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December 5, 1979
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STAT Approved For Release 2004/10/13 : CIA-RDP88-01315R0 DALLAS TIMES HERALD 5 DECEMBER 19T9 f cover the money it is, owed. ' Staff Writer T - ~.%e company is being careful E-SystemsInr. Baia it will, file suit" about the answers to questions due to today in federal court seeking - ap- the eff ect? on legal proceedings,' the proximately $15.2 million in damages spokesman said. and cancellation of $4.4 million in let- But according to a.Pentagon source tors of credit from the Government of familar with the contract, the two Iran and the Bank of Melli Iran. '-'I tanker-type jets were to be equipped. The Dallas electronics company said . with sophisticated electronic hard- it would file the suit in U.S. District , ware for use in a "James Bond" like Court in Dallas charging that Irah de-' program called IBEX in which the la- faulted on a 1977 contract in which test American technology was being the company's Greenville Division applied in Iran for deposed Shah Moo-- was to install communication and hammad Reza Pahlavi with the assis- navigation equipment on two Boeing tance of the Central Intelligence 707 jets owned by the Pe an Gulf Agency. nation. Under the $500 million program, . "We filed the lawsuit to protect the the Shah wanted to establish a border company and its shareholders proper- surveillance system for Iran. The pro- round monitoring 11 d f ll " John M. ty interests in these aircraft, Dixon, chairman and president, said in a prepared statement. "We'are ask- ing the court to declare the contract in default and to permit foreclosure of liens existing on the aircraft. Once au- thorized, the aircraft will be. sold at auction." In its one-page statement issued Tuesday, E-Systems said the value of the contract, orginally set at $28 mil- had escalated in value to about lion , $35 million by the time Iran defaulted- ~ he wanted the best electronic ears in November 1978. The amounts to be ? and eyes on his borders. claimed by B-Systems, the company i _,I ; said, represent sums due under the informed sources said the 707 jets contract and other, unspecified- darn-. were flown to B-Systems' Greenville ages. facility from the Boeing Co. in Seattle An E-Systems' spokesman, who in late 1977. While E-Systems has de- asked to'remain unnamed, declined to dined to say how the planes were to explain why Iran defaulted on the be 'used by' Iran, a company spokes= project, how the planes 'would have man said Tuesday that the aircraft been used or what efforts the corn- were being outfitted with sophisticat- ed navigation and communication sys- terns. No work is currently being done on .the planes other than that needed to' prevserve the aircraft; `the company- said. The IBEX p%rani has been beset with troubles since it began. A Jan. 2, 1977, story, by The Washington Post detailed instances of corruption, pay-'. ments to U.S. firms from Swiss bank accounts 'and the Aug.- 28, 1976.. mur- der of three Rockwell International employes connected with the project' in Tehran. The CIA has 'also declined to an- swer questions - regarding t` pro- ~ystems was one of many United States firms to have business with the country before the 'fall of the Shah. In most cases, firms selling military hardware to Iran were protected ,against losses under the Foreign Mili- tary Sales program which required Iran to establish a trust fund and - make pre-payments on projects. But sources close to the Defense Depart ment said the F Systems work was not a part of the military sales pro- gram and did not qualify for any of, the trust fund money.. . The company declined to say how it was paid or if the Bank of Melli - the government owned bank of Iran - had failed to honor letters of credit that would have provided E-Systems payment for its work. However, the -company did say loss of the payments would not have any "material adverse effect on its financial statements" be- cause of a $1.5 million reserve fund eONTIDIUr ? g or. e ject ca posts,, six airborne units and several mobile ground units. Bids were sub- mitted by four U.S. corporations in- cluding E-Systems, Rockwell, GTE Sylvania and. Mechanics Research Inc. IBEX, which according to some press accounts, involved the launder- ing of millions of dollars through Swiss bank accounts to pay for work :done by American corporations, was Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Approved For Release 2004/10/13: CIA-RDP88-01315R INQUIRY MAGAZINE 16 October 1978 been broken. Pulling together infoi 1 -2. mation previously gathered by othe government investigators, they hay COAV~P OAV. 43 We found that: u the U.S. Army has consistently ff vored E-systems over smaller con panics, such as Bristol, that ofiere.. lower bids on contracts; permitted to boost its prices for the a the army has changed contract unit considerably. specifications at the last minute to Bristol's Revzin complained to the JEFFREY STEIN steer to E-Systems contracts that army that his bid-including the op- should have gone elsewhere; tion-was much lower than E- a the army awarded E-Systems a con- Systems's. But even with Revzin, his tract to build an item at a low unit local congressman, Gerry Studds price, and then later allowed it to exer- (D.-Mass.), one of his senators, A sweetheart cise an option to build many more of Brooke, and the General Accounting the same items at much higher prices; Office looking on, the army went deal for -0 the company has possibly had the ahead and made contract "modiBca- > s ? s benefit of inside information from dons" (not "options") that allowed army officials who later became its E-Systems to build, at higher prices, employees. twice as many radios as in the original THIS IS A STORY ABOUT contract, nearly quadrupling the total big guys and little guys. The THE PROCESS THAT EVEN- value of the deal to a whopping SIl big guy in the story is the tually led to Stanley Revzin's million. Dallas-based multinational electronics sad fortunes began 12 years Representative Studds asked the company, E-Systems. In the five years ago, when the U.S. Army began prop- justice Department to investigate this since it was taken over by a group of ping up a failing Indiana electronics award. Within weeks, the Justice De- former high-level defense and. intelli- company, known as MEMCOR,. pith mil- partment replied that it had found "no gence officials, E-Systems has become lions of dollars of cash grants, unse- grounds" to institute a criminal inves- a favored contractor for a series. of cured loans, and contracts to build tigation. highly sophisticated electronic warfare electronic gear. Government welfare to projects, and it has skyrocketed into the corporation thus indirectly en- N THE SUMMER OF 1976, the Fortune 500,with annual sales of couraged an outside takeover. The Representative Jack Brooks (D.- over S320 million. LTV-Eleetrosystems Company stepped Tex.), chairman of the House The little guy is the Bristol Elec- , in and grabbed MEMCOR. But LTV itself Government Operations Committee, tronics Company of New Bedford, had troubles, and even with the con- held hearings on the matter and, un- Massachusetts, owned by Stanley B. tinued flow of government largesse, covered a number of clues to explain Revzin, the son of Polish-Russian im- couldn't make a go of it. In 1973, the why the army gave E-Systems such migrants. Put together on a shoestring company, now named E-Systems, was kindly treatment. "The circumstances, in 1960, Bristol gradually built up a bought by a group of investors headed seem to point to a predetermination on trade in marine radios and other elec- by a former assistant comptroller of the part of the army that E-Systems I tronic gadgetry until, by 1973, the the Defense Department, John W. would receive the contract," Brooks company employed 180 workers and Dixon. Lloyd K. Lauderdale, once remarked to Assistant Secretary of the grossed S4 million a year in sales. head of the Central Intelligence Aden- Army Harold Brownman. But since 1973, when he began to cience and technology direc- ' But Brownman had another expla- compete with E-Systems for defense torate cis swas installed as vice resident, nation. "I believe that this is just a contracts, Revzin's business has taken while a former CIA director, William F. good case of sloppy workmanship and a nose dive: the company is down to 50 y m, was recruited for the board. nothing else," he replied. "I certainly employees and will be lucky to gross $1 MEMCOR and Bristol had competed hope so:' million in sales this year. for contracts before, with Bristol gen- What went unstated was that Stanley Revzin now has a chance to erally winning out, but the new group Brownman, who had come to the Pen- tell the public and Congress how that of E-Systems owners would soon prove tagon after the disputed contract had happened. At a hearing sponsored by' to be overpowering. In 1973, the army been awarded, had been a vice presi- Senators William Proxmire (D.