SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
Annual Report Pursuant to Section 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 2001 Commission file number 0-13880
A. Full title of the Plan
ENGINEERED SUPPORT SYSTEMS, INC. EMPLOYEE STOCK OWNERSHIP PLAN
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
ENGINEERED SUPPORT SYSTEMS, INC.
201 EVANS LANE
ST. LOUIS, MISSOURI 63121
(314) 553-4000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan Administrator has duly caused this Annual Report to be signed by the
undersigned, thereunto duly authorized.
ENGINEERED SUPPORT SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Date: June 28, 2002 /s/ Gary C. Gerhardt
------------- -----------------------------------
Gary C. Gerhardt
Vice Chairman - Administration and
Chief Financial Officer of
Engineered Support Systems, Inc.
and Member of the Administrative
Committee of the Plan
Report of Independent Accountants
To the Participants and Administrator of
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
In our opinion, the accompanying statements of net assets available for
benefits and the related statements of changes in net assets available for
benefits present fairly, in all material respects, the net assets available
for benefits of the Engineered Support Systems, Inc. Employee Stock
Ownership Plan (the "Plan") at December 31, 2001 and 2000, and the changes
in net assets available for benefits for the years then ended in conformity
with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Plan's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States of America, which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets
(Held at End of Year) and Reportable Transactions are presented for
the purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. These
supplemental schedules are the responsibility of the Plan's management. The
supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
June 28, 2002
St. Louis, Missouri
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
December 31
------------------------------
2001 2000
----------- -----------
Assets:
Cash and cash equivalents $ $ 357,324
Investments, at fair value 44,518,294 33,284,008
Employer contributions receivable 1,216,405 109,207
----------- -----------
Net Assets Available for Plan Benefits $45,734,699 $33,750,539
=========== ===========
See notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
Year Ended December 31
-------------------------------------
2001 2000
----------- -----------
Additions:
Investment income:
Net realized and unrealized gain on Engineered
Support Systems, Inc. common stock $16,338,384 $ 7,705,932
Net loss from common collective trusts (1,230,447) (335,646)
Net loss from registered investment companies (1,280,814)
Interest and dividend income 420,501 83,681
----------- -----------
14,247,624 7,453,967
----------- -----------
Contributions:
Participant 1,603,637 1,564,795
Employer 1,564,691 1,046,306
----------- -----------
3,168,328 2,611,101
----------- -----------
Deductions:
Benefits paid to participants (5,431,792) (2,674,498)
Interest expense (41,397)
----------- -----------
Total deductions (5,431,792) (2,715,895)
----------- -----------
Net increase 11,984,160 7,349,173
Net Assets Available for Plan
Benefits at Beginning of Year 33,750,539 26,401,366
----------- -----------
Net Assets Available for Plan
Benefits at End of Year $45,734,699 $33,750,539
=========== ===========
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
December 31, 2001
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Engineered Support Systems, Inc. Employee
Stock Ownership Plan (the Plan) are presented on the accrual basis of
accounting. Benefits due to participants are recorded as a reduction in net
assets available for Plan benefits when paid.
Investments in the Engineered Support Systems, Inc. (the Company) common
stock are stated at fair value based on the last reported sales price on
December 31, 2001 and 2000, respectively. Investments in registered
investment companies, including the Dreyfus Premier Core Bond Fund-Class A,
the Prudential Short-Term Corporate Bond Fund-Class A, the American Funds
EuroPacific Growth Fund, the Alliance Growth & Income Fund-Class A, the
Janus Twenty Fund, the Prudential Jennison Growth Fund-Class A, the
Prudential Stock Index Fund-Class Z, the INVESCO Technology Fund-Investor
Shares, the Franklin Small Cap Growth Fund II and the Prudential US Emerging
Growth Fund-Class A, are stated at the fair value of the underlying
portfolio of securities, as determined by the respective manager.
Investments in common collective trusts, including the Overseas Equity
Portfolio (managed by Brandes Investment Partners), the Mid-Cap Value
Portfolio (managed by Ariel Capital Management Inc.), the Small Company
Growth Portfolio (managed by Credit Suisse Asset Management), the Large
Company Value Portfolio (managed by Westwood Management Corporation), the
Capital Growth Portfolio (managed by Montag & Caldwell), the Strategic Bond
Portfolio (managed by Western Asset Management Company) and the Guaranteed
Investment Contract Portfolio (managed by Mitchell Hutchins Asset
Management) are stated at the fair value of the underlying portfolio of
securities, as determined by the respective manager.
