-----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, GydHjWiBZxvg/sOn6Jt2sCpjp8WcZXXKYBDWmn8HfRSrrYKF/fiMJgDN0pseQfAt KkgpoqIIk6VXRLb8DfWkfw== 0000031617-00-000007.txt : 20000516 0000031617-00-000007.hdr.sgml : 20000516 ACCESSION NUMBER: 0000031617-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 632950 BUSINESS ADDRESS: STREET 1: 60 EAST 42ND STREET STREET 2: SUITE 5010 CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 2127162000 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 31, 2000 Page 1 of 13 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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) Registrant's telephone number, including area code (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. 31, 2000 - ------------------------------------- ---------------------------- Common shares, par value $1 per share 6,762,660 Page 2 EDO CORPORATION INDEX Page No. Face Sheet 1 Index 2 Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 3 Consolidated Statements of Earnings - Three Months Ended March 31, 2000 and March 27, 1999 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and March 27, 1999 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-11 Part II Other Information Item 5. Submissions of Matters to a Vote of 11 Security Holders Item 6. Exhibits and Reports on Form 8-K 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) March 31, 2000 Dec. 31, 1999 (unaudited) Assets Current assets: Cash and cash equivalents $ 15,425 $ 13,799 Marketable securities 15,912 15,843 Accounts receivable 36,974 32,818 Inventories 12,373 12,188 Deferred tax asset, net 2,336 2,336 Prepayments and other 3,007 2,299 --------- --------- Total current assets 86,027 79,283 Plant and equipment, net 10,110 10,218 Notes receivable 1,263 1,450 Cost in excess of fair value of net assets acquired, net 8,608 9,050 Other assets 17,059 16,351 Net assets of discontinued operations - 8,139 --------- --------- $ 123,067 $ 124,491 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 20,581 $ 23,108 Contract advances and deposits 17,781 19,153 Liabilities of discontinued operations 1,835 - Current portion of note payable 397 397 Current portion of long-term debt 333 1,515 --------- ---------- Total current liabilities 40,927 44,173 Note payable 892 892 Long-term debt 26,250 26,250 ESOT loan obligation 7,017 7,429 Postretirement benefits obligation 3,402 3,402 Environmental obligation 2,104 2,104 Shareholders' equity: Preferred shares, par value $1 per share (liquidation preference $213.71 per share or $12,264 in the aggregate in 2000), authorized 500,000 shares, 57,384 issued in 2000 and 1999) 57 57 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 28,470 28,483 Retained earnings 37,350 35,667 Accumulated other comprehensive loss (258) (255) --------- --------- 74,073 72,406 Less: Treasury shares at cost (1,691,242 shares in 2000 and 1,693,867 shares in 1999) (23,930) (23,967) ESOT loan obligation ( 7,017) ( 7,429) Deferred compensation under Long-Term Incentive Plan (651) (769) --------- --------- Total shareholders' equity 42,475 40,241 --------- --------- $123,067 $124,491 ========= ========= 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 March 31, 2000 March 27, 1999 (unaudited) Continuing Operations: Net sales $ 29,002 $ 23,022 Costs and expenses Cost of sales 21,858 17,122 Selling, general and administrative 3,470 3,372 Research and development 584 636 -------- -------- 25,912 21,130 -------- -------- Operating earnings 3,090 1,892 Non-operating income (expense) Interest income 480 391 Interest expense (628) (593) Other, net 103 - --------- --------- (45) (202) --------- --------- Earnings before Federal income taxes 3,045 1,690 Federal income tax expense 915 502 --------- --------- Earnings from continuing operations 2,130 1,188 Discontinued Operations: Earnings from discontinued satellite products business, net of income tax expense - 232 --------- --------- Earnings from discontinued operations - 232 --------- --------- Net earnings 2,130 1,420 Dividends on preferred shares 245 259 --------- --------- Net earnings available for common shares $ 1,885 $ 1,161 ========= ========= Earnings per common share: Basic: Continuing operations $ 0.28 $ 0.14 Discontinued operations - 0.03 --------- --------- Net $ 0.28 $ 0.17 ========= ========= Diluted: Continuing operations $ 0.24 $ 0.12 Discontinued operations - 0.03 --------- --------- Net $ 0.24 $ 0.15 ========== ========= Weighted average common shares outstanding: Basic 6,762 6,642 ========= ========= Diluted 7,933 7,992 ========= ========= 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 March 31, 2000 March 27, 1999 (unaudited) Operating activities: Earnings from continuing operations $ 2,130 $ 1,188 Adjustments to earnings from continuing operations to arrive at cash used by continuing operations: Depreciation and amortization 995 842 