-Wis.) had solicited bids from several com- dent at E-Systems. But the man he and Edward Brooke (IL-Mass.), the panies for a contract to build field had replaced in the Pentagon job, the Senate Banking Committee will look radios for the South Korean armed man who had been in charge ofaward- into whether the Pentagon follows the forces under the foreign military sales ing the E-Systems contract, had gone rules in handing out defense contracts. program. For the first two rounds of on later to become a corporate vice Revzin believes, and the committee sealed bidding, Bristol came in with president at E-Systems, replacing strongly suspeA A%8F:6rl %e l9nril~i rt _yt a beautiful example est. During the t i and burr youuno ow no o business," sputtered ,EFFR rSTrJ.y, Washington mraspomAxt of bidding% however, the army made an obviously frustrated Brooks. for the Boston Phoenix, has evrittrx oi,Joreiix three chances in the contract. durin? What Brooks didn't know at the time -II TICLE Aij1 C Pressed [J0S,Finn,.. 'Costs ' Help ' i 0 court papers that they nave reason to believe" that some of the cash was 1:y Charles B. Babcock'. , date Tongsun's requirements as well --i - illegally to American off i- The South Korean government put ter serve his role,- sang wrote. ( he ---- pressure on a U.S. defense contractor misspellings are in the original) Thus one -investigative theory seems ? to be that the KRI might have been set up by the Korean government; as an alternate way of funding the Wash- ington lobbying effort after E-Systems refused to, deal with Tongsun Park. Yang, who wrote the letter recit- ing Park's prowess as a lobbyist, was the Korean ambassador to Washington in the 1960s and was a close friend of Park's. Yang is now dead. Davis, who is now a Washington lawyer, re- fusedto discuss his role in the incid- ent. Federal investigators tend: to believe Yang wrote the letter to promote Park. There is no indication they have uncovered evidence that the alleged Korean lobbyist unduly influenced congressional backers of E-Systems competitors, as the Yang letter claim- ed. But investigators do find the letter remarkable' for its candor about Park's activities in Washington. And they wonder if it shouldn't have made E- Systems suspicious about. the later fees in . connection with.-.th .the same Korean radio contract: Park, ;who apparently knew Davis and E-Systems' Washington represen- tative Robert C. Smith from his days as a local party giver, was Indicted i last August on charges he conspired to bribe, members of Congress- ' ';. Heis-alleged to- have generated the Officers of E-Systems say the com- pany refused to make the suggested payments to Park, who has since been indicted as an agent of the S. Ko- dire other. KKorean businessmen a few, more than $1 million paid to these verted to cash and funneled back. to Some of the money, investigators believe, was used to make the same kind of, illegal payments to American officials that Park has. been, accused of making . ; ~;:, ... what happened to the money that E-Systems was initially approached has obtained, from non-government The . bluntly 'worded letter, '.dated -to, former Defense Department coffin-- --set. John (Jeff) Davis..;:avis later forwarded it to E-Systems:: The letter, selection by the. Korean .government ~ .'F:"Since it was ? Tongsun's-" interven- tionv that"caused the project?to`be re- operation -(Congressiona - Military Ap- that it would; bix most, advisable for men to -._.._. fri ends at System 'that, they, should ,,accamq- sun Park's lobbying activities in Con- Dallas-was told by-a Korean. ambas- sauva that - contract to make-field radios for the WASHINGTON POST Approved For Release S)MMI CMADP88-01315 U. T m e pence agent es an Ft L. op of icia s o en move ark and ..r a waan nse agencies and the E-Systems officials have said they ? declined the overtures from Park. `.? Pour months later, however, the firm a group Which- Included a close as- to assist"' -.E-Systems in Korea. Over. the next three years, E-Sys- `tems paid $1.4 million In commissions to the KRI, -through two Korean-born -have been converted to cash and fun- tary attache at- the Korean embassy Sources familiar with the investi- gation, for example,. said that Howard? Lee; one of the?KRI's men In.Los An- geles, told the Securities and Ex- and delivered it to his uncle, Col Lee. ;LosAngeles, Yoo Jong Ho,. is Col. $700,000 is previous E-Systems - pay , __dled the same way phone Interview that he "didn't=make 1 United States." When asked what he did with the money then, Lee said only, "That's. a family .matter,. a private matter." The, colonel, who was "a military procurement officer in Korea at the time of the 'E-Systems contract, also `emphatically, denied' suggestions that he was part of the Korean. Central Intelligence Agency. "Not" even one day, or one minute ' have I served with the KCIA," he said. '_ Lee, :43, complained in the phone ,conversation that previous news ac I Approved For Re[ 6 ton an s e 31p.:to general..,.- Washington post reporter, but then declined,. saying his superiors would not give him permission. Lee has been at the embassy since. j1lay, 1975. - - SEC lawyers who have beeninvesti- gating the propriety of the E-Systems hereceived, as the Korean -govern-i! -meat's exclusive agent on purchases f of U.S. rice The Korean government- has consis- ?tently denied that Park ever had any official connection with the Seoul re- gime: The. Yang letter shows that the. 'former ambassador at least was quite blitnt;In. pointing out such ties. am of Justice Department pro- fee in Seoul- has been question- ing Park about his role in the Korean lobbying scheme. In preparation for his :later testimony at trials in the .United States- -There have' been reports that he 'described payments.ofsome $750,000 to several former, members of Con- 315R0002004-2.0001.-g4UN ! 1,,lw U,~.'