-----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, P1SkUiGi6BRhzc/SJCv4iD/f3v+3JMXxU03Ez0A4zNaLckuKqoPnjGYZvmUAwdxt ETutNIUEhpfX8Csg+rMzQA== 0000950123-03-004453.txt : 20030418 0000950123-03-004453.hdr.sgml : 20030418 20030418154607 ACCESSION NUMBER: 0000950123-03-004453 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030205 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030418 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-03985 FILM NUMBER: 03655810 BUSINESS ADDRESS: STREET 1: 60 EAST 42ND STREET STREET 2: 42ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 2127162000 MAIL ADDRESS: STREET 1: 60 EAST 42ND STREET STREET 2: 42ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10165 8-K/A 1 y85500e8vkza.txt EDO CORPORATION As filed with the Securities and Exchange Commission on April 18, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 5, 2003 EDO CORPORATION (Exact name of Registrant as specified in its charter) NEW YORK 3812 11-0707740 (State or Other Jurisdiction (Primary Standard (I.R.S. Employer of Incorporation or Industrial Classification Identification No.) Organization) Code Number)
60 EAST 42ND STREET, SUITE 5010 NEW YORK, NY 10165 212.716.2000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) NOT APPLICABLE (Former name or former address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. EDO Corporation, a New York corporation (the "Company"), is filing this Current Report on Form 8K/A ("Form 8K/A") to file certain audited financial statements and unaudited pro forma financial information relating to the acquisition (the "Acquisition") by EDO Professional Services Inc., a wholly-owned subsidiary of the Company, of all of the outstanding capital stock of Advanced Engineering and Research Associates, Inc., a Virginia corporation. The closing of the Acquisition occurred on February 5, 2003. On February, 14, 2003, the Company filed a Current Report on Form 8K ("Form 8K") to report the Acquisition. As stated in such Form 8K, the Company undertook to file within the period required by the Securities and Exchange Act of 1934, as amended, the required audited financial statements and unaudited pro forma financial information relating to the Acquisition. The Company is filing the required audited financial statements and unaudited pro forma financial information in this Form 8K/A. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED. Audited Annual Financial Statements of Advanced Engineering & Research Associates, Inc.: -Report of Independent Accountants -Balance Sheets at December 31, 2002 and 2001 -Statements of Earnings for the Years Ended December 31, 2002, 2001 and 2000 -Statements of Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 -Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 -Notes to the Financial Statements (B) PRO FORMA FINANCIAL INFORMATION. Introduction to Unaudited Pro Forma Combined Financial Statements Unaudited Pro Forma Combined Balance Sheet at December 31, 2002 Unaudited Pro Forma Combined Statement of Earnings for the Year Ended December 31, 2002 Notes to Unaudited Pro Forma Combined Financial Statements (C) EXHIBITS. See Exhibit Index ITEM 7 (A). REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Advanced Engineering & Research Associates, Inc.: In our opinion, the accompanying balance sheets and the related statements of earnings, of stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of Advanced Engineering & Research Associates, Inc. (an S Corporation) at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ Argy, Wiltse & Robinson, P.C. McLean, Virginia February 19, 2003 ADVANCED ENGINEERING & RESEARCH ASSOCIATES, INC. BALANCE SHEETS DECEMBER 31, 2002 AND 2001
2002 2001 ----------- ----------- ASSETS Current assets Cash and cash equivalents ........................ $ 23,842 $ 19,016 Accounts receivable, net of allowance for doubtful accounts of $57,256, and $73,461, respectively . 13,611,611 13,946,578 Unbilled receivables ............................. 1,521,873 503,347 Advances and notes receivable from stockholders .. 366,000 366,000 Note receivable from related party ............... 0 41,467 Other current assets ............................. 514,340 181,072 ----------- ----------- Total current assets ......................... 16,037,666 15,057,480 Property and equipment, net ........................ 1,085,043 731,872 Notes receivable from stockholders ................. 211,259 111,557 Other assets ....................................... 144,575 191,944 ----------- ----------- Total assets ................................. $17,478,543 $16,092,853 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank overdraft ................................... $ 2,323,545 $ 1,671,192 Accounts payable and accrued expenses ............ 946,479 1,043,142 Accrued salaries and related liabilities ......... 2,300,820 1,975,719 Bank line-of-credit .............................. 890,000 3,054,633 Accrued distributions to stockholders ............ 1,650,000 1,750,000 Notes payable to stockholders .................... 571,000 1,215,000 Notes payable to former stockholder .............. 