Investment income is recorded as earned. Net realized gains or losses on
security transactions represent the difference between proceeds received and
cost. In accordance with the policy of stating investments at fair value,
net unrealized appreciation or depreciation is reflected in the Statements
of Net Assets Available for Benefits and the change in net unrealized
appreciation or depreciation is reflected in the Statements of Changes in
Net Assets Available for Benefits.
Investments are exposed to various risks, such as interest rate, market and
credit risk. Due to the level of risk associated with certain investments
and the level of uncertainty related to changes in the value of investments,
it is at least reasonably possible that changes in risks in the near-term
could materially affect the amounts reported in the Statement of Net Assets
Available for Benefits.
Notes receivable, representing loans to participants, are valued at their
outstanding principal amount. These notes bear interest at a rate equal to
the prime interest rate as of the effective date of the loan plus one
percentage point.
Administrative expenses of the Plan are paid by the Company.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of net assets and
changes in net assets during the reporting period. Actual results could
differ from these estimates.
NOTE B - DESCRIPTION OF THE PLAN
The Plan is a combined 401(k) savings plan and a payroll-based employee
stock ownership plan covering the salaried employees and all non-salaried
employees not otherwise covered by a collective bargaining agreement of the
Company's following wholly-owned subsidiaries: Engineered Air Systems, Inc.,
Engineered Specialty Plastics, Inc., Engineered Coil Company, d/b/a Marlo
Coil, Keco Industries, Inc. and Engineered Electric Company, d/b/a Fermont.
Eligible employees age 21 or older who have attained one year of service (90
days effective April 1, 2001) may enroll in the Plan. Upon enrollment,
participants may elect to defer from 1% to 15% of their compensation in the
Plan, up to a maximum of $10,500 for the years ended December 31, 2001 and
2000, respectively. Under current Internal Revenue Service regulations, this
maximum amount is adjusted annually.
Contributions under the Plan consist of the following:
1. The amount of the salary deferrals of all Plan participants (the employee
contribution).
2. The Company's discretionary contribution (the employer discretionary
contribution).
3. The Company's matching contribution of no less than 25% of each employee's
contribution up to a maximum of 6% of the employee's earnings (the
employer matching contribution).
All participant contributions are invested at the participant's discretion
in the investment funds offered by the Plan and selected by the participant.
Employee and employer contributions are 100% vested.
All contributions by the Company are made in the form of Engineered Support
Systems, Inc. common stock.
The Plan allows participants to borrow from existing balances in their Plan
investments. These loans are to be repaid with interest over a period not to
exceed five years.
The Plan Administrator is Engineered Support Systems, Inc. acting through an
Administrative Committee to administer the Plan. The Company bears all
expenses of administering the Plan, including any compensation of the
trustee, Prudential Trust Company. No trustee fees or other administrative
expenses were paid from Plan assets during the years ended December 31, 2001
or 2000.
Information about the Plan, including provisions for vesting, allocation of
earnings, withdrawal provisions and the impact of Plan termination is
contained in the Summary Plan Description. Copies of the Summary Plan
Description are available from the Company.
NOTE C - INVESTMENTS
The following schedule presents information regarding assets held for
investments:
December 31, 2001 December 31, 2000
-------------------------- ---------------------------
Fair Value Cost Fair Value Cost
----------- ----------- ----------- -----------
Engineered Support Systems, Inc.
