-----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, KNj0LpuEf0PtD5oYFXWNDXx382MpaXRrQZ43Mx844Y8ugE5hwRwdEwvRyFGRW11Q MEpgkd2tQhFVmwatf30MUg== 0000031617-99-000007.txt : 19990506 0000031617-99-000007.hdr.sgml : 19990506 ACCESSION NUMBER: 0000031617-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990327 FILED AS OF DATE: 19990505 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: 99610949 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 MAR 27, 1999 Page 1 of 13 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 March 27, 1999 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 requirement 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 Mar. 27, 1999 - ------------------------------------- ---------------------------- Common shares, par value $1 per share 6,642,268 Page 2 EDO CORPORATION INDEX Page No. Face Sheet 1 Index 2 Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets - March 27, 1999 and December 31, 1998 3 Consolidated Statements of Earnings - Three Months Ended March 27, 1999 and March 28, 1998 4 Consolidated Statements of Cash Flows - Three Months Ended March 27, 1999 and March 28, 1998 5 Notes to Consolidated Financial Statements 6-7 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 1. Financial Statements EDO Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share amounts) Assets Mar. 27, 1999 Dec. 31, 1998 (unaudited) Current assets: Cash and cash equivalents $ 10,565 $ 21,801 Marketable securities 16,038 11,519 Accounts receivable 44,749 39,853 Inventories 10,269 9,830 Deferred tax asset, net 1,280 1,280 Prepayments and other 2,745 2,177 --------- --------- Total current assets 85,646 86,460 Property, plant and equipment, net 13,661 13,964 Notes receivable 2,088 2,300 Cost in excess of fair value of net assets acquired, net 11,578 11,736 Other assets 12,207 12,293 --------- --------- $ 125,180 $ 126,753 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 23,605 $ 24,427 Contract advances and deposits 18,151 14,538 Note payable - 5,460 Current portion of long-term debt 1,317 1,317 --------- ---------- Total current liabilities 43,073 45,742 Long-term debt 28,000 28,000 ESOT loan obligation 8,574 8,955 Postretirement obligation 3,443 3,443 Environmental obligation 2,562 2,562 Shareholders' equity: Preferred shares, par value $1 per share (liquidation preference $213.71 per share or $12,960 in the aggregate in 1999), authorized 500,000 shares, 60,641 issued in 1999 and 1998) 61 61 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 30,035 30,142 Retained earnings 36,256 35,294 --------- --------- 74,806 73,951 Less: Treasury shares at cost (1,811,634 shares in 1999 and 1,821,634 shares in 1998) (25,634) (25,775) ESOT loan obligation ( 8,574) ( 8,955) Deferred compensation under Long-Term Incentive Plan ( 1,070) ( 1,170) --------- --------- Total shareholders' equity 39,528 38,051 --------- --------- $125,180 $126,753 ========= ========= 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 Mar. 27, 1999 Mar. 28, 1998 (unaudited) Net sales $ 27,227 $ 23,301 Costs and expenses Cost of sales 20,130 17,056 Selling, general and administrative 4,139 3,580 Research and development 736 722 -------- -------- 25,005 21,358 Operating earnings 2,222 1,943 Non-operating income (expense) Interest income 391 545 Interest expense (593) (558) Other, net - ( 25) --------- --------- (202) ( 38) --------- --------- Earnings before Federal income taxes 2,020 1,905 Federal income tax expense 600 - --------- --------- Net earnings 1,420 1,905 Dividends on preferred shares 259 277 --------- --------- Net earnings available for common shares $ 1,161 $ 1,628 ========= ========= Earnings per common share: Basic $ 0.17 $ 0.25 ========= ========= Diluted $ 0.15 $ 0.22 ========= ========= Weighted average shares outstanding: Basic 6,642 6,448 ========= ========= Diluted 7,992 7,623 ========= ========= See accompanying Notes to Consolidated Financial Statements. Page 5 EDO Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) For the three months ended Mar. 27, 1999 Mar. 28, 1998 (unaudited) Operating activities: Net earnings $ 1,420 $ 1,905 Adjustments to net earnings to arrive at cash provided by operations: Depreciation and amortization 1,379 1,124 Deferred compensation expense 100 100 Changes in, excluding effects of acquisition: Accounts receivable (4,896) (1,895) Inventories (439) (1,555) Prepayments, other current assets and other (375) 2,336 Accounts payable and accrued liabilities (822) 813 Contract advances and deposits 3,613 (1,495) -------- -------- Cash (used) provided by operating activities (20) 1,333 Investing activities: Purchase of property, plant and equipment (813) (1,116) Purchase of marketable securities (8,053) (6,024) Sale or redemption of marketable securities 3,534 5,313 -------- -------- Cash used by investing activities (5,332) (1,827) Financing activities: Proceeds from exercise of stock options 34 29 Payments made on notes payable (5,460) - Payment of common share cash dividends (199) (162) Payment