30,000 160,877 Billings in excess of revenue recognized ......... 655,641 263,688 Subcontractor retainage .......................... 195,275 175,232 ----------- ----------- Total current liabilities .................... 9,562,760 11,309,483 Notes payable to former stockholder ................ 30,000 452,629 ----------- ----------- Total liabilities ............................ 9,592,760 11,762,112 ----------- ----------- Stockholders' equity Common stock - Class A (voting rights) - par value $0.01 per share, 600,000 shares authorized, 379,253 shares issued and outstanding .................................... 3,793 3,793 Common stock - Class B (no voting rights) - par value $0.01 per share, 200,000 shares authorized, 93,382 and 63,767 shares issued and outstanding, respectively .................. 934 637 Additional paid-in-capital ....................... 532,392 333,566 Retained earnings ................................ 7,348,664 3,992,745 ----------- ----------- Total stockholders' equity .................. 7,885,783 4,330,741 Commitments ----------- ----------- Total liabilities and stockholders' equity .. $17,478,543 $16,092,853 =========== ===========
The accompanying notes are an integral part of these financial statements. ADVANCED ENGINEERING & RESEARCH ASSOCIATES, INC. (AN S CORPORATION) STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000 ----------- ----------- ----------- Contract revenue ............................... $51,115,744 $41,309,559 $24,309,438 ----------- ----------- ----------- Costs and expenses Direct labor ................................. 18,906,904 14,934,760 8,338,321 Other direct costs ........................... 11,711,333 10,461,080 6,419,914 Indirect costs ............................... 14,530,859 11,595,813 7,874,588 Interest and other unallowable costs, net .... 912,255 510,488 574,009 ----------- ----------- ----------- 46,061,351 37,502,141 23,206,832 ----------- ----------- ----------- Net income ..................................... $ 5,054,393 $ 3,807,418 $ 1,102,606 =========== =========== =========== Earnings per common share: Net income per share - basic ................. $ 10.80 $ 8.67 $ 2.20 =========== =========== =========== Net income per share - diluted ............... $ 10.12 $ 7.95 $ 2.03 =========== =========== =========== Weighted average shares outstanding: Shares used in per share calculation - basic . 468,211 439,211 501,717 =========== =========== =========== Shares used in per share calculation - diluted 499,518 478,794 544,343 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. ADVANCED ENGINEERING & RESEARCH ASSOCIATES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Common stock Common stock Class A Class B ---------------------- ---------------------- Additional Total paid-in Retained stockholders' Shares Dollars Shares Dollars capital earnings equity -------- --------- -------- --------- ---------- ----------- ----------- Balance at December 31, 1999 473,922 $ 4,739 42,372 $ 424 $ 225,249 $ 3,275,420 $ 3,505,832 Issuance of common stock ... 0 0 19,844 198 109,737 0 109,935 Repurchase of common stock . (94,669) (946) (16,884) (169) (126,522) (1,037,434) (1,165,071) Distribution to stockholders 0 0 0 0 0 (700,000) (700,000) Net income ................. 0 0 0 0 0 1,102,606 1,102,606 -------- --------- -------- --------- ---------- ----------- ----------- Balance at December 31, 2000 379,253 3,793 45,332 453 208,464 2,640,592 2,853,302 Issuance of common stock ... 0 0 20,035 200 135,838 0 136,038 Repurchase of common stock . 0 0 (1,600) (16) (10,736) 0 (10,752) Distribution to stockholders 0 0 0 0 0 (2,455,265) (2,455,265) Net income ................. 0 0 0 0 0 3,807,418 3,807,418 -------- --------- -------- --------- ---------- ----------- ----------- Balance at December 31, 2001 379,253 3,793 63,767 637 333,566 3,992,745 4,330,741 Issuance of common stock ... 0 0 36,150 362 243,025 0 243,387 Repurchase of common stock . 0 0 (6,535) (65) (44,199) (48,474) (92,738) Distribution to stockholders 0 0 0 0 0 (1,650,000) (1,650,000) Net income ................. 0 0 0 0 0 5,054,393 5,054,393 -------- --------- -------- --------- ---------- ----------- ----------- Balance at December 31, 2002 379,253 $ 3,793 93,382 $ 934 $ 532,392 $ 7,348,664 $ 7,885,783 ======== ========= ======== ========= ========== =========== ===========
The accompanying notes are an integral part of these financial statements. ADVANCED ENGINEERING & RESEARCH ASSOCIATES, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
