Exhibit 99
[ESSI logo]
ENGINEERED SUPPORT SYSTEMS, INC.____________________________________________
201 Evans Lane o St. Louis, MO 63121-1126
For further information, please contact
Gary C. Gerhardt
(314) 553-4982
ENGINEERED SUPPORT POSTS RECORD
FOURTH QUARTER AND FISCAL 2004 RESULTS;
RAISES REVENUE AND EARNINGS FORECAST FOR FISCAL 2005
o QUARTERLY REVENUES UP 51% TO $256.4 MILLION
o QUARTERLY NET EARNINGS FROM CONTINUING OPERATIONS ADVANCE 53% TO
$21.3 MILLION
o FOURTH QUARTER EPS FROM CONTINUING OPERATIONS UP 46% TO $.76 VS.
$.52 IN 2003
o YEAR-END CONTRACT BACKLOG OF $1.4 BILLION
ST. LOUIS, MO. - DECEMBER 14, 2004 - ENGINEERED SUPPORT SYSTEMS, INC.
(Nasdaq: EASI) reported record net earnings from continuing operations of
$21.3 million, or $.76 per diluted share, for the quarter ended October 31,
2004 compared to $13.9 million, or $.52 per diluted share, for the same
period last year. Net revenues also set an all-time quarterly record at
$256.4 million, up 51% over the $170.3 million for the fourth quarter of
last year. Fourth quarter net revenues were also substantially above the
Company's forecasted levels for the period as work on certain contracts was
accelerated to meet customer requirements. Solid revenue growth was
experienced in both the Support Systems and Support Services business
segments with overall organic revenue growth for the quarter of 49%,
according to GERALD A. POTTHOFF, VICE CHAIRMAN, CEO AND PRESIDENT.
Fourth quarter operating income from continuing operations of a record $33.7
million was 44% above the $23.4 million reported for the same quarter in the
prior year. As a percentage of net revenues, operating income from
continuing operations was 13.1% for the current quarter as compared to 13.7%
for the fourth quarter of fiscal 2003. However, it should be noted that the
current quarter includes a pre-tax charge of $5.0 million ($4.2 million of
which was non-cash), related to the departure of its previous CEO in August
of this year. Earnings before interest, income taxes, depreciation and
amortization (EBITDA) from continuing operations for the current quarter
climbed 46% to a record $37.1 million, or 14.5% of net revenues.
Net income from continuing operations for the fourth quarter advanced 53% to
a record $21.3 million (8.3% of net revenues) compared to $13.9 million
(8.2% of net revenues) last year. Excluding the after-tax severance costs
noted above, net income from continuing operations totaled $24.4 million
(9.5% of net revenues) in the current quarter. Contributions from increased
net revenues in 2004 drove earnings higher during the period as compared to
the prior year.
2
Potthoff commented, "The fourth quarter's results capped a truly exceptional
year in 2004. Our financial performance was outstanding with quarterly
revenues topping the $250 million mark for the first time in our history
with strong profit margins posted across the board. This combined to drive
quarterly earnings to record levels once again. We expect to continue this
momentum forward into 2005 particularly with the inclusion of our recently
announced acquisition of satellite communications network provider Spacelink
International, which we will discuss in more detail during our conference
call later this morning."
o FISCAL 2004 REVENUES UP 54% TO $883.6 MILLION
o NET EARNINGS FROM CONTINUING OPERATIONS GREW 75% TO $75.9 MILLION
FOR YEAR
o FISCAL 2004 EPS FROM CONTINUING OPERATIONS UP 62% TO $2.72
For the year ended October 31, 2004, net revenues grew by 54% to a record
$883.6 million compared to $572.7 million last year. Fiscal 2004 operating
income from continuing operations of $123.3 million and EBITDA from
continuing operations of $137.6 million progressed by 70% and 69%,
respectively, over fiscal 2003 levels. Net income from continuing operations
for the year totaled a record $75.9 million, or $2.72 per diluted share,
compared to $43.3 million, or $1.68 per diluted share, for fiscal 2003.