of preferred share cash dividends (259) (277) -------- -------- Cash used by financing activities (5,884) (410) Net decrease in cash and cash equivalents (11,236) (904) Cash and cash equivalents at beginning of year 21,801 20,351 -------- -------- Cash and cash equivalents at end of period $10,565 $19,447 ======== ======== Supplemental disclosures: Cash paid for: Interest $ - $ - Income taxes (Federal, state and local) 306 272 See accompanying Notes to Consolidated Financial Statements. Page 6 Notes to Consolidated Financial Statements Unaudited Consolidated 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 consolidated financial statements prepared in conformity with generally accepted accounting principles. They should be read in conjunction with the consolidated financial statements of EDO Corporation and subsidiaries (the "Company") for the fiscal year ended December 31, 1998, filed by the Company on Form 10-K with the Securities and Exchange Commission on March 17, 1999. The accompanying consolidated 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 consolidated 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 March 27, 1999 was $164,030,000 compared to $98,818,000 at March 28, 1998. Inventories Inventories are summarized by major classification as follows: Mar. 27, 1999 Dec. 31, 1998 (in thousands) Raw material and supplies $ 4,450 $ 4,292 Work in process 5,495 5,262 Finished goods 324 276 ------- ------- $ 10,269 $ 9,830 ======= ======= Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three months ended Mar. 27, 1999 Mar. 28, 1998 (in thousands) Numerator: Net earnings available for common shares $ 1,161 $ 1,628 Impact of assumed conversion of preferred shares 38 25 ------- ------- Numerator for diluted calculation $ 1,199 $ 1,653 ======= ======= Page 7 Denominator: Weighted average common shares outstanding 6,642 6,448 Dilutive effect of stock options 69 192 Dilutive effect of conversion of preferred shares 1,281 983 ------- ------- Denominator for diluted calculation 7,992 7,623 ======= ======= Business Segments The Company operates in two segments that have been organized by the products and services they offer, as follows: Defense and Aerospace Systems and Satellite Products. The Defense and Aerospace Systems segment sells its products and services primarily to customers in the defense industry. The Satellite Products segment sells its products to customers in the satellite industry. Principal products and services by segment are as follows: Defense and Aerospace Systems Segment Aircraft Stores Suspension and Release Equipment Airborne Mine Countermeasures Systems Command, Control and Communications Systems Undersea Warfare Sonar Technology and Analysis Services Electro-Ceramic Products Fiber Composite Products Satellite Products Segment Satellite Products Three months ended Mar. 27, 1999 Mar. 28, 1998 (in thousands) Net sales: Defense and Aerospace Systems $ 23,022 $ 18,886 Satellite Products 4,205 4,415 ------- ------- $ 27,227 $ 23,301 ======= ======= Operating earnings (loss): Defense and Aerospace Systems $ 2,074 $ 2,180 Satellite Products 148 (237) ------- ------- 2,222 1,943 Net interest expense 202 13 Other expense - 25 ------- ------- Earnings before Federal income taxes $ 2,020 $ 1,905 ======= ======= Page 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations First Three Months of 1999 Compared with First Three Months of 1998 Net sales for the first three months of 1999 were $27.2 million compared with $23.3 million reported in the same period in 1998. The increase is attributable to increased sales in the Defense and Aerospace Systems segment, partially offset by a decrease in the Satellite Products segment. Within the Defense and Aerospace Systems segment, sales increases were recorded in aircraft armament products, command and control systems and sonar systems. These increases were more than offset by decreased ceramic product sales and fiber composite sales primarily due to delays in the receipt of orders. Accordingly, the increase within the segment resulted from the sales of technical services by TSA acquired in July 1998 and the sales of Specialty Plastics acquired in December 1998. Sales in the Satellite Products segment were $0.2 million lower than the prior year quarter due to the winding down of certain programs, partially offset by new programs. Earnings from operations in the first three months of 1999 were $2.2 million compared with $1.9 million in the same period in 1998. Operating earnings and margin in the Defense and Aerospace Systems segment were lower than the prior year quarter due to a less favorable mix of programs. The decrease in operating earnings was offset by a marginal contribution of earnings from the recent acquisitions where margins were also lower than anticipated due to the mix of business and initial reorganization expenses. Operating earnings and margin in the Satellite Products segment improved compared to the first quarter of 1998 due to the mix of programs