2002 2001 2000 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................... $ 5,054,393 $ 3,807,418 $ 1,102,606 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............. 519,251 412,805 360,759 Change in provision for doubtful accounts .. (16,205) (226,539) 300,000 (Increase) decrease in: Accounts receivable ....................... 351,172 (3,942,593) (3,252,267) Unbilled receivables ...................... (1,018,526) 157,236 1,258,545 Other current assets ...................... (333,268) 55,981 179,469 Increase (decrease) in: Accounts payable and accrued expenses ..... (96,663) (830,528) 1,327,805 Accrued salaries and related liabilities .. 325,101 684,168 94,220 Billings in excess of revenue recognized .. 391,953 263,688 0 Subcontractor retainage ................... 20,043 70,929 (49,656) ----------- ----------- ----------- Total adjustments ....................... 142,858 (3,354,853) 218,875 ----------- ----------- ----------- Net cash provided by operating activities 5,197,251 452,565 1,321,481 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Advances under notes receivable from stockholders ........................... (99,702) 0 (91,000) Repayments under notes receivable from stockholders................. 0 29,827 84,542 Advances under note receivable from related party ............................... 0 (2,531) 0 Repayments under note receivable from related party ............................... 41,467 0 34,764 Purchases of property and equipment ........... (872,422) (478,961) (401,422) Decrease (increase) in other assets ........... 47,369 (181) (7,352) ----------- ----------- ----------- Net cash used in investing activities ... (883,288) (451,846) (380,468) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in bank overdraft ......... 652,353 1,045,192 (5,940) Net (repayments) borrowings under bank line-of-credit .............................. (2,164,633) 244,536 (383,903) (Repayment) borrowings under notes payable to stockholders ..................... (644,000) (155,000) 323,000 Principal payments under notes payable to former stockholder ....................... (553,506) (160,875) (30,000) Proceeds from the issuance of common stock .... 243,387 136,038 109,935 Repurchase of common stock .................... (92,738) (10,752) (510,690) Stockholder distributions paid ................ (1,750,000) (1,105,265) (437,000) ----------- ----------- ----------- Net cash used in financing activities ... (4,309,137) (6,126) (934,598) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ..................................... 4,826 (5,407) 6,415 Cash and cash equivalents at the beginning of the year ................................... 19,016 24,423 18,008 ----------- ----------- ----------- Cash and cash equivalents at the end of the year $ 23,842 $ 19,016 $ 24,423 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. ADVANCED ENGINEERING & RESEARCH ASSOCIATES, INC. NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2002, 2001, AND 2000 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Advanced Engineering & Research Associates, Inc. (the Company) was incorporated in the state of Virginia in 1987. The Company provides engineering, computer, and logistics support services and products to the U.S. government and commercial businesses. The Company became a wholly-owned subsidiary of EDO Corporation on February 5, 2003, and ceased independent operations. The significant accounting policies followed by the Company are described below. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. REVENUE RECOGNITION Substantially all of the Company's contract revenue results from contracts with agencies of the federal government. Revenue on fixed-price and cost-reimbursable contracts includes direct costs and allocated indirect costs incurred plus recognized profit. Profit is recognized under fixed-price contracts on the percentage-of-completion basis and on cost-reimbursable contracts as costs are incurred. Revenue on time-and-material contracts is recognized based upon time (at established rates) and other direct costs incurred. Revenue recognized on contracts in excess of related billings is reflected as unbilled receivables. Billings rendered on contracts in excess of related revenue recognized is reflected as billings in excess of revenue recognized. Losses on contracts are provided for in the period they are first determined. Federal government contract costs for 2000 through 2002, including indirect expenses, are subject to audit and adjustment by the Defense Contract Audit Agency. Contract revenue has been recorded in amounts which are expected to be realized upon final settlement. FAIR VALUE OF FINANCIAL INSTRUMENTS For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, unbilled receivables, notes receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Noncurrent assets are carried at cost which approximates fair value. CASH EQUIVALENTS The Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful lives of three years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of estimated useful lives of the assets or the term of the related lease. STOCK-BASED COMPENSATION The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB No. 25)". The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation". INCOME TAXES The Company is an S corporation for federal income tax purposes (which also applies to most states). Accordingly, the Company is generally not subject to corporate income taxes and the income, deductions, credits and other tax attributes generated by the Company flow to its stockholders. NET INCOME PER SHARE The following summarizes the computations of Basic Earnings Per Share (EPS) and Diluted EPS. Basic is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans.