Reflecting its strong earnings performance, the Company generated record
free cash flow (cash flow from operations less capital expenditures) of
$57.4 million during fiscal 2004 with a substantial portion of that
occurring in the fourth quarter as anticipated. The Company expects that its
cash flow metrics will improve still further in fiscal 2005 as existing
working capital levels related to contracts currently in process are
reduced. The Company employed its cash flow to repay over $70 million in
bank debt during the year and had some $33 million of cash on the balance
sheet as of October 31, 2004. Engineered Support will utilize cash on hand
plus borrowings under its existing line of credit to fund its recently
announced acquisition of Spacelink International LLC.
Potthoff commented, "Through the focused efforts of our eleven operating
subsidiaries in serving the demanding needs of our military, intelligence
and industrial customers, we posted yet another record year for revenues,
operating profit and net earnings - marking a dozen years in a row of
year-over-year growth. Net revenues approached the $900 million level in
2004 while earnings and margins continued their impressive track record and
cash flow generation remained robust.
Certainly, selected acquisitions have greatly expanded our existing
manufacturing and service capabilities over the years, but, more critically,
our ability to then leverage our collective business development and
organizational resources has been a huge part of our enduring success as a
company. The overriding commitment of our management and employees to
function as a cohesive team is what allows our entrepreneurial business
model to flourish. Growing our business is indeed important, but effectively
managing that growth is what will allow Engineered Support Systems to
achieve our goals as an organization. As we continue on our strategic path
to provide superior sustainment solutions to those who serve in the changing
world that we are faced with today, the need for teamwork has never been
greater."
3
BUSINESS SEGMENT RESULTS
For the fourth quarter, the Support Systems segment reported net revenues of
$138.0 million compared to $99.4 million (prior to the elimination of
inter-segment revenues in each period) for the same quarter in the prior
year, a 39% increase. Organic revenue growth for the segment totaled an
impressive 36% with additional work on several Support Systems programs
during the quarter, while the inclusion of two smaller acquisitions,
Engineered Environments and Pivotal Power, contributed as well. Programs
with the largest revenue gains during the quarter primarily included the
Manportable Surveillance and Target Acquisition Radar (MSTAR) being used for
a variety of perimeter security applications, M1000 Heavy Equipment
Transporters which are being refurbished after their recent battlefield
deployment in Iraq, and inter-segment production work on vehicle uparmor
kits being performed for the Support Services segment. Segment revenue
growth was partially offset by reduced work on the 60-K Tunner Aircraft
Cargo Loader contract as production work on that contract winds down in
mid-2005.
Quarterly operating income for the Support Systems segment climbed to $21.3
million (15.5% of segment revenues) compared to $18.1 million last year.
This included the allocation of $3.1 million of the one-time severance costs
noted above. Incremental revenues and related gross profit contributions
plus cost savings realized under the Company's facility rationalization
initiatives led to the overall improved results for the Support Systems
segment.
Net revenues of the Support Services segment climbed to $138.7 million
compared to $72.5 million (prior to the elimination of inter-segment
revenues in each period) for the fourth quarter of 2003, due to significant
internal growth in several business areas. This marks the first period in
which quarterly revenues for the Services segment outpaced those of the
Company's manufacturing-based segment and signifies the rapid organic growth
potential in the Services area. Sizeable year-over-year revenue increases
were noted on several existing programs, including the DPGDS power
generation system and satellite telecommunications support, while newer
programs such as vehicle uparmor kits at Radian, ESSIbuy's U.S. Army depot
support efforts and work under TAMSCO's Rapid Response (R2) contract
contributed significantly during the period as well.
Quarterly operating income for the Support Services segment rose to $12.3
million (8.9% of segment revenues) compared to $5.2 million last year.
Services segment profit margins increased as a result of contributions from
the increase in revenues noted above. This included the allocation of $1.9
million of the one-time severance costs noted above.