and the resolution of technical issues on certain programs. Selling, general and administrative expenses in the first three months of 1999 were $0.6 million higher than the first three months of 1998. As a percent of sales, the level of expenses is consistent with the prior year quarter. Company-sponsored research and development expenditures of $0.7 million were comparable to the corresponding period in 1998. Non-operating expense, net, was $0.2 million in the first three months of 1999, compared with $0.04 million in the corresponding period of 1998. This increase was principally due to lower interest income as a result of lower levels of average invested cash. The Company provided for Federal income taxes for the first three months of 1999 at an effective rate of 30%, which is currently the expected effective rate for the full year 1999. The Company recorded a tax provision in the first quarter of 1999 as it had previously fully recognized the benefit associated with its tax net operating loss carryforward. Financial Condition The Company's cash, cash equivalents and marketable securities decreased by $6.7 million from December 31, 1998 to $26.6 million at March 27, 1999. This decrease was primarily due to the $5.5 million payment of the note related to Page 9 the acquisition of Specialty Plastics, $0.8 million for purchases of capital equipment and $0.5 million for payment of common and preferred dividends. The notes receivable of $3.2 million at March 27, 1999, of which $1.1 million is included in current assets, relate to the sale of the Company's College Point facility in January 1996. The notes are due in varying annual amounts through 2004 and bear interest at 7%. The payer of the note is currently in arrears. The notes are fully secured by the related facility. The Company is working to resolve this matter with the payer and believes that the ultimate resolution of this matter will not have a material effect on the Company's consolidated financial statements. 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 March 27, 1999, the Company had $0.4 million of these debentures remaining in treasury to be used for these annual requirements. The remaining amount due in 1999 of $1.3 million is reflected in the current portion of long-term debt. The Company also has an ESOT loan obligation with a balance at March 27, 1999 of $8.6 million at an interest rate of 82% of the prime lending rate. The repayment of this obligation is funded through dividends on the Company's preferred shares and cash contributions. Capital expenditures in the first three months of 1999 totaled $0.8 million compared with $1.1 million in the same period in 1998. The total expenditures for 1999 are expected to be slightly higher than the total $3.6 million in 1998. The Company believes that it has adequate liquidity and sufficient capital to fund its current operating plans. The backlog of unfilled orders at March 27, 1999 was $164.0 million compared with $98.8 million a year ago and $151.8 million at December 31, 1998. New Accounting Standard Statement of Financial Accounting Standards No. 133 establishes standards for the accounting and reporting of derivative instruments and hedging activities. This Statement, which is effective for all quarters of fiscal years beginning after June 15, 1999, requires companies to record derivatives on the balance sheet as assets or liabilities at their fair value. In certain circumstances, changes in the value of such derivatives may be required to be recorded as gains or losses. The Company believes that the impact of this Statement will not have a material impact on its consolidated financial statements. Year 2000 The year 2000 issue ("Y2K") affects computer systems having date-sensitive programs that may not properly recognize the year 2000. Y2K is reputed to be able to cause computers and computer controlled equipment to cease functioning. The Company has been addressing the Y2K issue for some time and established a formal Y2K Program in 1998. The Company has conducted several informal and formal Y2K reviews over the last two years of its products and internal systems. Based on these reviews, the only area where the Company has noted that Y2K could materially affect the Company's operations or products is that failures or miscalculations could be caused in the computerized accounting programs provided by outside vendors and used at the Company. The applicable vendors have provided Page 10 modifications to their programs to deal with Y2K and these modifications are currently being tested. Initial testing has shown these modifications to be mostly effective. If these modifications do not prove to be entirely successful, the Company would be required to seek other methods to process its accounting information. The Company's formal Y2K program was established to ensure that the Company's initial conclusions were correct. The program is conducted under the direction of its Vice President & General Counsel and oversight of the Audit