common stock, 707,162 and 793,583
shares, respectively $24,192,007 $ 5,349,529 $17,260,430 $ 5,006,819
Prudential Short-Term Corporate Bond
Fund-Class A, 464,968 shares 5,277,386 5,328,158
Alliance Growth & Income Fund-Class A,
965,367 shares 3,465,667 3,638,182
Janus Twenty Fund, 67,733 shares 2,605,007 3,113,701
Dreyfus Premier Core Bond Fund-Class A,
160,526 shares 2,301,945 2,380,512
American Funds EuroPacific Growth Fund,
76,041 shares 2,043,221 2,267,841
Franklin Small Cap Growth Fund II,
179,992 shares 1,776,517 1,791,751
Prudential US Emerging Growth Fund-Class A,
82,321 shares 1,240,578 1,349,207
Prudential Jennison Growth Fund-Class A,
12,461 shares 182,175 180,309
Prudential Stock Index Fund-Class Z, 6,786
shares 173,374 173,496
INVESCO Technology Fund - Investor
Shares, 1,633 shares 53,182 53,802
Capital Growth Portfolio, managed by
Montag & Caldwell, 118,550 shares 3,875,285 3,438,727
Overseas Equity Portfolio, managed by
Brandes Investment Partners, 118,068
shares 2,806,719 2,014,326
Large Company Value Portfolio,
managed by Westwood Management
Corporation, 47,214 shares 2,416,673 2,512,547
Small Company Growth Portfolio,
managed by Credit Suisse Asset
Management, 29,577 shares 2,164,762 1,916,678
Guaranteed Investment Contract
Portfolio, managed by Mitchell
Hutchins Asset Management, 70,128
shares 1,695,777 1,479,752
Mid-Cap Value Portfolio, managed by
Ariel Capital Management, Inc., 58,393
shares 1,342,625 944,494
Strategic Bond Portfolio, managed by
Western Asset Management Company,
56,904 shares 903,406 830,050
Notes receivable from participants with remaining
maturities of 1 month to 5 years bearing interest
rates ranging from 7.50% to 10.50% at December 31,
2001 and from 8.75% to 10.50% at December 31, 2000 1,207,235 1,207,235 818,331 818,331
----------- ----------- ----------- -----------
Total $44,518,294 $26,833,723 $33,284,008 $18,961,724
=========== =========== =========== ===========
Engineered Support Systems, Inc. common stock includes both participant-
directed and nonparticipant-directed investments. All other investments are
solely participant-directed.
NOTE D - NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to nonparticpant-directed investments,
primarily all of which represent investments in Engineered Support Systems,
Inc. common stock, is as follows:
Year Ended December 31
-----------------------------------
2001 2000
----------- -----------
Net Assets at Beginning of Year $11,046,956 $ 5,443,674
Contributions 1,564,691 1,046,306
Realized and unrealized gain 7,116,492 4,947,283
Benefits paid to participants (2,731,381) (348,910)
Interest expense (41,397)
----------- -----------
Net Assets at End of Year $16,996,758 $11,046,956
=========== ===========
NOTE E - CHANGES IN THE PLAN
Effective April 1, 2001, the Plan was amended to provide eligibility for
those employees age 21 or older who have attained ninety (90) days of
service, formerly one year of service. In addition, Prudential Trust Company
was named Plan trustee. Effective December 14, 2001, the Plan was amended
to allow Plan participants with five (5) years of service as a participant
to direct Company-contributed Engineered Support Systems, Inc. common stock
into other investment choices within the Plan.
The Plan had pledged shares of the Company's common stock, purchased with
bank loan proceeds, as collateral for the loan. During 2000, the bank loan
was retired and the remaining 48,176 shares of the Company's common stock
previously held as collateral were released to Plan participants.
NOTE F - INCOME TAX STATUS
The Plan received a favorable letter of determination from the Internal
Revenue Service dated May 23, 2002 indicating compliance with section 401(a)
of the Internal Revenue Code and exemption under the provisions of section
501(a). Therefore, it is the opinion of the Plan Administrator that, as of
December 31, 2001, the Plan is in compliance with section 401(a) of the
Internal Revenue Code and is exempt under the provisions of section 501(a).
Thus, provision for a federal income tax is not required in the accompanying
financial statements.
Participants are not subject to federal income tax on amounts contributed to
their accounts under the 401(k) provisions of the Plan, or on earnings
attributable to such contributions, until such time as these amounts are
distributed to or withdrawn by the participants.
NOTE G - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements at December 31, 2001 and 2000 to Form 5500:
2001 2000
----------- -----------
Net assets available for benefits per the $45,734,699 $33,750,539
financial statements
Amounts allocated to withdrawing participants (60,033) (1,624,838)
----------- -----------
Net assets available for benefits per the Form 5500 $45,674,666 $32,125,701
=========== ===========
The following is a reconciliation of benefits paid to participants per the
financial statements for the year ended December 31, 2001 to Form 5500:
Benefits paid to participants per the $ 5,431,792
financial statements
Add: Amounts allocated to withdrawing 60,033
participants at December 31, 2001
Less: Amounts allocated to withdrawing (1,624,838)
participants at December 31, 2000 -----------
Benefits paid to participants per Form 5500 $ 3,866,987
===========
Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior
to the respective Plan year ends, but not yet paid as of that date.