Potthoff stated, "The synergy among our assembled business units as well as
between our Systems and Services segments really gained momentum during
2004. This spirit of collaboration and teamwork has been displayed by our
people in many ways - from the successful launch of our vehicle uparmor
program by Radian and SEI; to the use of the R2 contract as a vehicle for
new logistics support work for ESSIbuy or for incremental Systems production
orders; to the array of internal resources brought to bear to recently win a
key development contract, AMMPS, for next generation power systems. The list
goes on and on. As we move forward, we will continue to leverage the
collective capabilities of the Engineered Support family for the benefit of
our customers, employees and shareholders in delivering responsive,
innovative solutions to the marketplace."
4
ENTERED ORDERS AND BACKLOG
On the strength of $190 million in bookings during the fourth quarter,
entered orders for 2004 totaled a record $938 million, or 43% above the
level of the prior year, yielding a book-to-bill ratio of 1.06 to 1. These
orders resulted in a year-end funded contract backlog of a record $588
million and a total backlog including primarily unfunded options on
long-term production contracts of $1.4 billion. It should be noted that
unfunded backlog excludes any potential business under many of the Company's
multi-year services contracts, including its $2.9 billion ceiling Rapid
Response contract with the U.S. Army.
ACQUISITION OF SPACELINK INTERNATIONAL
On December 9, 2004, the Company announced that it had entered into a
definitive agreement to purchase Spacelink International, LLC (Spacelink)
for total initial consideration of $150.5 million in cash and common stock.
Spacelink, based in Dulles, Virginia, is involved in the design,
integration, operation and maintenance of deployed satellite and wireless
networks for the U.S. Department of Defense (DoD), the U.S intelligence
community and other forward deployed federal agencies and multinational
organizations worldwide. Spacelink has grown rapidly in recent years,
expecting to post revenues for calendar year 2004 of approximately $95
million, with profit margins in the mid-teens. The acquisition of Spacelink
will be immediately accretive to earnings once the transaction closes within
the next sixty days pending customary closing conditions and regulatory
approval. Engineered Support will utilize cash on hand as well as
availability under its existing $200 million revolving credit facility to
fund the $138.5 million cash portion of the purchase price and will issue
approximately 228,000 unregistered shares of common stock worth
approximately $12 million (as determined based upon average closing share
prices for the last thirty trading days prior to the date of the agreement).
Commenting on the pending acquisition, Potthoff stated, "Spacelink is an
excellent complement to our military telecommunications support business at
TAMSCO, and it will solidify ESSI's position as a major player in this
increasingly vital area of global U.S. military operations. Any time our
forces deploy, they must provide for literally every facet of their basic
infrastructure, including food, water, fuel, power, air conditioning,
heating, transport, security as well as satellite telecommunications
capabilities, in order to sustain themselves - to sustain the fight so to
speak. As a leader in the military sustainment arena, Engineered Support
increasingly provides products, services and support that fulfill our
forces' many needs in these essential areas. Spacelink's close customer
relationships, variety of contract vehicles and demonstrated track record
over the past ten years in delivering turn-key satellite network solutions
represent a formidable addition to the ESSI family."
OUTLOOK FOR 2005
Potthoff concluded, "Including the post-acquisition financial results of
Spacelink, expected to close early in the second quarter, we are forecasting
revenues at this point of $975 million to $985 million for fiscal 2005,
excluding any additional potential acquisitions. From this solid revenue
base, we expect to derive fiscal 2005 earnings of $3.10 to $3.15 per share -
roughly an increase of 15% over last year.
5
Obviously, the heightened state of U.S. military involvement around the
globe, particularly in Southwest Asia, remains a key catalyst for our
Company. The likelihood of supplemental appropriations by Congress to
support ongoing operations as well as funding for the recapitalization of
military equipment readiness levels provide fertile new business initiatives
for ESSI. As a flexible, capability-based defense contractor, Engineered
Support Systems is indeed well positioned to quickly respond to our
customers' needs on a variety of fronts and stands ready to respond. We are
prepared to update our financial forecast in the coming months should any of
a number of emerging business development opportunities transpire."
In conjunction with this release, Engineered Support Systems will host a
conference call, which will be simulcast over the Internet. Michael F.
