstanding at January 18, 1999 was 4,847,602.
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, 1998. Part III incorporates by reference
portions of the Engineered Support Systems, Inc. Proxy Statement for the
Annual Shareholders Meeting to be held on March 8, 1999 (the Definitive
Proxy Statement) to be filed within 120 days after the close of the year
ended October 31, 1998.
PART I
ITEM 1. BUSINESS
- ------- --------
Engineered Support Systems, Inc. is a holding company for four
wholly-owned subsidiaries: Engineered Air Systems, Inc. (Engineered
Air), Keco Industries, Inc. (Keco), Engineered Coil Company, d/b/a Marlo
Coil (Marlo Coil) and Engineered Specialty Plastics, Inc. (ESP).
Engineered Support Systems, Inc. and its subsidiaries (Company) is a
leading designer and manufacturer of military support equipment and
related products for the United States armed forces. The Company also
manufactures specialized commercial and industrial air handling
equipment, as well as injection molded specialty and custom plastic
products.
Engineered Air and Keco are military ground support equipment
contractors which specialize in designing, marketing and manufacturing
chemical and biological defense systems, environmental control systems,
petroleum and water systems, containerized systems and general ground
support equipment. This equipment is designed to be used in any
location where U.S. forces may be deployed. It is designed for rapid
deployment and multi-purpose use in remote locations. Substantially all
of the revenues generated by Engineered Air and Keco are derived from
the sale of equipment to the Department of Defense (DoD) and defense
contractors. Marlo Coil is a manufacturer of heat transfer and air
movement equipment, which is generally produced to customer
specifications. Marlo Coil's products, principally coils and air
handling units, are sold to the U.S. Navy through prime contractors as
well as to commercial and industrial customers. ESP is a manufacturer
of injection molded plastic products used primarily in consumer goods
such as housewares, storage containers, components for computer
terminals, and communication equipment. In addition to these products,
ESP also produces Lifetime Faucets, a proprietary line of plastic
faucets.
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 purchased all of
the outstanding common stock of Keco.
PRODUCTS
MILITARY PRODUCTS. The Company provides products to U.S. armed
forces in five general categories:
Chemical and biological defense systems. The Company engineers and
manufactures products and systems which are designed to protect forward
deployed military units from the effects of chemical or biological
weapons. These include:
* Chemical and Biological Protected Shelter System (CBPSS),
which is a contamination-free, environmentally-controlled
work area that is used as a mobile field medical facility.
It is a specially designed system centered around a soft-
walled tent supported by inflated columns of air. The tent
is connected to and carried by a High Mobility Multi-Purpose
Wheeled Vehicle, more commonly known as a "Humvee." The
CBPSS permits medical specialists to treat soldiers while
deployed in an area exposed to chemical or biological
contamination.
* Micro-Climatic Conditioning System (MCS), which is an on-board
air-filtration unit for the Paladin tank and is designed to
enhance survivability for the Paladin crews by providing air
filtration of chemical and biological materials, ventilation
and cooling.
2
* Sanator/M-17, which is a lightweight chemical and biological
decontamination system used to decontaminate equipment in
the field utilizing a hot water and detergent spray mixture.
Environmental Control Systems. The Company engineers and manufactures
systems which regulate and modify environmental conditions in military
enclosures, aircraft, ships and vehicles. These include:
* Field Deployable Environmental Control Unit (FDECU), which
is a field deployable heat pump for use in cooling, heating,
dehumidifying, filtering and circulating air for portable
shelters, tents and vans. The unit is adaptable to
chemically and biologically contaminated areas.
* Chemically/Biologically Hardened Air Management Plant
(CHAMP), which is an air management system providing
cooling, heating, standby electrical power and pressurized
filtered air protection against chemical and biological
agents and was initially designed for use by the U.S. Air
Force in chemically hardened, air transportable hospitals.
These units consolidate a generator, blowers, filters and
environmental control elements into a single system,
reducing transportation weight and size by 80%. This unit
can be operated by either commercial power or a self-
contained diesel engine and enable medical staff and
patients to reduce infection and continue emergency
operations in a contaminated environment.
