-----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, Bk1HW3KlhJqiMiIfTQklcgKv0eqMYEjiQeDzF7xhB40FULllKY12bI81zjz57czl IH27+T2p2DWfc7cfEcqnsA== 0000950123-02-010582.txt : 20021112 0000950123-02-010582.hdr.sgml : 20021111 20021112153015 ACCESSION NUMBER: 0000950123-02-010582 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020928 FILED AS OF DATE: 20021112 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: 1934 Act SEC FILE NUMBER: 001-03985 FILM NUMBER: 02817067 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 y65159e10vq.txt EDO CORPORATION Page 1 of 23 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 September 28, 2002 [ ] 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 September 28, 2002 - ------------------------------------- --------------------------------- Common shares, par value $1 per share 19,684,164
Page 2 EDO CORPORATION INDEX
Page No. Face Sheet 1 Index 2 Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets - September 28, 2002 and December 31, 2001 3 Consolidated Statements of Earnings - Three Months Ended September 28, 2002 and September 29, 2001 4 Consolidated Statements of Earnings - Nine Months Ended September 28, 2002 and September 29, 2001 5 Consolidated Statements of Cash Flows - Nine Months Ended September 28, 2002 and September 29, 2001 6 Notes to Consolidated Financial Statements 7-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-18 Item 3. Quantitative and Qualitative Disclosure About Market Risk 18 Item 4. Controls and Procedures 18 Part II Other Information Item 4. Submission of Matters to a Vote of 19 Security Holders Item 6. Exhibits and Reports on Form 8-K 19 Signature 20 Certifications 21-22 Exhibit Index 23
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)
September 28, 2002 December 31, 2001 (unaudited) Assets Current assets: Cash and cash equivalents $ 122,134 $ 57,841 Restricted cash 28,238 - Marketable securities 193 190 Accounts receivable, less allowances 98,407 83,407 Inventories 34,427 22,937 Deferred income tax asset, net 3,018 3,018 Prepayments and other 4,024 2,346 --------- --------- Total current assets 290,441 169,739 Property, plant and equipment, net 64,813 62,255 Notes receivable 2,645 2,910 Goodwill 60,964 22,874 Other intangible assets 13,252 200 Deferred income tax asset, net 3,343 2,553 Other assets 25,184 25,099 --------- --------- $ 460,642 $ 285,630 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 15,681 $ 12,743 Accrued interest payable 3,567 - Accrued liabilities 54,243 34,654 Contract advances and deposits 18,801 16,702 Current portion of note payable 463 463 --------- --------- Total current liabilities 92,755 64,562 Long-term debt 137,800 - Postretirement benefits obligations 44,972 44,675 Environmental obligation 1,806 1,895 Shareholders' equity: Common shares, par value $1 per share, authorized 50,000,000 shares, issued 19,790,477 in 2002 and 2001 19,790 19,790 Additional paid-in capital 146,374 143,747 Retained earnings 52,103 47,744 Accumulated other comprehensive loss, net of income tax benefit (13,385) (13,385) --------- --------- 204,882 197,896 Less: Treasury shares at cost (106,313 shares in 2002 and 182,459 shares in 2001) (1,489) (2,461) Unearned ESOP shares (18,854) (19,792) Deferred compensation under Long-Term Incentive Plan (637) (300) Management group receivable (593) (845) ---------- --------- Total shareholders' equity 183,309 174,498 ---------- --------- $ 460,642 $ 285,630 ========== =========
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 Sept 28, 2002 Sept 29, 2001 (unaudited) Net sales $ 85,104 $ 60,353 Costs and expenses Cost of sales 62,541 43,520 Selling, general and administrative 12,766 7,800 Research and development 2,080 1,875 Write-off of purchased in-process research and development 150 -- Merger-related costs 204 -- -------- -------- 77,741 53,195 -------- -------- Operating earnings 7,363 7,158 Non-operating income (expense) Interest income 512 101 Interest expense (2,046) (889) Other, net 34 (82) -------- -------- (1,500) (870) -------- -------- Earnings before income taxes 5,863 6,288 Income tax expense (2,492) (2,455) -------- -------- Net earnings available for common shares 3,371 3,833 ======== ======== Earnings per common share: Basic $ 0.20 $ 0.32 ======== ======== Diluted $ 0.19 $ 0.30 ======== ======== Weighted average common shares outstanding: Basic 17,120 12,107 ======== ======== Diluted 17,401 13,431 ======== ======== Pro-forma amounts assuming retroactive effect of change in accounting principle: Net earnings $ -- $ 3,998 Basic net earnings per common share $ -- $ 0.33 Diluted net earnings per common share $ -- $ 0.32
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 nine months ended Sept 28, 2002 Sept 29, 2001 (unaudited) Net sales $ 225,732 $ 187,280 Costs and expenses Cost of sales 169,387 138,288 Selling, general and administrative 31,107 24,085 Research and development 5,941 5,857 Write-off of purchased in-process research and development 150 -- Merger-related costs 204 1,318 --------- --------- 206,789 169,548 --------- --------- Operating earnings 18,943 17,732 Non-operating income (expense) Interest income 1,284 688 Interest expense (4,171) (2,516) Other, net 40 117 --------- --------- (2,847) (1,711) --------- --------- Earnings before income taxes and cumulative effect of change in accounting principle 16,096 16,021 Income tax expense (6,841) (6,250) --------- --------- Net earnings before cumulative effect of change in accounting principle 9,255 9,771 Cumulative effect of change in accounting principle, net of tax (3,363) -- Dividends on preferred shares -- (194) --------- --------- Net earnings available for common shares $ 5,892 $ 9,577 ========= ========= Earnings (loss) per common share: Basic: Net earnings before cumulative effect of change in accounting principle $ 0.54 $ 0.80 Cumulative effect of change in accounting principle, net of tax (0.19) -- --------- --------- Net earnings $ 0.35 $ 0.80 ========= ========= Diluted: Net earnings before cumulative effect of change in accounting principle $ 0.53 $ 0.77 Cumulative effect of change in accounting principle, net of tax (0.19) -- --------- --------- Net earnings $ 0.34 $ 0.77 ========= ========= Weighted average common shares outstanding: Basic 17,050 11,972 ========= ========= Diluted 17,362 13,594 ========= ========= Pro-forma amounts assuming retroactive effect of change in accounting principle: Net earnings $ -- $ 10,054 Basic net earnings per common share $ -- $ 0.84 Diluted net earnings per common share $ -- $ 0.80
See accompanying Notes to Consolidated Financial Statements. Page 6 EDO Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands)
For the nine months ended Sept 28, 2002 Sept 29, 2001 (unaudited) Operating activities: Net earnings $ 5,892 $ 9,771 Adjustments to earnings from operations to arrive at cash provided by operations: Depreciation 7,478 7,133 Amortization 549 827 Bad debt expense -- 350 Write-off of purchased in-process research and development 150 -- Gain on repurchase of debentures -- (171) Loss (gain) on sale of property, plant and equipment 13 (39) Gain on sale of marketable securities -- (81) Deferred compensation expense 143 181 ESOP compensation expense 3,230 1,406 Non-cash compensation expense -- 278 Dividends on unallocated ESOP shares 236 -- Common shares issued for directors' fees 119 122 Income tax benefit from stock options 426 -- Real estate tax assessment adjustment -- 7,846 Cumulative effect of change in accounting principle 3,363 -- Changes in (excluding effect of acquisition): Accounts receivable 75 (826) Inventories (4,258) (1,017) Prepayments and other assets (3,108) (3,677) Accounts payable and accrued liabilities 1,803 (227) Contract advances and deposits 2,099 (17,133) --------- --------- Cash provided by operations 18,210 4,743 Investing activities: Cash paid for acquisition of Condor Systems, Inc., net of cash acquired (58,543) -- Restricted cash (28,238) -- Payments received on notes receivable 262 259 Purchase of plant and equipment (4,094) (11,101) Proceeds from sale of plant and equipment 6 236 Purchase of marketable securities (3) (58) Sale or redemption of marketable securities -- 14,455 --------- --------- Cash (used) provided by investing activities (90,610) 3,791 Financing activities: Proceeds from exercise of stock options 411 2,518 Proceeds from management group receivables 252 375 Borrowings under revolver -- 6,000 Issuance of convertible subordinated notes 137,800 -- Repayments of long-term debt -- (2,850) Repurchase of debentures -- (3,184) Purchase of treasury shares -- (1,021) Payment of EDO ESOP loan obligation -- (4,891) Payment of common share cash dividends (1,770) (1,332) Payment of preferred share cash dividends -- (194) --------- --------- Cash provided (used) by financing activities 136,693 (4,579) Net increase in cash and cash equivalents 64,293 3,955 Cash and cash equivalents at beginning of year 57,841 2,208 --------- --------- Cash and cash equivalents at end of period $ 122,134 $ 6,163 ========= ========= Supplemental disclosures: Cash paid for: Interest $ -- $ 1,787 Income taxes $ 11,949 $ 4,770
See accompanying Notes to Consolidated Financial Statements. Page 7 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 year ended December 31, 2001 filed by the Company on Form 10-K with the Securities and Exchange Commission on March 18, 2002. 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. Acquisitions In October 2001, the Company acquired all of the outstanding stock of Dynamic Systems, Inc. ("DSI"), a privately-held company based in Alexandria, Virginia, for $13.7 million in cash, including transaction costs, resulting in goodwill of $12.2 million. DSI became part of our Defense segment and provides professional and information technology services primarily to the U.S. Department of Defense and other government agencies. The acquisition is expected to strengthen and expand the range of services the Company offers to both existing and new customers. The acquisition has been accounted for as a purchase and is included in the Company's results of operations from its acquisition date. The results of operations for the periods presented are not materially affected by the timing of this acquisition. On July 26, 2002, the Company acquired substantially all of the assets of Condor Systems, Inc., a privately-held defense electronics company and its domestic subsidiary (together, "Condor") for $61.9 million in cash and the assumption of certain normal employee benefit obligations, certain trade and supplier payables and certain other accrued liabilities primarily related to contract loss reserves. In addition, the Company assumed approximately $28 million of outstanding standby letters of credit. Condor had been operating under protection of Chapter 11 of the U.S. Bankruptcy Code. The acquisition is expected to expand the Company's electronic warfare business in the areas of intelligence, reconnaissance and surveillance systems. The acquisition has been accounted for as a purchase, and, accordingly, is included in the Company's results of operations as of the acquisition date. The allocation of the purchase price is preliminary and subject to change. Unaudited pro forma results of operations, assuming the acquisition of Condor had been completed at the beginning of each period, which include adjustments to interest expense, amortization expense and income tax expense are as follows:
2002 2001 (unaudited, in thousands) Net sales $ 280,609 $ 247,840 Net loss available for common shares $ (962) $ (18,127) Basic loss per common share $ (0.06) $ (1.51)
The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had this acquisition been completed at the beginning of the periods, or of the results which may occur in the future. Page 8 The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition.
