Edgar Filing: ENGINEERED SUPPORT SYSTEMS INC

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, 2004 Commission file number 0-13880

ENGINEERED SUPPORT SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

Missouri 43-1313242
(State of Incorporation) (IRS Employer Identification No.)

201 Evans Lane, St. Louis, Missouri 63121
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code: (314) 553-4000

Securities registered pursuant to Section 12(b) of the Securities Exchange
Act of 1934: None

Securities registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934:

Name of each exchange on
Title of each class which registered
------------------- ------------------------

Common stock, $.01 par value Nasdaq National
Market System

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 .
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in the definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X
---

Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes X No .
--- ---

Based on the closing price on December 31, 2004, the aggregate
market value of the voting stock held by non-affiliates of the Registrant
was approximately $1,241,347,000.

The number of shares of the Registrant's common stock, $.01 par
value, outstanding at December 31, 2004 was 26,837,381.

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, 2004. Part III incorporates by reference portions
of the Engineered Support Systems, Inc. Proxy Statement for the Annual
Shareholders Meeting to be held on March 1, 2005 (the Definitive Proxy
Statement) to be filed within 120 days after the close of the year ended
October 31, 2004.

PART I

ITEM 1. BUSINESS
------- --------

Engineered Support Systems, Inc. (the Company) is a holding company
for twelve wholly-owned subsidiaries. These subsidiaries are organized
within the Company's two business segments: Support Systems and Support
Services. The Support Systems segment designs, engineers and manufactures
integrated military electronics and other military support equipment
primarily for the U.S. Department of Defense (DoD), as well as related heat
transfer and air handling equipment for domestic commercial and industrial
users, and material handling equipment primarily for the U.S. Postal
Service. The Support Systems segment includes the operations of Systems &
Electronics Inc. (SEI), Keco Industries, Inc. (Keco), Engineered Air
Systems, Inc. (Engineered Air), Engineered Coil Company, d/b/a Marlo Coil
(Marlo Coil), Engineered Electric Company, d/b/a Fermont (Fermont),
Universal Power Systems, Inc. (UPSI), Engineered Environments, Inc. (EEi),
Pivotal Power Inc. (Pivotal Power) and Prospective Computer Analysts
Incorporated (PCA), which was acquired January 7, 2005. The Support Services
segment provides engineering services, logistics and training services,
advanced technology services, asset protection systems and services,
telecommunication systems integration and information technology services
primarily for the DoD. The Support Services segment includes the operations
of Technical and Management Services Corporation (TAMSCO), Radian, Inc.
(Radian) and ESSIbuy.com, Inc. (ESSIbuy). Substantially all revenues within
these two segments are directly or indirectly derived from contracts with
the DoD and certain foreign militaries.

Engineered Air was incorporated under the laws of the State of
Missouri on December 24, 1981 and acquired the assets of the Defense Systems
Division of Allis-Chalmers Corporation on March 30, 1982. The Company was
incorporated under the laws of the State of Missouri in December 1983, and
exchanged all of its outstanding common stock for two-thirds of the common
stock of Engineered Air held by the Company's founders. The Company
purchased the remaining one-third of the common stock of Engineered Air in
January 1984, effective as of November 1, 1983. The Company became a
publicly owned corporation on August 21, 1985. On March 9, 1993, the Company
purchased all of the outstanding stock of Associated Products, Inc.
(subsequently changed to Engineered Specialty

Plastics, Inc.). Effective February 1, 1998, Engineered Coil Company
acquired substantially all of the net assets of Nuclear Cooling, Inc., d/b/a
Marlo Coil. On June 24, 1998, the Company acquired all of the outstanding
common stock of Keco. On February 22, 1999, Engineered Electric Company
acquired substantially all of the net assets of the Fermont Division of
Dynamics Corporation of America, d/b/a Fermont. On September 30, 1999, the
Company acquired all of the outstanding common stock of SEI. On May 10,
2002, the Company acquired all the outstanding common stock of Radian. On
June 27, 2002, the Company acquired all the outstanding stock of UPSI. On
May 1, 2003, the Company acquired all of the outstanding stock of TAMSCO. On
September 24, 2003, the Company acquired all of the outstanding stock of
EEi. On December 5, 2003, the Company acquired all of the outstanding stock
of Pivotal Power. On January 7, 2005, the Company acquired all of the
outstanding stock of PCA. Effective December 9, 2004, the Company entered
into a definitive purchase agreement to acquire the membership interests of
Spacelink International, LLC. This transaction is expected to close in
February, 2005.

PRODUCTS

Products within the Company's Support Systems segment include
environmental control systems, load management and transport systems, power
generation, distribution and conditioning systems, airborne radar systems,
reconnaissance, surveillance and target acquisition systems, chemical and
biological protection systems, petroleum and water distribution systems and
other multipurpose military support equipment. The Support Services segment
provides engineering services, logistics and training services, advanced
technology services, asset protection systems and services,
telecommunication systems integration and information technology services
primarily for the DoD. The Support Services segment also provides certain
power generation and distribution equipment and vehicle armor installation
to the DoD.

The sections in the Annual Report entitled "Business Segments
within Continuing Operations" within Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Note L of the
Consolidated Financial Statements are incorporated herein by reference.