* Flight Line Air Conditioners, which are used to cool
aircraft avionics and electronics systems during pre-flight
and post-flight checkouts and repairs. Among these units
are the largest air conditioning units ever built for the
U.S. Air Force employing state-of-the-art technology and
utilizing R-134 refrigerant, which is ozone friendly and
environmentally safe. This unit supports operations of
various military aircraft including: the B-1B and B-2
bombers; the C-5, C-130 and C-141 transports; all fighter
aircraft; and the Talon I and Talon II gunships.
* Army Space Heaters (ASH), which provide automatic, remote or
normal temperature-controlled heating to meet the needs of
personnel and equipment in shelters, vans, hospitals and
other enclosed areas. Most recently, the ASH has been
shipped overseas to provide warmth for U.S. military personnel
in the extreme winter conditions of Bosnia. The unit is
designed to be adapted to chemically and biologically
contaminated environments.
* Fan Coil Units and Assemblies, which are used to meet air
conditioning and heating needs aboard U.S. Navy ships and
Military Sealift and Coast Guard vessels, including ships of
the Arleigh Burke Class Aegis destroyers, Ticonderoga Class
Aegis cruisers, Seawolf and NSSN attack submarines, San
Antonio Class and LHD amphibious assault ships and Nimitz
Class and CVN-77 aircraft carriers.
Petroleum and water systems. The Company manufactures systems for
pumping, storing and testing water and petroleum. These include:
* Petroleum storage, distribution and refueling equipment,
which is used in support of remotely located field equipment
and weapon systems. These systems include the Inland
Petroleum Distribution System, which is a portable pipeline,
storage and distribution system set up to transport fuel up
to 270 miles over various terrains.
* Water distribution and storage systems with trailer mounted
pumps and collapsible tanks.
* Airmobile and Semi-trailer Mounted Petroleum Test
Laboratories, which are used for testing the purity of fuels
in the field.
* Reverse Osmosis Water Purification Units (ROWPU), which are
durable and mobile water purification systems and which
provide safe drinking water, primarily to forces in the
field with the capacity to filter highly contaminated water.
3
Containerized systems. The Company manufactures specially designed
container systems. These include:
* Quadcon containers, which are transportable and connectable
containers for multi-use storage or transportation of bulk
products.
* Refrigerated containers, which are used to transport
perishable and frozen foods.
General ground support equipment. The Company also manufactures a range
of general ground support equipment. These include:
* Deployable Fire Protection Systems, which are trailer
mounted units designed to apply 500 gallons of fire-fighting
foam in one minute for use in areas where fuel is being
distributed, such as airfields. The system automatically
detects fires across a 120 degree vision area after being
deployed.
* Portable Field Latrines, Laundry, Shower and Shave
Facilities, which are used by forward deployable combat
units.
COMMERCIAL AND INDUSTRIAL PRODUCTS. The Company has been
able to capitalize on its naval contracting experience to design
and manufacture a broad range of air handling and heat transfer
equipment for commercial and industrial applications. Such
applications include commercial and institutional buildings,
civilian marine applications, and pharmaceutical, semiconductor
and telecommunications clean rooms.
The Company engineers and manufactures injection molded
custom and specialty plastic products for consumer and industrial
markets. These products include housewares, food handling totes,
storage containers, medical devices, automotive equipment, plastic
components for computer terminals and telecommunications equipment
and a proprietary line of nonmetallic faucets.
ENGINEERING AND DESIGN
The Company employs approximately 70 people engaged in the
design and development of new products and the improvement of
existing products. Essentially all of these development activities
are conducted pursuant to, and funded by, DoD contracts in response
to designated performance specifications. The Company believes
that its engineering expertise gives it a significant advantage
over smaller competitors who do not have such capabilities. The
Company's expenditures on research and development were insignificant
during the three-year period ended October 31, 1998.
The Company's engineering capabilities include expertise in
thermodynamics, air flow, liquid pumping, stress analysis, liquid
fuel combustion, dynamic and climatic environmental engineering,
biological and chemical decontamination, non-pyrotechnic smoke
generation, and filtration of chemically and biologically
contaminated air.
The Company's design and development of ground support
equipment are enhanced by a computer-aided design and manufacturing
(CAD/CAM) system. This system is used by engineers and draftsmen
to design complex products and component parts in three-dimensional
view, and minimizes the need for time-consuming manual methods of
prototype development. The Company's engineering staff and CAD/CAM
system provide it with the ability to adapt its production process
to new product needs on a timely basis.
The Company maintains extensive laboratory facilities used
for supporting engineering development and production operations.
