-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JsKHr3vtFoOg4a8aepbLcYNBco99sTdT5sSEtrVzwqa+j0OrZvuqfjHJXW3w14oE /IUvxjcmICJApqUr2wESqA== 0000031617-98-000009.txt : 19980807 0000031617-98-000009.hdr.sgml : 19980807 ACCESSION NUMBER: 0000031617-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980806 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDO CORP CENTRAL INDEX KEY: 0000031617 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 110707740 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03985 FILM NUMBER: 98678304 BUSINESS ADDRESS: STREET 1: 14 04 111TH ST CITY: COLLEGE POINT STATE: NY ZIP: 113561434 BUSINESS PHONE: 7183214000 MAIL ADDRESS: STREET 1: 14 04 111TH ST CITY: COLLEGE POINT STATE: NY ZIP: 11356-1434 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUN 27, 1998 Page 1 of 13 Pages FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 27, 1998 Commission File Number 1-3985 EDO CORPORATION (Exact name of registrant as specified in its charter) New York No. 11-0707740 (State or other jurisdiction (I.R.S Employee of incorporation or organization) Identification No.) 60 East 42nd Street, Suite 5010, New York, NY 10165 (Address of principal executive offices) (Zip Code) Telephone Number (212) 716-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class Outstanding at June 27, 1998 Common shares, par value $1 per share 6,576,649 Page 2 EDO CORPORATION INDEX Page No. Face Sheet 1 Index 2 Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets - June 27, 1998 and December 31, 1997 3 Consolidated Statements of Earnings - Three Months Ended June 27, 1998 and June 28, 1997 4 Consolidated Statements of Earnings - Six Months Ended June 27, 1998 and June 28, 1997 5 Consolidated Statements of Cash Flows - Six Months Ended June 27, 1998 and June 28, 1997 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Part II Other Information 12 Signature 13 Page 3 PART I - FINANCIAL INFORMATION Item I. Financial Statements EDO Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except per share amounts) Assets June 27, 1998 Dec. 31, 1997 (unaudited) Current assets: Cash and cash equivalents $ 23,576 $ 20,351 Marketable securities 5,004 13,851 Accounts receivable 37,161 32,421 Inventories 9,471 6,816 Prepayments and other 2,476 5,564 ---------- ---------- Total current assets 77,688 79,003 Property, plant and equipment, net 13,306 12,865 Notes receivable 3,000 3,000 Cost in excess of fair value of net assets acquired, net 6,608 6,792 Other assets 8,116 7,141 ---------- ---------- $ 108,718 $ 108,801 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 20,383 $ 21,773 Contract advances and deposits 10,292 12,753 ---------- ---------- Total current liabilities 30,675 34,526 Long-term debt 29,317 29,317 ESOT loan obligation 9,662 10,368 Postretirement benefits obligation 3,526 3,526 Environmental obligation 2,929 2,929 Shareholders' Equity: 8% convertible preferred shares, par value $1 per share(liquidation preference $213.71 per share or $13,159 in the aggregate in 1998)authorized 500,000 shares, 61,573 issued(64,843 in 1997) 62 65 Common shares, par value $1 per share, authorized 25,000,000 shares, (issued 8,453,902 in both periods) 8,454 8,454 Additional paid-in capital 30,900 32,546 Retained earnings 30,925 27,641 ---------- ---------- 70,341 68,706 Less: Treasury shares at cost 1,877,253 shares in 1998 and 2,054,474 shares in 1997 (26,700) (29,201) ESOT loan obligation (9,662) (10,368) Deferred compensation under Long-Term Incentive Plan (1,370) (1,002) ---------- ---------- Total shareholders' equity 32,609 28,135 ---------- ---------- $ 108,718 $ 108,801 ========== ========== See accompanying Notes to Consolidated Financial Statements. Page 4 EDO Corporation and Subsidiaries Consolidated Statements of Earnings (in thousands except per share amounts) For the three months ended June 27, 1998 June 28, 1997 (unaudited) Income Net sales $ 23,397 $ 23,193 Other 7 45 ---------- ---------- 23,404 23,238 Costs and expenses Cost of sales 16,608 17,264 Selling, general and administrative 3,603 3,650 Research and development 824 489 ---------- ---------- 21,035 21,403 Operating earnings 2,369 1,835 Non-operating income (expense) Interest income 482 436 Interest expense (548) (543) Other, net (25) ( 25) ---------- ---------- ( 91) (132) ---------- ---------- Earnings before Federal income taxes 2,278 1,703 Federal income tax expense - - ---------- ---------- Net earnings 2,278 1,703 Dividends on preferred shares 