EASI Engineered Support Systems (MM)

Engineered Support Comments on 2005 Financial Outlook; Recent Business Developments -- Revised 2005 Forecasted Revenues of $1.02 Billion to $1.05 Billion Represents 15% to 19% Year-Over-Year Growth ST. LOUIS, June 2 /PRNewswire-FirstCall/ -- Engineered Support Systems, Inc. (NASDAQ:EASI) held a conference call and webcast yesterday morning in conjunction with the announcement of its financial results for the quarterly period ended April 30, 2005. For the second quarter of 2005, the Company reported record net revenues of $263.8 million, an increase of 25% compared to the second quarter of the prior year and posted quarterly net earnings from continuing operations of $20.1 million, or $.46 per diluted share on a post- split basis. As discussed on the call, the recently completed quarter's results were adversely affected by temporary production delays and increased estimated costs related to one of the Company's major defense programs, the Deployable Power Generation and Distribution System (DPGDS), a mobile power generation and distribution system used extensively by U.S. forces deployed around the globe. According to Company Vice Chairman and CEO Gerald A. Potthoff, these temporary developments accounted for an estimated $8 million reduction in pre-tax income from operations compared to the earnings levels previously forecasted by the Company for the second quarter of 2005. During the conference call conducted by Mr. Potthoff, Vice Chairman and CFO Gary C. Gerhardt, and Daniel A. Rodrigues, President and COO, management discussed the current situation with the DPGDS program, its 2005 financial outlook and recent industry and business developments. As discussed on the call, in partnership with its military customers and key subcontractors, the Company is continuing to address the underlying causes of performance issues with the primary power units, a key component of the DPGDS, and is in the process of implementing a remediation plan which it expects will result in recommencement of full rate production of the program once testing is completed early in the fourth quarter of 2005. As a result of these delays the Company revised its previously existing revenue and earnings forecast for 2005 and is now forecasting significantly higher overall revenues of between $1.02 billion and $1.05 billion, an increase of 15% to 19% from the prior year, and earnings per share from continuing operations of $87 million to $88 million, or $2.00 to $2.03 (post- split), for the current year, an increase in earnings per share of 10% to 12% over 2004 levels. Potthoff commented on the DPGDS situation and its revised financial forecast, "Although successful completion of reliability testing remains as the key hurdle in the near term, we fully expect to be successful in getting DPGDS production back on line in the fourth quarter of this year. Through the strength of our broad business base, we have actually increased our 2005 revenue forecast and expect to largely mitigate the net adverse financial impact of the program on this year's financials. Given the significance of the expected profit contributions from the DPGDS program, our ability to replace nearly $10 million in pre-tax operating earnings via other profitable growth in a variety of product and service areas represents a remarkable achievement for our team. Our diversity and lack of reliance on any single program provides strength to ESSI's financial position and long-term prospects for new business." Also during the conference call, the Company significantly increased its 2005 expected free cash flow (cash flow from operations less capital expenditures) with $75 million now expected for the full year. Free cash flow for the first half of 2005 totaled $27 million. Strong earnings growth, despite the impact of the DPGDS delays, combined with improved working capital management will contribute to the anticipated record level of free cash flow in 2005. Engineered Support's total backlog level reached a new milestone totaling a record of nearly $2.1 billion as of the end of its second quarter. Several large, multi-year contract awards were received during the quarter boosting backlog above the $2 billion mark for the first time in the Company's history. Entered orders for the year totaling $1.1 billion are anticipated including certain contributions from the Pentagon's recently enacted $82 billion Supplemental spending bill. This represents a solid base of business growth for future years to come. In its remarks Company management announced the receipt of another major contract award -- a multi-year follow-on contract with the U.S. Army to provide telecommunications support services under its Rapid Response (or R2) contract vehicle. Initial funding under the $172 million ceiling, two-year contract (including an option year) totaled $10.5 million and supports continuation of the Company's Technical and Management Services Company (TAMSCO) efforts in this growing area. "We remain quite optimistic about our long-term prospects for continued business growth in the military and homeland security markets we serve. Opportunities for remote telecommunications support, equipment refurbishment and replacement, logistics services and the development and production of next generation military sustainment solutions abound. We appreciate the support of our shareholders as we address the performance issues on the DPGDS program over the next couple months and look forward to a very bright future for Engineered Support," Potthoff concluded. Engineered Support Systems, Inc. designs, manufactures and supplies integrated military electronics, support equipment and technical and logistics services for all branches of America's armed forces and certain foreign militaries, homeland security forces and selected government and intelligence agencies. The Company also produces specialized equipment and systems for commercial and industrial applications. To access the archived webcast of the call or for additional information, please visit the Company's website at http://www.engineeredsupport.com/ . Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for historical information contained herein, the matters set forth in this news release are forward-looking statements. The forward- looking statements set forth above involve a number of risks and uncertainties that could cause actual results to differ materially from any such statement. Important factors which could cause the Company's actual results to differ materially from those projected in, or inferred by, forward-looking statements include, but are not limited to, the following: the decision of any of the Company's key customers, including the U.S. government, to reduce or terminate orders with the Company; cutbacks in defense spending by the U.S. government; increased competition in the Company's markets; the Company's ability to achieve and integrate acquisitions; and other risks discussed in the Company's reports filed with the Securities and Exchange Commission from time to time. DATASOURCE: Engineered Support Systems, Inc. CONTACT: Larry Cox, Communications Mgr of Engineered Support Systems, Inc., +1-314-553-4960, Web site: http://www.engineeredsupport.com/

Copyright