These include test facilities for measurement of product performance
from -65 degrees to +140 degrees Fahrenheit and completely equipped
prototype facilities. The Company also has the capability to provide
complete technical data support for the products it manufactures.
This includes integrated logistics support, spare parts provisioning
and preparation of technical manuals.
4
MARKETING
The Company's marketing of military equipment focuses, in part,
on determining the current and future needs of the DoD for support
equipment. To identify those needs, the Company gathers information
from primary sources such as the DoD budget and its supporting
documents, and military requirement documents such as the Air Force's
Statement of Need, the Navy's Operational Requirements and the Army's
Required Operational Capability, along with direct interface with its
customers. The Company analyzes this data through an established new
business opportunity procedure and then determines whether or not to bid
on specific projects based upon determinations of potential
profitability and the likelihood of being awarded the contract.
Sales of custom commercial, industrial and marine air handling
units and coils are effected both directly and through sales
representatives located primarily in the United States, parts of Canada,
and Puerto Rico. Generally, the customers' engineers and contractors
provide the required specifications and performance data. The Company,
in turn, designs and manufactures the equipment to meet the specified
criteria with a focus on quality, value and service. Customers are
typically large and well established companies which require equipment
for industrial and other specialized applications with specifications
far more exacting than those that would normally be supplied for comfort
cooling and heating. The pharmaceutical, telecommunications and
healthcare industries represent a significant portion of current
sales volume.
Principal customers for injection molded custom and specialty
plastic products include large, well-established producers of consumer
and industrial products. Sales of injection molded plastic products are
effected both directly and through sales representatives. Customers
typically submit sample parts and drawings to the Company for quotations.
Contracts can typically be canceled on 30 days notice. A significant
portion of the Company's sales of injection molded plastics products
are of storage containers. The Company anticipates that container sales
will remain strong as it is in geographic proximity to several large
purchasers of these products, including companies within the housewares
and poultry industries which the Company believes is an important
consideration in this market. The Company also anticipates that sales
for its injection molded plastic products will continue to be strong
within the office equipment market. Injection molded parts for computer
terminals and telecommunications equipment represent a significant
portion of sales volume. However, the Company is capable of producing
a wide variety of injection molded plastic products, including
automotive parts, medical equipment, switching equipment, electrical
appliances and most small electronic devices. The Company's sales of
its proprietary line of kitchen and lavatory faucets are effected
primarily through sales representatives, and marketing efforts focus
on service and price.
MANUFACTURING AND PROCUREMENT
The Company manufactures certain components for its products and
systems including fabricated metal cabinets, control panels and frames.
The Company is equipped to bend, cut, drill and weld sheet metal.
However, a significant portion of component parts and materials for the
products manufactured by the Company are purchased from third party
suppliers. Management believes that the materials and services the
Company requires are readily available through competitive sources and
that the Company is not dependent upon any one subcontractor or vendor.
Two of the Company's facilities have received ISO 9000 certification and
the Company is qualified by the U.S. government to the military control
specifications MIL-I-45208 and MIL-Q-9858, which apply to most of the
Company's government contracts currently in progress. The Company
intends to seek ISO 9000 certification for at least one of its other
facilities.
The Company engineers and manufactures injection molded custom and
specialty plastic products for consumer and industrial markets. These
products include housewares, food handling totes, storage containers,
medical devices, automotive equipment, plastic components for computer
terminals and telecommunications equipment and a proprietary line of
nonmetallic faucets. Approximately one third of the Company's sales of
injection molded plastic products are generated by products which are
proprietary. The Company's injection
5
molded plastic manufacturing operations are vertically integrated,
with the facilities to both mold and finish plastic to exacting
specifications. The Company operates 33 injection molding machines
ranging in size from 45 to 2,200 tons of clamp pressure. The Company
believes that its vertical integration, range of machine size and higher
pressure molding capacity provide it with a competitive advantage within
the geographic market it serves.
Material handling capacity for injection molded plastic products
is achieved through five silos with a combined capacity exceeding
200,000 pounds, a central vacuum loading system, blend mixers and
computer integrated manufacturing control software. Finishing equipment
includes a 650 foot paint conveyor, 20 paint spray booths, drying ovens,
hot stamp machines, silk screen machines, a 150 foot motorized assembly
line and sonic welders. The Company subcontracts the assembly and
packaging of Lifetime Faucets to an outside vendor.
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.
