Force Protection Announces Financial Results for 2010 Third Quarter

 – 2010 Q3 EPS is $0.05 Per Share Excluding Previously Announced Litigation Settlements, While 2010 Q3 GAAP EPS is Net Loss of $0.03 Per Share

 – Anticipated Deliveries of Ocelot for U.K. LPPV Program Expected to Lead to Growth in 2011

LADSON, SC – November 3, 2010 – Force Protection, Inc. (NASDAQ: FRPT) today reported financial results for the three and nine months ended September 30, 2010. 

Michael Moody, Chairman and Chief Executive Officer of Force Protection, Inc., said, “During this year’s third quarter we continued to deliver highly-protected vehicles and related services, which produced more than $175 million dollars in total revenue and reinforces our outlook for a strong second half of 2010.  Contributing to the quarter were higher modernization sales associated with continued enhancements of the Cougar fleet, and we expect this work will continue well into the future.We believe the 2010 third quarter is an important turning point for the Company as we build on the dynamic and credible organization we have put in place focused on the needs of our customers, to generating revenues and broadening our business as we execute our strategy.  As part of these efforts, we are prudently investing in research and development, business development, and other important initiatives.  While these expenditures impact bottom-line results, we believe they are appropriate investments in our future that will help drive long-term growth and success.” 

Mr. Moody continued, “Of course the most significant highlight of the 2010 third quarter was the announcement by the United Kingdom’s (U.K.) Ministry of Defence that Force Protection Europe was selected as the preferred bidder in the Light Protected Patrol Vehicle (LPPV) program.  We expect formal contract negotiations will conclude this month, and look forward to beginning delivery of Ocelot vehicles for the training of U.K. forces in 2011.  This is a unique and innovative vehicle that will undoubtedly save countless lives and prove invaluable not only in the current conflict in Afghanistan, but in other locations and applications as well.”      

Third Quarter

In the third quarter of 2010, the Company reported net sales of $176.3 million versus $316.2 million in the third quarter of 2009.  Contributing to the decrease were lower vehicle and spares and sustainment sales, which were slightly offset by increased modernization revenues.    

Gross profit for the 2010 third quarter was 19.0 percent, which was slightly lower than the Company’s long-term target of 20 percent.  Negatively impacting the quarter were certain contract definitizations and inventory valuation adjustments that lowered gross profit by approximately $3 million.  In the third quarter of 2009, the Company reported a gross profit of 8.4 percent, which was impacted by a $19.3 million write-down of the Company’s Cheetah inventory and other associated costs.  

The Company reported an operating loss of $1.6 million in the third quarter of 2010 as compared to operating income of $3.1 million in the prior year period.  The Company recorded adjusted operating income(1) of $6.9 million for the 2010 third quarter, which excludes an $8.5 million charge announced on October 1, 2010 associated with the net impact of proposed settlements of federal shareholder class action and related derivative actions that began in early 2008.  In the 2009 third quarter, the Company recorded adjusted operating income(1) of $22.4 million, which excludes the $19.3 million write-down of the Company’s Cheetah inventory and other associated costs.  Reconciliations of adjusted operating income and operating income are included at the end of this press release. 

Net loss for the third quarter of 2010 was $1.9 million, or $0.03 per diluted share, as compared to net income of $3.2 million, or $0.05 per diluted share, for the 2009 third quarter.  The Company recorded adjusted net income(1) of $3.6 million, or $0.05 per diluted share, in the third quarter of 2010, as compared to adjusted net income(1) of $16.1 million, or $0.23 per diluted share, in 2009.  Adjusted net income excludes the litigation settlements and Cheetah expenses in their respective periods.  Reconciliations of adjusted net income and adjusted net income per share to net income and net income per share are included at the end of this press release. 

Year-to-Date

For the nine months ended September 30, 2010, the Company reported net sales of $448.3 million versus $688.0 million for the nine months ended September 30, 2009.  Contributing to the decrease were lower spares and sustainment and vehicle sales, which were partially offset by increased modernization revenues.    