Gain on repurchase of convertible debentures (106) - Deferred compensation expense 100 100 Changes in: Accounts receivable (4,156) (5,698) Inventories (185) (576) Prepayments, other current assets and other (1,352) (378) Accounts payable and accrued liabilities (2,255) (787) Contract advances and deposits (1,372) 3,614 -------- -------- Cash used by continuing operations (6,201) (1,695) Net cash provided by discontinued operations 10,000 1,612 Investing activities: Purchase of property, plant and equipment (620) (776) Purchase of marketable securities (72) (8,053) Sale or redemption of marketable securities - 3,534 ------- -------- Cash used by investing activities (692) (5,295) Financing activities: Proceeds from exercise of stock options 42 34 Payment made on note payable - (5,460) Repurchase of convertible debentures (1,076) - Payment of common share cash dividends (202) (199) Payment of preferred share cash dividends (245) (259) -------- -------- Cash used by financing activities (1,481) (5,884) Net increase (decrease) in cash and cash 1,626 (11,262) equivalents Cash and cash equivalents at beginning of year 13,799 21,991 -------- -------- Cash and cash equivalents at end of period $15,425 $10,729 ======== ======== Supplemental disclosures: Cash paid for: Interest $ - $ - Income taxes (Federal, state and local) 150 306 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, 1999, filed by the Company on Form 10-K with the Securities and Exchange Commission on February 28, 2000. 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. Discontinued Operations In November 1999, the Board of Directors of the Company approved the decision to sell its satellite products business. On January 31, 2000, the Company completed the sale of its satellite products business (Barnes Engineering Company). The sales price of $10.0 million is subject to adjustment relating to changes in net assets of the business from July 31, 1999 through the closing date estimated to result in a decrease of approximately $1.8 million. In addition, the Company has agreed to indemnify the buyer for certain contract related costs aggregating an estimated $2.3 million. The estimated adjustment for the changes in net assets and the estimated indemnification costs were included in the loss on disposal of the satellite products business in 1999. Inventories Inventories are summarized by major classification as follows: March 31, 2000 Dec. 31, 1999 (in thousands) Raw materials and supplies $ 4,299 $ 4,475 Work-in-process 7,560 7,182 Finished goods 514 531 ------- ------- $ 12,373 $ 12,188 ======= ======= Page 7 Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three months ended March 31, March 27, 2000 1999 (in thousands) Numerator: Earnings from continuing operations available for common shares $ 1,885 $ 929 Impact of assumed conversion of preferred shares 33 38 ------- ------- Numerator for diluted calculation $ 1,918 $ 967 ======== ======= Denominator: Weighted average common shares outstanding 6,762 6,642 Dilutive effect of stock options 45 69 Dilutive effect of conversion of preferred shares 1,126 1,281 ------- ------- Denominator for diluted calculation 7,933 7,992 ======= ======= Comprehensive Income As of March 31, 2000, accumulated other comprehensive loss included in the accompanying consolidated balance sheet represents unrealized holding losses on available-for-sale marketable securities. Comprehensive income for the three-month period ended March 31, 2000 was $2,127,000. Comprehensive income equaled net income for the three-month period ended March 27, 1999. Business Segments The Company operates in two segments, which constitute its continuing opera- tions and have been organized by the products and services they offer, as fol- lows: Defense and Aerospace Systems and Engineered Materials. The Defense and Aerospace Systems segment sells its products and services primarily to custom- ers in the defense industry. The Engineered Materials segment sells its products to customers in various commercial and defense industries. Principal products and services by segment are as follows: Defense and Aerospace Systems Segment Aircraft Stores Suspension and Release Equipment Airborne Mine Countermeasures Systems Integrated Combat Systems Command, Control and Communications Systems Undersea Warfare Sonar Systems Technology Services and Analysis Page 8 Engineered Materials Segment Electro-Ceramic Products Advanced Fiber Composite Structural Products Three months ended March 31, March 27, 2000 1999 Net sales from continuing operations: Defense and Aerospace Systems $20,700 $15,149 Engineered Materials 8,302 7,873 ------- ------- $29,002 $23,022 ======= ======= Operating earnings from continuing operations: Defense and Aerospace Systems $ 2,451 $ 1,263 Engineered Materials 639 629 ------- ------- 3,090 1,892 Net interest expense (148) (202) Other