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.
The U.S. government typically finances a substantial portion of
the Company's contract costs through progress payments. The Company
historically received progress payments in accordance with DoD contract
terms for "small business" concerns. These terms provide progress
payments at a specified rate applied on the basis of costs incurred
while progress payments for concerns other than small business provide
for payment based on costs actually paid at a rate that is 15% lower
than that paid to small businesses. The Marlo Coil and Keco
acquisitions have caused the Company to exceed certain thresholds
relating to small business qualification, and the Company will therefore
qualify as a small business only for specific government contracting
purposes. The Company is, however, reducing its emphasis on small
business qualification for purposes of future government work.
6
PATENTS
The Company owns various patents in connection with its equipment
supplied to the DoD with expiration dates extending through February
2002. From time to time, the Company develops proprietary information
and trade secrets regarding the design and manufacture of various
products.
The Company also holds a patent for a reversible faucet cartridge.
The benefit of the reversing feature is that by turning the cartridge
one-half revolution the user achieves that same result as though the
washer had been replaced to stop a leaking faucet. This patent expires
in October 2002.
The Company considers its proprietary information and patents to
be valuable assets. However, the Company's business is not materially
dependent on patent 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.
DEFENSE BACKLOG
The Company records its defense backlog as either funded backlog
or government options. The Company's funded backlog as of October 31,
1998 was approximately $80.8 million. The Company's funded backlog is
subject to fluctuations and is not necessarily indicative of future
sales. Funded backlog represents products the government has committed
by contract to purchase from the Company. Government options include
products the government has the option to purchase under contract with
the Company, including, with respect to contracts which include a
maximum amount purchasable by the government thereunder, such maximum
amount, and with respect to contracts without a specified maximum
amount, the Company's estimate of the amount it expects the government
to purchase using the government's Best Estimated Quantity (BEQ) as a
guide where a BEQ is specified. There are no commitments by the
government to purchase products included in government options 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 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 backlog or government options, could
have a material adverse effect on the Company's business, financial
condition and results of operations in subsequent periods.
7
The following table summarizes funded backlog and government options
on funded backlog (in millions) as of the indicated dates:
Government Options
Funded Backlog On Funded Backlog
-------------- -----------------
October 31, 1998 $80.8 $319.6
October 31, 1997 44.1 155.0
October 31, 1996 90.7 153.8
October 31, 1995 90.4 100.2
October 31, 1994 77.9 153.7
EMPLOYEES
As of October 31, 1998, the Company employed 841 persons, of
which 617 were engaged in manufacturing activities, 70 in engineering
activities, and 154 in office administration and management functions.
Approximately 95 employees are represented by Lodge 1012 of the
International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,
Forgers and Helpers (AFL-CIO) under a collective bargaining agreement which
expired October 31, 1998. Although negotiations continue, the date of any
new agreement with these employees is uncertain at this time. The Company is
confident that it can retain a capable workforce regardless of the outcome of
these negotiations.
The Company considers its overall employee relations to be satisfactory.
8
ITEM 2. PROPERTIES
- ------- ----------
The Company conducts its business from 5 manufacturing and office
facilities. All facilities are owned by the Company and are subject to
deeds of trust in favor of the Company's lender.
Location Description Size in Sq. Feet
-------- ----------- ----------------
St. Louis County, Manufacturing/Office 171,000
Missouri
Hot Springs, Manufacturing 110,000
Arkansas
High Ridge, Manufacturing 185,000
Missouri
Florence, Kentucky Manufacturing 174,000
Blue Ash, Ohio Manufacturing 132,000
The Company believes that its current facilities are sufficient
for the conduct of its current level of operations.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company is a defendant in a lawsuit captioned Plasco Designs
--------------
of Arkansas, Inc. v. Engineered Specialty Plastics and Engineered
- -----------------------------------------------------------------
Support Systems, Inc. and Engineered Specialty Plastics, Third Party
- --------------------------------------------------------------------
Plaintiff, v. Omega Tool Company, Third Party Defendant, Cause Number
- -------------------------------------------------------
C1V-95-679, pending in the Garland County Circuit Court, Hot Springs,
Arkansas. Plasco Designs of Arkansas, Inc. (Plasco), a former customer
of ESP, alleges in the suit that ESP designed a defective mold for use
by ESP in fabricating products for Plasco. In a number of counts involving
replevin, slander, breach of contract and other claims, Plasco seeks
aggregate damages of approximately $2 million, plus punitive damages and
attorneys fees. The Company and ESP have brought a counterclaim against
Plasco seeking aggregate damages of approximately $2 million, plus punitive
damages and attorney's fees. In addition, the Company and ESP have brought
a third party claim against Omega Tool Company, the manufacturer of the
mold Plasco claims was defective. The case is set for trial in April 1999.