Shanahan, Sr., Chairman, Gerald A. Potthoff, Vice Chairman, CEO and
President, and Gary C. Gerhardt, Vice Chairman-Administration and CFO, will
host the call, which is scheduled for today, December 14, 2004 at 11 a.m.
EST. Listeners can access the conference call live and archived over the
Internet via the Company's website at http://www.engineeredsupport.com.
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.
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.
6
ENGINEERED SUPPORT SYSTEMS, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED
OCTOBER 31 OCTOBER 31
---------------------- ----------------------
2004 2003 2004 2003
---- ---- ---- ----
(UNAUDITED)
Net Revenues from
Continuing Operations $256,373 $170,312 $883,630 $572,701
======== ======== ======== ========
EBITDA from
Continuing Operations* $ 37,111 $ 25,495 $137,577 $ 81,430
Depreciation and Amortization (3,457) (2,250) (12,991) (8,961)
Gain (Loss) on Asset Sales - 130 (1,290) 147
-------- -------- -------- --------
Operating Income from
Continuing Operations 33,654 23,375 123,296 72,616
Net Interest (Expense) Income 46 (515) (862) (1,660)
Income Tax Provision (12,363) (8,913) (46,525) (27,673)
-------- -------- -------- --------
Net Income from
Continuing Operations 21,337 13,947 75,909 43,283
Net Income (Loss) from
Discontinued Operations (169) 125
-------- -------- -------- --------
Net Income $ 21,337 $ 13,778 $ 75,909 $ 43,408
======== ======== ======== ========
Earnings per Share:
Basic - Continuing Operations $ 0.80 $ 0.57 $ 2.92 $ 1.79
Basic - Discontinued Operations (0.01)
-------- -------- -------- --------
Basic - Total $ 0.80 $ 0.56 $ 2.92 $ 1.79
======== ======== ======== ========
Diluted - Continuing Operations $ 0.76 $ 0.52 $ 2.72 $ 1.68
Diluted - Discontinued Operations (0.01)
-------- -------- -------- --------
Diluted - Total $ 0.76 $ 0.51 $ 2.72 $ 1.68
======== ======== ======== ========
<FN>
* Earnings before interest, income taxes, depreciation and amortization.
7
ENGINEERED SUPPORT SYSTEMS, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED
OCTOBER 31 OCTOBER 31
---------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
(UNAUDITED)
EBITDA from
Continuing Operations* $ 37,111 $ 25,495 $137,577 $ 81,430
Net Interest (Expense) Income 46 (515) (862) (1,660)
Income Tax Provision (12,363) (8,913) (46,525) (27,673)
Net Decrease (Increase)
in Working Capital
and Other Assets 15,991 (11,432) (30,419) 12,746
-------- -------- -------- --------
Net Cash Provided by
Continuing Operations $ 40,785 $ 4,635 $ 59,771 $ 64,843
======== ======== ======== ========
<FN>
* Earnings before interest, income taxes, depreciation and amortization
(EBITDA) is, in the opinion of Company management, a valuable analytical
tool useful by both the Company and the investment community in determining
financial performance relative to the Company's historical results of
operations, as well as those of its peers. EBITDA is a non-GAAP financial
measure.