2002 2001 2000 ---------- ---------- ---------- Net income ......................... $5,054,393 $3,807,418 $1,102,606 ========== ========== ========== Weighted average shares outstanding: Basic ............................ 468,211 439,211 501,717 Employee stock options ........... 31,307 39,583 42,626 ---------- ---------- ---------- Diluted .......................... 499,518 478,794 544,343 ========== ========== ========== Earnings per common share: Basic ............................ $ 10.80 $ 8.67 $ 2.20 ========== ========== ========== Diluted .......................... $ 10.12 $ 7.95 $ 2.03 ========== ========== ==========
NOTE 2 - UNBILLED RECEIVABLES Unbilled receivables consist of the following at December 31:
2002 2001 ---------- ---------- Amounts currently billable, or billable upon completion of contract milestones ........ $1,309,471 $ 391,572 Indirect rate variances, net ............... 182,699 81,792 Contract retentions ........................ 29,703 29,983 ---------- ---------- $1,521,873 $ 503,347 ========== ==========
NOTE 3 - NOTE RECEIVABLE FROM RELATED PARTY The note receivable from related party represents costs incurred by the Company on behalf of a partnership owned by a stockholder of the Company. Additionally, this partnership leases certain furniture and equipment to the Company under various operating leases (see Note 13). This note receivable is due on demand, bears interest at 6% per annum, and is unsecured. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31:
2002 2001 ----------- ----------- Computer equipment ............................ $ 987,963 $ 1,313,902 Software ...................................... 481,017 181,882 Furniture ..................................... 251,948 174,939 Other office equipment ........................ 106,347 98,989 Leasehold improvements ........................ 67,137 39,421 ----------- ----------- 1,894,412 1,809,133 Less: accumulated depreciation and amortization (809,369) (1,077,261) ----------- ----------- $ 1,085,043 $ 731,872 =========== ===========
Depreciation and amortization expense on property and equipment totaled $519,251, $412,805, and $360,759 for the years ended December 31, 2002, 2001 and 2000, respectively. NOTE 5 - ADVANCES AND NOTES RECEIVABLE FROM STOCKHOLDERS Advances and notes receivable from stockholders at December 31, 2002 and 2001 consist of advances and notes receivable totaling $366,000, that accrue interest at 8% per annum and are due on demand, as well as several other notes receivable totaling $211,259 and $111,557, respectively, that were originally due in full, along with any accrued interest at 7%, on various dates through June 1, 2005. However, these notes became due on February 5, 2003 as part of the Company's acquisition by EDO Corporation. The notes are secured by the stockholders' shares of stock in the Company. NOTE 6 - NOTES PAYABLE TO STOCKHOLDERS The notes payable to stockholders at December 31, 2002 and 2001 consist of $571,000 and $1,215,000, respectively, in short-term borrowings for working capital needs. These notes bear interest at the prime rate plus 0.5% (4.75% at December 31, 2002), are unsecured, and are due on demand. NOTE 7 - NOTES PAYABLE TO FORMER STOCKHOLDER The notes payable to former stockholder at December 31, 2002 and 2001, respectively, consists of two notes payable for the repurchase of the Company's Class A common stock and for payments due under the terms of a covenant not to compete that total $0 and $60,000 at December 31, 2002, and $523,506 and $90,000 at December 31, 2001, respectively (see Note 11). Under these agreements, payments of principal ($130,876 and $30,000, respectively) and interest (at 8.5% per annum) are due annually. NOTE 8 - BANK LINE-OF-CREDIT Under the Company's bank line-of-credit agreement, the Company may borrow up to the lesser of $5,000,000 or 85% of eligible billed receivables with interest due monthly at LIBOR plus 2.4% (3.8% at December 31, 2002). This note is secured by substantially all of the Company's assets. The original maturity date of this agreement was July 31, 2003. However, borrowings under the note were paid in full and the agreement was terminated as part of the Company's acquisition effective February 5, 2003. Under the terms of the bank line-of-credit agreement, the Company is required to maintain a minimum tangible net worth and certain financial ratios. At December 31, 2002, the Company was in compliance with these financial covenants. The Company incurred interest