. Approved For Release 2004/10/13: CIA-RDP8-0131 ?7;'I ' %f nc? # THE w; sHINGTON MOOT L September 1977 A 6 (,r by James Henderson Most people think that government corruption is confined to politicians, and to state' and local politicians in particular. Few consider dishonesty a major problem among federal career ti. employees. But the truth is that cor- ruption has become the rule among military career people. It is now assumed that an officer, 'if he does not continue to work for the government, will join the staff of a military con- tractor upon retirement. The result is a military procurement process in- creasingly influenced by the future employment possibilities of the mili- tary officers involved. The men in the following example may be innocent of anything other than a conflict of interest, but they are part of a larger pattern that should disturb us all. June 22, 1976. Room 2154, Rayburn House Office_ Building.. Meeting: National- Security. Subcommittee of the Committee on Governmental Operations. Subject: Questionable contract for mobile field radios by the Department of the Army. Assistant Secretary of the Army Harold Brownman, in charge of instal- lations and logistics, is accompanied by two generals and a civilian pro- curement officer. It is not a good day for Brownman. The contract in ques- tion is between the Army, where he now works, and E-Systems, Inc. of Dallas, where he had been a vice president a few years earlier. "Information received by the sub- committee indicates that normal pro- cedures may not have been followed yJaamles Henderson was a Nieman Fellow last ands that favoritism toward the suc- T~hip a 8'~ F(efMTSe2((04/V/1 RslA bt Al N R0 2 1 been , says ep, ac rooks of STAT Approved For Release 2004/10/13 : CIA-RDP88-01315 i CHARLESTON, W.M. GAZETTE M - 63,294 GAZETTE-MAIL $ - 106,775 JUL. A, 51977 CIS Deal For some businesses. it-pays to do business with the CIA, Rep. Gerry` Studds, D-Mass., has discovered. ,"E-Systems Inc. of Dallas, Tea.', does frequent business. with various Penta-; gon agencies, as well as the CIA, and in ; 1975 it picked: up for a relative. song Air.' Asia Ltd., until the purchase a wholly owned CIA company with hp ;rl " on Taiw ~: ~s: .. '? . All' oug Asia's ''assets-exceeded liabilities by $3.4 million, E-Systems, paid,$1.9 million for its new acquisi- tion.. Had E-Systems executives been. walking- along a deserted. street and, found $1.5 million,in new money, they couldn't have been better or more prof- itably served.. Deals of this kind may be made in Heaven, but they're not made on earth in the free enterprise sector. This little deal stinks to Heaven. Its smell is so awful, in fact, that this little deal deserves a full scale congressional investigation, after which a federal grand jury may wish to learn if any laws have been broken.-...`.-.: This little deal provides yet another good reason why the CIA's total budget should be public. CIA officials might be ::.less inclined to give away the public's ''treasure - if' the public knew just how rmuch of its. treasure was doled out annually totheag'ency' `Finally;. this little, diaP provides yet another reason why-much of the CIA's total budget oughtto, be. subject W review o?. the whole: Congress and not just that select committee of specially selected overseers. By the way where was that committee when the CIA was negotiatirig'with `itself and. giving away the public's money to CIA insiders? Approved For Release 2004/10/13 .' CIA-RDP88-01315R000200420001-9 P STAT 'r AART!CLE proved For Relea ~2(~ Ql~ pC~IA~ ~P p% 1Q,F Q3j2004 I4 JULY 1977 C A Front Firm Sale ta Be Probed T1ie S'enatel.'3elect 'Commit. t'ee ?on Intelligence will investigate. "as part'of our- regular oversight function;" the 1975 sale of a CIA front company to. a.' major.-government, contractor. a committee spokesman said . yesterday. And Rep. -Gerry Studds, D-Mass;-who- has-been fighting for?more~ information about the deal said the CIA's sale of Air Asia. Ltd. to'-E-Systems Inc. of Dallas,-Tex.,: should.be.on the agenda:-of:-the proposed-House Intelligence Committee..,:.... , . . . `, . E-Systems,,-&'- major-supplier of sophisticated electronic equipment to the-CIA and the Pentagon,- bought Air: Asia Ltd. from the CIA for $1.9 million in cash. 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L y v ?J I +.F :. 4 . LL rS?!1'LIZd !1- _ 7i t11 1614 441 1.441. 11& t Jd 1 S1.FJS4 1x1 { L{S L 61.11 tii i ii i.. tIC'.lii r& A T A "'1 A A .4% ii.?~ ... AFAR U L 11-1 1- ?1r '1?ra r. LaR rr-r. 1r Rrr.'FFl T is Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Approved For Release 2004/10/13 : CIA-RDP88-01315ROO02 - ART*CLE .4PI'1:THE PHILADELPHIA INQUIRER ON PAGE /,,. ---,D 13 July 19 7 7 A-o U dit sh~aW s C $L5'i~illkth. for Aa:otiaied Press Air Asia was sold by Air America, = The audit, Studds ;released Wad WASHINGTON - The CIA sold one ? the CIA-owned company. that ran air , dated'March 31, 1974, by the account=. in the ast and d d `?"? ` ,, uig item or Coopers ue L,yoran , an of its front companies for $1.5 minion less than its stated net worth, gov Asia and provided transportation for was an appendix to a classified Gen_: i CIA e - proj ous cts. . erat accounting Office report. ernment documents show. : var E-Systems Inc. of ]Dallas,. Tex., ' Air Asia did: about $12 million John Kumpf, an E-Systems spokes, bought Air Asia Ltd., a CIA-owned worth of ; business in 1975, mainly at -roan, said the net worth shown by the, firm based in Taiwan, in 1975 for $1.9 an aircraft base. on Taiwan, where ' ' audit of .Air Asia, dated Jan. 31,1975 million. An audit of Air Asia showed `about '2,800', employes. do: contract .-. He cited a second.Coopers & Lybrand that i. the firm's net Worth - .the maintenance on military and com- audit of air Asia, dated Jan. 31, 1975, amount by which its assets exceeded mercial aircraft In the Far East. "showing its net worth at $3.2 million. its liabilities -- was $3.4 million. The documents on E-Systems' pur-' - Ke claimed that even that figure, E-Systems is a large government chase of the firm were released by was too high. contractor - that provides sophisti- Rep. Gerry Studds (D., Mass.), cvhD, Nevertheless, Kumpf said, ' ti Te'ra"j~ cated equipment for the Pentagon,. asked the CIA for information about not denying" that - Air 'Asia was a f ~ the CIAO and other agencies., the sale: good buy. a,? Approved For Release 2004/10/13 : CIA-RDP88-01315ROO0200420001-9 in its Y-a ,roved For Releaser A4/ll9fi1l3JG -I EW38EGR3'F5ROQd?b 1 ,)N PAGE App 13 July 1977 A large government contractor purchased a for- mer front company from the CIA for slighty more than half of its net worth, government documents show. The" CIA sold Air Asia, Ltd., to E-Systems Inc. of Dallas; Tex., for $1.9,million in cash in 1975. The deal was a profitable one for E-Systems, since an. audit of the Taiwan-based company showed its net . worth was $3.4 million. A E-Systems_ spokesman said the purchase was .a "good one for the.'manufacturer of sophisicated electronic gear, but he insisted that Air Asia's net worth was inflated in the audit. Air Asia was part of Air America, the CIA- owned company that ran airlines in the Far East, and Southeast Asia and provided transportation for various CIA projects. . AIR ASIA DID about $12 million in contract maintenance on military and commercial aircraft in the Far East in 1975, mainly at a huge aircraft base on Taiwan staffed by about 2,800 employes. Rep. Gerry Studds, D-Mass., asked the CIA for information about the sale. He released the CIA's reply plus the audit dated March 31, 1974, by Coop- ers and Lybrand, a large accounting firm. The audit was an appendix to a classified General Ac- counting Office report. John Kumpf, an E-Systems' spokesman, said the net worth shown by the audit was overstated. He said a second Coopers and Lybrand audit of the Air Asia, dated Jan. 31, 1975, showed its net worth at$3.2million, +..c". He said even that" figure was too high. "We want to make clear that we assumed some The biggest one was-an employe major liabilities . retirement or termination obligation," Kumpf said yesterday. "We feel that was understated.