8
ENGINEERED SUPPORT SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED
OCTOBER 31 OCTOBER 31
--------------------- ---------------------
2004 2003 % CHANGE 2004 2003 % CHANGE
---- ---- -------- ---- ---- --------
(UNAUDITED)
Net revenues $256,373 $170,312 50.5% $883,630 $572,701 54.3%
Cost of revenues 190,195 127,343 49.4% 660,940 434,642 52.1%
-------- -------- -------- --------
Gross profit 66,178 42,969 54.0% 222,690 138,059 61.3%
Selling, general and administrative expense 32,523 19,608 65.9% 98,042 63,832 53.6%
Restructuring expense 1 116 62 1,758
Gain (loss) on sale of assets 130 (1,290) 147
-------- -------- -------- --------
Operating income from continuing operations 33,654 23,375 44.0% 123,296 72,616 69.8%
Net interest expense (income) (46) 515 (108.9)% 862 1,660 (48.1)%
-------- -------- -------- --------
Income from continuing operations 33,700 22,860 47.4% 122,434 70,956 72.5%
Income tax provision 12,363 8,913 38.7% 46,525 27,673 68.1%
-------- -------- -------- --------
Net income from continuing operations 21,337 13,947 53.0% 75,909 43,283 75.4%
Income (loss) from discontinued
operations, net of income tax (169) 125
-------- -------- -------- --------
Net income $ 21,337 $ 13,778 54.9% $ 75,909 $ 43,408 74.9%
======== ======== ======== ========
Basic earnings per share (1):
Continuing operations $ 0.80 $ 0.57 40.4% $ 2.92 $ 1.79 63.1%
Discontinued operations (0.01)
-------- -------- -------- --------
Total $ 0.80 $ 0.56 42.9% $ 2.92 $ 1.79 63.1%
======== ======== ======== ========
Diluted earnings per share (1):
Continuing operations $ 0.76 $ 0.52 46.2% $ 2.72 $ 1.68 61.9%
Discontinued operations (0.01)
-------- -------- -------- --------
Total $ 0.76 $ 0.51 49.0% $ 2.72 $ 1.68 61.9%
======== ======== ======== ========
Weighted average common shares outstanding (1):
Basic 26,631 24,568 8.4% 25,991 24,203 7.4%
======== ======== ======== ========
Diluted 28,004 26,771 4.6% 27,866 25,838 7.8%
======== ======== ======== ========
<FN>
(1) All share and per share amounts have been adjusted to reflect a 3-for-2
stock split as of October 31, 2003.
9
ENGINEERED SUPPORT SYSTEMS, INC.
BUSINESS SEGMENT RESULTS
(IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED
OCTOBER 31 OCTOBER 31
--------------------- ---------------------
2004 2003 % CHANGE 2004 2003 % CHANGE
---- ---- -------- ---- ---- --------
(UNAUDITED)
NET REVENUES:
Support Systems $137,967 $ 99,358 38.9% $514,702 $389,301 32.2%
Support Services 138,725 72,503 91.3% 410,446 188,344 117.9%
Intersegment Revenues (20,319) (1,549) (41,518) (4,944)
-------- -------- -------- --------
Total $256,373 $170,312 50.5% $883,630 $572,701 54.3%
======== ======== ======== ========
OPERATING INCOME FROM CONTINUING OPERATIONS:
Support Systems $ 21,332 $ 18,132 17.6% $ 92,966 $ 54,200 71.5%
Support Services 12,322 5,243 135.0% 30,330 18,416 64.7%
-------- -------- -------- --------
33,654 23,375 44.0% 123,296 72,616 69.8%
NET INTEREST EXPENSE (INCOME) (46) 515 (108.9)% 862 1,660 (48.1)%
-------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES $ 33,700 $ 22,860 47.4% $122,434 $ 70,956 72.5%
======== ======== ======== ========
10
ENGINEERED SUPPORT SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 31 OCTOBER 31
2004 2003
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 33,153 $ 2,880
Accounts receivable 139,191 90,805
Contracts in process and inventories 61,009 50,959
Deferred income taxes 6,921 5,939
Other current assets 3,303 4,668
---------- ----------
Total current assets 243,577 155,251
Property, plant and equipment 46,946 50,366
Goodwill 167,358 191,332
Acquired customer-related intangibles 38,314 11,049
Other assets 15,396 11,303
---------- ----------
Total Assets $ 511,591 $ 419,301
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ $ 73,100
Current maturities of long-term debt 340 90
Accounts payable 71,796 48,609
Other current liabilities 59,393 62,762
---------- ----------
Total current liabilities 131,529 184,561
Long-term debt 781
Other liabilities 42,325 37,573
Shareholders' Equity 336,956 197,167
---------- ----------
Total Liabilities and Shareholders' Equity $ 511,591 $ 419,301
========== ==========
FUNDED BACKLOG OF ORDERS $ 588,061 $ 533,439
OPTIONS ON EXISTING ORDERS 849,157 922,735
---------- ----------
$1,437,218 $1,456,174
========== ==========
* * * *