ENGINEERING AND DESIGN

As the Company has grown both internally and through acquisition,
it has significantly increased its engineering capabilities. The Company
currently has 965 people engaged in engineering activities that encompass
advanced development, engineering research and development, product
improvement and evolution, new product development, productionization,
logistic and life cycle support, product re-engineering and support
services. The Company's depth of engineering capabilities allows it to cover
all phases of a project from conception to full-life cycle support.

The majority of development activities are conducted pursuant to,
and funded directly or indirectly through, DoD contracts in response to
designated performance specifications. The Company's expenditures on
internal research and development (IRAD) were approximately $4.3 million,
$2.9 million and $1.8 million for the years ended October 31, 2004, 2003 and
2002, respectively. The Company anticipates that IRAD will approximate $5.0
million in fiscal year 2005. The Company also anticipates a significant
increase in DoD contracted research and development (CRAD) in fiscal 2005
and beyond. The Company believes that its engineering expertise gives it a
significant competitive advantage in the development of differentiated
products.

The Company's engineering expertise is complementary to the
military markets it serves, primarily the environmental control, power,
electronics, heavy mechanical and material handling, security,
communications, service and logistical support markets. The Company has
engineering capabilities in the areas of system design and analysis,
electronic signal processing, power electronics, software, firmware,
mechanical design, control, electro-mechanical, electro-optical,
electro-chemical, acoustics, thermodynamics, fluid and air flow, fluid
pumping, HVAC, liquid fuel combustion, chemical and biological hardened
environmental control, filtration and decontamination, power system
analysis, environmental control system analysis, stress analysis, water
treatment analysis, water purification technology, radar, target acquisition
systems, automatic test equipment, communication system analysis and all the
logistic support disciplines to include reliability, maintainability,
embedded diagnostics and prognostics, training and the development of
web-based interactive electronic technical manuals (IETM). Company
subsidiaries

within the Support Services segment have engineering expertise in such
diverse fields as re-engineering obsolete mechanical and electronic
products, nano-hardened products, security system design, fuel cells and
super critical reformation. The Company's engineering expertise has
significant overlap throughout its operating subsidiaries, allowing it to
leverage engineering personnel and technologies, and to function as an
integrated team.

The Company's design and development of new products is enhanced by
a number of computer-aided design and manufacturing (CAD/CAM) systems as
well as a number of automated system design and analysis tools. CAD/CAM
tools are used by both engineers and draftsmen to design and validate
complex products and component parts. The Company utilizes both two- and
three-dimensional CAD/CAM tools, providing both design and production
engineers an interactive environment with which to view the final product
and all the relevant interfaces. These tools are compatible across all of
the Company's operating subsidiaries, allowing for virtual design and
development without regard to geographical location. The Company's
engineering technologies and expertise provide it with the ability to adapt
its production processes to new product needs on a timely basis. The Company
also has the capability to provide complete technical data support for the
products it manufactures to include integrated logistics support, spare
parts provisioning and preparation of technical manuals.

The Company intends to leverage its engineering and design
capabilities to continue to develop and evolve differentiated products and
services that address both the current and future needs of the DoD for rapid
deployment, smaller, lighter and more efficient equipment, and for
innovative, value-added service offerings.

MARKETING AND BUSINESS DEVELOPMENT

The Company's business development efforts are undertaken at two
functional levels. The Company's corporate operation focuses on long-term
strategic planning, policy development, best practice identification and
dissemination, and on major programs which require the bundling of products
and services across traditional subsidiary lines. In addition, the Company's
corporate Washington D.C. operations interface with service staffs within
the Pentagon and liaisons with key Congressional delegations. At the
subsidiary level, a sales force is engaged

to identify and pursue programs with specific customers in a variety of
markets. With increased emphasis on the Company's vision for the future,
efforts have begun to strengthen the long-term strategic planning process.
Market-based peer groups enable experts throughout the Company to share
knowledge and collectively recommend direction and strategy. These peer
groups also evaluate market intelligence, customer knowledge and core
competencies to refine the Company's growth strategies.

The Company's Business Development Organization meets on a regular
basis to identify and disseminate best practices in the areas of proposal
development and market presence. The sales force shares customer and market
intelligence, identifies key opportunities and assesses campaign strategies.
The Company gathers information from primary sources such as the DoD budget
and its supporting documents, and military requirements documents such as
Initial Capabilities Documents, along with direct interface with its
customers. The Company analyzes this data through an established business
opportunity procedure and then determines whether or not to bid on specific
projects based upon determinations of potential profitability and the
likelihood of award.

Major marketing and business development efforts in fiscal 2005 can
be segmented into four areas. The first will be increasing the Company's
relationship with prime contractors. With continued emphasis from DoD for
Lead System Integrators (LSI) and few companies qualifying for that role,
the Company has developed marketing efforts to support specific companies in
their LSI roles. Secondly, the Company will continue to engage with
non-traditional military customers, including the Homeland Security, the
Coast Guard and international markets. Thirdly, significant resources will
be devoted to winning next generation programs in our traditional markets of
power generation, environmental controls and sustainment systems. Finally,
as the DoD moves to reset equipment used `in theatre', the Company will
emphasize depot support initiatives that enable consistent and efficient
refurbishment of equipment.