Committee of the Board of Directors. The Y2K "Committee" consists of a Y2K coordinator from each operating location and has met twice to date. The Committee will meet formally four times over the next eight months to review plans and to share results of each of the Committee member's efforts. The Company's Y2K Program addresses Y2K from four perspectives: * the Company looks at the products and services it sells to determine whether Y2K will impact their performance; * the Company looks at the materials, products and services it buys to determine whether the suppliers of such materials, products and services or the materials, products or services themselves will be impacted by Y2K in such a way as to adversely impact the Company's operations; * the Company looks at its interfaces with its customers and suppliers to determine whether Y2K will adversely affect such interfaces; and * the Company reviews its internal operations, including engineering, manufacturing, finance and administrative (office and facilities equipment, general purpose computers and related systems) to determine whether Y2K will adversely affect any of these functions. The formalized Y2K program encompasses three phases: * Phase 1 established a baseline of Y2K compliance by a thorough review and audit of each of the above four perspectives and determined readiness by analysis and/or actual testing as necessary. This phase has been completed. * Phase 2 determines a budget and actions necessary to bring into compliance any areas determined to be either deficient, potentially deficient or in an indeterminable state and a schedule for implementation completion. This phase is nearly complete. To date, a budget of $250,000 has been established for costs of those areas and actions identified. These costs are being expensed as incurred. * Phase 3 will verify by analysis and actual test that any material Y2K issues have been corrected and that all systems are Y2K compliant. This phase is expected to be completed by the third quarter of 1999. Contingency plans will also be established at that time. Significant testing has already taken place, and no material issues have been identified. Based upon the Company's review over the last two years and its testing and findings to date, the Company does not believe that any costs associated with Y2K will be material. However, if the modifications to accounting programs provided by outside vendors, which to date have proven successful, do not eventually prove entirely successful, the cost of replacing these programs could have a material adverse effect. The Company presently expects that any necessary remedial costs will be expensed. Page 11 As part of the Company's Y2K program, the Company is currently seeking information regarding Y2K compliance from vendors, customers, manufacturers and financial institutions associated with the Company. However, given the reliance on third party information as it relates to their compliance programs, no assurance can be given that the Company's information systems or operations will not be affected by third-party failures to complete their Y2K projects on a timely basis. "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 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934. Forward-looking statements are 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, and future program awards, 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; changing world military threats, strategies and missions; competition from foreign manufacturers of platforms and equipment; NATO country determinations regarding participation in common programs; 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; and 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; and 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; underestimation of anticipated costs on specific programs; risks inherent in integrating recent acquisitions into the Company's overall structure; and risks associated with year 2000 compliance by the Company, its customers, suppliers and other third parties. Expectations of future Federal income tax rates can be affected by a variety of factors, including amounts of profits relating to foreign sales. 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 27, 1999, the following actions were taken: a. Messrs. Frank A. Fariello, Robert M. Hanisee, George A. Strutz, Jr., and James M. Smith were elected as directors, each receiving at least 6,499,439 votes. b. The appointment of KPMG LLP as independent auditors for the Company for the year 1999 was ratified: there were 6,756,899 votes cast in favor, 30,209 votes cast against, and 130,486 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) Date: May 5, 1999 EX-27 2 ART. 5 DFS FOR 1999 3 MOS. 10-Q
5 1,000 3-MOS DEC-31-1999 MAR-27-1999 10,565 16,038 44,749 0 10,269 85,646 54,103 40,442 125,180 43,073 36,574 8,454 0 61 31,013 125,180 27,227 27,227 20,130 25,005 0 25 593 2,020 600 1,161 0 0 0 1,161 .17 .15
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