expense of $109,508, $268,346, and $141,435 which approximates interest paid, for the years ended December 31, 2002, 2001 and 2000, respectively. NOTE 9 - RETIREMENT PLAN The Company maintains a defined contribution 401(k) and profit sharing plan (the Plan) for all employees over the age of 21 who have completed six months of continuous service in a year. Participants may make voluntary contributions to the Plan up to the maximum amount allowable by law, but not to exceed 15% of their annual compensation. The Company contributes an additional amount of $0.25 for each $1.00 of employee contributions (up to a maximum of $3,000 per employee). In addition, at the discretion of the Board of Directors of the Company, the Company may make a profit sharing contribution to the Plan, which is allocated based on compensation among the participants. The Company's contributions vest ratably over five years, beginning with the second year of employment. The Company's aggregate contributions to the 401(k) and profit sharing plan were $264,050, $330,936 and $243,773 for the years ended December 31, 2002, 2001, and 2000, respectively. NOTE 10 - PARTIALLY SELF-FUNDED INSURANCE PLAN The Company has a partially self-funded medical insurance plan available to all employees, which includes coinsurance with an insurance company to minimize the Company's annual financial risk. The maximum amount of claims that will be paid during the plan year is $50,000 per employee per year, up to an aggregate amount of $822,415, $827,179 and $584,612 for the years ended December 31, 2002, 2001, and 2000, respectively. As of December 31, 2002 and 2001, the Company had accrued $200,000 and $20,000, respectively, for unpaid liabilities related to claims, premiums and administrative fees. Total expenses recorded by the Company, which include claims and administrative fees, were $1,146,615, $421,585, and $246,751 for the years ended December 31, 2002, 2001, and 2000, respectively. NOTE 11 - STOCKHOLDERS' EQUITY DISTRIBUTIONS During the years ended December 31, 2002, 2001 and 2000, the Company's Board of Directors declared a distribution of $1,650,000, $2,455,265, and $700,000, of which $1,650,000, $1,750,000 and $400,000, respectively was paid subsequent to year end to stockholders on record at December 31, 2002, 2001 and 2000, respectively. STOCK OPTION PLAN Under the terms of the Company's stock option plan, employees holding stock options are entitled to purchase Class A or Class B common stock at book value with certain restrictions (including limitations on sales and transfers). The Company has the right to repurchase all such shares at book value. All option activity is for Class B common stock unless otherwise noted. The fair value of each option granted is estimated on the grant date using the Black-Scholes Option Pricing Model. The following assumptions were made in estimating fair value: dividend yield of 33% in 2002 (50% in 2001 and 2000), risk-free interest rate of 4.2% in 2002 (5.5% in 2001 and 2000), and expected lives of 1 to 3 years. A summary of incentive stock option transactions is as follows for the years ended December 31:
2002 2001 2000 ---- ---- ---- Weighted Weighted Weighted Average Average Average Number Exercise Number Exercise Number Exercise of Shares Price of Shares Price of Shares Price ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of year 49,832 $ 6.52 47,835 $ 5.54 44,196 $ 5.54 Granted ........ 44,400 $ 9.78 39,000 $ 6.79 23,483 $ 5.54 Exercised ...... (36,150) $ 6.72 (20,035) $ 5.54 (19,844) $ 5.54 Canceled ....... (3,350) $ 6.68 (16,968) $ 5.54 0 $ 0.00 ---------- ---------- ---------- Outstanding at end of year ..... 54,732 $ 8.97 49,832 $ 6.52 47,835 $ 5.54 ========== ========== ========== ========== ========== ========== Options exercisable at year end ..... 54,732 49,832 47,835 ========== ========== ========== Weighted average fair value of options granted during year ..... $ 0.22 $ 0.05 $ 0.05 ========== ========== ==========