PURCHASED COMPONENTS AND RAW MATERIALS

The Company's products require a wide variety of components and
materials. Although the Company has multiple sources of supply for most of
its material requirements, sole-source vendors supply certain components,
and

the Company's ability to perform certain contracts depends on their
performance. In the past, these required raw materials and various purchased
components generally have been available in sufficient quantities.

GOVERNMENT CONTRACTING

The Company's government contracts are obtained through the DoD
procurement process as governed by the Federal Acquisition Regulations and
related regulations and 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 permit the U.S. government to
unilaterally terminate these contracts at its convenience. 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

could be entitled to reimbursement of all allowable and allocable costs
incurred in making the change plus a reasonable profit.

For manufactured items, the U.S. government typically finances a
substantial portion of the Company's contract costs through progress
payments. As such, the Company receives progress payments in accordance with
DoD contract terms which provide progress payments at 75% to 90% of costs
incurred.

INTELLECTUAL PROPERTY

The Company owns various patents and other forms of intellectual
property. From time to time, the Company develops proprietary information
and trade secrets regarding the design and manufacture of various products.
The Company considers its proprietary information and intellectual property
to be valuable assets. However, the Company's business is not materially
dependent on their protection.

COMPETITION

The markets for all of the Company's products and services 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 large number of suppliers
to commercial and industrial air handling customers. In all phases of its
operations, the Company competes in both performance and price with
companies, some of which are considerably larger, more diversified and have
greater financial resources than the Company.

BACKLOG

The Company records its backlog as either funded or unfunded
backlog. The Company's funded backlog was $588.1 million and $533.4 million
as of October 31, 2004 and 2003, respectively. The Company's funded backlog
is subject to fluctuations and is not necessarily indicative of future
revenues. Funded backlog represents

products or services that the customer has committed by contract to purchase
from the Company. Unfunded backlog includes products or services that the
customer has the option to purchase under contract with the Company,
including, with respect to contracts which include a maximum amount
purchasable by the customer thereunder, such maximum amount, and with
respect to contracts without a specified maximum amount, the Company's
estimate of the amount it expects the customer to purchase using the Best
Estimated Quantity (BEQ) as a guide where a BEQ is specified. There are no
commitments by the customer to purchase products or services included in
unfunded backlog and there can be no assurance that any or all amounts
included therein will generate revenue for the Company. Moreover,
cancellations of purchase orders or reductions of product quantities or
levels of service to be provided in existing contracts could substantially
reduce the Company's funded backlog and, consequently, future net revenues.
Failure of the Company to replace canceled or reduced backlog, whether
funded or unfunded, could have a material adverse effect on the Company's
business, financial condition and results of operations in subsequent
periods.

The following table summarizes funded and unfunded defense backlog
(in millions) as of the indicated dates:

Funded Unfunded
Defense Backlog Defense Backlog
--------------- ---------------

October 31, 2004 $588.1 $849.2
October 31, 2003 533.4 922.8
October 31, 2002 350.1 868.6
October 31, 2001 291.7 681.8
October 31, 2000 307.3 598.1

EMPLOYEES

As of October 31, 2004, the Company employed 3,277 persons, of
which 1,168 were engaged in manufacturing activities, 965 in engineering
activities and 1,144 in services activities, office administration and
management functions. District No. 9 of the International Association of
Machinists and Aerospace Workers (AFL-CIO) represents 371 employees under a
collective bargaining agreement, which expires March 21, 2008.

The Company considers its overall employee relations to be
satisfactory.

GEOGRAPHIC AREAS

The following table summarizes the Company's net revenues
attributed to the United States and to foreign countries:

Year Ended United Foreign Total
October 31 States Countries Revenues
---------- ------ --------- --------

2004 $853,286 $30,344 $883,630
2003 556,809 15,892 572,701
2002 393,581 14,364 407,945

The Company attributes foreign net revenues based on the domicile of the
purchaser of the product or service.

Of the $511.1 million in total Company assets as of October 31, 2004, $15.1
million were located in countries other than the U.S.

FILING OF PERIODIC REPORTS

The Company regularly files periodic reports with the Securities
and Exchange Commission (SEC), including annual reports on Form 10-K and
quarterly reports on Form 10-Q, as well as, from time to time, current
reports on Form 8-K and amendments to those reports. These filings are
available free of charge on the Company's website at www.engineeredsupport.com,
as soon as reasonably practicable after their electronic filing with the SEC.

ITEM 2. PROPERTIES
------- ----------

The Company conducts its business from 37 manufacturing, warehouse
and office facilities.