-Sine we ood wa Ai h s a g Asia -- aL L Not only was the purchase a good one for E-Sys "terns in terms of assets, it was a good one in terms I l was d h ea e of profits. In the 10 months before t consummated on- Jan. 31, 1975, Air Asia earned $1.35 million in profits, a CIA document revealed.:.. E-SYSTEMS PAID only about 1.5 times earn- ings for Air Asia. By comparison. recent stock market prices show that one would have to pay 10 times earnings to buy all the stock in American Telephone and Telegraph and seven times earn- ings for General Motors. E-Systems has had a long, close relationship with the CIA. The company is a major provider of secret elec- tronic and radio equipment to the CIA and the De- fense Department. One of its specialities is the so- called "electronic warfare" equipment that was used widely in the war in Southeast Asia. - In addition, W.A. Raborn, a CIA director under ,President Lyndon Johnson, is on the firm's board of directors. A former deputy CIA director, Lloyd K. Lauderdale, is a company. vice president. STAT Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 STAT Approved For Release 2004/10/13 : CIA-RDP88-01315R00020042nn,n1_9_ WASHINGTON POST 13 July 1977 CIA Supplir Buys a CIS Bargain By Evans Witt Associated Press The CIA sold one of its front companies for $1.5 million less than its net worth, government docu- ments show. Air Asia Ltd., a CIA front based on Taiwan. was sold in 1975 for $1.9 million when an audit showed it was worth $3.4 million. It was a good deal for the buyer, E-Systems, Inc., of Dallas, a large government contractor that provides highly sophisticated electronic equipment for such agencies as the Pentagon-and the CIA. Air Asia was sold by Air America, the CIA-owned company that ran airlines in the Far East and South- east Asia and provided transportation for various CIA projects. Air Asia did about S12 million in business in 1975, mainly at a huge aircraft base on Taiwan. '-here about 2,800 employees perform contract maintenance on military and commerical aircraft in the Far East. The documents on the purchase by E-Systems were released by Rep. Gerry Studds (D-Mass.). who had; asked the CIA for information about the sale. The audit Studds released was dated March 31,; 1974, by Coopers and Lybrand, a large accounting- firm, and was an appendix to a classified General Ac- counting Office report. John Kumpf,' an E-Systems spokesman, said the net worth-how much assets exceeded liabilities - shown by the audit was overstated s o m e w it a t. He cited a second Coopers and Lybrand audit of Air Asia, dated Jan. 31, 1975, showing its net worth at $3.2 million. And he said even that figure was too high. Nevertheless, Kumpf said. "We're not denying" that Air Asia was a good buy. Not only was the purchase a good one for E-Systems in terms of assets, it was a good one in terms of pro- fits. In the 10 months before the deal was consum- mated on Jan. 31, 1975, Air Asia earned $1.35 mil- lion in profits, 'a CIA document revealed. E-Systems has had a long, close re- lationship with the CIA. `1 he company is a major provider of secret electronic and radio equipment to the CIA and the Defense Depart- ment. One of its specialities is the so- called "electronic warfare" equipment that was used widely in the war in Southeast Asia. And E-Systems runs the listening post in the Sinai Desert between the Egyptians and the Israelis, under con- tract to the U.S. government. E-Systems has other connections with the CIA. A former director of the CIA, W.A. Raborn, who developed the Polaris submarine, is on E-Sys- tems' board of directors. A former deputy CIA director, Lloyd K. Lauder- dale, is a top vice president of E-Sys- tems. [E-Systems has been under investiga- tion by the Securities and Exchange Commission for allegedly paying S1.3 million to the Korean Research Insti- tute, a Seoul-based marketing consult- ant firm, to obtain military contracts with South Korea. The money paid to KRI, according to sources familiar with the investigation, was transfer- red back to the United States, where It may have been used to make illegal payments to American officials.] E-Systems' 1975 purchase of Air Asia was a logical extension of its air- craft maintenance business in the United States, which totaled $33 mil- lion in 1976. E-Systems is also heavily involved In sales in the Far East, particularly to South Korea and Taiwan. One of the contracts held by Air Asia. is with the Taiwan government for mainte- nance of F-4 fighters supplied by the United States. E-Systems does not provide figures on any subsidiary's profits, and nanei on Air Asia since its acquistion. ,... ._, Approved. For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Approved For Release 2R,t/'1,61PM8-01315R 12 JULY 1977 conne-c i :11, unu The {Justice:. Dept. d e aides - n t0 probe spici /us deal ... ~m: xc-c w f_... B IC.-A ;der rlsa Final rnntracr arrangements:> STAT ass:;. electronics: firm ,lids castigatecr as _5ysrems anu ute niu,y, ,c~c shabby the decision of the Justice De- '.lion-whereby additional radio .unitswore But AssistantAttorney Genera l Foth partment,not to investigafe cjuestionable -solfln to South Korea '. at-=much higher Criminal Division-Benjamin Civiletti re-=' er rocedure the award of a $2.9 million prices; bringing the total value of the$2.9 plied in a letter- to Studds that--`we hav p dillih y contract - for military -radios for South million awar to $11 mon. .: found nothing in te material whichou Korea': i `The=Army official in charge o# the furnished us or4which-we have received': The "winner of the award, granted by award, Eugene E. Berg, later joine .: E from the House Qmniittee on Govern f the US Army as part of its foreign" m i l l y ystems as vice-president or new biisi- merit Operations to indicate any paten tary-sales program, was the'Dallas-based " mess development. 'A -former vice presi- tial for criminal conduct ? ` electronics ,'conglomerate .,E-Systems;? ..' ; dent -of `E-Systems, - Harold L. Brown SEC recordsr on file in:= WashingEon y which. has;:been under investigation by man, succeeded Bergg as Asses ant acre- show that five South Koreans. involved in the Securities; and Exchange-- Commis--. nary of the Army for Logisiics and ln- the E-Systems=investigation were sub-'J sion in connection with the Korean bnb _stallations.' poenaed to furnish records of any com ery scandal " Bristol Electronics Presidents 'd: Rev- The;-low_,bidder for the 'contract on zin said in a telephone interview with the inunications they-might have, had with= three occasions in 1974 was Bristol Elec- Phoenix last week that he feared foe. the MEMCOR Adivision of E Systems that- tronics ofNew -Bedford. On the Army's financial future of his company.if he''ire-I rnanufactured'. they radios for South Kor : fouri'rs-request for. bids, the contract was vealed .information that die feels would ea. An_attorneyfor, the Koreans has told-` awarded to E-Systems - afterthe Army cast.further'doubt on the validity of-the the SEC that--such records as may. have changed the contract specifications. Un award ;-E Systems. I ve got Zoo em- existed have been taken to South Korea E-Systems.; sales increasedfr inillion:in..1975 6'$119.3-iri'1978Its of-~ fivers -`ineIude William L. `Ra 5orii" and Lloyd !C : Lauderdalesci" ear o wham: once- liar t e lAs ence and;technology' division, and Harold Br wnnta&Lwha `va -onee deputy icl rect of or - the- CIA for' 'special protects A recent acquisition of .the company was Air Asia, =forineily any rm of the CIA`progiietary_toinpany.Air America: n~ In all,. the coritpa ny has six major sub dtvisions an #-foi teen.' ubsidtarie that= .hold- majof?US,'governmentKeontracts most of which are classified he corn pany keeps-up''custorixer relations"with Brazil, German r;Indonesia,'- I`ran' Italy, Japan, South. Korea aiidEgypt Sonie -85 : percent of E-Sys tems'sales-in*1975"~.= _total of nearly, $218. million -=were?to the; IS government ., .:, , Congressman; Studds has asked?_the. Justice Departriit nt to explain Jiowat'ar,-: rived at its conclusion that ?t.here was-'not. sufficient eividence',.toa warranr`an =ryes tigation of the; E'-Systems contrach `Lam= puzzled by your apparent derision _: to ;rely Approved For Release 2004/10/13: CIA-RDP88-01315R00 -42'J O)l iIity to prouide-yow with: evidence in order to arrive:ata:decision for a formal investigation." Studds wratex: "It seems tame: that the Tua-i~r r9,..+,.i- Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 pin 51 liiii,itimmiOlM 1 1 l 0 III - , =14111, or ele 2004110113 CIA-RDP88-01315R000200420001-9 The world comes to with its ? problems Electronic Warfare, Intelligence, Reconnaissance, and Surveillance Aircraft Maintenance and Modification Guidance, Controls and Navigation Communications and Data Systems I 'e/)tit technology dcsi ;tlcd nrinufatturc I to work in s'sternrttic t rove p~^ ~~ ~ 2004/10/13: C l~(T 11 ti ( tti Il('W to 10lt,c thepro%/enr+ 1,000-loot diameter hcmt o/ oar fin/c? sph(ri(al ,n1) onllI/I, /o be I/o lrurldr 1 I1///I /1)9(112 r n/ /o r o1/Iu/ 1 /I/ /d, i ~I7/1/1/' l!r/l 1. IirGorll, II":nniu;,.lu/1(.on 101/ Ill/U ~l I')0, )/ I/O /hull O/. 