income 103 - ------- ------- Earnings before Federal income taxes $ 3,045 $ 1,690 ======= ======= Subsequent Event As described in the notes to the consolidated financial statements for the year ended December 31, 1999, which are included in the Company's 1999 Form 10-K, in January 2000, the Company announced its wholly-owned subsidiary had entered into a merger agreement with AIL Technologies Inc. (AIL). On April 28, 2000, the Company completed the merger with AIL. In connection with the merger, the Company issued 6,553,229 newly issued shares of common stock, valued at $39.3 million, and made cash payments aggregating $13.3 million in exchange for all of the outstanding common and preferred shares of AIL. The Company also assumed $29.7 million of AIL debt. The merger will be accounted for using the purchase method. AIL's sales for the year ended December 31, 1999 were $146.1 million. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations The Company conducts its business in two segments: Defense and Aerospace Systems and Engineered Materials. Three Months Ended March 31, 2000 compared with Three Months Ended March 27, 1999 Net sales for the first quarter of 2000 were $29.0 million compared with $23.0 million reported in the same period in 1999. Sales increases were recorded in both segments. In the Defense and Aerospace Systems segment, sales increases were recorded in airborne mine countermeasures systems, aircraft stores suspension and Page 9 release equipment and integrated combat systems. These increases were partially offset by a decrease in sales of undersea warfare sonar systems. The increase in aircraft stores suspension and release equipment sales is partially attributable to the acquisition in November 1999 of M. Technologies, Inc., now operating as EDO M. Tech. The increase in sales in the Engineered Materials segment is attributable to increased sales of electro-ceramic products, partially offset by lower sales of advanced fiber composite products. Operating earnings from continuing operations in the first quarter of 2000 were $3.1 million compared with $1.9 million reported in the same period in 1999. Operating earnings and operating margin were higher than the prior year quarter primarily due to the increased sales in the Defense and Aerospace Systems segment, which absorbed fixed costs, and an increase in pension income of $0.4 million. Selling, general and administrative expenses in the first quarter of 2000 were $3.5 million compared with $3.4 million in the first quarter of 1999. Company-sponsored research and development expenditures of $0.6 million were at the same level as the corresponding period in 1999. Non-operating expense, net, was $45,000 in the first quarter of 2000, compared with $0.2 million in the corresponding period of 1999. This reduction was primarily due to a gain of $0.1 million in 2000 relating to the purchase on the open market of the Company's outstanding debentures in order to meet short-term sinking fund requirements. The Company provided for Federal income taxes for the first quarter of 2000 at an effective rate of approximately 30%, which is the expected effective rate for the full year 2000. Financial Condition In November 1999, the Board of Directors of the Company approved the decision to sell its satellite products business. On January 31, 2000, the Company completed the sale of its satellite products business (Barnes Engineering Company). The sales price of $10.0 million, which was received in the first quarter of 2000, is subject to adjustment relating to changes in net assets of the business from July 31, 1999 through the closing date estimated to result in a decrease of approximately $1.8 million. In addition, the Company has agreed to indemnify the buyer for certain contract related costs aggregating an estimated $2.3 million. The estimated adjustment for the changes in net assets and the estimated indemnification costs were included in the loss on disposal of the satellite products business in 1999. The Company's cash, cash equivalents and marketable securities increased by $1.7 million from December 31, 1999 to $31.3 million at March 31, 2000. The $10.0 million received from the sale of the satellite products business was offset by cash used by continuing operations of $6.2 million, the repurchase of debentures of $1.1 million, capital expenditures of $0.6 million, and the payment of common and preferred dividends of $0.4 million. The notes receivable of $2.7 million at March 31, 2000, of which $1.4 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%. Three payments on the notes receivable aggregating $562,500 are past due as of March 31, 2000. The Company is currently in discussions with the current owner of the properties about the amounts in arrears. The notes receivable are secured by a mortgage on the facility. The Company has outstanding $26.6 