-----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, WXCu2Qz/Ldn7yU3CVL4l/TyE1CanitV7xN+quo+yus/YOXDYujWgF0Bt5Qai8iuX dFP8kh4Se4at4l9A/4xw/A== 0000950123-03-014121.txt : 20031223 0000950123-03-014121.hdr.sgml : 20031223 20031223122157 ACCESSION NUMBER: 0000950123-03-014121 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031223 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031223 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03985 FILM NUMBER: 031070129 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 1 y92123e8vk.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------- DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): December 23, 2003 EDO CORPORATION (Exact name of Registrant as specified in its charter) NEW YORK 3812 11-0707740 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Organization) Classification Code Number) Identification No.)
-------------------- 60 East 42nd Street, 42nd Floor 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 7. FINANCIAL STATEMENTS AND EXHIBITS. This current report on Form 8-K is being filed to add a footnote to the Company's Consolidated Financial Statements containing condensed consolidating financial information for the Registrant's subsidiaries which are expected to guarantee the indebtedness the Registrant may issue pursuant to its shelf registration statement on Form S-3 filed with the Securities and Exchange Commission on December 23, 2003. No other changes to the previously filed financial information have been made other than the elimination of a subtotal in the earnings per share section on the statement of earnings not required to be presented. (c) Exhibits 23.1 Consent of Independent Auditors. 99.1 EDO Corporation Consolidated Audited Balance Sheets as of December 31, 2002 and 2001, and the related Consolidated Audited Statements of Earnings, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 2002. 99.2 EDO Corporation Consolidated Balance Sheet as of September 27, 2003 (Unaudited) and the Consolidated Balance Sheet as of December 31, 2002, and the related Consolidated Unaudited Statements of Earnings for the three and nine month periods ended September 27, 2003 and September 28, 2002, and the Consolidated Unaudited Statement of Cash Flows for the nine month periods ended September 27, 2003 and September 28, 2002.
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. EDO CORPORATION By: /s/ Frederic B. Bassett ---------------------------------- Name: Frederic B. Bassett Title: Vice President - Finance Date: December 23, 2003 EXHIBIT INDEX 23.1 Consent of Independent Auditors. 99.1 EDO Corporation Consolidated Audited Balance Sheets as of December 31, 2002 and 2001, and the related Consolidated Audited Statements of Earnings, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 2002. 99.2 EDO Corporation Consolidated Balance Sheet as of September 27, 2003 (Unaudited) and the Consolidated Balance Sheet as of December 31, 2002, and the related Consolidated Unaudited Statements of Earnings for the three and nine month periods ended September 27, 2003 and September 28, 2002, and the Consolidated Unaudited Statement of Cash Flows for the nine month periods ended September 27, 2003 and September 28, 2002.
EX-23.1 3 y92123exv23w1.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 2-69243) pertaining to the EDO Corporation 1996 Long-term Incentive Plan and the EDO Corporation 1980 Stock Option Plan, the Registration Statement (Form S-8 No. 33-01526) pertaining to the EDO Corporation 1996 Long-term Incentive Plan and the EDO Corporation 1985 Stock Option Plan, the Registration Statement (Form S-8 No. 33-28020) pertaining to the EDO Corporation 1983 Long-term Incentive Plan, the EDO Corporation 1988 Long-term Incentive Plan, the EDO Corporation 1988 Stock Option Plan and the EDO Corporation 1996 Long-term Incentive Plan, the Registration Statement (Form S-8 No. 33-77865) pertaining to the EDO Corporation Compensation Plan for Directors, the EDO Corporation 1997 Non-employee Director Stock Option Plan and the EDO Corporation 1996 Long-term Incentive Plan, the Registration Statement (Form S-3 No. 333-88620) relating to the issuance by EDO Corporation of its 5.25% Convertible Subordinated Notes due 2007, the Registration Statement (Form S-8 No. 333-105265) pertaining to the EDO Corporation 2002 Non-Employee Director Stock Option Plan and the EDO Corporation 2002 Long-Term Incentive Plan and the Registration Statement (Form S-3) pertaining to the proposed sale of debt or equity securities, of our report dated February 11, 2003, with respect to the consolidated financial statements of EDO Corporation included in this Current Report (Form 8-K). /S/ERNST & YOUNG LLP New York, New York December 19, 2003 EX-99.1 4 y92123exv99w1.txt CONSOLIDATED AUDITED FINANCIAL STATEMENTS . . . ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF EARNINGS EDO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, ----------------------------------------- 2002 2001 2000 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONTINUING OPERATIONS: NET SALES................................................. $328,876 $259,961 $206,822 -------- -------- -------- COSTS AND EXPENSES Cost of sales........................................... 240,850 189,733 151,512 Selling, general and administrative..................... 47,584 34,013 29,205 Research and development................................ 8,492 8,750 5,371 Write-off of purchased in-process research and development and merger-related costs................. 567 1,318 11,495 Defined benefit pension plan curtailment loss........... 1,998 -- -- Post-retirement curtailment gain........................ -- (929) -- -------- -------- -------- 299,491 232,885 197,583 -------- -------- -------- OPERATING EARNINGS........................................ 29,385 27,076 9,239 NON-OPERATING INCOME (EXPENSE) Interest income......................................... 1,729 915 1,881 Interest expense........................................ (6,685) (3,131) (4,319) Other, net.............................................. (95) (971) (216) -------- -------- -------- (5,051) (3,187) (2,654) -------- -------- -------- Earnings from continuing operations before income taxes and cumulative effect of a change in accounting principle............................................ 24,334 23,889 6,585 Income tax expense...................................... (10,342) (9,210) (5,264) -------- -------- -------- EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE.............. 13,992 14,679 1,321 DISCONTINUED OPERATIONS: Gain from discontinued satellite products business, net of tax............................................... -- 273 -- -------- -------- -------- EARNINGS FROM DISCONTINUED OPERATIONS..................... -- 273 -- -------- -------- -------- EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE................................................. 13,992 14,952 1,321 Cumulative effect of a change in accounting principle, net of tax of $790............................................ (3,363) -- -- Dividends on preferred shares............................... -- 194 881 -------- -------- -------- NET EARNINGS AVAILABLE FOR COMMON SHARES.................... $ 10,629 $ 14,758 $ 440 -------- -------- -------- EARNINGS (LOSS) PER COMMON SHARE: Basic: Continuing operations................................... $ 0.62 $ 1.14 $ 0.05 Discontinued operations................................. -- 0.02 -- -------- -------- -------- $ 0.62 $ 1.16 $ 0.05 -------- -------- -------- Diluted: Continuing operations................................... $ 0.61 $ 1.09 $ 0.05 Discontinued operations................................. -- 0.02 -- -------- -------- -------- $ 0.61 $ 1.11 $ 0.05 ======== ======== ======== UNAUDITED PRO FORMA AMOUNTS ASSUMING RETROACTIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE: Net Earnings Available for Common Shares.................. -- $ 15,329 $ 933 Basic Net Earnings per Common Share....................... -- $ 1.18 $ 0.10 Diluted Net Earnings per Common Share..................... -- $ 1.13 $ 0.10 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE SHEETS EDO CORPORATION AND SUBSIDIARIES
DECEMBER 31, ---------------------- 2002 2001 --------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents................................. $132,320 $ 57,841 Restricted cash........................................... 27,347 -- Marketable securities..................................... 193 190 Accounts receivable, net.................................. 100,594 83,407 Inventories............................................... 32,406 22,937 Deferred income tax asset, net............................ 3,222 3,018 Prepayments and other..................................... 3,133 2,346 -------- -------- Total current assets................................... 299,215 169,739 -------- -------- Property, plant and equipment, net.......................... 64,472 62,255 Notes receivable............................................ 2,556 2,910 Goodwill.................................................... 61,352 22,874 Other intangible assets..................................... 11,867 325 Deferred income tax asset, net.............................. 20,439 2,553 Other assets................................................ 21,673 24,974 -------- -------- $481,574 $285,630 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 19,108 $ 12,743 Accrued liabilities....................................... 55,448 34,654 Contract advances and deposits............................ 20,277 16,702 Current portion of note payable........................... -- 463 -------- -------- Total current liabilities.............................. 94,833 64,562 -------- -------- Long-term debt.............................................. 137,800 -- Post-retirement benefits obligations........................ 78,643 44,675 Environmental obligation.................................... 2,025 1,895 Shareholders' equity: Preferred shares, par value $1 per share, authorized 500,000 shares......................................... -- -- Common shares, par value $1 per share, authorized 50,000,000 shares in 2002; 19,790,477 issued in 2002 and 2001............................................... 19,790 19,790 Additional paid-in capital................................ 147,091 143,747 Retained earnings......................................... 56,325 47,744 Accumulated other comprehensive loss, net of income tax benefit................................................ (33,899) (13,385) Treasury shares at cost (94,322 shares in 2002 and 182,459 shares in 2001)........................................ (1,321) (2,461) Unearned Employee Stock Ownership Plan shares............. (18,541) (19,792) Deferred compensation under Long-Term Incentive Plan...... (579) (300) Management group receivables.............................. (593) (845) -------- -------- Total shareholders' equity............................. 168,273 174,498 -------- -------- $481,574 $285,630 ======== ========