At July 26, 2002 (in thousands) Current assets $ 29,762 Property, plant and equipment 5,960 Goodwill 40,364 Purchased in-process research and development 150 Purchased technologies (eight-year life) 11,648 Other intangible assets (two-year life) 1,876 Other assets 76 Current liabilities (23,694) -------- Net assets acquired $ 66,142 ========
Business Combinations and Goodwill and Other Intangibles In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. Intangible assets with definite lives will continue to be amortized over their estimated useful lives. SFAS No. 142 was adopted by the Company effective January 1, 2002; however the provisions that provide for the non-amortization of goodwill were effective July 1, 2001 for acquisitions completed after the issuance of SFAS No. 141. Accordingly, the goodwill acquired in connection with the purchases of DSI, in October 2001, and Condor, in July 2002, was not amortized. The Company performed the required impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002 in the second quarter of 2002 using the two-step process prescribed in SFAS No. 142. The first step was a review for potential impairment, while the second step measured the amount of the impairment. The impairment charge resulting from these transitional impairment tests was reflected as a cumulative effect of a change in accounting principle as of January 1, 2002. The $3.4 million, net of tax, charge occurred in the Engineered Materials segment and is comprised of $2.2 million and $1.9 million of impaired goodwill and trademark, respectively, related to Specialty Plastics, $0.1 million of impaired goodwill related to the acquisition of Zenix, offset by a tax benefit of $0.8 million. The changes in the carrying amount of goodwill for the nine months ended September 28, 2002 are as follows:
Communications Engineered Defense and Space Products Materials Segment Segment Segment Total (in thousands) Balance as of January 1, 2002 $ 20,600 $ -- $ 2,274 $ 22,874 Impairment loss -- -- (2,274) (2,274) Acquisition of Condor Systems, Inc. 36,672 3,692 -- 40,364 -------- -------- -------- -------- Balance as of Sept. 28, 2002 $ 57,272 3,692 -- $ 60,964 ======== ======== ======== ========
Page 9 The goodwill impairment loss is comprised of $0.1 million related to the acquisition of Zenix in December 1998 and $2.2 million related to the acquisition of Specialty Plastics also in December 1998. In the case of Zenix, the trend in sales and earnings performance has been lower than expected resulting in the impairment of the entire goodwill carrying value. In the case of Specialty Plastics, the fair value of this reporting unit was estimated using a discounted cash flow analysis, also resulting in an impairment loss of the entire goodwill carrying value. Summarized below are intangible assets subject to amortization:
September 28, December 31, 2002 2001 (in thousands) Capitalized non-compete agreements related to the acquisition of DSI $ 200 $ 200 Purchased technologies related to the acquisition of Condor 11,648 -- Other intangible assets related to the acquisition of Condor 1,876 -- -------- -------- 13,724 200 Accumulated amortization (472) -- -------- -------- Net $ 13,252 $ 200 ======== ========
The non-compete agreements and the other intangible assets are being amortized on a straight-line basis over a two-year period. The purchased technologies are being amortized on a straight-line basis over an eight-year period. The amortization expense for the nine months ended September 28, 2002 amounted to $0.5 million. Amortization expense for 2002, 2003, 2004, 2005, 2006 and thereafter related to these intangible assets will be $1.1 million, $2.5 million, $2.0 million, $1.5 million, $1.5 million and $5.1 million, respectively. Since the total trademark carrying amount of $1.9 million was written off in the three months ended June 29, 2002 as part of the cumulative effect of a change in accounting principle, there are no intangible assets other than goodwill not subject to amortization as of September 28, 2002. Net earnings for the three and nine-months ended September 29, 2001 included amortization expense of approximately $0.2 million and $0.6 million, respectively. Excluding these amounts would have resulted in basic net earnings per common share and diluted net earnings per common share of $0.33 and $0.32, respectively, for the three months ended September 29, 2001 and $0.84 and $0.80, respectively, for the nine months ended September 29, 2001. Restricted Cash At September 28, 2002, there is restricted cash of $28.2 million which relates to amounts collateralizing the outstanding letters of credit assumed as part of the Condor acquisition. As the letters of credit expire or are cancelled, collateral is released. On November 8, 2002, the Company increased its credit facility from $69 million to $140 million which will allow the Company to replace the letters of credit under the new facility and release the restricted cash. Page 10 Inventories Inventories are summarized by major classification as follows:
Sept 28, 2002 Dec. 31, 2001 (in thousands) Raw materials and supplies $ 4,990 $ 6,539 Work-in-process 28,719 14,680 Finished goods 718 1,718 ------- ------- $34,427 $22,937 ======= =======
Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share.
Three months ended Nine months ended Sept. 28, Sept. 29, Sept. 28, Sept. 29 2002 2001 2002 2001 (in thousands) (in thousands) Numerator: Earnings available for common shares for basic calculation $ 3,371 $ 3,833 $ 5,892 $ 9,577 Effect of dilutive securities: Convertible preferred shares -- -- -- 6 Convertible subordinated debentures -- 238 -- 822 ------- ------- ------- ------- Numerator for diluted calculation $ 3,371 $ 4,071 $ 5,892 $10,405 ======= ======= ======= ======= Denominator: Weighted average common shares 17,120 12,107 17,050 11,972 Effect of dilutive securities: Stock options 281 309 312 249 Convertible preferred shares -- -- -- 206 Convertible subordinated debentures -- 1,015 -- 1,167 ------- ------- ------- ------- Denominator for diluted calculation 17,401 13,431 17,362 13,594 ======= ======= ======= =======
Convertible Subordinated Notes In April 2002, the Company completed its offering of $137.8 million of 5.25% Convertible Subordinated Notes due 2007 and received $133.7 million, net of commissions paid. Interest payments on these notes are due April 15 and October 15 of each year, commencing on October 15, 2002. The notes are convertible, unless previously redeemed or repurchased by us, at the option of the holder at any time prior to maturity, into the Company's common shares at an initial conversion price of $31.26 per share, subject to adjustment in certain events. Comprehensive Income As of September 28, 2002, accumulated other comprehensive loss included in the accompanying consolidated balance sheet represents additional minimum liabilities on benefit plans. Comprehensive income, before cumulative effect of change in accounting principle, for the three-and nine-month periods ended September 28, 2002 Page 11 was $3,371,000 and $9,255,000. Comprehensive income for the three-and nine-month periods ended September 29, 2001 was $3,833,000 and $9,863,000. Business Segments EDO Corporation is a supplier of highly engineered products for governments and industry worldwide. The Company's advanced electronic, electromechanical and information systems and engineered materials are products, the vast majority of which are critical to the mission success of its customers. The Company has three reporting segments: Defense, Communications and Space Products, and Engineered Materials. The Defense segment provides integrated front-line war fighting systems and components including radar countermeasures systems, reconnaissance and surveillance systems, aircraft stores suspension and release systems, airborne mine countermeasures systems, integrated combat systems and sonar systems, and professional, operational, technical and information technology services. The Communications and Space Products segment addresses the needs of the remote sensing, communication, navigation and electronic warfare industries with ultra-miniature electronics and systems and a broad line of antennas. The Engineered Materials segment supplies piezoelectric and advanced composites for the communication, navigation, chemical, petrochemical, paper and oil industries, for civilian infrastructure and military applications.