million of 7% Convertible Subordinated Debentures Due 2011. Commencing in 1996 and until retirement of these debentures, the Company Page 10 is making annual sinking fund payments of $1.8 million, which are due each December 15th. In March 2000, the Company purchased $1.2 million face value of these debentures for $1.1 million. As of March 31, 2000, the Company had $1.4 million of these debentures in treasury to be used for these annual requirements. The Company also has an ESOT loan obligation with a balance at March 31, 2000 of $7.0 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 from the Company. Capital expenditures in the first three months of 2000 totaled $0.6 million compared with $0.8 million in the comparable period in 1999. Total expenditures in 2000 are expected to be slightly higher than the total $4.0 million in 1999. The Company believes that it has adequate liquidity and sufficient capital to fund its current operating plans. The backlog of unfilled orders, excluding that of the discontinued operations, at March 31, 2000 was $147.4 million compared with $145.4 million a year ago and $133.9 million at December 31, 1999. New Accounting Standard Statement of Financial Accounting Standards No. 133, as amended, establishes standards for the accounting and reporting of derivative instruments and hedging activities. This Statement, as amended, which is effective for all quarters of fiscal years beginning after June 15, 2000, requires companies to record derivatives on the balance sheet as assets or liabilities at their fair values. In certain circumstances, changes in the values of such derivatives may be required to be recorded as gains or losses. The Company believes that the adoption 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 function- ing. The Company has conducted several informal Y2K reviews over the last two years of its products and internal systems. The Company's formal Y2K program was established in 1998 to ensure that the Company's initial conclusions were correct. The program was conducted under the direction of its Vice President & General Counsel and the oversight of the Audit Committee of the Board of Directors. The Y2K "Committee" consisted of a Y2K coordinator from each operating location and met five times. The costs of the above Y2K program were expensed as incurred and were immaterial. Based upon the Company's review over the last two years and the results of confirmatory testing after the changeover to 2000, no problems related to Y2K have resulted that have any material impact on the Company's consolidated financial position. The Company will continue to monitor any Y2K issues for the remainder of 2000. "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 that 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 Page 11 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 below. 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 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 consumer 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 sales; 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. 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, 2000, the following actions were taken: a. Messrs. Robert E. Allen, Robert Alvine, and Michael J. Hegarty were elected as directors, each receiving at least 5,903,272 votes. b. The appointment of KPMG LLP as independent auditors for the Company for the year 2000 was ratified: there were 6,239,222 votes cast in favor, 366,729 votes cast against, and 73,395 abstentions. c. The issuance of 6,553,229 EDO Common Shares pursuant to the proposed merger between AIL Technologies, Inc. and EDO Acquisition III Corporation was approved: there were 4,259,464 votes cast in favor, 976,516 votes cast against, and 69,629 abstentions. d. The increase in the number of EDO Common Shares subject to EDO's 1996 Long-Term Incentive Plan from 600,000 EDO Common Shares to 1,050,000 EDO Common Shares, which increase would become effective only if the merger was completed, was approved: there were 3,972,788 votes cast in favor, 1,244,975 votes cast against, and 87,845 abstentions. Page 12 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27-Financial Data Schedule (b) Reports on Form 8-K On January 3, 2000, the Company filed Form 8-K enclosing a press release announcing the execution of a definitive merger agreement with AIL Technologies Inc. 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: D.L. Reed ----------------------------------------- D.L. Reed - Chief Financial Officer (Principal Financial Officer) Date: May 15, 2000 EX-27 2 ART. 5 DFS FOR 2000 3 MOS. 10-Q
5 1,000 3-MOS DEC-31-2000 MAR-31-2000 15,425 15,912 36,974 0 12,373 86,027 37,977 (27,867) 123,067 40,927 33,267 8,454 0 57 33,964 123,067 29,002 29,002 21,858 25,912 0 0 628 3,045 915 2,130 0 0 0 2,130 .28 .24
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