263 281 ---------- ---------- Net earnings available for common shares $ 2,015 $ 1,422 ========== ========== Earnings per common share: Basic $ 0.31 $ 0.23 ========== ========== Diluted $ 0.27 $ 0.20 ========== ========== Average shares outstanding: Basic 6,527 6,187 ========== ========== Diluted 7,644 7,214 ========== ========== See accompanying Notes to Consolidated Financial Statements. Page 5 EDO Corporation and Subsidiaries Consolidated Statements of Earnings (in thousands except per share amounts) For the six months ended June 27, 1998 June 28, 1997 (unaudited) Income Net sales $ 46,698 $ 46,897 Other 28 53 ---------- ---------- 46,726 46,950 Costs and expenses Cost of sales 33,664 35,179 Selling, general and administrative 7,204 7,350 Research and development 1,546 802 ---------- ---------- 42,414 43,331 Operating earnings 4,312 3,619 Non-operating income (expense) Interest income 1,027 761 Interest expense (1,106) (1,086) Other, net (50) ( 30) ---------- ---------- ( 129) (355) ---------- ---------- Earnings before Federal income taxes 4,183 3,264 Federal income tax expense - - ---------- ---------- Net earnings 4,183 3,264 Dividends on preferred shares 540 571 ---------- ---------- Net earnings available for common shares $ 3,643 $ 2,693 ========== ========== Earnings per common share: Basic $ 0.56 $ 0.44 ========== ========== Diluted $ 0.49 $ 0.38 ========== ========== Average shares outstanding: Basic 6,488 6,159 ========== ========== Diluted 7,608 7,191 ========== ========== See accompanying Notes to Consolidated Financial Statements. Page 6 EDO Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) For the six months ended June 27, 1998 June 28, 1997 (unaudited) Operating activities: Net earnings $ 4,183 $ 3,264 Adjustments to net earnings to arrive at cash (used) provided by operations: Depreciation and amortization 2,135 3,149 Common shares issued for employee benefits and directors' fees 487 826 Changes in: Accounts receivable (4,740) (121) Inventories (2,655) 774 Prepayments, other current assets and other assets 1,808 (2,219) Accounts payable and accrued liabilities (1,390) 696 Contract advances and deposits (2,461) 8,427 ---------- ---------- Cash (used) provided by operations (2,633) 14,796 Investing activities: Purchase of property, plant and equipment (2,312) (2,400) Sale of marketable securities 8,847 - ---------- ---------- Cash provided (used) investing activities 6,535 (2,400) Financing activities: Payments received on notes receivable 222 161 Payment of common share cash dividends (359) (309) Payment of preferred share cash dividends (540) (571) ---------- ---------- Cash used by financing activities (677) (719) Net increase in cash and cash equivalents 3,225 11,677 Cash and cash equivalents at beginning of year 20,351 20,745 Cash and cash equivalents at end of period $ 23,576 $ 32,422 ========== ========== Supplemental disclosures: Cash paid for: Interest $ 1,057 $ 1,026 Income taxes 1,278 767 (Federal, state and local) See accompanying Notes to Consolidated Financial Statements. Page 7 Notes to Consolidated Financial Statements Unaudited Financial Statements The accompanying unaudited, consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with generally accepted accounting principles. They should be read in conjunction with the consolidated financial statements of EDO Corporation (the "Company") for the fiscal year ended December 31, 1997, filed by the Company on Form 10-K with the Securities and Exchange Commission on March 20, 1998. The accompanying financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year. Backlog Data The dollar amount of backlog of firm orders at June 27, 1998 was $139,018,000 compared to $124,797,000 at June 28, 1997. Inventories Inventories are summarized by major classification as follows: June 27, 1998 Dec. 31, 1997 (in thousands) Raw material and supplies $ 4,192 $ 3,471 Work in process 5,154 3,120 Finished goods 125 225 ------- ------- $ 9,471 $ 6,816 ======= ======= Page 8 Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Six Months Ended 6/27/98 6/28/97 6/27/98 6/28/97 Numerator: Net earnings available for common shares, basic $2,015 $1,422 $3,643 $2,693 Impact of assumed conversion of preferred shares 28 23 51 51 ------ ------ ------ ------ Numerator for diluted calculation $2,043 $1,445 $3,694 $2,744 ====== ====== ====== ====== Denominator: Weighted average common shares outstanding, basic 6,527 6,187 6,488 6,159 Dilutive effect of stock