Location Description Square Footage
-------- ----------- --------------

West Plains, Missouri (1) Manufacturing/Office 422,000
Florence, Kentucky (1) Manufacturing/Office 265,000
St. Louis County, Missouri (1) Subassembly/Office 256,000
High Ridge, Missouri (1) Manufacturing/Office 185,000
Bridgeport, Connecticut (1) Manufacturing/Office 109,000
Halifax, Nova Scotia, Canada (2) Manufacturing/Office 40,000
Alexandria, Virginia (2) Office 34,000
Cincinnati, Ohio (1) Manufacturing/Office 31,000
Bridgeport, Connecticut (2) Manufacturing 26,000
Polson, Montana (2) Manufacturing/Office 24,000
Troy, Michigan (2) Office 20,000
St. Louis County, Missouri (1) Manufacturing 16,000
Chantilly, Virginia (2) Office 16,000
Tinton Falls, New Jersey (2) Office 15,000
St. Louis County, Missouri (2) Warehouse 14,000
Calverton, Maryland (2) Office 14,000
Warner Robins, Georgia (2) Office 13,000
Fairborn, Ohio (2) Office 13,000
Warner Robins, Georgia (1) Office 11,000
Warner Robins, Georgia (2) Manufacturing/Office 11,000
West Long, New Jersey (2) Office 9,000
Huntsville, Alabama (2) Office 8,000
Melbourne, Florida (2) Manufacturing/Office 8,000
Newington, Virginia (2) Office 6,000
West Plains, Missouri (2) Warehouse 5,000
Cincinnati, Ohio (2) Manufacturing 5,000
Arlington, Virginia (2) Office 4,000
Petersburg, Virginia (2) Office 4,000
Garden City, New York (2) Office 3,000
East Lake, Ohio (2) Office 3,000
Fredericksburg, Virginia (2) Office 2,000
Elizabeth City, North Carolina (2) Office 2,000
Abington, Maryland (2) Office 2,000
Coronado, California (2) Office 1,000
Layton, Utah (2) Office 1,000
San Diego, California (2) Office 1,000
Shrewsbury, New Jersey (2) Office 1,000

(1) - Owned
(2) - Leased

The Company also leases certain other small product support and
service facilities located throughout the United States and abroad. The
Company believes that its current facilities are sufficient for the conduct
of its current level of operations.

The Company also owns a 171,000 square foot facility in St. Louis
County, Missouri which it vacated during the year ended October 31, 2003.
The carrying value of this property was adjusted during the year ended
October 31, 2002 to reflect management's estimated loss on disposal.

ITEM 3. LEGAL PROCEEDINGS
------- -----------------

The Company and its subsidiaries are from time to time parties to
various legal proceedings arising out of their business. Management believes
that there are no such proceedings pending or threatened against them which,
if determined adversely, would have a material adverse effect on the
consolidated financial position, results of operations or cash flows of the
Company.

As discussed in Note E of the Consolidated Financial Statements,
the Company completed the sale of ESP, a wholly-owned subsidiary, in the
quarter ended April 30, 2003 to a private equity group (the Buyers). The
Buyers subsequently alleged that the Company breached certain
representations made under the related Stock Purchase Agreement (the
Agreement) and are seeking $6.0 million in damages from the Company. Under
the terms of the Agreement, this claim is subject to binding arbitration
which the Company believes will be completed by April 30, 2005. The Company
has denied liability and is defending the claim vigorously. The Company also
believes that this claim is without merit and that awarded damages, if any,
will not have a material effect on the consolidated financial position,
results of operations or cash flows of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
------- -----------------------------------------------

A special meeting of the shareholders of the Company was held on
September 15, 2004.

The proposal to amend Article Three of the Company's Articles of
Incorporation to increase the number of authorized shares of common stock
from 30,000,000 to 85,000,000 was approved. There were 19,492,051 votes for
the proposal, 4,491,751 votes against the proposal and 12,799 votes
representing abstentions.

The proposal to approve the Engineered Support Systems, Inc.
Executive Incentive Performance Plan was approved. There were 22,395,399
votes for the proposal, 1,562,097 votes against the proposal and 39,105
votes representing abstentions.

The proposal to grant to the proxyholders the authority to vote in
their discretion with respect to the approval of any proposal to postpone or
adjourn the special meeting to a later date to solicit additional proxies in
favor of the approval of the amendment of the Company's Articles of
Incorporation and/or the approval of the Engineered Support Systems, Inc.
Executive Incentive Performance Plan if there are not sufficient votes for
approval of both proposals at the special meeting was not approved. There
were 11,186,555 votes for the proposal, 12,293,111 votes against the
proposal and 516,935 votes representing abstentions. However, this vote had
no effect on the other actions taken by shareholders at the meeting.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
------- ----------------------------------------------------
SHAREHOLDER MATTERS
-------------------

The Company's common stock trades on the Nasdaq Stock Market under
the symbol EASI. The number of holders of common stock as of January 7, 2005
was approximately 45,300, including 350 shareholders of record and an
estimated 44,950 persons or entities holding common stock in nominee name.
The following table sets forth the high and low stock prices for each
quarter as provided by the Nasdaq Stock Market, as adjusted to reflect a
three-for-two stock split effected by the Company on October 31, 2003.

2004 2003
---------------------- -----------------------
High Low High Low
---- --- ---- ---
QUARTER ENDED:

January 31 $61.93 $45.01 $26.60 $21.00
April 30 55.49 45.50 27.25 20.90
July 31 60.02 44.35 31.20 22.47
October 31 57.39 36.33 46.13 26.80

The Company declared a dividend in the amount of $.018 per
share payable January 31, 2005 to shareholders of record on December 31, 2004.
The Company has paid a dividend of $.018 per share on a semi-annual basis
during the last two fiscal years.