Gross profit for the nine months ended September 30, 2010 was 20.2 percent, which is in-line with the Company’s long-term target of 20 percent.  For the nine months ended September 30, 2009, the Company reported a gross profit of 13.0 percent, which was impacted by the $19.3 million write-down of the Company’s Cheetah inventory and other associated costs. 

Operating income was $7.5 million for the nine months ended September 30, 2010 as compared to $15.2 million in the prior year period.  The 2010 year-to-date decrease in operating income was primarily associated with the aforementioned $8.5 million litigation settlements charge recorded in the third quarter.  Adjusted operating income(1) for the nine months ended September 30, 2010 was $16.0 million, which excludes the litigation settlements.  For the nine months ended September 30, 2009, the Company recorded adjusted operating income(1) of $34.5 million, which excludes the $19.3 million write-down of the Company’s Cheetah inventory and other associated costs.

Net income for the nine months ended September 30, 2010 was $4.0 million, or $0.06 per diluted share, as compared to $11.0 million, or $0.16 per diluted share, for the comparable prior year period.  The Company recorded adjusted net income(1) of $9.5 million, or $0.14 per diluted share, in the nine months ended September 30, 2010, as compared to adjusted net income(1) of $23.9 million, or $0.35 per diluted share, in 2009.  Adjusted net income excludes the litigation settlements and Cheetah expenses in their respective periods.

Financial Position

As of September 30, 2010, the Company’s cash and inventories were $105.4 million and $85.9 million, respectively.  In addition, accounts receivable was $186.6 million, including $105.8 million of earned but unbilled receivables, and accounts payable was $95.7 million as of September 30, 2010.

The decline in the Company’s cash position from December 31, 2009 was primarily associated with the timing of final contract negotiations, product deliveries and customer billings.  The Company expects its cash balance to increase in the fourth quarter of 2010 based on recently definitized contracts and other contracts targeted for definitization during the 2010 fourth quarter.

Randy Hutcherson, Chief Operating Officer of Force Protection, Inc., commented, “Our products and services continue to be highly desired by customers across the globe.  An example of this was the more than $220 million in new contracts that we were awarded during the 2010 third quarter for the delivery of vehicles and associated services.  Even without including the upcoming contract with the U.K. for the LPPV program, we expect to end the year having secured well over $700 million in new contracts during 2010, with approximately 20% of the revenue from these awards to be recognized in 2011.” 
Mr. Hutcherson further commented, “As we grow our top-line results, we recognize the importance of driving increased efficiencies in the business.&nbs
p; While our 2010 third quarter included higher than expected expenditures associated with the final stages of the LPPV competition and further development of the Ocelot, we view these as critical investments in our future.  Looking forward, we will continue to focus resources on our research and development and business development initiatives, as well as capitalize on available opportunities to reduce spending in other areas to promote long-term growth in operating margins.”

Significant Business Development Initiatives 

The Company achieved a critical milestone with the Ocelot in September 2010 with the selection of Force Protection Europe Limited as the preferred bidder in the U.K.’s LPPV program.  This program is expected to initially require approximately 200 vehicles and related long-term support services, with final quantities, price and delivery schedule being determined as part of the ongoing formal contract negotiations.  The Company expects the negotiations to be completed in November 2010. 

The Company believes its success in the LPPV program could prove to be a substantial catalyst for opportunities both domestically and internationally for years to come.  One example is in Australia where the Ocelot has been selected as one of three solutions to continue competitive prototyping in the Manufactured and Supported in Australia (MSA) option for the Land 121 program.  The Australian government has also collaborated with the U.S. government on the development of the Joint Light Tactical Vehicle (JLTV).  The Land 121 program is designed to provide approximately 1,300 vehicles and trailers, as well as related long-term support, for Australia’s core fleet of military assets.  The evaluation for the MSA option in the Land 121 program is currently scheduled to conclude by the second half of 2011, at which point the Australian government is expected to make a decision on whether to continue with stage two MSA prototyping, JLTV, or a combination of both options.