options 187 108 190 113 Dilutive effect of conversion of preferred shares 930 919 930 919 ------ ------ ------ ------ Denominator for diluted calculation 7,644 7,214 7,608 7,191 ====== ====== ====== ====== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations First Six Months of 1998 compared with First Six Months of 1997 Net sales for the first six months of 1998 were $46.7 million compared with $46.9 million reported in the same period in 1997. Sales increases from mine countermeasures systems, command and control and sonar systems were offset primarily by decreased satellite system sales as a result of delays in expected orders. Earnings from operations in the first six months of 1998 were $4.3 million compared with $3.6 million in the same period in 1997. The 1998 earnings included approximately $0.4 million representing an increase in pension income over that of the prior year related to the over-funding of the Company's pension plan. The balance of the increased operating earnings resulted from modest improvements in operating margins in substantially all of the Company's principal product lines, except for satellite systems where decreased sales continue to adversely affect operating results. Such improvements were further offset by increased research and development expenditures. Page 9 Selling, general and administrative expenses in the first six months of 1998 were comparable to the first six months of 1997. Company-sponsored research and development expenditures increased 93% to $1.5 million during the first six months of 1998 from the corresponding period in 1997. This increase is consistent with the Company's strategy of increased investment in product development. Non-operating expense, net, was $0.1 million in the first six months of 1998, compared with $0.3 million in the corresponding period of 1997. This reduction was due to increased interest income as a result of higher levels of average invested cash. In the first six months of 1998 and 1997 the Company did not have a provision for Federal income taxes due to the utilization of tax loss carryforwards. The Company reported net earnings available for common shares of $3.6 million in the first six months of 1998 compared with $2.7 million a year ago. Basic net earnings per share were $0.56 in the first six months of 1998 compared with $0.44 in the corresponding period in 1997. Basic net earnings per share calculations are based on a weighted average of 6.5 million and 6.2 million common shares outstanding in the first six months of 1998 and 1997, respectively. Diluted earnings per share were $0.49 in the first six months of 1998 compared with $0.38 a year ago. Financial Condition The Company's cash, cash equivalents and marketable securities decreased by $5.6 million from December 31, 1997 to $28.6 million at June 27, 1998. The decrease resulted from cash used by operations of $2.6 million, $2.3 million for purchases of capital equipment and $0.9 million for payment of common and preferred dividends, offset by a $0.2 million payment received on notes receivable. The Company has outstanding $29.3 million of 7% Convertible Subordinated Debentures Due 2011. Commencing in 1996 and until retirement of these debentures, the Company is making annual sinking fund payments of $1.8 million which are due each December 15th. As of June 27, 1998 the Company had $2.2 million of these debentures remaining in treasury to be used for these annual requirements. The Company also has an ESOT loan obligation with a balance at June 27, 1998 of $9.7 million at an interest rate of 82% of the prime lending rate. The ESOT obligation agreement can be canceled or refinanced by the Company or the lender on or after April 1, 2000. The repayment of this obligation is funded through dividends on the Company's preferred shares and cash contributions. The Company is in negotiations for a new $30 million secured multi-year revolving credit facility through Mellon Bank which will lead a syndicate of banks to provide the package. In addition to taking a portion of the revolving credit facility, Mellon Bank will also finance the remaining $9.7 million balance of the Company's existing ESOT loan. This new credit facility will replace the Company's present $15.0 million secured line of credit which currently expires on August 31, 1998. Page 10 Capital expenditures in the first six months of 1998 totaled $2.3 million compared with $2.4 million in the same period in 1997. The total