On April 1, 2004, the Company issued 2,036 shares of the Company's
common stock at the stock's then current market price in a private placement
of securities under Section 4(2) of the Securities Act of 1933 to a
consultant of the Company in exchange for services rendered.

The information set forth under the caption "Equity Compensation
Plan Information" in the Company's Definitive Proxy Statement is
incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA
------- -----------------------

Selected financial data for each of the Company's last five fiscal
years is as follows:

Year Ended October 31 (in thousands, except per share amounts)
2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------

RESULTS OF OPERATIONS
Net revenues $ 883,630 $ 572,701 $ 407,945 $365,198 $335,342
===================================================================

Operating income from continuing operations $ 123,296 $ 72,616 $ 48,599 $ 35,853 $ 30,165
===================================================================

Net income from continuing operations $ 75,909 $ 43,283 $ 27,666 $ 18,269 $ 12,711
Discontinued operations 125 (4,133) 307 329
-------------------------------------------------------------------
Net income $ 75,909 $ 43,408 $ 23,533 $ 18,576 $ 13,040
===================================================================

Diluted shares outstanding 27,866 25,838 24,314 22,824 20,433
===================================================================

Diluted earnings per share:
Continuing operations $ 2.72 $ 1.68 $ 1.14 $ 0.80 $ 0.62
===================================================================

Total $ 2.72 $ 1.68 $ 0.97 $ 0.81 $ 0.64
===================================================================

Cash dividends declared per share $ 0.04 $ 0.02 $ 0.02 $ 0.01 $ 0.01
===================================================================

FINANCIAL POSITION AT YEAR END
Total assets $ 511,134 $ 419,301 $ 290,147 $240,435 $238,352
Total debt 1,121 73,190 55,000 63,738 96,797
Shareholders' equity 336,956 197,167 134,857 109,392 78,500
-------------------------------------------------------------------

Funded backlog $ 588,061 $ 533,439 $ 350,063 $291,745 $307,274
Total backlog 1,437,218 1,456,174 1,218,706 973,552 905,421

In order to analyze the comparability of the information reflected
in the above selected financial data, Notes B, D and E of the Notes to
Consolidated Financial Statements of the Annual Report are incorporated
herein by reference.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------

Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Annual Report is incorporated herein by
reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------- ----------------------------------------------------------

Market risks relating to the Company's operations result primarily
from changes in interest rates. In order to manage this risk, the Company
periodically converts its variable-rate debt to fixed rates via interest
rate swaps. In November 2002, Company interest rate swaps on $23.6 million
of variable-rate debt, matured. Given outstanding debt levels, significant
cash flows and anticipated expenditures during fiscal years 2003 and 2004,
Company management has not utilized interest rate swaps or other derivative
contracts to hedge this risk since November 2002. Management does not
believe its exposure to interest rate fluctuations has had, or will have, a
significant impact on the Company's operations. A 10% increase in the
Company's effective interest rate would have resulted in additional interest
expense of $122 for the year ended October 31, 2004.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------

The following sections of the Annual Report are incorporated by reference:

Consolidated Balance Sheets at October 31, 2004 and 2003
Consolidated Statements of Income for the years ended
October 31, 2004, 2003 and 2002
Consolidated Statements of Shareholders' Equity for the years
ended October 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years
ended October 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Supplemental Information

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURES
-------------------------

None.

ITEM 9A. CONTROLS AND PROCEDURES
-------- -----------------------

Gerald A. Potthoff, Vice Chairman, Chief Executive Officer and
President, and Gary C. Gerhardt, Vice Chairman and Chief Financial Officer,
evaluated the Company's disclosure controls and procedures as of October 31,
2004, the end of the Company's 2004 fiscal year, and determined that such
controls and procedures were effective. They have also indicated that there
were no changes in the Company's internal control over financial reporting
during the fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------- --------------------------------------------------

The information set forth under the captions "Election of
Directors", "Director Meetings and Committees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the registrant's Definitive Proxy
Statement is incorporated herein by reference. Executive officers and key
employees of the Company as of January 14, 2005 are as follows:

Name Age Position
---- --- --------

Michael F. Shanahan, Sr. 65 Chairman
Gerald A. Potthoff 64 Vice Chairman, Chief Executive Officer and President
Gary C. Gerhardt 59 Vice Chairman and Chief Financial Officer
Ronald W. Davis 58 President - Business Development
Nicholas R. Innerbichler 62 Group President - Support Services
Daniel A. Rodrigues 49 Group President - Support Systems
Larry K. Brewer 62 President - Washington D.C. Operations
Karen A. Bedell 45 Senior Vice President - Marketing and Strategic Planning
Dan D. Jura 52 Senior Vice President - Sales
Ronald W. Hauser 58 Vice President - Strategy, Plans and Market Research
Allan K. Kaste 58 Vice President - Human Resources
Robert L. Klautzer 60 Vice President - Management Information Systems
Daniel E. Kreher 40 Vice President - Acquisitions and Investor Relations
Steven J. Landmann 45 Vice President - Finance & Controller
David D. Mattern 46 Secretary and General Counsel
John R. Wootton 57 Vice President - Advanced Development and Technology
David D. Burton 62 President (TAMSCO)
Thomas G. Cornwell 49 President (Engineered Air)
Joseph H. Creaghead 61 President (Keco)
Richard P. Dacey 63 President (Radian)
Frederic D. Knight 48 President (UPSI)
James T. Myrick 59 President (SEI)
Gerald A. Nicholson 58 President (Marlo Coil)
Thomas C. Santoro 51 President (Fermont)
Timothy J. Schneider 55 President (EEi)
Carlo M. Shimoon 43 President (Pivotal Power)
Frank A. Tricomi 59 President (ESSIbuy)
Edward H. Wenger 62 President (PCA)

