WASHINGTON — The Iraq war helped bring record earnings to St. Louis-based
defense contractor Engineered Support Systems Inc., and new financial data show
that the firm's war-related profits have trickled down to a familiar family
name — Bush.
William H.T. "Bucky" Bush, uncle of the president and youngest brother
of former President George H.W. Bush, cashed in ESSI stock options last month
with a net value of nearly half a million dollars.
"Uncle Bucky," as he is known to the president, is on the board of
the company, which supplies armor and other materials to U.S. troops. The company's
stock prices have soared to record heights since before the invasion, benefiting
in part from contracts to rapidly refit fleets of military vehicles with extra
William Bush exercised options on 8,438 shares of company stock Jan. 18, according
to reports filed with the U.S. Securities and Exchange Commission. He acknowledged
in an interview that the transaction was worth about $450,000.
In an earnings report issued Tuesday, the firm disclosed that net earnings
for the first quarter ending Jan. 31 reached a record $20.6 million, while quarterly
revenue hit $233.5 million, up 20% from a year ago. As a result, the company
boosted its projected annual revenue to between $990 million and $1 billion.
William Bush, 66, a onetime St. Louis bank executive and head of an investment
firm, joined the board in 2000, eight months before his nephew won the White
The president's uncle said in an interview that he never used his family connections
to help the company win contracts.
"I don't make any calls to the 202 area code," he said, referring
to the long-distance dialing code for Washington.
He also said he sought legal advice before accepting appointment to the ESSI
board to be certain there would be no problems.
Dan Kreher, vice president of industrial relations for ESSI, said Bush was
one of several people added to the company board about five years ago, and that
he was selected because he had "a long history of involvement in the local
business community. We've known him for a long time."
"Having a Bush doesn't hurt," said Kreher, who acknowledged that
the company was routinely engaged in Washington lobbying efforts. But, he said,
Democrats, including a party fundraiser, also serve on the panel.
"It certainly doesn't hurt to have people who know who to talk to,"
Kreher said, adding that the president's uncle played no role in winning the
firm's government contracts.
Some of the firm's Defense Department work has included no-bid, sole-source
contracts, including a $48.8-million deal to refurbish military trailers.
Other Iraq-related contracts won by the firm include an $18-million pact awarded
early last year under which a Maryland-based subsidiary was picked to provide
communications support services to the Coalition Provisional Authority.
In March 2003, in announcing the U.S. Army's purchase of $19-million worth
of its protective shelters for chemical and biological weapons, then-ESSI Chairman
and Chief Executive Michael Shanahan stated: "The potential threat of our
troops facing a chemical or biological attack during the current conflict in
Iraq remains very real."
Other company contracts have raised questions.
Last week, Defense Department officials disclosed that ESSI contracts issued
in 2002 with a cumulative value of $158 million had been referred to the Pentagon
inspector general's office for investigation. The contracts were supervised
by a former Defense official who was sentenced to prison for improperly aiding
another contractor, Boeing Co.
Pentagon Acting Undersecretary Michael Wynne said he had referred the contracts
"that appear to have anomalies in them." Wynne and his aides would
not elaborate on those anomalies. Other contracts referred for review included
pacts with Accenture (formerly called Andersen Consulting), Boeing and Lockheed
In a briefing with stock analysts Tuesday, Gerald A. Potthoff, ESSI president,
played down the significance of the probe, stating that the company contracts
were under review simply because they were awarded on a sole-source basis.
He said he was confident it would "have no effect" on the company
and that the probe was focused on the actions of government officials, not ESSI.
"We will cooperate fully," he added.
The ESSI contracts now being reviewed by the inspector general came in a series
of awards by the U.S. Air Force for a piece of equipment known as a Tunner.
Named after a former Air Force major general, the Tunner is in wide use by
the Air Force to swiftly load and unload large military transport aircraft.
It can handle 60,000 pounds of cargo at a time.
The Tunner has also proven a valuable workhorse for ESSI, accounting for the
bulk of a $35.1-million or 20% boost in its revenues in ESSI's heavy military
division in 2002.
Shortly before the disclosure of the investigation, the Air Force announced
that it had awarded the ESSI subsidiary another $9-million contract under the
The company describes itself as "a diversified supplier of high-tech,
integrated military electronics, support equipment and logistics services for
all branches of America's armed forces and certain foreign militaries."
Company officials acknowledge the war is an economic boon to the firm.
In its quarterly earnings report a year ago, then-Vice Chairman and Chief Executive
Gerald L. Daniels said: "The increasing likelihood for a prolonged military
involvement in Southwest Asia by U.S. forces well into 2006 has created a fertile
environment for the type of support … products and services that we offer."
Other ESSI products that have seen use in the current conflicts include radar
and detection services, field medical stations and field electric generator
The company's record growth has come from increased orders coupled with an
aggressive buyout strategy. William Bush's company, Bush-O'Donnell, was paid
$125,000 to serve as a consultant in ESSI's buyout of a military contractor
three years ago.
With about 3,500 employees, some stationed in Iraq, ESSI's North America operations
stretch from Nova Scotia to Florida. Most recently the company announced its
purchase of Spacelink International LLC, a Virginia military contractor, for
SEC filings also cite major contracts with the military in Saudi Arabia and
While some of ESSI's military contracts have been awarded through a competitive
bidding process, others have not. Many of its contracts are "indefinite
date-indefinite quantity" contracts, under which the size of the contracts
depends on the need of the agency.
The company preference for sole-source contracts was evident early this year,
with the $37.6-million purchase of Prospective Computer Analysts Inc., an electronic
test equipment and engineering services firm. ESSI officials made special note
that the Garden City, N.Y., firm had "a lot of sole-source contracts."
William Bush was named to the board of ESSI in 2000, eight months before his
nephew was elected president of the United States.
In an interview Tuesday, the uncle said he decided to cash in the options because
they would soon expire.
"The deadline was coming up, and we put in a bid on a house in Florida,"
William Bush said. He said he declared in advance to the company president his
intentions to exercise those options.
Asked whether he was troubled by the fact that the company had earned significant
revenue from the military engagements in Iraq and Afghanistan ,
the president's uncle said he would "prefer there was no business in Iraq.
Unfortunately, we live in a troubled world."
He called ESSI an excellent company, and said exercising the options was "certainly
not" to express any dissatisfaction with its performance.
"I'm very proud of it. They've done a wonderful job," William Bush
According to SEC filings, the St. Louis business executive still has options
on 45,000 more shares of the company stock. He said the options he cashed in
were granted when he first joined the company board.
Bush, who also sits on the company's audit committee, is paid a little less
than $40,000 a year for his board and committee duties, including an annual
stockholders meeting scheduled for next week. He and other board member accrue
additional stock options annually.
Bush exercised the expiring options shortly after a series of announcements
that the company had won additional orders totaling about $77 million to supply
kits to re-armor and refurbish military equipment being used by U.S. forces
in Iraq. The company has 35 employees stationed in Iraq to install the protective
The company estimates the refurbishing work in Iraq ultimately could bring
revenues of $200 million or more.
News of the armoring and refurbishment contracts boosted ESSI's stock to a
record $60.39 per share earlier this year. The stock closed Tuesday at $54.34.
In the conference call with analysts Tuesday, ESSI's Potthoff expressed optimism
that the Bush administration's proposed $82-billion supplemental defense budget
submitted last week could mean substantial additional opportunities for the
company in Iraq and elsewhere.
"Personally, I could not be more happy about our company's prospects,"
Potthoff told stock analysts.