1' _1hlrnn ( III- r,1 /10 16 E-Systems Operations (ORPORATP, ELECTRONICS AIR(:RAP'I Approved Farr leaese'20104/10/13: CIA'RDP818-013)15ROO0200420001'-g"-,,nis(' "MIT" l: S~stcros, Inc_ G:uland Division Grccnvilk Division 0' O 1.13 I rccw:n P. O. Box 01 18 P. O. Box 1006 P. O. I3ov 0000 Dall.ts,'I'cxas-5222 Grccrnvilk. l'rxas 5101 Dallas,'I(xas -5 "2 'I I) 2 2 0515 2II) -155 3.150 (21 1)6011000 ESY EXPORT CO\IPANY ~Icll,ar Division -00 Arlin~-,ton Blvd. Scr\ Air. Inr. 16v15 El Camino Real P. O. 1',ox 6000 balls Clturrh, Vir,ini:t 22!16 Suite 101 Dallas,'Tcxas -5.''2 (~O0) 560-50(10 I loustorn_'Tcxas -050 (21 1) 661 1000 ( I') 1"-6;111 A1ontck Dioision "61 South 02-'0 Wcsr Salt Lake Gifu. 1, I t c h 5 i 119 ( 501) 9' i- 1000 Air Asia Companv l.imitrd Taman Aitiicld I ainan, Taiwan ?00 Rcpuhli( of China TAI, Inc. P. O. liox 21 balls (.Lurch, Virginia 22016 (-00 ) 5-j 8680 PRODII(1I()N ELE(TIMNICS GROUP \Icmror Division P. O. Ihox 5 19 I luntinilton, Indiana 16-50 () 19) 056-0000 Approved For Release 2004/10/13: CIA-RDP88- I VI DIVISION P (). Box 121 IS IoI '.'.rd Street North St. Pctcrshur Florida 30 (`,'I;) i,812()00 E-Systems (Domestic) LAN(GT%Y-ITAMIYI`ON (International) Customer relati&Wroved For Release 2004/10/13: CIA-,RAR88kOt3l.RQWA2Q1Q420001-9 offices BOS'T'ON Hampton, Virginia 23666 Suite 22 (804) 838-2010 9 Meriam Street , Lexington, Mass. 02173 BELGIUM, (BRUSSELS) Av. AM, Coningham 1 Brussels, 1050 Belgium (617) 861-9050 LOS ANGELES 64 8-71-70 TcLLx : 846-24452 DAYTON P. O. Box i03 1 5030 B. Broughton Place Dayton, Ohio 454 31 (513) 254-8461 5430 Van Nuvs Blvd., Suite 309 Van Nuys, California 91401 (21 3) 986-9961 OGI)EN P. O. Drawer 202 BRAZIL, (BRASILIA) Shi-Sul QI-4-1 Casa 21 Brasilia, DF, Brazil 48-1799 Telex: 391-611/120 5523 Painters Professional Plaza R GERMANY, (BONN) Ii( LIN-I'1'. WALTON BEACH oy, Utah 84067 53 Bonn-BAT) Godcsber'g FOCOIN, [n(. (801) 825-7756 AM Fronhof 8 233 Yacht Club I)r., N.E. Federal Republic of Germany It. Walton 13cach, Fla. 325.18 OKLAHOMA CITY 2221 352021/22 Telex: 841 885711 (904) 243-012 P. O. Box 15420 FT. MONMOUTH Oklahoma Cite, Okla. 73115 (405) 737-7610 INDONESIA, (JAKARTA) P. O. Box 359 KBY Holiday Oflic e Ccntcr Jakarta, Selatan P. O. Box 38 ROME, N. Y. Indonesia 121 Monmouth Parkwac P. O. Box 767 773293 (Jakarta) West Long Brandt, N. J. O776.1 Rome, New York 1 3440 Telex: 79044"33 (2(11) 2.22-0565 (315) 336-1911 SAN ANTONIO 7039 San Pedro, Suite 803 San Antonio, Texas 78216 (512) 341-3304 S'I'. LOUIS 11960 Westlinc Industrial Dr. Suite 322 St. Louis, Missouri 63141 ( 314) 576-1770 \X'ARNIER ROBINS P. O. Drawer It 1764 Watson Bldg., Suite 203 Warner Robins, Ga. 31091 (912) 923-3616 WAS] IINGI'ON 1901 N. Moore Street, Suite 609 Arlington, Virginia 22209 ( 703) 521-2310 IRAN, (TEHRAN) P. O. Box 12/1265 'I'chran, Iran 840-851 Telex: 95 1-2 1 25 37 ITALY, (ROME) Continental Electronics Systems. Inc. Via dci Sansov.na, 6 00196 Rome, Italy 396-6398 "1 'elex: 84 1-81241 JAPAN, ("TOKYO) Room 401, "Tanaka Bldg. 1-15-1 Nishi Aaabu Minato-ku, Tokyo 106 japan 03-102-1367 'T'elex: 781-26319 KOREA, (SEOUL) Yongsan P. O. Box 72 Yongsan, Seoul, Korea 5-8887 `1'celex: 787-28395 EGYPT, (CAIRO) P. 0. Box 2657 Cairo, Egypt 982100 "Telex: 9272096 Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Dear-Fellow Shar llo_lde ; _ is 21QYiu-; e y ji' l irly electronic war- 1976 was a milestone year for our Company because it marked the seventh consecutive year of significant profit gains. It was the most profitable year in our history. Net income after taxes was more than double that for 1975, amounting to $14,528,000 or $5.80 per common and common equivalent share. Sales rose 26 percent over the pre- vious year to nearly $320 million, our highest ever. Following its acquisi- tion onjuly 26, 1976, the operating results of E-Sys- tems new ECI Division in St. Petersburg, Florida were consolidated with those of the parent company for the last five months of the year. The addition of ECI was in line with a continu- ing acquisition policy of adding businesses which are compatible with our existing operations and capabilities. The ECI acquisition resulted in cor- porate operations at year- end that include seven divisions and three subsid- i i,uOu persons. 00200 re an communications. I attribute much of our The Company booked 1976 performance to the generally improved effi- cicncy of our people. Because h-Systems, unlike many other companies, is not capital intensive, human resources are our most valuable asset. Instead of investing vast amounts of capital in physical equip- ment and facilities, we depend more upon the knowledge, motivation and efforts of our employees. Solidifying this concept of "oneness" among members of the "E-Team" is our Employee Stock Ownership Plan (ESOP). Adopted in 1973, the ESOP has made each employee a shareholder. Both the Company and the individual employee shareholder benefit. As each employee exerts his or her best efforts, the Com- pany benefits through improved operations and the employee may be able to gain through a possible growth in the value of his ESOP shareholdings. Thus the goals of the employee, the Company and our pub- lic shareholders are even more closely related. Products andl Customers I;-Systems record-high results for 1976 stemmed principally from improved performance in most of our product areas, but some significant new orders in both the elec- tronic warfare (LW) and communications markets. Together, these areas accounted for approxi- mately three-fourths of our total sales. (The majority of E(I's sales and orders are included in the com- munications product cate- gory.) The remaining one- fourth of the revenues came from our other three product categories - 1) command and control, 2) guidance, control and navi- gation, and 3) aircraft maintenance and modifi- cation. Last year about 45 per- cent of our sales were to international, commercial and non-defense U.S. Government customers. The United States Depart- ment of Defense (DoD) contributed 55 percent of total revenues. This was about the same as in 1975 (although the actual dollar sales to DoD increased in 1976) and was down from 65 percent in 1974. Inter- national sales posted the sharpest increase to $119 million from $82 million. Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Approved ForjIrejjlet 24~1~3 bookings p us t c inc u- sion of ECI, E-Systems entered 1977 with a record-high backlog of orders of $303 million. This was up 25 percent from $243 million at the CIAIIIt~b042006~ronic peace monitor toners. Systems has ong ing system in the Sinai been an acknowledged Desert. The system became leader in this tech- operational ahead of sched- nologically-demanding ule and we completed the business. permanent facilities at the E-Systems booked a sub- remote outpost by mid- stantial amount of contin- year. The maintenance and uing EW business, such as operational portion of the a large U.S. program in contract was renewed last which E-Systems has been September.. This is a involved for over a decade. prestigious program for E- Orders were also received Systems and has enabled us for several new programs to play a role in helping with potential for future maintain peace in the Mid- follow on sales. For Me East. end of 1975. As in the past, the Company plans to con- tinue expansion of business to both DoD and to our other markets. Our objec- tive is to achieve a 50-50 split between DoD and non-U.S. defense sales. Business by Product Line Electronic Warfare capabilities at E-Systems include the design, integration and installation of electronic intelligence, recon- naissance, surveillance, and electronic countermeasure (ECM) products and systems in airborne, ground and sea- based environments. During 1976 electronic warfare (EW) continued to be the