EXECUTIVE OFFICERS
------------------

The officers serve at the discretion of the Board of Directors,
subject to the terms and conditions of their employment agreements.

Michael F. Shanahan, Sr. has been Chairman of the Board of the
Company since 1987. He served as Chief Executive Officer of the Company from
1985 to 2003. Mr. Shanahan also serves on the Board of Directors of Falcon
Products, Inc.

Gerald A. Potthoff has been Vice Chairman, Chief Executive Office
and President of the Company since August 2004 and was President and Chief
Operating Officer of the Company since 1999. Prior thereto, Mr. Potthoff
served as President of Systems & Electronics Inc. from 1991 to 2000.

Gary C. Gerhardt has been Vice Chairman of the Company since 1999
and prior thereto served as Executive Vice President since 1994. He has been
Chief Financial Officer of the Company since 1993.

Ronald W. Davis has been President, Business Development since
2002. Previously, he served as Vice President - Planning & Development since
1999. Prior thereto, he served as Vice President - Marketing for the Company
since 1999 and for Engineered Air Systems, Inc. since 1990.

Nicholas R. Innerbichler was named Group President - Support
Services in 2004. Prior thereto, he was Co-Chairman and Chief Executive
Officer of TAMSCO, which he co-founded in 1982. TAMSCO was acquired by the
Company in 2003.

Daniel A. Rodrigues was named Group President - Support Systems in
2002. Prior thereto, he served as President of SEI since 2000, as Senior
Vice President and General Manager of SEI since 1999 and as its Vice
President of Program Administration since 1995.

Larry K. Brewer has been President - Washington D.C. Operations
since 2003. Previously, he was Senior Vice President-Business Development of
the Company since 2000. Prior thereto, he served SEI as Vice President-

Business Development since 1998, Vice President-Corporate Marketing &
Washington DC Operations since 1997 and Vice President-Government Relations
since 1995.

Karen A. Bedell has been Senior Vice President - Marketing and
Strategic Planning of the Company since 2003. Prior thereto, she served as
Vice President of Community and Education Relations and President of the
Boeing-McDonnell Foundation for the Integrated Defense Group of the Boeing
Company since 2001 and, prior thereto, as Director - Naval Missile Systems
International Programs since 2000. She was F/A-18 Program Manager for
Australia from 1996 to 1999.

Dan D. Jura was named Senior Vice President-Sales of the Company in
2002. Prior thereto, he served as Vice President-Sales for the Company since
1999 and for Engineered Air since 1993.

Ronald W. Hauser has been Vice President - Strategy, Plans and
Market Research of the Company since 2003. Prior thereto, he served as
Director - Market Research of the Company since 2001, as Director - Business
Development of the Company since 2000 and as Program Director of the
Battlefield & Integration Group for SEI from 1999. He served as Director -
Domestic Marketing for SEI from 1995 to 1999.

Allan K. Kaste has been Vice President-Human Resources of the
Company since 2000. He served as Vice President-Human Resources for SEI from
1994 to 2003.

Robert L. Klautzer has been Vice President-Management Information
Systems of the Company since 2000. He served as Vice President-Management
Information Systems and Quality Assurance for SEI from 1997 to 2003.

Daniel E. Kreher has been Vice President - Acquisitions and
Investor Relations of the Company since 2003. Prior thereto, he served as
Director - Acquisitions and Investor Relations since 1999. Prior thereto, he
was Vice President - Finance and Administration of D&K Healthcare Resources,
Inc. since 1996.

Steven J. Landmann has been Vice President-Finance & Controller of
the Company since 1999. Prior thereto, he served as Controller for the
Company since 1998 and for Engineered Air since 1994.

David D. Mattern has been Secretary and General Counsel for the
Company since 1999. Prior thereto, he served as the Company's Secretary
since 1992 and as outside legal counsel to the Company.

John R. Wooton has been Vice President-Advanced Development and
Technology of the Company since 2000. He served as Vice President-Technology
for SEI since 1997 and, prior thereto, as its Director-Technology since
1994.

David D. Burton was named President of TAMSCO in 2005. Prior
thereto, he served TAMSCO as Vice President of Operations from 2003 and as
Vice President of Strategic Planning from 2001. Prior to TAMSCO, he served
as Director of Contracting for Warner Robins Air Force Base as a member of
the Senior Executive Service.

Thomas G. Cornwell has been President of Engineered Air since 2000.
Prior thereto, he served as Director-Program Management for SEI since 1992.