At December 31, 2002, the exercise price for the outstanding stock options ranges from $5.54 to $9.78 with a weighted average contractual life of 0.4 years. The Company applies APB Opinion 25 in accounting for its stock option plan. Accordingly, no additional compensation cost has been recognized for the years ended December 31, 2002, 2001 and 2000. Had compensation cost been determined on the basis of fair value pursuant to FASB No. 123, net income for the years ended December 31, 2002, 2001 and 2000, would have been reduced by an insignificant amount. NOTE 12 - CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and unbilled receivables. The Company's management believes the risk of loss associated with cash and cash equivalents is very low since cash and cash equivalents are maintained in financial institutions. However, at times, the Company may have cash and cash equivalents on deposit with a financial institution that exceed the federally insured limit. To date, accounts receivable and unbilled receivables have been derived primarily from contracts with agencies of the federal government. Accounts receivable are generally due within 30 days and no collateral is required. The Company maintains reserves for potential credit losses and, historically, such losses have been within management's expectations. NOTE 13 - COMMITMENTS The Company leases office space in several locations and furniture and equipment under the terms of noncancelable operating leases. The following is a schedule of the future minimum lease payments required under operating leases that have initial or remaining terms in excess of one year as of December 31, 2002: Years ending December 31, 2003 $ 998,000 2004 1,167,000 2005 512,000 2006 406,000 2007 209,000 Thereafter 663,000 ----------- $ 3,955,000 ===========
The Company leases certain furniture and equipment from a partnership, which is owned by certain minority stockholders of the Company. The lease payments made by the Company in connection with these leases aggregated $42,690, $89,200 and $193,482 for the years ended December 31, 2002, 2001 and 2000, respectively. These leases expired during the year ended December 31, 2002. Total rent expense aggregated $1,233,597, $953,741, and $1,069,051 for the years ended December 31, 2002, 2001 and 2000, respectively. The Company subleased office space under the terms of a noncancelable operating lease that expired on October 31, 2001. Sublease income for the year ended December 31, 2001 was $102,324. ITEM 7 (B). Introduction to Unaudited Pro Forma Combined Financial Statements The following Unaudited Pro Forma Combined Financial Statements give effect to the acquisition by EDO Corporation ("EDO" or the "Company") of Advanced Engineering & Research Associates, Inc. ("AERA"), to be accounted for as a purchase. The Unaudited Pro Forma Combined Financial Statements are derived from the historical financial statements of EDO and AERA. The Unaudited Pro Forma Combined Balance Sheet gives effect to the acquisition as if it had occurred on December 31, 2002. The Unaudited Pro Forma Combined Statement of Earnings gives effect to the acquisition as if it had occurred on January 1, 2002. The pro forma adjustments are based on certain assumptions that management believes are reasonable under the circumstances. The allocation of the purchase price is preliminary and subject to change. The pro forma information is not necessarily indicative of the results that would have been reported had such event actually occurred on the date specified, nor is it intended to project EDO's results of operations or financial position for any future period or date. The information set forth should be read in conjunction with EDO's audited consolidated financial statements for the year ended December 31, 2002, included in the Company's Form 10-K Annual Report, and the financial statements of AERA included elsewhere in this Form 8-K/A. UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 2002
HISTORICAL ---------- EDO AERA PRO FORMA PRO FORMA DEC. 31, 2002 DEC. 31, 2002 SUBTOTAL ADJUSTMENTS DEC. 31, 2002 ------------- ------------- -------- ----------- ------------- Assets Current assets: Cash and cash equivalents ............. $ 132,320 24 132,344 (38,400) A $ 90,730 (3,214) D Restricted cash ....................... 27,347 -- 27,347 27,347 Marketable securities ................. 193 -- 193 193 Accounts receivable, net .............. 100,594 15,134 115,728 115,728 Inventories ........................... 32,406 -- 32,406 32,406 Deferred income tax asset, net .......................... 3,222 -- 3,222 3,222 Prepayments and other ................. 3,133 880 4,013 (366) C 3,647 ----------- --------- --------- --------- ------------ Total current assets ............ 299,215 16,038 315,253 (41,980) 273,273 Property, plant and equipment, net .......................... 64,472 1,085 65,557 65,557 Notes receivable .......................... 2,556 -- 2,556 2,556 Goodwill .................................. 61,352 -- 61,352 8,290 B 69,642 Other intangibles, net .................... 11,867 80 11,947 (80) B 32,467 20,600 B Deferred income tax asset, net ............ 20,439 -- 20,439 20,439 Other assets .............................. 21,673 276 21,949 (211) C 21,738 ----------- --------- --------- --------- ------------ Total assets .................... $ 481,574 17,479 499,053 (13,381) $ 485,672 =========== ========= ========= ========= ============