The Company’s Joint All-Terrain Modular Mobility Asset (JAMMA) vehicle continues to be successfully developed and tested in advance of the upcoming Air Force Material Command’s Guardian Angel Air-Deployable Rescue Vehicle (GAARV) program.  The JAMMA is a modular, light-weight, high-performance, all-terrain vehicle that is transportable inside the V-22 Osprey, as well as the CH-47 and CH-53 helicopters.  Additionally, the JAMMA can accommodate mission configurable add-on armor.  Beyond the GAARV program, the Company believes the vehicle will meet the requirements of special operations forces for a number of militaries worldwide.

In addition to pursuing substantial opportunities for its new vehicles, the Company is enjoying continued progress in business development efforts surrounding its established fleet of vehicles.  In July 2010, the Company was down selected by the Canadian government to continue in the Tactical Armored Patrol Vehicle (TAPV) program, which is a procurement for up to 600 vehicles and related long-term support services.  The Company has offered variants of the Cougar 4×4 and 6×6 as potential solutions for this program, and there are seven vehicles from other bidders that also remain in the competition.  The draft request for proposal (RFP) was issued for the TAPV program on November 1, 2010.  A contract award to the final selected bidder is currently expected in late 2011.  

Complementing its efforts for securing additional vehicle deliveries, the Company is also pursuing incremental service and sustainment business opportunities.  One example is the Contractor Logistic Support Service contract with the U.S. Army for long-term maintenance of its thousands of Route Clearance and MRAP vehicles in the Middle East.  The Company currently expects this draft RFP to be issued by the end of 2010. 

Outlook

Mr. Hutcherson continued, “More than half of the $675 million in new contract awards we secured in the first ten months of 2010 were associated with vehicle modernization equipment and related installation services, with a significant amount of this work anticipated for delivery in the 2010 fourth quarter.  Similar to 2009, our 2010 fourth quarter is expected to be our strongest of the year.

“As we look further out, we expect there will be a continued high-level of operational tempo in Afghanistan throughout 2011, which will provide additional vehicle and product sales in theater as well as continued operational support.  We expect modernization, as well as spares and sustainment, will remain important components of our revenue in 2011 and well into the future.  Combined with expected deliveries of the Ocelot as part of the LPPV program, we look forward to growing our business in 2011.”    

Mr. Moody concluded, “We are continuing to make important progress in our business on multiple fronts.  The Company is in this position because we provide survivability solutions that are highly-desired in the marketplace.  Equally as important, we have also made significant process, resource and financial improvements within the organization that have allowed us to enhance our relationships with customers and more credibly pursue opportunities worldwide.  Over the past two and a half years, the Company worked hard to rebuild the business while continuing to promote a culture of innovation and technological excellence in which we are prepared to wisely invest our financial resources when necessary.  Our win with the Ocelot in the U.K. is a prime example of this culture and demonstrates why we believe the Company is uniquely positioned for future success.

“As we move forward, we will remain diligent in focusing our resources on pursuing those opportunities in our base business that we believe have a strong chance of success.  Complementing these efforts, we continue to think that it is important to broaden our portfolio of marketable survivability solutions through prudent acquisitions, investments and partnerships.  Key to this strategic initiative is ensuring that any investment increases the predictability and visibility of our overall business and is in the best long-term interests of our shareholders.”
 

About Force Protection, Inc.
Force Protection, Inc. is a leading designer, developer and manufacturer of survivability solutions, including blast- and ballistic-protected wheeled vehicles currently deployed by the U.S. military and its allies to support armed forces and security personnel in conflict zones.  Force Protection’s specialty vehicles, including the Buffalo, Cougar and related variants, are designed specifically for reconnaissance and urban operations and to protect their occupants from landmines, hostile fire, and improvised explosive devices (“IEDs”, commonly referred to as roadside bombs).  Complementing these efforts, Force Protection is designing, developing and marketing new vehicle platforms (including the Ocelot and JAMMA) that provide increased modularity, speed, and mobility.  Force Protection also develops, manufactures, tests, delivers and supports products and services aimed at further enhancing the survivability of users against additional threats, including modernization of its existing fleet of vehicles.  In addition, Force Protection provides long-term sustainment of its vehicles that involve development of technical data packages, supply of spares, field and depot maintenance activities, assignment of highly-skilled field service representatives, and driver and maintenance training programs.  For more information on Force Protection and its products and services, visit www.forceprotection.net.