F-Systems product line sales leader, with revenues in this area of $124 million and a year-end backlog of $98 million. Most market forecasts indicate EW will be among the fastest-growing areas of defense spending for years to come by both our Government and example, we received a $3.4 million letter contract from the IBM Corporation for initial development and testing of the electronic intelligence (FLINT) sub- system for the U.S. Navy's Tactical Airborne Signal Exploitation System (TASES). This EW sys- tem, for which E-Systems will design and build the ELINT receivers, will be installed on the Navy's new S-3A twinjet, carrier- based aircraft. It will be Communications includes military VHF and UHF radios, digital com- munications systems and products, microwave telecom- munication services, and ground based satellite antennas. The Company's most dramatic sales increase for the year was recorded in our communi- designed to receive, process won the contract to install, operate and maintain this and analyze electronic sig- nals during reconnaissance flights for near-real time support of task force com- manders. Our expertise in special ground-based sensors con- tinues to be utilized at the Sinai Field Mission's early- warning station between Egypt and Israel. In Jan- uary 1976 the Company 193.4 166.4 156.1 $ millions 72 73 74 75 76 Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 cations product catego yppro eo 'r Aease h6113 : CkW64 ?.01~31~5 0200420001-9 Sales totaled $116 million, to instal a centralize communications su si with a year-end order back- police and fire department iary, TAI, Inc., was log of $122 million. Com- communications system awarded a contract to pro- munications systems of all for a group of seven cities vide upgraded tclccom- types, both for defense and in the Los Angeles area. munications for the commercial applications The system incorporates National Railroad of Boliv- worldwide, along with the use of DIGICOMT"' is and also completed a electronic warfare, repro- mobile data terminals to study contract to prepare a sent what we feel will be be installed in over 80 20-year master plan for a our two largest growth police cars. We also con- telecommunications sys- markets for the long-term tinucd installation of our tem for the national tele- future. largest and most advanced phone organization of the In 1976 we consum- DIGICOM system to date, Republic of El Salvador. mated an agreement with this one fora large South We hope to use the El Sal- the Government of Fin- American country. vador plan as a marketing land for "in-country" pro- Moreover, we developed springboard for winning duction of military radios, a new, highly cost-effective similar programs in other bringing the number of line of small-diameter earth Latin American countries. countries in which we have station antennas and sold In addition, the acquisi- obtained such co-produc- several of them for use tion of ECI added impor- tion agreements to five. overseas. These can provide tans programs to the com- Since the mid-1960s, E-Sys- many foreign countries, munications product cate- tems has been the largest especially the developing gory. These include surface volume producer of mill- "Third World" nations, ship and submarine UHF tary radios in the Free with the means of cstab- terminals for fleet satellite World. lishing modern satellite communications, the UHF During the year our communications systems. receiver subsystem on the Significant progress also spacecraft for the Navy's was made during 1976 Fleet Satellite Communica- toward completion of a tion (FltSatCom) system, Very Large Array (VLA) teleprinters, and air traffic radio-telescope project in control systems. New Mexico for the National Science Founda- tion. E-Systems is provid- ing 28 special antenna structures and related facili- ties for this history-making installation. When com- 1 2.4 _ ? pleted in 1980, the VLA facility will be the world's largest radio telescope, and will be used for further I .1 6.6 mom scientific research into the Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Command and T involves the t }},,c Com s kcd the first time our Approved orro ugh o ure 4 ~ .'CIAV ~8 `U2004200( Control Fhe o t tnCalled Aviation once all-military navi 1a- capability of installing air- borne and ground-based sys- tems and equipment requiring communications, electronics and mechanical expertise. This segment of our sales continued to be an impor- tant source of business for E-Systems in 1976, with sales totaling $26 million and the year-end backlog amounting to $28 million. The Advanced Airborne Command Post (AABNCP) program entered its second phase with the completion of the third airplane and delivery to E-Systems of the fourth aircraft late last year. Work continues on the modifi- cation of this Air Force version of a 747-type air- plane. E-Systems is under contract to install and inte- grate into the fourth flying advanced command post a more sophisticated elec- tronic communications and command and control system than those pre- viously incorporated by the Company in the first three aircraft. g Division, a number of sys- Weather and Notice to tion equipment has been tems for the U.S. Air Airmen System installed to permit landing ' Force s new E-3A Airborne Warning and Control Sys- tem (AWACS) aircraft. The E-3A also is being con- sidered by the NATO nations for their various requirements in the com- mand and control area. Also in this product category, our Company received a contract to design and install an auto- mated mail-coding and processing system for a large New York bank. When completed in mid- 1977, this installation will make this bank the first financial institution in the United States to adopt such a computerized, high-speed letter mail- handling system. These types of systems from the Company offer the large volume mail- handling commercial installation a rapid method of automatically processing vast amounts of incoming mail. Earlier in the year, E-Systems was awarded a contract by the Federal Aviation Administration to install an automated flight information system in the FAA's flight service (AWANS), it is similar to approaches during inclem- the first AWANS installa- ent weather by helicopters tion completed by the providing supply and per- Company at Atlanta, sonnel service to offshore Georgia in 1975. drilling rigs. The potential Guidance, Control and Navigation includes electromechanical controls and ground-based navigational and guidance equipment. Sales totaled $20 million and the year-end backlog was up 78 percent from a year earlier to $32 million. The Company com- pleted development of Very high-frequency Omni- Range (VOR) and Dis- tance Measuring Equip- ment (DME) navigation systems and we are bidding on a contract overseas. We also sold several Tactical Air Navigation (TACAN) systems, in both land-based and shipboard versions, to international customers. We received contracts to lease two TACAN systems for use on Alaskan offshore drilling platforms. This future sales possibilities are obvious. Another key develop- ment in this product area was a several million dollar order from General Elec- tric Company to develop and produce hydraulic shock suppressors for 17 nuclear power plants. Such shock suppressors, designed to protect the piping of nuclear power plants during earthquakes and other major distur- bances, are required equip- ment in these power- generating facilities. The newly-acquired ECI 44 3.7 3.2 Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Division produces g~ uide h ff {{;; ECI has long 'been a ppr v4e8'0bPP,4II` 99 2bdW*o/1f t'FA-RbP Wy -g315R00020 ~~5QPPr1i-P satellite corn- 0 missile telemetry and track- ing sets and kits which are utilized in missiles. One such system includes a new concept of an electron i- cally-steered phased array antenna for the receiving portion of the shipboard tracking capability under development for the U.S. Navy's new Standard Mis- sile 2. Maintenance and