Joseph H. Creaghead has been President of Keco since 2002. Prior
thereto, he was General Manager - Managing Director of Husco International
Ltd since 1997.

Richard P. Dacey has been President of Radian since 2002. Prior
thereto, he served as its Executive Vice President and Chief Operating
Officer since 1995 after a distinguished career with the U.S. Army.

Frederic D. Knight has been President of UPSI since 2002.
Previously, he served as its Chief Technology Officer since 2000, and, prior
thereto, as its President and Chief Executive Officer since 1989.

James T. Myrick has been President of SEI since 2002. Prior
thereto, he served as its Executive Vice President since 2001 and as its
Vice President - Finance since 1997.

Gerald A. Nicholson has been President of Marlo Coil since 2001.
Prior thereto, he was Executive Vice President for the Tweco/Arcair and
Coyne Cylinder divisions of Thermadyne Industries from 1995 to 1998.

Thomas C. Santoro has been President of Fermont since 1995.

Timothy J. Schneider has been President of EEi since 2004. Prior
thereto, he served as Executive Vice President of EEi from 1997.

Carlo M. Shimoon has been President of Pivotal Power since 2000.
Prior thereto, he was President and Chief Executive Officer of Senstar
Stellar from 1999 and President and Chief Executive Officer of Newhaven
Media from 1995 to 1998.

Frank A. Tricomi has been President of ESSIbuy since 2004. Prior
thereto, he served as Director of ESSIbuy since 2000, and was Director of
Program Management for EASI from 1996 to 2000.

Edward H. Wenger has been President and Chief Executive Officer of
Prospective Computer Analysts Incorporated, which he founded, since 1975.

CODE OF ETHICS
--------------

The Company has a code of ethics which applies to the directors,
officers, all other employees and contract workers of the Company and each
of its subsidiaries. The Engineered Support Systems, Inc. Code of Business
Ethics

and Conduct is available free of charge upon written request to Engineered
Support Systems, Inc., Attention: Investor Relations, 201 Evans Lane, St.
Louis, Missouri 63121, and is available on the Company's website at
www.engineeredsupport.com.

ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------

The information set forth under the captions "Report of the
Compensation Committee on Executive Compensation", "Employment Agreements",
"Executive Compensation" and "Performance Graph" in the Company's Definitive
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------- ---------------------------------------------------
MANAGEMENT
----------

The information set forth under the caption "Beneficial Ownership
of Common Stock of the Company" and "Equity Compensation Plan Information"
in the Definitive Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------- ----------------------------------------------

The information set forth under the caption "Related Party
Transactions" in the Definitive Proxy Statement is incorporated herein by
reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-------- --------------------------------------

Information appearing under "Relationship with Independent Public
Accountants" and "Policy Regarding the Approval of Independent Auditor
Provision of Audit and Non-Audit Services" in the Company's Definitive Proxy
Statement is hereby incorporated by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
-------- --------------------------------------------

(a)(1) Financial Statements.

See Item 8 above.

(2) The following financial statement schedule and accountants' report
are included as Exhibit 99.3.

Schedule II - Valuation and Qualifying Accounts - years ended October
31, 2004, 2003 and 2002

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.

(3) Exhibits.

Lists of Exhibits (listed by numbers corresponding to exhibit table
of Item 601 in regulation S-K)

3.1 Articles of Incorporation of Engineered Support Systems,
Inc. (1)

3.2 Amendment of Articles of Incorporation (5)

3.3 Amended and Restated By-Laws of Engineered Support Systems,
Inc. (5)

4.1 Credit Agreement dated as of April 23, 2003 among Engineered
Support Systems, Inc., Bank of America, NA and the Other
Lenders Party Hereto (3)

4.2 Engineered Air Systems, Inc. Employee Stock Ownership Plan,
subsequently renamed the Engineered Support Systems, Inc.
Employee Stock Ownership Plan (4)

4.3 Engineered Support Systems, Inc. 2000 Stock Option Plan (6)

4.4 Engineered Support Systems, Inc. 2000 Stock Option Plan for
Nonemployee Directors (7)

4.5 Engineered Support Systems, Inc. Employee Stock Purchase
Plan (8)

4.6 Engineered Support Systems, Inc. Stock Purchase Plan for
Nonemployee Directors (9)

4.7 Engineered Support Systems, Inc. 2002 Stock Option Plan (10)

4.8 Engineered Support Systems, Inc. 2002 Stock Option Plan for
Non-Employee Directors (11)

4.9 Engineered Support Systems, Inc. 2002 Non-Executive Stock
Option Plan (12)

4.10 Engineered Support Systems, Inc. 2003 Stock Option Plan (13)

4.11 Engineered Support Systems, Inc. 2003 Non-Executive Stock
Option Plan (14)

4.12 Engineered Support Systems, Inc. 2004 Stock Option Plan (16)

4.13 Engineered Support Systems, Inc. 2004 Non-Executive Stock
Option Plan (17)

10.1 Employment Agreement with Michael F. Shanahan, Sr.

10.2 Employment Agreement with Gerald A. Potthoff

10.3 Employment Agreement with Gary C. Gerhardt

10.4 Employment Agreement with Ronald W. Davis

10.5 Form of Indemnification Agreement with Directors (2)

10.6 Engineered Support Systems, Inc. Executive Incentive
Performance Plan

10.7 Purchase Agreement by and between Engineered Support Systems,
Inc. and Spacelink International LLC, Spacelink International
LTD and SatComSolutions LLC dated December 9, 2004

10.8 Stock Purchase Agreement by and between Prospective
Computer Analysts Incorporated, Edward Wenger, The Lauren
Wenger 2004 GRAT, The Eric Wenger 2004 GRAT, the Mitchell
Wenger 2004 GRAT and Engineered Support Systems, Inc.

