Electro Optic Systems Holdings Limited (ASX:EOS) Update on CROWS Remote Weapon System Program

Sydney, Dec 6, 2011 AEST (ABN Newswire) - Electro Optic Systems Holdings Limited (ASX:EOS) is to re-locate its US remote weapon system' production facilities from Tucson Arizona to Huntsville, Alabama to position alongside the Northrop Grumman Corporation (NYSE:NOC) facility. The move is being made to maximise EOS and NGC's competitiveness as they set out to jointly bid for a major contract for remote weapons systems from the US Army.

In May of 2010, EOS announced it had teamed with NGC to compete for US requirements for remote weapon systems (RWS), including the US Army CROWS program. The teaming arrangements include an allocation of work-share between NGC and EOS production plants. NGC facilities for RWS are already located in Huntsville.

The move will result in a cluster of development, production, and logistic support capabilities for RWS in Huntsville and drawing on both NGC and EOS resources and capabilities.

EOS CEO, Dr Ben Greene, said that centralising all RWS operations would significantly reduce costs and eliminate management, logistics and co-ordination issues potentially associated with geographically separate plants.

"Price will be a key element in the CROWS contract award in 2012 and for RWS markets in future. This move will improve our team's competitiveness for all RWS business activities envisaged in the 2010 teaming arrangements with NGC."

The contract parameters for CROWS as announced by Army to this date are:

- Contract Value: The value of the initial contract award will be approximately US$970 million.

- Scope of Work: The contracted effort will include three mandatory elements:

i. Production of up to 3,000 CROWS and spare parts.

ii. Product improvements, integrations, and testing.

iii. Training, overhaul, maintenance, and product support.

- Number of Contracts: A single contract award will be made for CROWS, with one contractor required to perform the entire scope of work.

- Schedule: A contract will be awarded by Q4 2012.

Announcing the relocation decision the CEO of EOS Dr Ben Greene said:

"By relocating EOS production facilities to Huntsville, the NGC-EOS team can improve our price competitiveness not only for production, but also for every other element in the CROWS statement of work."

"In 2010 EOS extensively upgraded its Tucson, Arizona production plant, but additional cost savings from co-locating in Huntsville with NGC will result in a more competitive price for future procurements under intensified competition triggered by substantial cuts in US defence spending and other global economic developments."

"The EOS Tucson plant will transition to Huntsville in mid-2012. We do not expect any significant asset impairment from this decision."

"The company is mindful of current economic circumstances, and is announcing this change well in advance and as early as possible to allow EOS to provide support for Tucson staff who may be affected over the months leading up to the transition," Dr Greene added.

In a parallel development, the company also intends to re-position its Australian technology development and production capabilities to work more closely with licensed production facilities designated by key customers.

Commenting on this development, the Chief Executive of EOS' Defence Systems business, Mr Mark Bornholt, said:

"Most EOS customers for RWS are governments, and the current economic climate has escalated their concerns for local employment. Many now require significantly increased local production as a condition of any new RWS order."

"EOS has adapted quickly to this emerging trend with flexible business models including manufacture under license and technology suited to local production."

"In dialogue with current and potential customers we have isolated the activities suitable for their domestic industry while focussing EOS resources on supporting those activities, as well as improving the efficiency and effectiveness of EOS' execution of in-house production."

Contact

Ben Greene Chief Executive Officer Ph: +61-414-365-658 Mark Bornholt EOS Chief Executive Officer Defence Systems Ph +61-40-404-2528 http://www.eos-aus.com