See accompanying notes to unaudited pro forma combined financial statements. LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ...................... $ 19,108 946 20,054 $ 20,054 Accrued liabilities ................... 55,448 2,301 57,749 57,749 Current portion of long-term debt ...................... -- 3,214 3,214 (3,214)D -- Contract advances and deposits ............................ 20,277 656 20,933 20,933 Current portion of note payable ............................. -- 601 601 (601)C -- Other current liabilities ............. -- 1,845 1,845 (1,650)C 195 ----------- --------- --------- --------- ------------ Total current liabilities ....... 94,833 9,563 104,396 (5,465) 98,931 Long-term debt ............................ 137,800 30 137,830 (30)C 137,800 Postretirement benefits obligations ....... 78,643 -- 78,643 78,643 Environmental obligation .................. 2,025 -- 2,025 2,025 ----------- --------- --------- --------- ------------ 313,301 9,593 322,894 (5,495) 317,399 ----------- --------- --------- --------- ------------ Shareholders' equity: Preferred shares ...................... -- -- -- -- Common shares ......................... 19,790 -- 19,790 19,790 Common shares Class A ................. -- 4 4 (4)C -- Common shares Class B ................. -- 1 1 (1)C -- Additional paid-in capital ............ 147,091 532 147,623 (532)C 147,091 Retained earnings ..................... 56,325 7,349 63,674 (7,349)C 56,325 Accumulated other comprehensive loss .................. (33,899) -- (33,899) (33,899) Treasury shares ....................... (1,321) -- (1,321) (1,321) Unearned Employee Stock Ownership Plan Shares ......................... (18,541) -- (18,541) (18,541) Deferred compensation under Long-Term Incentive Plan ........... (579) -- (579) (579) Management group receivables .......... (593) -- (593) (593) ----------- --------- --------- --------- ------------ Total shareholders' equity ........ 168,273 7,886 176,159 (7,886) 168,273 ----------- --------- --------- --------- ------------ Total liabilities and shareholders' equity ............ $ 481,574 17,479 499,053 (13,381) $ 485,672 =========== ========= ========= ========= ============
See accompanying notes to unaudited pro forma combined financial statements. UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2002
HISTORICAL ---------- EDO AERA PRO FORMA PRO FORMA 2002 2002 SUBTOTAL ADJUSTMENTS 2002 ---- ---- -------- ----------- ---- Net sales ............................. $ 328,876 51,116 379,992 $ 379,992 Costs and expenses: Cost of sales ....................... 240,850 30,618 271,468 271,468 Selling, general and administrative .................... 47,584 15,380 62,964 1,784 B 64,668 (80)B Research and development ............ 8,492 -- 8,492 8,492 Write-off of purchased in-process research and development and merger-related costs .............. 567 -- 567 567 Post-retirement curtailment loss .... 1,998 -- 1,998 1,998 --------- -------- -------- --------- --------- 299,491 45,998 345,489 1,704 347,193 --------- -------- -------- --------- --------- Operating earnings (loss) ............. 29,385 5,118 34,503 (1,704) 32,799 Non-operating income (expense): Interest income ................. 1,729 47 1,776 (529)E 1,247 Interest expense ................ (6,685) (110) (6,795) 110 D (6,685) Other, net ...................... (95) -- (95) (95) --------- -------- -------- --------- --------- (5,051) (63) (5,114) (419) (5,533) --------- -------- -------- --------- --------- Earnings (loss) before income taxes ... 24,334 5,055 29,389 (2,123) 27,266 Income tax (expense) benefit .......... (10,342) -- (10,342) 902 F (11,462) (2,022)F --------- -------- -------- --------- --------- Net earnings (loss) available for common shares before cumulative effect of a change in accounting principle ...... $ 13,992 5,055 19,047 (3,243) $ 15,804 ========= ======== ======== ======== =========