Modification in the United States includes depot level maintenance on the nation's Special Air Mission (SAM) fleet of airplanes, including the Presidential aircraft, and aircraft service contracts per- formed on-site at various cus- tomers' bases. Work on the SAM fleet is in the fourth year of a five-year contract. This overall product line of business resulted in sales of p backlog of $23 million. program to esign, con- Internationally, Air Asia Company Limited, our subsidiary in Taiwan, Republic of China, increased its commercial aircraft maintenance and modification contracts. Air Asia continues the work it performs on F-4s and other military aircraft. As we entered 1977, E- Systems received other international business through a contract from another country for the refurbishment and modifi- cation of large commer- cial-type aircraft. Energy Technology Center We formed an Energy Technology Center in August. Our Company was awarded a contract to participate with Texas Tech University in the first operation of a solar ther- mal-electric power plant at Crosbyton, Texas. Funding for this program, spon- sored by the Energy Research and Develop- ment Administration (ERDA), ultimately could exceed $20 million. We subsequently formed a new joint-venture company, with an oil and gas firm to pursue a similar solar- power contract in Lea County, New Mexico. Dr. Lloyd K. Lauderdale, Cor- porate Vice President- Research and Engineering, is General Manager of the new Energy Technology Center. ECI Acquisition The addition of Elec- tronic Communications, Inc. (now our ECI Divi- sion) in August was a very compatible acquisition for your Company, principally because of ECI's excellent reputation in the high- technology field of military communications equip- ment. In addition, ECI brings with it a long-stand- ing relationship with the United States Navy, pro- viding E-Systems with a broadened base for doing business with this impor- tant customer. They currently are in quan- tity production of AN/ WSC-3 satellite communi- cations terminals for the Navy. This highly- advanced solid state UHF radio terminal provides Navy surface ships and submarines with a world- wide satellite communica- tions capability. The AN/ WSC-3 is designed to work with the new Fleet Satellite Communication (F1tSatCom) system. ECI also is supplying the UHF receiver sub-system for use in the FltSatCotn satellites, the first of which is sched- uled to be launched late this year from the Ken- nedy Space Center. Another promising area for ECI is its full line of Net Income Per Common Share Total Stockholders' Equity Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 6 military teleprinter. Incor- porating advanced~c~lccoved tronic technology, these units have application in virtually any military environment - land, sea or air. The teleprinter line is being marketed domesti- cally and internationally. ECI also has been suc- cessful in the marketing of UHF/VHF air traffic con- trol communications sys- tems for European airports. Many of these serve mili- tary and commercial air- craft, requiring dual- frequency communications capability for air traffic controllers. ECI also supplies UHF radio equipment for the Air Force's new E-3A Air- borne Warning and Con- trol System (AWACS). It is our intention to supplement ECI's strong capabilities in high-tech- nology product develop- ment and manufacturing with a more aggressive international marketing effort through E-Systems existing worldwide cus- tomer relations organi- zation. ECI's capabilities in communications systems also will be strengthened. 4tn cal Bet f ~~~,,~~,~ reholders c uity plus r,` pease00+41101 3 :CIA `s-6 ? ~tT 2000$ ' q financial conservatism, through the earning of a bled to 24 from 12 percent with emphasis on strong centralized controls and efficient asset management, contributed not only to a substantial improvement in our overall profit mar- gin in 1976 but also to the strongest financial position in our history as the Com- pany entered 1977. Substantial progress has been made toward attain- ing our initial objective of after-tax profit margins of 5 percent. Pre-tax profit margins have increased steadily since the first quarter of 1974; during 1976 pre-tax margins advanced from 6.13 per- cent in the first quarter to 8.93 percent in the fourth quarter, resulting in an average pre-tax margin for the entire year of 7.83 per- cent. This improvement has been due chiefly to busi- ness mix, fixed-cost effi- ciency obtained from our general sales increase and progressively strict emphasis on corporate goals in our pricing, bid- ding policies and risk anal- ysis and controls. Also of great impor- tance is our primary objec- tive of maximizing the higher return on invested during 1975. capital and by more effi- cient use of assets. On September 30, 1976, the Company signed a new seven-year loan agreement with several banks which provides for borrowings of up to $40 million until the end of 1978 and decreasing $6 million per year thereaf- ter. There have been no borrowings against this or the predecessor loan agree- ment for over a year. The liquidity of your Company last year was suf- ficient to provide enough cash to acquire the ECI Division in Florida, pay for E-Systems new corporate office building, purchase approximately 550,000 of the Company's outstanding warrants, and increase the common stock dividend to the share- holders without use of the S40 million credit available to us. At year-end, the ratio of cent from 16 percent while the net return on average interest-bearing debt to total invested capital (debt-to-capital ratio) stood at 17 percent. Net return on average assets thus improved to 14 from 7 percent. Net return on average shareholders' equity increased to 28 per- Recognizing E-Systems present earning power and financial position, your Board of Directors in 1976 raised the annual dividend rate on the Company's common stock from S 1.00 to $1.60 per share. The Board also voted to pay a 10 percent stock dividend on October 15, 1976. Our dividend policy will con- tinue to be reviewed peri- odically, with the Com- pany's cash needs and general business conditions duly considered, in the realization that investors are putting greater emphasis on dividend yield. It has been most gratify- ing to note the growing recognition of E-Systems Net Return on Average Shareholder Equity 10.7 9.6 0.0 Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 securities in marketplace. the invests ro '&fi *3'WSF '2O4/10/13 : fA='1 6P' '-b4h OM004,2,000icTnt product and For example, As I stated in the 1975 our principal long-term customer base and with in a recent statistical survey published by Forbes Maga- zine E-Systems was ranked sixth among more than 900 leading American cor- porations for market-price growth of its stock, with nearly a 277 percent gain in per-share price in the five years from 1972 through 1976. In 1976 alone, ESY more than doubled in mar- ket price. During 1977, we plan to continue our policy of making regular appear- ances before security ana- lysts, stockbrokers and similar groups in various cities in an effort to keep them abreast of Company activities and operations and to further enhance E- Systems identification in the investment commu- nity. Net Return on Average Assets Annual Report, your Com- objective to continue our existing expertise. We pany has established certain growth at a controlled and have developed our own initial general and specific profitable rate. "ABCs" for acquisitions: goals, with the primary To achieve this, your "A" for "Availability"; "B" objective of increasing the management recognizes for "Buyability"; and "C" value of the investor's that we must keep and for "Compatibility" - ownership in E-Systems. further improve the repu- which is the most impor- We are pleased with the tation and recognition we rant. progress we made in 1976 have attained in all of the Early in 1977, in a con- toward meeting those areas in which we do busi- tinuing