11 Statement Re: Computation of Earnings Per Share

13 Engineered Support Systems, Inc. Annual Report for the year
ended October 31, 2004 (the Annual Report). Except for the
portions incorporated herein by reference as evidenced in
the Form 10-K, the Annual Report is furnished for the
information of the Securities and Exchange Commission and
is not deemed filed as part of this 10-K

21 Subsidiaries of Registrant

23 Consent of PricewaterhouseCoopers LLP, Independent Accountants

31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

99.1 Valuation and Qualifying Accounts (Schedule II)

(1) This information is incorporated by reference from
Form S-1 Registration Statement filed on July 10,
1985, registration number 2-98909 as amended on
August 13, 1985 and August 21, 1985.

(2) This information is incorporated by reference from
Form 10-K Annual Report filed on January 30, 1989.

(3) This information is incorporated herein by
reference from Form 10-Q Quarterly Report filed on
June 16, 2003.

(4) This information is incorporated by reference from
Form S-8 registration statement, effective June 11,
1987, registration number 33-14504.

(5) This information is incorporated by reference from
Form 10-K Annual Report filed on January 30, 2004.

(6) This information is incorporated by reference from
Form S-8 registration statement, effective September
1, 2000, registration number 333-45022.

(7) This information is incorporated by reference from
Form S-8 registration statement, effective September
1, 2000, registration number 333-45020.

(8) This information is incorporated by reference from
Form S-8 registration statement, effective June 29,
2001, registration number 333-64126.

(9) This information is incorporated by reference from Form
S-8 registration statement, effective July 20, 2001,
registration number 333-65490.

(10) This information is incorporated by reference from
Form S-8 registration statement, effective August 9,
2002, registration number 333-97859.

(11) This information is incorporated by reference from
Form S-8 registration statement, effective August 9,
2002, registration number 333-97861.

(12) This information is incorporated by reference from Form
S-8 registration statement, effective November 12, 2002,
registration number 333-101161.

(13) This information is incorporated by reference from
Form S-8 registration statement, effective October
31, 2003, registration number 333-110166.

(14) This information is incorporated by reference from
Form S-8 registration statement, effective October
31, 2003, registration number 333-110165.

(15) This information is incorporated by reference form
Form 10-Q/A Quarterly Report filed on June 19, 2003.

(16) This information is incorporated by reference from Form
S-8 registration statement, effective June 22, 2004,
registration number 333-116743.

(17) This information is incorporated by reference from Form
S-8 registration statement, effective June 22, 2004,
registration number 333-116744.

(b) Exhibits

See list of Exhibits in this Part IV, Item 15(a)(3) above.

See Part IV, Item 15(a)(2) above.

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 14, 2005 By: /s/ Gary C. Gerhardt
-------------------- -------------------------------------
GARY C. GERHARDT
Vice Chairman and Chief Financial
Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Gerald A. Potthoff Vice Chairman, January 14, 2005
-------------------------- Chief Executive Officer ----------------
GERALD A. POTTHOFF and President (Principal
Executive Officer)

/s/ Gary C. Gerhardt Vice Chairman and January 14, 2005
-------------------------- Chief Financial Officer ----------------
GARY C. GERHARDT (Principal Financial
Officer)

/s/ Steven J. Landmann Vice President - Finance January 14, 2005
-------------------------- and Controller (Principal ----------------
STEVEN J. LANDMANN Accounting Officer)

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 14, 2005 /s/ Thomas J. Guilfoil January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
MICHAEL F. SHANAHAN, SR. THOMAS J. GUILFOIL

/s/ Gerald A. Potthoff January 14, 2005 /s/ S. Lee Kling January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
GERALD A. POTTHOFF S. LEE KLING

/s/ Gary C. Gerhardt January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
GARY C. GERHARDT KENNETH E. LEWI

/s/ Ronald W. Davis January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
RONALD W. DAVIS CHARLES T. ROBERTON, JR.

/s/ William H.T. Bush January 14, 2005 /s/ Crosbie E. Saint January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
WILLIAM H.T. BUSH CROSBIE E. SAINT

/s/ Michael F. Shanahan, Jr. January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
MICHAEL P.C. CARNS MICHAEL F. SHANAHAN, JR.

/s/ George E. Friel January 14, 2005 /s/ Earl W. Wims January 14, 2005
---------------------------------------- ---------------- ------------------------------------- ----------------
GEORGE E. FRIEL EARL W. WIMS

ENGINEERED SUPPORT SYSTEMS, INC.

EXHIBIT INDEX

Lists of Exhibits (listed by numbers corresponding to exhibit table of
Item 601 in regulation S-K)