See accompanying notes to unaudited pro forma combined financial statements. Earnings per common share: Basic ............................... $ 0.82 $ 0.93 ========= ========= Diluted ............................. $ 0.81 $ 0.91 ========= ========= Weighted common shares outstanding: Basic ............................... 17,080 17,080 ========= ========= Diluted ............................. 17,379 17,379 ========= =========
See accompanying notes to unaudited pro forma combined financial statements. On February 5, 2003, EDO Professional Services Inc., ("EDO Services") a Delaware corporation and a wholly-owned subsidiary of the Company, acquired all of the outstanding capital stock of AERA in a business combination accounted for as a purchase. Pursuant to a certain Stock Purchase Agreement (the "Purchase Agreement") dated as of February 5, 2003 by and among EDO Services and Edward B. Daffan, Charles B. Franks and Bernard C. Doyle (collectively, "Sellers"), Sellers received $38.0 million in cash, which is subject to adjustment based on AERA's closing date net book value, as defined in the Purchase Agreement. In addition, EDO assumed certain liabilities, including $3.8 million of AERA's outstanding line of credit debt which EDO paid in full upon closing, and incurred acquisition costs estimated to be approximately $0.4 million. The following notes explain the pro forma adjustments: Pro Forma Balance Sheet Adjustments A) Adjustment to record the preliminary cash purchase price of $38.0 million and estimated acquisition costs of $0.4 million. B) Adjustment to record $20.6 million of amortizable intangible assets with finite lives, which comprise the following:
Annual Estimated Pre-tax Description of Intangible Cost Useful Life Amortization - ------------------------- ---- ----------- ------------ Trade name $ 500 5 years $ 100 Non-compete agreements 2,500 3 to 5 years 511 Customer contracts 17,600 15 years 1,173 ------- ------- $20,600 $ 1,784 ======= =======
Adjustment includes recording a full year's worth of amortization expense associated with amortizable intangible assets with finite lives acquired in the transaction and eliminates AERA's pre-existing intangible asset. This adjustment also records the resulting residual goodwill at December 31, 2002. C) Adjustment to eliminate the assets and liabilities that were not acquired by EDO, as defined in the Purchase Agreement, as well as intercompany transactions and the historical equity of AERA. D) Adjustment to reflect the repayment in full of AERA's outstanding line of credit debt at December 31, 2002. Adjustment also includes the elimination of AERA's interest expense for the year ended December 31, 2002 relating to such line of credit. Pro Forma Statement of Earnings Adjustments E) Adjustment to record reduced interest income of EDO for the year ended December 31, 2002 resulting from EDO's cash outlays of $38.0 million to acquire all of AERA's outstanding capital stock, $0.4 million in estimated acquisition costs and $3.2 million to repay, in full, AERA's outstanding debt under AERA's line of credit debt, net of cash acquired. F) Adjustment to record the income tax effect of the pro forma adjustments above using EDO's 42.5% effective tax rate. Such adjustment also records AERA's estimated income tax expense associated with AERA's income for the year ended December 31, 2002, assuming AERA was a C Corporation with an effective rate of approximately 40%. Prior to the acquisition of AERA by EDO, AERA was a Subchapter S Corporation and was not subject to Federal income tax. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: April 18, 2003 EDO CORPORATION By: /s/ Lisa M. Palumbo ----------------------------------------- Name: Lisa M. Palumbo Title: Vice President and General Counsel Exhibit Index
Exhibit No. Description - ----------- ----------- *2.1 Stock Purchase Agreement dated as of February 5, 2003 by and among EDO Services and Edward B. Daffan, Charles B. Franks and Bernard C. Doyle. 23.1 Consent of Argy, Wiltse & Robinson, P.C. *99.1 Press Release, dated February 6, 2003.
- -------- * Previously filed EX-23.1 3 y85500exv23w1.txt CONSENT OF ARGY, WILTSE & ROBINSON, P.C. Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference, in the Registration Statements on Forms S-8 (Nos. 2-69243-99, 33-01526, 33-28020, 33-77865) and Forms S-3 and S-3/A (No. 333-88620) of EDO Corporation, of our report dated February 19, 2003 relating to the financial statements of Advanced Engineering and Research Associates, Inc., which appears in this Current Report on Form 8-K/A of EDO Corporation, dated April 18, 2003. /s/ ARGY, WILTSE & ROBINSON, P.C. McLean, Virginia April 18, 2003 -----END PRIVACY-ENHANCED MESSAGE-----