effort to strength- goals. These initial objec- ness or are involved - pri- en our divisional manage- tives included an average manly with our customers, ment and posture for annual sales growth of 10 the U.S. Department of future growth, the Corn- percent (when measured Defense and the military pany named James M. over the next several years), services, other government Osborne President and after-tax profit margins of agencies, and the investing General Manager of the 5 percent and a 13 percent public, both in this ECI Division. As a Cor- minimum normalized country and abroad. We porate Vice President, Mr. average net profit on will continue to pursue Osborne will continue to invested capital. our traditional areas of be responsible for new Looking toward 1977 business in U.S. defense business development and and beyond, I realize that while seeking further pene- planning. In addition, we cannot afford to rest on tration of our international Edward G. Casteel an our laurels. In order to and commercial markets. experienced cornmunica- further enhance the value We will further refine our tion-systems executive, of your investment in E- policy of centralized became Vice President and After-tax Profit Margin management control General Manager of our whereby we seek to mini- Memcor Division. He suc- mize risk and carefully ceeded Robert H. Mitchell balance both risk and in this capacity, enabling investment against poten- Mr. Mitchell to devote full tial rewards. This concept attention to overseeing the is designed to produce the expanding activities of our most profitable business Production Electronics mix and maximize our Group. return on assets and invest- ment over the long term. Moreover, we intend to continue our acquisition policy of seeking to add businesses to E-Systems that are compatible with Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 In summary, I a*pprved(S(ovcH aheas0 b064/10/13: CIA RO} O X151 200420001-9 optimistic about the future through congressional of E-Systems. We have the legislation and regulations products, the people, the by various agencies, in the reputation and, I think, the affairs of private business. motivation to maintain the This threatens to severely growth momentum that curtail the ability of bust- we've built up over the last nesses to earn the profits several years. We are less necessary to finance the susceptible to the vagaries capital investment and of general economic condi- future growth required to tions that often affect many other companies. The outlook for the businesses we are in appears good. The U.S. defense portion of it is expected to continue provide employment for the millions entering the job market each year. Another concern that more directly affects every American is this country's future defense posture. growing at the present, if Every reliable intelligence not at an increasing, level estimate reported in the because we are in the areas media indicates the Soviet that are on the upswing, Union is indeed devoting a especially electronic warfare greater proportion of its and communications. Our Gross National Product to international markets like- defense efforts than we had wise should continue originally been led to expanding. However, the believe. One recent brief- challenge will be for us to ing of the Congress by our obtain a reasonable share of military intelligence agency this business. translated this fact into a We face other chal- current Soviet military pro- lenges and concerns. One duction program at least of these is the ever-present 140 percent of the total threat of inflation. While U.S. defense effort. the inflationary spiral has All indications point to been checked somewhat in increased emphasis by the United States, it could Soviet leaders on major resurge since inflation has weapons systems, includ- been increasing at a much ing ballistic missiles, elec- higher rate in other parts of tronic equipment and the world. high-performance tactical A continuing personal and strategic aircraft. The concern of mine is the unsettling growth of the growing anti-business sen- Russian Navy and the timent and increasing Soviet's anti-satellite devel- interference by the Federal opment program have been widely chronicled of late. This presents ominous overtones to the United States and the rest of the It is dangerously unrealistic for us to rest on past laurels and to ignore the clear message from the Soviets as to what they can and will do in the years ahead. We must maintain tech- nological superiority! If growing government regulation of business and the status of our national security concern you, I urge you to voice your concerns by communicat- ing them to your congress- men and senators in Washington. John W. Dixon Chairman of the Board and President Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Contents Corporate ? 1 Statements ? Consolidated Income 11 Accountants' Report Consolidated Balance Sheets 12 Statements of Consolidated Changes in Financial Position 14 Statements of Consolidated Stockholders' Equity 15 Notes to Financial Statements 16 Charts 19 Backlog Five-year Financial Summary of Operations and Condition 20 VII KVCl' Cos oran I~ Approved For Release 2004/10/13: CIA-RD 88-0131 John W. Dixon F-SYS'II;ms, INC. Chairman of the Board and President P.O. Box 6030 Eugene E. Berg Dallas, Texas 75222 Vice President-International Customer Relations (214) 7/12-9471 James W. Crowley Vice President, Secretary and General Counsel E. G. Kciffer Vice President and General Manager, Garland Division Dr. Lloyd K. Lauderdale Vice President-Research and 9nfrineerint Robert L. Lewis Vice President and Controller Robert H. Mitchell President, Production Electronics Group James M. Osborne Vice President-New Business Development and Planniii Virgil B. Pettigrew 1/ice President-Finance and Chief Financial O, icer Joe W. Russell Vice President-Corporate Relations Kenneth M. Smith President. Aircraft Systems Group Robert C. Smith Vice President-Domestic Customer Relations David R. Tacks President, Electronics S'ystenrs Group Harry L. Thurmon Vice President and 7 recdsurer Directors John W. Dixon President. E-Systems. Inc.. Chairman E. F. Buehring Retired E-Systems, Inc., Executive Dr. LcVan Griffis Vice Provost, Southern Methodist Unireruty Thomas A. Lewis Vice President, Moseley, Ilallkarten & Ertal>rook. Inn.. Investment Bankers Robert H. Mitchell President, Production h'lcctronicc Group. E-Systems. Inc. William F. Raborn Vice Admiral, USN (Rel.), Consultant to E-Systems. Inc. Kenneth M. Smith President. Aircraft Systems Group, Ii-Sy teen,. Inc. David R. Tacks President. Electronics Systems Group. E-.Systems, Inca Transfer Agents & Registrars Texas Bank & Trust Company Dallas, Te.xas Manufacturers Hanover Trust Company New York. New York, Auditors Export Comp P.O. Box 6030 Dallas, Texas 75222 (211) 742-9471 rcraft System 9t 1 Group GRLPNVILLIi DIVISION P.O. Box 1056 Greenville, Texas 75401 (211) 455-3450 DONALI)SON DIVISION P.O. Box 8515, Station A Greenville, South Carolina 29604 (803) 277-3480 Sia v-AIR, INC. 16915 1:1 Camino Rcal Houston, 'Texas 77058 (713) /188-6811 AIR ASIA COMPANY '1'ainan Airfield 'Taman, Taiwan 700 Republic of China 214141 GARLAND DIVISION P.O. Box 61 18 Dallas, Texas 75222 (214) 272-0515 MELPAR DIVISION 7700 Arlington Blvd. halls Church, Virginia (703) 560-5000 MON'I']EK DIVISION 2268 South 3270 Wcst Salt Lakc City, Utah 81119 (801) 973-4300 TA 1, INC. P-0. Box 211 FalIs Church, Virginia 22046 (703) 573-8686 1\11iMCOR DIVISION P.O. Box 549 Iluntington, Indiana 46750 (219) 356-4300 ECI DIVISION P.O. Box 12248 St. Petersburg, Florida 33733 (813) 381-2000 Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 STAT Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Next 10 Page(s) In Document Exempt Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 Approved For Release 2004/10/13 : CIA-RDP88-01315R000200420001-9 E-SYSTEMS E-Systems, Inc. ? Corporate Offices ? P. 0. Box 6030 ? Dallas, Texas 75222 ,,r;n