Three months ended Nine months ended Sept. 28, Sept. 29, Sept. 28, Sept. 29, 2002 2001 2002 2001 (in thousands) Net sales: Defense $ 62,760 $ 43,193 $ 166,119 $ 132,379 Communications and Space Products 12,444 8,050 31,560 27,693 Engineered Materials 9,900 9,110 28,053 27,208 --------- --------- --------- --------- $ 85,104 $ 60,353 $ 225,732 $ 187,280 ========= ========= ========= ========= Operating earnings (loss): Defense $ 6,009 $ 6,565 $ 18,475 $ 16,019 Communications and Space Products 366 (589) (1,667) (1,127) Engineered Materials 988 1,182 2,135 2,840 --------- --------- --------- --------- 7,363 7,158 18,943 17,732 Net interest expense (1,534) (788) (2,887) (1,828) Other, net 34 (82) 40 117 --------- --------- --------- --------- Earnings before income taxes and cumulative effect of change in accounting principle $ 5,863 $ 6,288 $ 16,096 $ 16,021 ========= ========= ========= =========
A write-off of purchased in-process research and development costs in 2002 and merger-related costs attributable to the Condor acquisition in 2002 and the EDO-AIL Merger applicable to 2001 are included in the segments as follows:
Three months ended Nine months ended Sept. 28, Sept. 29, Sept. 28, Sept. 29, 2002 2001 2002 2001 (in thousands) Defense $ 354 $ -- $ 354 $ 937 Communications and Space Products -- -- -- 184 Engineered Materials -- -- -- 197 ------ ----- ------ ------ Total $ 354 $ -- $ 354 $1,318 ====== ===== ====== ======
Page 12 Impairment or Disposal of Long-Lived Assets In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. The Company adopted SFAS No. 144 as of January 1, 2002. The effect of the adoption of this Statement was not material to the Company's operating results or financial position. On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task Force 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)" and requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company has not determined the effect, if any, that the adoption of SFAS No. 146 will have on the Company's consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following information should be read in conjunction with the Consolidated Financial Statements as of September 28, 2002. Three Months Ended September 28, 2002 compared with the Three Months Ended September 29, 2001 Net sales for the three months ended September 28, 2002 increased to $85.1 million from $60.4 million for the three months ended September 29, 2001. This increase comprised sales growth of $19.6 million in the Defense segment, $4.4 million in the Communications and Space Products segment and $0.8 million in the Engineered Materials segment. In the Defense segment, $8.1 million of the increase was attributable to two months' sales of Condor Systems, Inc. ("Condor") since its acquisition on July 26, 2002. Additionally in the Defense segment, there were increases in sales of airborne mine countermeasures systems, aircraft stores suspension and release equipment, electronic warfare systems (attributable primarily to the Universal Exciter Upgrade program), sonar systems, and technology services. The increase in technology services was attributable in part to the acquisition of Dynamic Systems, Inc.("DSI"), in October 2001. These increases were partially offset by decreases in sales of combat systems. In the Communications and Space Products segment, $2.3 million of the increase was due to sales of electronic protection systems from the aforementioned acquisition of Condor. Also in this segment, increases in sales of antenna products were offset by lower sales of space sensor communication products and interference cancellation products. In the Engineered Materials segment, there were increases in sales of electro-ceramic products and advanced fiber composite structural products. Operating earnings for the three months ended September 28, 2002, before the write-off of $0.2 million of purchased in-process research and development costs and $0.2 million of other merger-related costs associated with the Condor acquisition, were $7.7 million or 9.1% of net sales compared to $7.2 million or 11.9% of net sales for the three months ended September 29, 2001. Operating earnings increased as a result of the aforementioned increases in sales, including final deliveries on Lots 4 and 5 of the Universal Exciter Upgrade program resulting in additional profit based on final costs at completion compared to prior estimates. Page 13 These increases in operating earnings were partially offset by the recording of pension expense of $1.0 million in the three months ended September 28, 2002 compared to pension income of $0.7 million in the three months ended September 29, 2001. In addition, compensation expense related to the Company's Employee Stock Ownership Plan ("ESOP") increased to $0.9 million in the three months ended September 28, 2002 compared to $0.3 million in the three months ended September 29, 2001. Pension and ESOP compensation expense/income are allocated between cost of sales and selling, general and administrative expense. Operating earnings for the three months ended September 28, 2002 also reflect $0.4 million of amortization expense related to the intangible assets associated with the Condor acquisition. Selling, general and administrative expenses for the three months ended September 28, 2002 increased to $12.8 million or 15.0% of net sales from $7.8 million or 12.9% of net sales for the three months ended September 29, 2001. This increase is primarily attributable to the aforementioned change in pension expense in 2002 versus pension income in 2001, the increase in ESOP compensation expense and the acquisition of Condor. Company-sponsored research and development expenditures of $2.1 million in the three months ended September 28, 2002 increased slightly from $1.9 million in the three months ended September 29, 2001. For the three months ended September 28, 2002, net earnings available for common shares were $3.4 million or $0.19 per diluted common share on 17.4 million diluted shares compared to $3.8 million or $0.30 per diluted common share on 13.4 million diluted shares for the three months ended September 29, 2001. Net earnings for the three months ended September 28, 2002 were impacted by interest expense incurred on the newly-issued Convertible Subordinated Notes, as discussed below. Interest expense for the three months ended September 28, 2002 increased to $2.0 million from $0.9 million for the three months ended September 29, 2001 due to the issuance of $137.8 million of 5.25% Convertible Subordinated Notes on April 2, 2002. Interest payments are due April 15 and October 15 of each year, commencing on October 15, 2002. Interest expense also includes amortization of debt issuance costs related to the Convertible Subordinated Notes. Income tax expense for the three months ended September 28, 2002 reflects our estimated effective rate of 43% for the year ending December 31, 2002. This compares to an effective rate of 39% for the three months ended September 29, 2001. This increase in the effective rate is primarily attributable to the non-deductible portion of the non-cash ESOP compensation expense, which is based on the market value of common shares committed-to-be-released. Nine Months Ended September 28, 2002 compared with the Nine Months Ended September 29, 2001 Net sales for the nine months ended September 28, 2002 increased to $225.7 million from $187.3 million for the nine months ended September 29, 2001. This increase comprised sales growth of $33.7 million in the Defense segment, $3.9 million in the Communications and Space Products segment, and $0.8 million in the Engineered Materials segment. In the Defense segment, $8.1 million of the increase was attributable to sales of Condor since its acquisition on July 26, 2002. Additionally in the Defense segment, there were increases in sales of aircraft stores suspension and release equipment, electronic warfare systems (attributable in part to the Universal Exciter Upgrade program), sonar systems, and technology services. The increase in technology services was attributable in part to the acquisition of DSI in October 2001. In the Communications and Space Products segment, $2.3 million of the increase was attributable to the aforementioned acquisition of Condor. Also in this segment, increases in sales of antenna products were partially offset by lower sales of space sensor communication products. Page 14 Operating earnings for the nine months ended September 28, 2002, before the write-off of $0.2 million of purchased in-process research and development and $0.2 million of other merger-related costs, were $19.3 million or 8.5% of net sales compared to $19.1 million (before considering one-time EDO-AIL merger-related costs of $1.3 million) or 10.2% of net sales for the nine months ended September 29, 2001. Operating earnings in 2002 were impacted by losses in the Communications and Space Products segment, which primarily related to a $1.5 million charge taken in the three months ended March 30, 2002 to provide for manufacturing inefficiencies resulting from lowered production levels of Ku-Band down converters. The lowered production levels resulted from a primary customer decreasing its forecast of the quantity of Ku-Band down converters it would purchase from us in 2002. In addition, the Company recorded pension expense of $3.0 million and ESOP compensation expense of $3.2 million in the nine months ended September 28, 2002 compared to pension income of $2.0 million and ESOP compensation expense of $1.4 million in the nine months ended September 29, 2001. Pension and ESOP compensation expense/income are allocated between cost of sales and selling, general and administrative expense. Operating earnings for the nine months ended September 28, 2002 also reflect $0.4 million of amortization expense related to the intangible assets associated with the Condor acquisition. Selling, general and administrative expenses for the nine months ended September 28, 2002 increased to $31.1 million or 13.8% of net sales from $24.1 million or 12.9% of net sales for the nine months ended September 29, 2001. This increase is principally attributable to the aforementioned change in pension expense versus pension income and the increase in ESOP compensation expense. Company-sponsored research and development expenditures of $5.9 million in the nine months ended September 28, 2002 are about the same level as expenditures in the nine months ended September 29, 2001. For the nine months ended September 28, 2002, net earnings available for common shares before the cumulative effect of a change in accounting principle were $9.3 million or $0.53 per diluted common share on 17.4 million diluted shares compared to $9.6 million or $0.77 per diluted common share on 13.6 million diluted shares for the nine months ended September 29, 2001. Net earnings for the nine months ended September 28, 2002 were also impacted by interest expense incurred on the newly-issued Convertible Subordinated Notes, as discussed below. Interest expense for the nine months ended September 28, 2002 increased to $4.2 million from $2.5 million for the nine months ended September 29, 2001. Interest expense for the nine months ended September 28, 2002 reflects accruals for interest on the 5.25% Convertible Subordinated Notes issued in April 2002 and the amortization of the related debt issuance costs. Interest expense for the nine months ended September 29, 2001 consists primarily of interest on the 7% Convertible Subordinated Debentures, which were converted into common shares in the fourth quarter of 2001. Income tax expense for the nine months ended September 28, 2002 reflects our estimated effective rate of 43% for the year ending December 31, 2002. This compares to an effective rate of 39% for the nine months ended September 29, 2001. This increase in the effective rate is primarily attributable to the non-deductible portion of the non-cash