While the Company believes that it has meritorious defenses and
counterclaims, and intends to prosecute the case vigorously, there can
be no assurance as to its outcome.
The Company and its subsidiaries are from time to time parties to
various other legal proceedings arising out of their business.
Management believes that there are no such other proceedings pending or
threatened against them which, if determined adversely, would have a
material adverse effect on the business or financial condition 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, 1998.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- ------- ----------------------------------------------------
SHAREHOLDER MATTERS
-------------------
Information concerning the principal market on which the Company's
common stock is traded and the high and low sales prices for such stock
during 1998 is shown in Supplemental Information on page 16 of the 1998
Annual Report, incorporated herein by reference. During 1995, the
Company initiated a semi-annual dividend program. The most recently
declared dividend was in the amount of $.018 per share payable January
29, 1999 to shareholders of record as of December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Financial data required under this section is shown in the Summary
of Selected Financial Data on page 2 of the 1998 Annual Report,
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 4 through 5 of the 1998 Annual
Report, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The following consolidated financial statements of Engineered
Support Systems, Inc. included in the Annual Report for the year ended
October 31, 1998 at the pages indicated, are incorporated herein by
reference:
Consolidated Balance Sheets, October 31, 1998 and 1997, page 6.
Consolidated Statements of Income, years ended October 31, 1998,
1997 and 1996, page 7.
Consolidated Statements of Shareholders' Equity, years ended
October 31, 1998, 1997 and 1996, page 7.
Consolidated Statements of Cash Flows, years ended October 31,
1998, 1997 and 1996, page 8.
Notes to Consolidated Financial Statements, page 9 through 14.
The quarterly financial information included in Supplementary
Information on page 16 of the 1998 Annual Report is incorporated herein
by reference.
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.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The directors, executive officers and key employees of the Company
as of January 18, 1999 are as follows:
Name Age Position
---- --- --------
Michael F. Shanahan Sr. 59 Chairman, President, Chief
Executive Officer and Director
(Company)
Gary C. Gerhardt 53 Executive Vice President,
Chief Financial Officer and
Director (Company)
R. Bruce Earls 52 Director (Company) and
President and Chief Executive
Officer (Marlo Coil)
John J. Wichlenski 55 Director (Company) and
President and Chief Executive
Officer (Engineered Air)
Alexander M. Cornwell Jr. 72 Director (Company)
MG George E. Friel 56 Director (Company)
Thomas J. Guilfoil 79 Director (Company)
LTG Kenneth E. Lewi 68 Director (Company)
Michael F. Shanahan Jr. 32 Director (Company)
Earl E. Walker 78 Director (Company)
Earl W. Wims 59 Director (Company)
George W. Andrews 69 President and Chief
Executive Officer (Keco)
John E. Capeless 53 Vice President and
General Manager (ESP)
Ronald W. Davis 52 Vice President-Marketing
(Engineered Air)
Marvin L. Smith 61 Executive Vice President (Keco)
Member of Executive Committee of the Board
Member of Audit Committee of the Board
Member of Compensation Committee of the Board
Member of Executive Management Committee of the Company
11
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 a director of the Company since
its formation. Mr. Shanahan was named the Chief Executive Officer of
the Company in 1985. He was named Chairman of the Company and of
Engineered Air in 1987, and was named Chairman of ESP, Marlo Coil and
Keco upon their respective acquisition dates.
Gary C. Gerhardt has been a director of the Company since March
1998. He was named Executive Vice President of the Company, Engineered
Air and ESP in 1994, and Marlo Coil and Keco in 1998. He was named
Chief Financial Officer of the Company, Engineered Air and ESP in 1993,
and Marlo Coil and Keco in 1998. Prior thereto, he was Vice President-
Contract Administration of Engineered Air since 1985. Mr. Gerhardt
joined Engineered Air in 1982 as Manager of Contract Administration.