expenditures for 1998 are not expected to be significantly different than the $4.1 million in 1997. The Company believes that it has adequate liquidity and sufficient capital to fund its current operating plans. The backlog of unfilled orders at June 27, 1998 stood at $139.0 million compared with $124.8 million a year ago and $111.6 million at December 31, 1997. On July 31, 1998, the Company closed on its acquisition of the assets of the Technology Services Group of Global Associates, Ltd., in Falls Church, VA. The Company paid cash of approximately $4.8 million, which is subject to post-closing adjustment. The acquired business will operate as EDO Technology Services and Analysis and will be part of the Company's Combat Systems business, providing operations and systems analysis to the Department of Defense and other governmental agencies. New Accounting Standard Statement of Financial Accounting Standards No. 131 establishes standards for reporting information about operating segments, and related disclosures about products and services, geographic areas and major customers. The Company, which will adopt this Statement effective January 1, 1998, as required, is evaluating the impact that the adoption of this new accounting standard will have on its consolidated financial statement disclosures. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 The statements in this Quarterly Report on Form 10-Q and in oral statements which may be made by representatives of the Company relating to plans, strategies, economic performance and trends and other statements that are not descriptions of historical facts may be forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to the following for each of the types of information noted. U.S. and international military program sales, follow-on procurement, contract continuance, future program awards and upgrades and spares support are subject to: U.S. and international military budget constraints and determinations; U.S. congressional and international legislative body discretion; U.S. and international government administration policies and priorities; Page 11 changing world military threats, strategies and missions; changes in U.S. and international government procurement timing, strategies and practices; and the general state of world military readiness and deployment. Commercial satellite programs and equipment sales, follow-on procurement, contract continuance and future program awards are subject to: establishment and continuance of various consortiums for satellite constellation programs; delay in launch dates due to equipment, weather, or other factors beyond the control of the Company; development of sufficient customer base to support a particular satellite constellation program; Other commercial product sales are subject to: success of product development programs currently underway or planned; competitiveness of current and future product production costs and prices; market and customer base development for new product programs; Achievement of margins on sales, earnings and cash flow can be affected by unanticipated technical problems, government termination of contracts for convenience, decline in expected levels of revenues and underestimation of anticipated costs on specific programs. The Company has no obligation to update any forward-looking statements. Page 12 PART II - OTHER INFORMATION Item 5. Submissions of Matters to a Vote of Security Holders. At the Company's Annual Meeting of Shareholders held on April 28, 1998, the following actions were taken: a. Messrs. Mellon C. Baird, George M. Ball, and Joseph F. Engelberger were elected as directors, each receiving 6,293,949 votes. b. The appointment of KPMG Peat Marwick LLP as independent auditors for the Company for the year 1998 was ratified: there were 6,636,391 votes cast in favor, 73,939 votes cast against, and 74,043 abstentions. Item 6.(a) Exhibits 27 - Financial Data Schedule Page 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EDO Corporation (Registrant) by: K. A. Paladino ------------------------------- K. A. Paladino - Vice President Finance and Treasurer (Principal Financial Officer) Dated: August 6, 1998 EX-27 2 ART. 5 DFS FOR 1998 6 MOS. 10-Q
5 1,000 6-MOS DEC-31-1998 JUN-27-1998 23,576 5,004 37,161 280 9,471 77,688 63,681 50,375 108,718 30,675 38,979 8,454 0 62 24,093 108,718 46,698 46,726 33,664 42,414 50 24 1,106 4,183 0 3,643 0 0 0 3,643 .56 .49
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