ESOP compensation expense, which is based on the market value of common shares committed-to-be-released. Net earnings for the nine months ended September 28, 2002 reflect a $3.4 million cumulative effect of a change in accounting principle charge which was recorded as of January 1, 2002, and is shown net of a tax benefit of $0.8 million on the statement of earnings. This charge pertains to the impairment of goodwill and a trademark resulting from impairment tests performed in the second quarter of 2002, as required under Statement of Financial Accounting Standard ("SFAS") No. 142. The impairment occurred in the Engineered Materials segment and is comprised of the following: $2.2 million of goodwill related to the acquisition of Specialty Plastics, $1.9 million related to the trademark at Specialty Plastics, and $0.1 million of goodwill related to the acquisition of Zenix. Page 15 Liquidity and Capital Resources Our cash, cash equivalents and marketable securities increased to $122.1 million at September 28, 2002 from $58.0 million at December 31, 2001. This increase was due to the issuance of $137.8 million of Convertible Subordinated Notes, less commissions of $4.1 million which were capitalized in other assets, resulting in $133.7 of net proceeds and $18.2 million of cash provided by operations. These increases were offset by $61.9 million paid for the acquisition of Condor, $3.5 million for transaction costs related to the acquisition, $4.1 million for purchases of capital equipment, and $1.8 million for payment of common dividends. Restricted cash of $28.2 million represents collateral backing 105% of outstanding letters of credit assumed with the acquisition of Condor. As the letters of credit expire or are cancelled, collateral is released. On November 8, 2002, the Company increased its credit facility from $69 million to $140 million, which will allow for the issuance of letters of credit under the new facility and release of the restricted cash. Accounts receivable increased to $98.4 million at September 28, 2002 from $83.4 million at December 31, 2001, primarily due to the acquisition of Condor. Excluding the effect of the Condor acquisition, accounts receivable increased $1.1 million since December 31, 2001. Inventories increased to $34.4 million at September 28, 2002 from $22.9 million at December 31, 2001. Excluding the effect of the Condor acquisition, inventories decreased by $2.2 million since December 31, 2001 due primarily to sales. The notes receivable of $3.1 million at September 28, 2002 (of which $0.4 million is in current assets) are comprised of a note related to the sale of property at Deer Park in June 2000, which had a balance at September 28, 2002 of $1.1 million, and $2.0 million in notes related to the sale of the Company's former College Point facility in January 1996. The Deer Park facility note is due in monthly installments through July 2015 and bears interest at a rate of 7.5% per annum. The College Point notes are due in annual amounts through September 2004 with a final payment of $1.3 million due on December 31, 2004 and bear interest at 7% per annum. The latter notes receivable are secured by a mortgage on the facility. Contract advances increased to $18.8 million at September 28, 2002 from $16.7 million at December 31, 2001 attributable to advances associated with the acquisition of Condor offset by the use of these advances for costs incurred on foreign contracts. In prior years, we were awarded several large foreign contracts and received the associated advances. This year, as we continue to perform the work and recognize revenues under those contracts, the related advances are reduced. We have a $69.0 million long-term credit facility with a consortium of banks co-led by Mellon Bank and Citibank. The credit facility includes $19.0 million of five-year term debt, which was paid in full in the fourth quarter of 2001, and $50.0 million in revolving debt. At September 28, 2002 there were no borrowings under the revolving credit facility of $50.0 million, but there were outstanding letters of credit under this facility of $31.1 million, leaving available borrowing capacity of $18.9 million. At September 28, 2002, the Company was in compliance with its debt covenants. On November 8, 2002, the Company increased its credit facility from $69 million to $140 million. In April 2002, we completed our offering of $137.8 million of 5.25% Convertible Subordinated Notes due 2007. We received $133.7 million, net of commissions paid. Interest payments on these notes are due April 15 and October 15 of each year, commencing on October 15, 2002. The notes are convertible, unless previously redeemed or repurchased by us, at the option of the holder at any time prior to maturity, into our common shares at an initial conversion price of $31.26 per share, subject to adjustment in certain events. Capital expenditures for the nine months ended September 28, 2002 decreased to $4.1 million from $11.1 million for the nine months ended September 29, 2001. In 2001 there were significant capital expenditures at the Company's Deer Park facility. Page 16 We conduct a significant amount of our business with the United States Government. Although there are currently no indications of a significant change in the status of government funding of certain programs, should this occur, our results of operations, financial position and liquidity could be materially affected. Such a change could have a significant impact on our profitability and our stock price. This could affect our ability to acquire additional funds from our revolving credit facility due to covenant restrictions or from other sources. We believe that we have adequate liquidity and sufficient capital to fund our currently anticipated requirements for working capital, capital expenditures, research and development expenditures and principal and interest payments. We continue to focus on positioning ourselves to be a significant player in the consolidation of first-tier defense suppliers and, to that end, have actively sought candidates for strategic acquisitions. Future acquisitions may be funded from any of the following sources: cash on hand; borrowings under our credit agreement; issuance of our common stock or other equity securities; and/or convertible or other debt offerings. We have commitments under a note payable and facility and equipment operating leases that will be funded from operating sources. We also have commitments under letters of credit of $57.9 million at September 28, 2002 related primarily to foreign contracts. Of the outstanding letters of credit, $26.8 million were assumed as a result of the acquisition of Condor in July 2002 and were cash collateralized, resulting in restricted cash on the balance sheet at September 28, 2002. We also have commitments under advance payment and performance bonds ($15.9 million at September 28, 2002, which were subsequently reduced to $4.0 million) related to foreign contracts. We do not expect to make payments under these letters of credit or bonds since these obligations are removed as we perform under the related contracts. The backlog of unfilled orders at September 28, 2002 increased to $407.5 million from $294.8 million at December 31, 2001. Critical Accounting Policies Revenue Recognition We record revenues and profits on substantially all of our contracts using percentage of completion methods of accounting. As a result, revisions made to our estimates of total costs to complete our contracts are recorded in the period in which the conditions that dictate such revisions become known and can be estimated. We believe that our profits are fairly stated. Revisions to estimates do occur and at times are material to our results of operations and financial position. Inventory We manufacture certain products prior to receiving firm contracts in anticipation of future demand. These products often relate to a specific technology or application and may not have alternative uses. We believe that sufficient markets exist and that these products will ultimately be sold. New Accounting Standards Business Combinations and Goodwill and Other Intangibles In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also includes guidance on the initial recognition and measurement Page 17 of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. Intangible assets with definite lives will continue to be amortized over their estimated useful lives. SFAS No. 142 was adopted by the Company effective January 1, 2002; however the provisions that provide for the non-amortization of goodwill were effective July 1, 2001 for acquisitions completed after the issuance of SFAS No. 141. Accordingly, the goodwill acquired in connection with the purchase of DSI in October 2001, and Condor in July 2002, was not amortized. The Company performed the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 in the second quarter of 2002 using the two-step process prescribed in SFAS No. 142. The first step was a review for potential impairment, while the second step measured the amount of the impairment. The impairment charge resulting from these transitional impairment tests was reflected as a cumulative effect of a change in accounting principle as of January 1, 2002. The $3.4 million, net of tax, charge occurred in the Engineered Materials segment and is comprised of $2.2 million and $1.9 million of impaired goodwill and trademark, respectively, related to Specialty Plastics, $0.1 million of impaired goodwill related to the acquisition of Zenix, offset by a tax benefit of $0.8 million. Impairment or Disposal of Long-Lived Assets In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. The Company adopted SFAS 144 as of January 1, 2002. The effect of the adoption of this Statement was not material to the Company's operating results or financial position. On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company has not determined the effect, if any, that the adoption of SFAS No. 146 will have on the Company's consolidated financial statements. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Statements in this quarterly report 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 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, Page 18 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. 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 of 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; the ability to effect acquisitions; and risks inherent in integrating recent acquisitions into the Company's overall structure. 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. Item 3. Quantitative and Qualitative Disclosure About Market Risk The information called for by this item is provided under Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 4. Controls and Procedures Evaluation of disclosure controls and procedures Within the 90 day period prior to filing this Quarterly Report on Form 10-Q, EDO carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of EDO's disclosure controls and procedures. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that EDO files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Changes in internal controls There were no significant changes in EDO's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Page 19 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The Exhibits to this Report are listed in the Exhibit Index appearing on page 23 hereof. (b) Reports on Form 8-K On August 5, 2002 the Corporation filed a Current Report on Form 8-K to report the acquisition of substantially all of the assets of Condor Systems, Inc. and CEI Systems, Inc. by a wholly-owned subsidiary of the Company. On August 7, 2002 the Corporation filed a Current Report on Form 8-K furnishing Statements under Oath of its Principal Executive Officer and Principal Financial Officer regarding facts and circumstances related to Exchange Act filings. On October 9, 2002, the Corporation filed a Current Report on Form 8-K/A with exhibits relating to the Condor acquisition. Page 20 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: /s/ D.L. Reed ----------------------------------------- D.L. Reed - Vice President- Finance (Principal Financial Officer) Date: November 12, 2002 Page 21 CERTIFICATIONS I, James M. Smith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EDO Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ James M. Smith ------------------------------- James M. Smith Chairman, President and Chief Executive Officer Page 22 CERTIFICATIONS I, Darrell L. Reed, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EDO Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Darrell L. Reed ------------------------------------------- Darrell L. Reed Vice President-Finance, Treasurer and Chief Financial Officer Page 23 Exhibit Index