R. Bruce Earls has been a director of the Company since March
1998. He has been President and Chief Executive Officer of Marlo Coil
since 1994. Prior thereto, he was Managing Partner of a KPMG Peat
Marwick Business Unit.
John J. Wichlenski has been a director of the Company since 1992.
He has been President and Chief Executive Officer of Engineered Air
since 1992. He served as Engineered Air's Executive Vice President
prior thereto from 1990 and as Group Vice President of Operations from
1988 to 1990. Mr. Wichlenski joined Engineered Air as Vice President of
Engineering in 1986.
George W. Andrews has been President and Chief Executive Officer
of Keco since 1984.
John E. Capeless has been Vice President and General Manager of
ESP since 1996. Prior thereto, he was Vice President of Operations for
Atlantis Plastics, Inc. from 1994. He served as Director of
Manufacturing for Frem Corporation from 1989 to 1994.
Ronald W. Davis has been Vice President-Marketing of Engineered Air
since 1990. He previously served as Vice President of Sales from 1985.
Mr. Davis joined Engineered Air in 1983.
Marvin L. Smith has been Executive Vice President of Keco since
1990. Mr. Smith joined Keco in 1988 as Vice President of Operations.
12
NON-EMPLOYEE DIRECTORS
- ----------------------
Alexander M. Cornwell Jr. has been a director of the Company since
1993. Mr. Cornwell was the Chairman and Chief Executive Officer of
Street Industries, Inc. of St. Louis from 1985 through 1988. Mr.
Cornwell has provided consulting services to the Company since 1988.
MG George E. Friel (U.S. Army, Retired) has been a director of the
Company since September 1998. He retired from the U.S. Army in July
1998 after 38 years of service. In the six years preceding his
retirement, he headed the U.S. Army Chemical and Biological Defense
Command (CBDCOM).
Thomas J. Guilfoil has been a director of the Company since 1993.
He is the senior and founding partner of the St. Louis law firm of
Guilfoil, Petzall & Shoemake. His legal career began in St. Louis in
1941.
LTG Kenneth E. Lewi (U.S. Army, Retired) has been a director of
the Company since 1990. He retired from the U.S. Army in August 1989
after 34 years of service. His career in the U.S. Army centered
primarily on providing logistical support to U.S. armed forces.
Michael F. Shanahan Jr. has been a director of the Company since
1994. He has been a Producer for Lockton Companies, an insurance
concern, since 1994. Prior thereto he served as Assistant to the
Chairman of the Board of the Company since 1991. He joined Engineered
Air in 1990 as Marketing Representative.
Earl E. Walker has been a director of the Company since 1996. He
has been the President and principal shareholder of Carr Lane
Manufacturing since founding it in 1952.
Earl W. Wims has been a director of the Company since 1991. He
has been Chairman of Marketing Horizons, a marketing research and
consulting firm, since 1986.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information concerning executive compensation is shown in the
Company's Definitive Proxy Statement (to be filed within 120 days after
the close of the fiscal year ended October 31, 1998) incorporated herein
by reference.
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 is shown in the Definitive
Proxy Statement (to be filed within 120 days after the close of the
year ended October 31, 1998) incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information on certain relationships, related transactions and
affiliation of directors is shown in the Definitive Proxy Statement (to
be filed within 120 days after the close of the year ended October 31,
1998) incorporated herein by reference.
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
- -------- --------------------------------------------------------
FORM 8-K
--------
(a) (1) and (2) Index of Financial Statements and Financial Statement
Schedules
The following consolidated financial statements of Engineered
Support Systems, Inc., included in the 1998 Annual Report of the
registrant to its shareholders, are incorporated by reference in Item 8:
Report of Independent Accountants
Consolidated Balance Sheets-October 31, 1998 and 1997
Consolidated Statements of Income-years ended October 31, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity-years ended
October 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows-years ended October 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements-October 31, 1998
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.
3.0 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.
3.2 Amendment of Articles of Incorporation
3.3 Amended and Restated By-Laws of Engineered Support Systems, Inc.
4.1 Restated and Amended Credit Agreement dated March 17, 1998 by and
among Engineered Support Systems, Inc. and its Subsidiaries, the
Several Lenders from time to time party thereto and Nations Bank,
N.A. as agent.