NOTE H - RELATED PARTY AND PARTY-IN-INTEREST
The Company, as Plan administrator and sponsor, is a related party to the
Plan. At December 31, 2001 and 2000, the Plan held shares of Company common
stock with a market value of $24,192,007 and $17,260,430, respectively. For
the year ended December 31, 2001, the Plan purchased $1,764,084 and sold
$11,627,292 of Company common stock. For the year ended December 31, 2000,
the Plan purchased $261,888 and sold $245,721 of Company common stock.
Prudential Trust Company as Trustee of the Plan's assets is a party-in-
interest as defined by ERISA. For Plan assets managed by Prudential, the
Plan held $6,873,513 of investment funds and short-term investments at
December 31, 2001.
These transactions are exempt party-in-interest transactions under Section
408(b)(8) of the ERISA statutes.
Engineered Support Systems, Inc.
Employee Stock Ownership Plan
Schedule I
Schedule of Assets (Held at End of Year)
As of December 31, 2001
(a) (b) Identity of Issuer (c) Description of Asset (d) Cost (e) Current Value
---------------------------------------------------------------------------------------------------------------------------
* Engineered Support Systems, Inc. Common Stock $.01 par value $5,349,529 $24,192,007
* Prudential Short-Term Corporate Short-term bond mutual fund
Bond Fund-Class A 5,328,158 5,277,386
Alliance Growth & Income Fund- Large-cap value equity mutual
Class A fund 3,638,182 3,465,667
Janus Twenty Fund Large-cap growth equity mutual
fund 3,113,701 2,605,007
Dreyfus Premier Core Bond Intermediate-term bond mutual
Fund - Class A fund 2,380,512 2,301,945
American Funds EuroPacific Non-U.S. equity mutual fund
Growth Fund 2,267,841 2,043,221
Franklin Small Cap Growth Small-cap growth equity fund
Fund II 1,791,751 1,776,517
* Prudential US Emerging Growth Mid-cap growth equity mutual
Fund-Class A fund 1,349,207 1,240,578
* Prudential Jennison Growth Fund- Large-cap growth equity mutual
Class A fund 180,309 182,175
* Prudential Stock Index Fund-Class Z Large-cap blend equity mutual
Fund 173,496 173,374
INVESCO Technology Fund - Technology equity mutual fund
Investor Shares 53,802 53,182
Participant Loans Loans to Plan participants bearing
interest rates from 7.50% to
10.50% with remaining maturities
of 1 month to 5 years 1,207,235 1,207,235
* Investments represent allowable transactions with a party-in-interest.
Engineered Support
Employee Stock Ownership Plan
Schedule II
Schedule of Reportable Transactions (1)
Year Ended December 31, 2001
(f) Expense (h) Current value (i) Net
(a) Identity of (b) Description (c) Purchase (d) Selling (e) Lease incurred with (g) Cost of asset on gain or
party involved of asset price price rental transaction of asset transaction date (loss)
-----------------------------------------------------------------------------------------------------------------------------------
Transaction:
Engineered Common stock, $ - $1,988,934 $ - $ - $ 436,050 $1,988,934 $1,552,884
Support $.01 par value
Systems, Inc. per share
Series of
Transactions:
Engineered Common stock, $1,764,084 $ - $ - $ - $1,764,084 $1,764,084 $ -
Support $.01 par value
Systems, Inc. per share
Engineered Common stock, $ - $9,638,358 $ - $ - $1,396,726 $9,638,358 $8,241,632
Support $.01 par value
Systems, Inc. per share
(1) Transactions or series of transaction in excess of five percent of the
current value of the Plan's assets as of the beginning of the Plan Year. As
defined in 29 CFR Section 2520.103-6 of the Department of Labor Rules &
Regulations for Reporting and Disclosure under ERISA.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-14504) of Engineered Support Systems, Inc. of
our report dated June 28, 2002 relating to the financial statements and
supplemental schedules of Engineered Support Systems, Inc. Employee Stock
Ownership Plan, which appears in this Form 11-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
July 1, 2002