Exhibit Description - ------- ----------- 3(ii) By-Laws Restated As Amended Through October 1, 2002
EX-3.II 3 y65159exv3wii.txt BY-LAWS RESTATED AS AMENDED Exhibit 3(ii) EDO CORPORATION (A New York Corporation) BY-LAWS Restated As Amended Through October 1, 2002 TABLE OF CONTENTS ARTICLE I
Meetings of Shareholders Page Section 1.01 Annual Meetings.......................................... 4 Section 1.02 Special Meetings......................................... 4 Section 1.03 Place of Meetings........................................ 4 Section 1.04 Notice of Meetings....................................... 4 Section 1.05 Quorum................................................... 5 Section 1.06 Inspectors of Election................................... 5 Section 1.07 Qualification of Voters.................................. 6 Section 1.08 Vote of Shareholders..................................... 6 Section 1.09 Proxies.................................................. 7 Section 1.10 Record Date.............................................. 8 Section 1.11 Adjourned Meetings....................................... 8 Section 1.12 Notice of Shareholder Proposal........................... 8 ARTICLE II Board of Directors Section 2.01 General Powers........................................... 9 Section 2.02 Number, Term of Office, Election and Qualifications...... 9 Section 2.03 Regular Meetings......................................... 10 Section 2.04 Special Meetings......................................... 10 Section 2.05 Quorum and Voting........................................ 10 Section 2.06 Resignations............................................. 11 Section 2.07 Directors Emeritus....................................... 11 Section 2.08 Removal of Directors..................................... 11 Section 2.09 Newly Created Directorships and Vacancies................ 11 Section 2.10 Action by Written Consent................................ 12 Section 2.11 Participation in a Meeting by Telephone.................. 12
ARTICLE III Executive Committee and other Committees Section 3.01 How Constituted.......................................... 12 Section 3.02 Powers of the Committees................................. 12 Section 3.03 Proceedings, Quorum and Manner of Acting................. 13 ARTICLE IV Notices Section 4.01 Form and Delivery........................................ 13 Section 4.02 Waiver................................................... 13 ARTICLE V Officers Section 5.01 Number and Qualification................................. 13 Section 5.02 Appointment and Term of Office........................... 14 Section 5.03 Subordinate Officers..................................... 14 Section 5.04 Resignations............................................. 14 Section 5.05 Removal.................................................. 14 Section 5.06 Vacancies................................................ 14 Section 5.07 The Chief Executive Officer.............................. 14 Section 5.08 The President............................................ 14 Section 5.09 The Vice Presidents...................................... 15 Section 5.10 The Secretary............................................ 15 Section 5.11 The Treasurer............................................ 15 ARTICLE VI Fiscal Matters Section 6.01 Execution of Instruments................................. 16 Section 6.02 Loans, etc. ............................................. 16 Section 6.03 Deposits................................................. 17 Section 6.04 Checks, Drafts, etc. .................................... 17
2 ARTICLE VII Capital Stock Section 7.01 Certificate for Shares................................... 17 Section 7.02 Transfer of Shares; Registered Shareholders.............. 18 Section 7.03 Transfer Agents and Registrars........................... 18 Section 7.04 Record Date.............................................. 18 Section 7.05 Lost or Destroyed Certificates........................... 18 ARTICLE VIII Books and Records Section 8.01 Books and Records........................................ 19 Section 8.02 Examination of Books..................................... 19 ARTICLE IX Indemnification Section 9.01 Indemnification - Third Party and Derivative Actions..... 19 Section 9.02 Payment of Indemnification; Repayment.................... 21 Section 9.03 Procedure for Indemnification............................ 22 Section 9.04 Survival; Preservation of Other Rights................... 22 Section 9.05 Savings Clause........................................... 23 ARTICLE X Miscellaneous Section 10.01 Corporate Seal.......................................... 23 Section 10.02 Fiscal Year............................................. 23 ARTICLE XI Amendments Section 11.01 Amendments.............................................. 23 Section 11.02 Notice of Amendment..................................... 24
3 ARTICLE I Meetings of Shareholders Section 1.01 Annual Meetings The annual meeting of shareholders for the election of directors and for the transaction of such other business as properly may come before such meeting shall be held at such date and time as the Directors may determine. Section 1.02 Special Meetings Special meetings of shareholders may be called at any time by the Chairman of the Board of Directors, or by the Chief Executive Officer, or by order of the Board of Directors, or by a majority of the directors then in office acting without a meeting. At any special meeting of shareholders, only such business may be transacted as is related to the purpose or purposes set forth in the notice required by Section 1.04. Section 1.03 Place of Meetings Each meeting of shareholders shall be held at the principal office of the Corporation in the State of New York or at such other place within or without the State of New York as may be specified in the notice of the meeting. Section 1.04 Notice of Meetings Written or electronic notice of the place, date and hour of each meeting of the shareholders shall be given as provided in Section 4.01 to each shareholder entitled to vote thereat, or otherwise entitled by law to notice thereof, not less than 10 nor more than 60 days before the meeting or shall be given by third-class mail not fewer than twenty-four (24) nor more than sixty (60) days before the date of the meeting. If mailed such notice shall be deemed given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at the shareholder's address as it appears on the record of shareholders, or, if the shareholder shall have filed with the Secretary of the Corporation a request that notices to the shareholder be mailed to some other address, then directed to the shareholder at such other address. If transmitted electronically, such notice shall be deemed given when directed to the shareholder's electronic mail address as supplied by the shareholder to the Secretary of the Corporation or as otherwise directed pursuant to the shareholder's authorization or instructions. Notice of a special meeting shall also state the purposes for which the meeting is called and indicate by or at whose direction the notice is being issued. If any action is proposed to be taken at any shareholders' meeting which would, if taken, entitle shareholders fulfilling the requirements of section 623 of the New York Business Corporation Law (relating to a shareholder's statutory appraisal rights) to receive payment for their shares, the notice shall also include a statement to that effect. Notice of any meeting need not be given to any shareholder with whom communication is then unlawful by virtue of any law of the State of New York or of the United States of America now or hereafter enacted or amended or any rule, regulation, proclamation or executive order issued under any such law. 4 Section 1.05 Quorum of Shareholders Except as otherwise provided by law and subject to the provisions of Section 1.07 and Section 6.02(b), the holders of a majority of the votes of shares issued and outstanding entitled to vote thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of shareholders, provided that when a specified item of business is required to be voted on by a particular class or series of shares, voting as a class, the holders of a majority of the votes of shares of such class or series shall constitute a quorum for the transaction of such specified item of business. Section 1.06 Inspectors of Election The Board of Directors shall appoint one or more inspectors to act at a meeting of shareholders or any adjournment thereof and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed, or if such persons are unable to act at the meeting, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. The date and time (which need not be a particular time of day) of the opening and the closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced by the person presiding at the meeting at the beginning of the meeting and, if no date and time is so announced, the polls shall close at the end of the meeting, including any adjournment thereof. Except as otherwise required by the New York Business Corporation Law, no ballot, proxies or consents, nor any revocation thereof or changes thereto, shall be accepted by the inspectors after the closing of polls. 5 Section 1.07 Qualification of Voters (a) Unless otherwise provided in the Certificate of Incorporation at each meeting of shareholders, each holder of record of common shares entitled to vote at such meeting shall be entitled to one vote for each such common share standing in his, her or its name on the record of shareholders on the record date as determined pursuant to Section 1.09. (b) Treasury shares and shares held by another domestic or foreign corporation of any type or kind, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares (c) Shares held by an administrator, executor, guardian, conservator, committee or other fiduciary, except a trustee, may be voted by him, her or it, either in person or by proxy, without transfer of such shares into his, her or its name. (d) Shares held by a trustee may be voted by him, her or it, either in person or by proxy, only after the shares have been transferred into his, her or its name as trustee or into the name of his, her or its nominee. (e) Shares standing in the name of another domestic or foreign corporation of any type or kind may be voted by such officer, agent or proxy as the by-laws of such corporation may provide, or, in the absence of such provision, as the board of directors of such corporation may determine. (f) A shareholder shall not sell his, her or its vote or issue a proxy to vote to any person for any sum of money or anything of value except as permitted by law. (g) At each meeting of shareholders, each holder of record of preferred shares entitled to vote at such meeting shall be entitled to such number of votes as may be specified in the Certificate of Incorporation. Section 1.08 Vote of Shareholders Except as at the time otherwise expressly required by statute, by the Certificate of Incorporation of the Company or by Section 1.06 (regarding appointment of Inspectors), Section 2.02 (regarding election of directors) or Section 2.07 (regarding removal of directors), all corporate action to be taken by vote of the shareholders shall be authorized by a majority of the votes cast in favor or against such action by the holders of shares entitled to vote thereon at a meeting of the shareholders at which a quorum is present. Except as otherwise provided in the certificate of incorporation or the specific provision of a by-law adopted by the shareholders, an abstention shall not constitute a vote cast. 6 The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by the Secretary or any Assistant Secretary. Without limiting the manner in which a shareholder may authorize another person or persons to act for him, her or it as proxy, the following shall constitute a valid means by which a shareholder may grant such authority: (1) A shareholder may execute a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder or the shareholder's authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. (2) A shareholder may authorize another person or persons to act for the shareholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be reasonably determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors shall specify the nature of the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 1.08 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 1.09 Proxies Any shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Each proxy must be in writing, signed by the shareholder or by his attorney-in-fact and shall be filed with the secretary of any meeting at which the holder thereof votes thereunder. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Each proxy shall be revocable at the pleasure of the shareholder executing it, except if and to the extent that an irrevocable proxy is given and is permitted by law. 7 Section 1.10 Record Date The Board of Directors may fix, in advance, a date as the record date for determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting. Such date shall be not more than 60 nor less than 10 days before the date of such meeting nor more than sixty (60) days prior to any other action. If no record date is fixed: (1) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held; and (2) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the Board of Directors relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. Section 1.11 Adjourned Meetings The holders of a majority of the shares present in person or by proxy at a meeting and entitled to vote thereat may from time to time adjourn the meeting, whether or not a quorum was present at the meeting. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made pursuant to Section 1.10, such determination shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. When a meeting is adjourned to another time or place, no notice need be given if such time or place is announced at the meeting at which the adjournment is taken. However, if the Board of Directors fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 1.12 Notice of Shareholder Proposal For business proposed by a Shareholder to be a proper subject for action at an Annual Shareholders meeting, in addition to any requirement of law the Shareholder must timely request (by Certified Mail - Return Receipt Requested) that the proposal be included in the Corporation's proxy statement for the meeting, and such request must satisfy all of the provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as amended. 8 ARTICLE II Board of Directors Section 2.01 General Powers The property, affairs and business of the Corporation shall be managed under the direction of the Board of Directors. Section 2.02 Number, Term of Office, Election and Qualifications (a) The full Board of Directors shall consist of not less than nine nor more than fifteen directors, all of whom shall be at least 21 years of age on the date of the annual meeting of shareholders. The Chairman of the Board of Directors shall be chosen by the Directors from among the directors and shall preside at all meetings of the shareholders and of the Board of Directors at which he shall be present. Past or present officers or employees of the Corporation shall not comprise more than one third of the Board of Directors. Each director shall hold at least 1000 shares of any class of the Corporation; provided that failure to hold such number of shares shall not prevent or disqualify any person not a director from being elected a director pursuant to this Section 2.02 or Section 2.09 or from serving as a director for a period of one year from the time of such election. (b) Subject to the provisions of this Section and of Section 2.09, the number of directors, within the limits provided, necessary to constitute a full Board shall be determined from time to time by vote of a majority of the entire Board of Directors. Directors shall be elected at the annual meeting of shareholders. If the number of directors be increased between annual meetings of shareholders, the additional directors to fill the vacancies thus created shall be elected as provided in Section 2.09. (c) There shall be three classes of directors. All classes shall be as nearly equal in number as possible, and no class shall include less than three directors. At each annual meeting of shareholders, each director elected to replace a director whose term expires at such annual meeting shall be elected to hold office for a term expiring at the third succeeding annual meeting after his election. Each director shall hold office until the expiration of his term and until his successor is elected and qualified or until his earlier death, resignation or removal. (d) A director elected to fill a vacancy, unless elected by the shareholders, shall be elected to hold office for a term expiring at the next meeting of shareholders at which the election of directors is in the regular order of business. If the number of directors is changed, (i) any newly created directorship or any decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible, and 9 (ii) when the number of directors is increased by the Board and any newly created directorships are filled by the Board, there shall be no classification of the additional directors until the next annual meeting of shareholders. (e) At each meeting of shareholders for the election of directors the directors shall be chosen and elected by a plurality of the votes cast at such meeting by the holders of shares entitled to vote in the election. Any shareholder may recommend a nominee for membership on the Board of Directors provided such recommendations for nominees, to be proposed at any Annual meeting are made in writing addressed to the Secretary of the Corporation prior to the fifteenth of December preceding the date of such meeting. Section 2.03 Regular Meetings Promptly after the close of each annual meeting of the shareholders, the Board of Directors shall, without notice, meet where such annual meeting was held, or at such other place as may be fixed by resolution of the Board of Directors, for the purpose of appointing officers and committees for the ensuing year and transacting other proper business. Other regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be scheduled and such schedule may be changed at any regular meeting of the Board of Directors or at any special meeting called for that purpose, provided that notice of the change shall be given to all directors no later than 5 days prior to the first meeting held under such schedule as so changed. Section 2.04 Special Meetings Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the Chief Executive Officer, or any two directors. If such a meeting is called by the Chairman of the Board of Directors or by the Chief Executive Officer, such person shall, or shall direct the Secretary to, fix a time and place for and give notice of the time, place, and purposes of such meeting. If such a meeting is called by any two directors, upon delivery to the Chairman of the Board of Directors, Chief Executive Officer or Secretary, in person or by registered mail, of a request in writing for a special meeting, specifying the purposes thereof, it shall be the duty of the person to whom the request is delivered to fix a time and place for (unless the requesting directors shall have fixed such time and place) and give notice of the time, place and purposes of such meeting. All such notices of meetings shall be given as provided in Section 4.01, if by mail, at least three days before the day on which the meeting is to be held, or, if by personal delivery, telephone or telegram, not later than the day before the day on which the meeting is to be held. Section 2.05 Quorum and Voting A majority of directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if a quorum shall not be present thereat, a majority of the directors present may from time to time adjourn any such meeting until a quorum shall be present, and 10 the meeting may be held at adjourned without further notice. If a quorum is present at any meeting, the vote of a majority of the directors present shall be the act of the Board of Directors, except as otherwise provided by law. The directors shall act only as a Board and, except as provided in Section 1.02 (relating to calling special meetings of the shareholders), Section 2.04 (relating to the adjournment of meetings in the absence of a quorum), individual directors shall have no powers as such. Section 2.06 Resignations a)Any director may resign at any time by delivering a written resignation to either the Chairman of the Nominating and Governance Committee, the Chairman of the Board of Directors, the Chief Executive Officer, the President or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon such delivery. b)Upon attaining the age of 70 and annually thereafter, each director shall submit to the Chairman of the Nominating and Governance Committee his or her offer to resign from the Board of Directors and shall provide a copy of such offer to the Chairman of the Board of Directors, Chief Executive Officer and the Corporate Secretary. If such offer is accepted, such Director's resignation shall take effect as of the date specified in the offer, but in any event no later than the next annual meeting of shareholders. Section 2.07 Directors Emeritus The Board of Directors may also appoint a retiring Chairman of the Board to emeritus status which shall not include the right to vote, or to be counted toward the determination of the full Board of Directors or for the determination of a quorum. Section 2.08 Removal of Directors Any director may be removed at any time, either for or without cause, by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation entitled to vote for the election of directors, given at a meeting of the shareholders called for the purpose. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by the shareholders entitled to vote for the election of directors; if the shareholders do not fill such vacancy at such meeting, such vacancy may be filled in the manner provided in Section 2.08. The provisions of this Section may be amended, altered or repealed only by the shareholders in the manner specified in clause (1) of Section 11.01. Section 2.09 Newly Created Directorships and Vacancies Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason except the removal of directors without cause may be filled (unless theretofore filled by the shareholders in accordance with the provisions of Section 2.09) by vote of a majority of the directors then in office, although less than a quorum 11 exists. Any such newly created directorship or vacancy (unless theretofore filled by the directors in accordance with the provisions of this Section) may also be filled by the shareholders entitled to vote for the election of directors at any meeting held during the existence of such vacancy provided that the notice of the meeting shall have mentioned such vacancy or expected vacancy. Section 2.10 Action by Written Consent Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board of Directors or committee shall be filed with the minutes of the proceedings of the Board of Directors or committee. Section 2.11 Participation in a Meeting by Telephone Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such meeting. ARTICLE III Committees of the Board Section 3.01 How Constituted By resolution adopted by a majority of the entire Board of Directors, the Board may designate one or more committees each consisting of three or more directors. Each such committee shall serve at the pleasure of the Board. Section 3.02 Powers of Committees To the extent provided by resolution adopted by a majority of the entire Board of Directors, committees shall have and may exercise any of the powers of the Board of Directors except that no such committee shall have authority as to the following matters: (a) the submission to shareholders of any action as to which shareholders' approval is required by law; (b) the filling of vacancies in the Board of Directors or in any committee thereof; (c) the fixing of compensation of the directors for serving on the Board of Directors or any committee thereof; (d) the amendment or repeal of the By-Laws, or the adoption of new By-Laws; or (e) the amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amendable or repealable. 12 Section 3.03 Proceedings, Quorum and Manner of Acting Subject to the control of the Board of Directors, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable, provided that a quorum shall not be less than two directors. ARTICLE IV Notices Section 4.01 Form and Delivery Except as otherwise expressly provided by law or by these By-Laws, any written notice required to be given by law, the Certificate of Incorporation or these By-Laws to any shareholder, director or other person may be delivered personally or by mail or, in the case of notices to directors, by telephone or telegram. Notice by mail shall be deemed to have been given at the time when such notice is deposited in the United States mail, postage prepaid, addressed to such shareholder, director or other person at his last known address as the same appears on the records of the Corporation or, if a shareholder shall have filed with the Secretary a written request that notices to him or her be mailed to some other address, then directed to him or her at such other address. Section 4.02 Waiver No notice required to be given by any statute, by the Certificate of Incorporation or by these By-Laws need be given to any person otherwise entitled to notice who signs in person or, if a shareholder, by proxy, a waiver of notice, whether signed before or after the time of the action to which the notice relates. In addition, the attendance by any shareholder at any meeting of the shareholders in person or by proxy without protesting prior to the conclusion of such meeting the absence of notice thereof to such shareholder, and the attendance by any director at any meeting of the Board of Directors without protesting prior to such meeting or at its commencement such absence of notice, shall, in each such case, constitute a waiver of notice of such meeting ARTICLE V Officers Section 5.01 Number and Qualification The officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer, and such other officers as may be appointed in accordance with the provisions of Section 5.03. Any one person may hold more than one of such offices except those of President and Secretary. The Chief Executive Officer shall be chosen from among the directors. No other officer need be a director. Officers shall be at least 21 years of age and no more than 70 years of age on the date of the annual meeting of shareholders. 13 Section 5.02 Appointment and Term of Office Officers (unless appointed under power delegated pursuant to the second sentence of Section 5.03) shall be appointed by the Board of Directors and (unless appointed under the provisions of Section 5.03 for a different term) shall hold office until the first meeting of the Board of Directors following the next succeeding annual meeting of shareholders and thereafter until their successor(s) shall have been appointed and qualified or until their earlier death or disqualification or until they shall have resigned in the manner provided in Section 5.04 or shall have been removed in the manner provided in Section 5.05. Section 5.03 Subordinate Officers The Board of Directors from time to time may appoint such other officers or agents as it may deem advisable, each of whom shall have such title, hold office for such period, have such authority and perform such duties as the Board of Directors from time to time may determine. The Board of Directors may delegate to any officer or agent the power to appoint any such subordinate officers or agents and to prescribe their respective titles, terms of office, authorities and duties. Section 5.04 Resignations Any officer may resign at any time by delivering a written resignation to the Board of Directors, the Chief Executive Officer or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon such delivery. Section 5.05 Removal Any officer may be removed at any time, either for or without cause, by action of the Board of Directors. Section 5.06 Vacancies A vacancy in any office because of death, resignation, removal, disqualification or any other cause, may be filled in the manner prescribed in this Article for regular appointment to such office. 14 Section 5.07 The Chief Executive Officer The Chief Executive Officer of the Corporation shall report directly to the Board. Except in such instances as the Board may confer powers in particular transactions upon any other officer, and subject to the control and direction of the Board, the Chief Executive Officer shall manage the business and affairs of the Corporation and shall communicate to the Board and any committee thereof reports, proposals and recommendations for their respective consideration or action. He may do and perform all acts on behalf of the Corporation. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the shareholders and of the Board of Directors at which he or she shall be present. Section 5.08 The President The President shall have such powers and performs such duties as the Board and the Chief Executive Officer (to the extent he is authorized by the Board of Directors to prescribe the authority and duties of other officers) may from time to time prescribe or as may be prescribed in these By-Laws. Section 5.09 The Vice Presidents The Vice Presidents shall have such powers and perform such duties as the Board or the Chief Executive Officer (to the extent he or she is authorized by the Board of Directors to prescribe the authority and duties of other officers) may from time to time prescribe or as may be prescribed in these By-Laws. Section 5.10 The Secretary The Secretary shall: (a) Keep the minutes of meetings of shareholders and of the Board of Directors and cause the same to be recorded in books kept for that purpose. (b) Upon the request of any shareholder given at or prior to any meeting of shareholders, produce at such meeting a list of shareholders as of the record date for such meeting, certified by the corporate officer responsible for its preparation or by a transfer agent. (c) Cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by statute. (d) Be custodian of the records and seal of the Corporation, and cause such seal (or a facsimile thereof) to be affixed to all certificates for shares of the Corporation the issuance of which shall have been authorized by the Board of Directors, and to all instruments the execution of which under the seal of the Corporation shall have been duly authorized. 15 (e) Cause a record of shareholders to be kept in accordance with Section 8.01. (f) In general, perform all duties incident to the office of the Secretary and such other duties as from time to time may be assigned to him or her by the Board of Directors or the President. Section 5.11 The Treasurer The Treasurer shall: (a) Have charge of and supervision over and be responsible for the funds, securities, receipts and disbursements of the Corporation. (b) Cause the moneys and other valuable effects of the Corporation not otherwise employed to be deposited in the name and to the credit of the Corporation in such banks or trust companies or with such bankers or other depositaries as shall be selected in accordance with Section 6.03. (c) Cause the moneys of the Corporation to be disbursed by electronic funds transfers, checks or drafts (signed as provided in Section 6.04) upon the authorized depositaries of the Corporation, and cause to be taken and preserved proper vouchers for all moneys disbursed. (d) Render to the Board of Directors or the Chief Executive Officer, whenever requested, a statement of the financial condition of the Corporation and of all transactions effected by the Treasurer, and render a full financial report at any annual meeting of shareholders if called upon to do so. (e) Cause to be kept at the principal office of the Corporation correct books of account of all its business and transactions and exhibit such books to any director upon application at such office during business hours. (f) Be empowered from time to time to require from all officers or agents of the Corporation reports or statements giving such information as he may desire with respect to any and all financial transactions of the Corporation. (g) In general, perform all duties incident to the office of the Treasurer and such other duties as from time to time may be assigned to him or her by the Board of Directors or the Chief Executive Officer. ARTICLE VI Fiscal Matters Section 6.01 Execution of Instruments 16 The Chief Executive Officer, President, any Vice President or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation in the ordinary course of its business. Subject to the approval of the Board of Directors, any officer or agent of the Corporation may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors may authorize any officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or confined to specific instances. Section 6.02. Loans, etc. (a) No loans or advances to or by the Corporation shall be contracted, and no notes or other evidences of indebtedness shall be issued in its name, unless and except as authorized by the Board of Directors. Any such authorization may be general or confined to specific instances. So far as may be lawful, any officer or agent of the Corporation thereunto so authorized may effect loans and advances to or by the Corporation, and for loans and advances made to the Corporation may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. So far as may be lawful, any officer or agent of the Corporation thereunto so authorized may pledge, hypothecate or transfer, as security for the payment of any and all loans or advances to or indebtedness and liabilities of the Corporation, any and all stocks, bonds, claims and other personal property, securities or receivables at any time owned by the Corporation or to which it is or will be at any time entitled, and to that end may endorse, assign and deliver the same and take any action necessary or proper in connection therewith. (b) No loan shall be made by the Corporation to any officer or director of the Corporation except as may be permitted by law. Section 6.03. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to its credit in such banks or trust companies or with such bankers or other depositaries as the Board of Directors from time to time may select, or as may be selected by any officer or agent authorized to do so by the Board of Directors. Section 6.04 Checks, Drafts, etc. All notes, drafts, acceptances, checks, endorsements, and all evidences of indebtedness of the Corporation whatsoever, shall be signed by such officer or officers or such agent or agents of the Corporation and in such manner as the Board of Directors from time to time may determine. ARTICLE VII Capital Stock Section 7.01 Certificates for Shares 17 Shares of the Corporation shall be represented by certificates, in form approved by the Board of Directors, signed by the Chairman of the Board of Directors, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Such seal may be a facsimile, engraved, lithographed, printed or otherwise reproduced. The signatures of such persons upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any such person who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be in such position before such certificate is issued, it may be issued by the Corporation with the same effect as if such person had not ceased to be in such position at the date of its issue. 18 Section 7.02 Transfer of Shares; Registered Shareholders (a) Shares of the Corporation shall be transferable only upon the books of the Corporation kept for such purpose upon surrender to the Corporation or its transfer agent or agents of a certificate representing shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer. (b) The Board of Directors, subject to applicable law and these By-Laws, may make such rules, regulations and conditions as it may deem expedient concerning the subscription for, issue, transfer and registration of, shares of the Corporation. Except as otherwise provided by law, the Corporation, prior to due presentment for registration of transfer, may treat the registered owner of shares as the person exclusively entitled to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. Section 7.03 Transfer Agents and Registrars The Board of Directors may appoint one or more transfer agents and may appoint one or more registrars of the shares of the Corporation, and upon such appointments being made, no certificate representing shares shall be valid unless and until countersigned by one of such transfer agents, if any, and registered by one of such registrars, if any. The same person may act as transfer agent and registrar for the shares of any class of the Corporation. Section 7.04 Record Date The Board of Directors may fix, in advance, a date as the record date for determining the shareholders entitled to receive payment of any dividend, the allotment of any rights, the making of any distribution, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of shares. Such date shall be not more than 60 days prior to any such action. 19 Section 7.05 Lost or Destroyed Certificates The Corporation may issue a new certificate in the place of any certificate theretofore issued by it alleged to have been lost or destroyed, and the Board of Directors may require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as the Board may direct, with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate or the issuance of any such new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper to do so. ARTICLE VIII Books and Records Section 8.01 Books and Records The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of the shareholders, the Board of Directors and the Executive Committee, if any. The Corporation shall keep at the principal office of the Corporation in the State of New York or at the office of its transfer agent or registrar in the State of New York a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. Any of the foregoing books, minutes or records may be in written form or in any other form capable of being converted into written form within a reasonable time. Unless otherwise expressly required by statute or by these By-Laws, the books and records of the Corporation shall be kept, within or outside the State of New York, at such place or places as may be designated from time to time by the Board of Directors. Section 8.02 Examination of Books So far as permitted by law, the Board of Directors shall have power to determine from time to time whether, to what extent, at what times and places and under what conditions and regulations, the books, records, documents and accounts of the Corporation, or any of them, shall be open to inspection by shareholders; and no shareholder shall have any right to inspect any books, records, documents or accounts of the Corporation, except as conferred by statute or these By-Laws or authorized by resolution of the shareholders or the Board of Directors. 20 Article IX Indemnification Section 9.01 Indemnification--Third Party and Derivative Actions (a) The Company shall indemnify any person made, or threatened to be made, a party to an action or proceeding (other than one by or in the right of the Company to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Company served in any capacity at the request of the Company, by reason of the fact that such person, such person's testator or intestate, was a director or officer of the Company, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Company and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. (b) The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act, in good faith, for a purpose which such director or officer reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Company or that such person had reasonable cause to believe that his conduct was unlawful. (c) The Company shall indemnify any person made, or threatened to be made, a party to an action by or in the right of the Company to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by such person in connection with the defense or settlement of such action, or in connection with an appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Company, except that no indemnification under this subparagraph (c) shall be made 21 in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company, unless and only to the extent that the court in which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. (d) For the purpose of this Section 1, the Company shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the Company also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Company. Section 9.02 Payment of Indemnification; Repayment (a) A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 1 of this Article shall be entitled to indemnification as authorized in such Section. (b) Except as provided in the foregoing sentence, any indemnification under Section 1 of this Article, unless ordered by a court under Section 724 of the New York Business Corporation Law as from time to time amended, shall be made by the Company, only if authorized in the specific case: (1) by the Board of Directors acting by a quorum consisting of directors who are not parties to such action or proceeding upon a finding that the director or officer has met the standard of conduct set forth in Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article; or (2) if a quorum under the foregoing subparagraph (1) is not obtainable or, even if obtainable, a quorum of disinterested directors so directs: (i) by the Board of Directors upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in such Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article has been met by such director or officer, or 22 (ii) by the shareholders upon a finding that the director or officer has met such applicable standard of conduct. (c) Expenses incurred in defending a civil or criminal action or proceeding shall be paid by the Company in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount as, and to the extent, required by Section 2(d) of this Article. (d) All expenses incurred in defending a civil or criminal action or proceeding which are advanced by the Company under this Article or allowed by a court shall be repaid in case the person receiving such advancement or allowance is ultimately found, under the procedure set forth in this Article, not to be entitled to indemnification or, where indemnity is granted, to the extent the expenses so advanced by the Company or allowed by the court exceed the indemnification to which he is entitled. Section 9.03 Procedure for Indemnification Any indemnification of a director or officer of the Company under Section 1, or advance of costs, charges and expenses under Section 2(c) of this Article, shall be made promptly, and in any event within 60 days, upon the written request of the director or officer. The right to indemnification or advances as granted by this Article shall be reenforceable by the director or officer in any court of competent jurisdiction if the Company denies such request, in whole or in part, or if no disposition thereof is made within 60 days. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Company. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 2(c) of this Article where the required undertaking, if any, has been received by the Company) that the claimant has not met the standard of conduct set forth in Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, its independent legal counsel, and its stockholders), to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 of this Article or otherwise established by the Company pursuant to the last sentence of Section 4 of this Article, nor the fact that there has been an actual determination by the Company (including its Board of Directors, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 23 Section 9.04 Survival; Preservation of Other Rights The foregoing indemnification provisions shall be deemed to be a contract between the Company and each director and officer (and each director and officer of any of its subsidiaries) who serves in such capacity at any time while these provisions as well as the relevant provisions of the New York Business Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit, or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director or officer. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. The Company is hereby authorized to provide further indemnification if it deems it advisable by resolution of shareholders or directors or by agreement. Section 9.05 Savings Clause If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify each director or officer of the Company as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE X Miscellaneous Section 10.01 Corporate Seal The seal of the Corporation shall be circular in form and shall bear the name of the Corporation and the words and figures "Corporate Seal-1925-New York. Section 10.02 Fiscal Year The fiscal year of the Corporation shall be the calendar year. 24 ARTICLE XI Amendments Section 11.01 Amendments All By-Laws of the Corporation, whether adopted by the Board of Directors or the shareholders, shall be subject to amendment, alteration or repeal, and new by-laws may be made, either (1) by vote of the holders of the shares of the Corporation at the time entitled to vote in the election of directors, given at any annual or special meeting of shareholders the notice of which shall have specified or summarized the proposed amendment, alteration, repeal or new by-laws, or (2) by the affirmative vote of at least a majority of the total number of directors then necessary to constitute a full Board, as determined pursuant to Section 2.02, given at any annual, regular or special meeting the notice or waiver of notice of which, unless none is required under the provisions of Section 4.02, shall have specified or summarized the proposed amendment, alteration, repeal or new by-law, provided that the shareholders may at any time provide in the By-Laws that any specified provision or provisions of the By-Laws may be amended, altered or repealed only in the manner specified in the foregoing clause (1), in which event such provision or provisions shall be subject to amendment, alteration or repeal only in such manner. Section 11.02 Notice of Amendment If any by-law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the by-law so adopted, amended or repealed, together with a concise statement of the changes made. 25 -----END PRIVACY-ENHANCED MESSAGE-----