4.2 Engineered Support Systems, Inc. 1992 Stock Option Plan for
Nonemployee Directors
4.3 Engineered Support Systems, Inc. 1993 Stock Option Plan
4.4 Engineered Support Systems, Inc. 1997 Stock Option Plan for
Nonemployee Directors
4.5 Engineered Support Systems, Inc. 1998 Stock Option Plan
4.6 Engineered Air Systems, Inc. Employee Stock Ownership Plan,
subsequently renamed the Engineered Support Systems, Inc.
Employee Stock Ownership Plan
4.7 Trust Agreement for the Engineered Air Systems, Inc. Employee
Stock Ownership Trust
14
10.1 Employee Agreement with Michael F. Shanahan Sr.
10.2 Form of Indemnification Agreement with Directors
10.3 Form of Employment Agreement with Presidents and Vice Presidents
of Engineered Air and ESP
10.4 Engineered Support Systems, Inc. Amended and Restated Executive
Incentive Plan
11 Statement Re: Computation of Earnings Per Share
13 Engineered Support Systems, Inc. Annual Report for the year ended
October 31, 1998 (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
22 Subsidiary of Registrant
24 Consent of PricewaterhouseCoopers LLP, Independent Accountants
27 Statement Re: Summary Financial Information
15
[FN]
This information is incorporated herein 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.
This information is incorporated herein by reference from
Form 10-K Annual Report filed on January 30, 1989.
This information is incorporated herein by reference from
Form 10-K Annual Report filed on January 29, 1990.
This information is incorporated herein by reference from
Form S-8 registration statement, effective April 5, 1994,
registration number 33-77340.
This information is incorporated herein by reference from
Form S-8 registration statement, effective June 11, 1987,
registration number 33-14504.
This information is incorporated herein by reference from
Form S-8 registration statement, effective April 5, 1994,
registration number 33-77342.
This information is incorporated herein by reference from
Form S-8 registration statement, effective May 23, 1997,
registration number 333-27695.
This information is incorporated herein by reference from
Form 10-K Annual Report filed on January 27, 1996.
This information is incorporated herein by reference from
Form 10-Q filed on June 5, 1998.
This information is incorporated herein by reference from
Form S-8 registration statement, effective May 15, 1998,
registration number 333-52753.
(b) There were not reports filed on Form 8-K during the fourth quarter
of 1998.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this Report
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this Report.
16
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 18, 1999 By /s/ Gary C. Gerhardt
------------------------- --------------------------------
GARY C. GERHARDT
Executive Vice President 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/ Michael F. Shanahan Sr. Chairman of the Board January 18, 1999
- ----------------------------- of Directors, President and
MICHAEL F. SHANAHAN Sr. Chief Executive Officer
/s/ Gary C. Gerhardt Executive Vice President and January 18, 1999
- ----------------------------- Chief Financial Officer
GARY C. GERHARDT
17
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 18, 1999 /s/ Thomas J. Guilfoil January 18, 1999
- --------------------------- ---------------- --------------------------- ----------------
MICHAEL F. SHANAHAN SR. THOMAS J. GUILFOIL
/s/ Gary C. Gerhardt January 18, 1999 /s/ Kenneth E. Lewi January 18, 1999
- --------------------------- ---------------- --------------------------- ----------------
GARY C. GERHARDT KENNETH E. LEWI
/s/ R. Bruce Earls January 18, 1999 /s/ Michael F. Shanahan Jr. January 18, 1999
- --------------------------- ---------------- --------------------------- ----------------
R. BRUCE EARLS MICHAEL F. SHANAHAN JR.
/s/ John J. Wichlenski January 18, 1999 /s/ Earl E. Walker January 18, 1999
- --------------------------- ---------------- --------------------------- ----------------
JOHN J. WICHLENSKI EARL E. WALKER
/s/ Alexander M. Cornwell January 18, 1999 /s/ Earl W. Wims January 18, 1999
- --------------------------- ---------------- --------------------------- ----------------
ALEXANDER M. CORNWELL EARL W. WIMS
/s/ George E. Friel January 18, 1999
- --------------------------- ----------------
GEORGE E. FRIEL
18
ENGINEERED SUPPORT SYSTEMS, INC.
EXHIBIT INDEX
Page No.
--------
11. Statement Re: Computation of Earnings Per Share
13. Engineered Support Systems, Inc. Annual Report for year ended
October 31, 1998 (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.
24. Consent of PricewaterhouseCoopers LLP, Independent Accountants
27. Statement Re: Summary Financial Information
19