See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY EDO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000 ----------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES -------- ------ -------- ------ -------- ------ (IN THOUSANDS) PREFERRED SHARES Balance at beginning of year...... $ -- -- $ 49 49 $ 57 57 Shares converted to common shares......................... -- -- (49) (49) (8) (8) -------- ------ -------- ------ -------- ------ Balance at end of year............ -- -- -- -- 49 49 -------- ------ -------- ------ -------- ------ COMMON SHARES Balance at beginning of year...... 19,790 19,790 15,007 15,007 8,454 8,454 Shares issued for purchase of AIL Technologies, Inc.............. -- -- -- -- 6,553 6,553 Conversion of preferred shares to common shares.................. -- -- 1,067 1,067 -- -- Sale of stock in public offering....................... -- -- 3,716 3,716 -- -- -------- ------ -------- ------ -------- ------ Balance at end of year............ 19,790 19,790 19,790 19,790 15,007 15,007 -------- ------ -------- ------ -------- ------ ADDITIONAL PAID-IN CAPITAL Balance at beginning of year...... 143,747 58,614 28,483 Exercise of stock options......... (466) (2,405) (183) Income tax benefit related to stock options and Long-Term Incentive Plan................. 713 1,118 42 Shares used for payment of directors' fees................ 64 35 (125) Purchase of AIL Technologies, Inc............................ -- -- 33,733 Shares used for Long-Term Incentive Plan................. 241 (73) (432) Conversion of preferred shares to common shares.................. -- (1,018) (3,227) Conversion of subordinated debentures..................... -- 8,525 -- Sale of stock in public offering....................... -- 77,775 -- Compensation expense on accelerated options............ -- 276 -- Employee Stock Ownership Plan shares committed-to-be- released....................... 2,792 900 323 -------- -------- -------- Balance at end of year............ 147,091 143,747 58,614 -------- -------- --------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- (CONTINUED) EDO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000 ----------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES -------- ------ -------- ------ -------- ------ (IN THOUSANDS) RETAINED EARNINGS Balance at beginning of year...... 47,744 34,803 35,667 Net earnings...................... 10,629 14,952 1,321 Common share dividends (12 cents per share)..................... (2,048) (1,840) (1,428) Dividends on preferred shares..... -- (194) (881) Tax benefit on unallocated preferred share dividends...... -- 23 124 -------- -------- -------- Balance at end of year............ 56,325 47,744 34,803 -------- -------- -------- ACCUMULATED OTHER COMPREHENSIVE LOSS Balance at beginning of year...... (13,385) (61) (255) Unrealized gain on marketable securities, net of tax......... -- 61 194 Unrealized gain on foreign currency....................... 86 -- -- Additional minimum pension liability, net of tax.......... (20,600) (13,385) -- -------- -------- -------- Balance at end of year............ (33,899) (13,385) (61) -------- -------- -------- TREASURY SHARES AT COST Balance at beginning of year...... (2,461) (182) (19,388) (1,370) (23,967) (1,694) Shares used for exercise of stock options........................ 952 69 4,297 314 280 20 Shares used for payment of directors' fees................ 78 6 122 9 251 18 Shares used for (repurchased from) Long-Term Incentive Plan....... 110 13 (63) (6) 813 57 Shares used for conversion of preferred shares............... -- -- -- -- 3,235 229 Shares used for conversion of subordinated debentures........ -- -- 13,591 1,005 -- -- Repurchase of Employee Stock Ownership Plan shares.......... -- -- (1,020) (134) -- -- -------- ------ -------- ------ -------- ------ Balance at end of year............ (1,321) (94) (2,461) (182) (19,388) (1,370) -------- ------ -------- ------ -------- ------ EMPLOYEE STOCK OWNERSHIP TRUST LOAN OBLIGATION Balance at beginning of year...... -- (5,781) (7,429) Repayments made during year....... -- 890 1,648 Restructuring of EDO Employee Stock Ownership Plan........... -- 4,891 -- -------- -------- -------- Balance at end of year............ -- -- (5,781) -------- -------- --------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- (CONTINUED) EDO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2002 2001 2000 ----------------- ----------------- ----------------- AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES -------- ------ -------- ------ -------- ------ (IN THOUSANDS) DEFERRED COMPENSATION UNDER LONG- TERM INCENTIVE PLAN Balance at beginning of year...... (300) (423) (769) Shares used for Long-Term Incentive Plan................. (480) (148) (392) Amortization of Long-Term Incentive Plan deferred compensation expense........... 201 271 738 -------- -------- -------- Balance at end of year............ (579) (300) (423) -------- -------- -------- UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN COMPENSATION Balance at beginning of year...... (19,792) (15,782) -- Purchase of AIL Technologies, Inc............................ -- -- (17,302) Restructuring of EDO Employee Stock Ownership Plan........... -- (4,891) -- Employee Stock Ownership Plan shares committed-to-be- released....................... 1,251 881 1,520 -------- -------- -------- Balance at end of year............ (18,541) (19,792) (15,782) -------- -------- -------- MANAGEMENT GROUP RECEIVABLES Balance at beginning of year...... (845) (1,220) -- Purchase of AIL Technologies, Inc............................ -- -- (1,220) Payments received on management loans.......................... 252 375 -- -------- -------- -------- Balance at end of year............ (593) (845) (1,220) -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY.......... $168,273 $174,498 $ 65,818 ======== ======== ======== COMPREHENSIVE (LOSS) INCOME Net earnings...................... $ 10,629 $ 14,952 $ 1,321 Additional minimum pension liability, net of income tax benefit of $14,316 in 2002 and $9,302 in 2001................. (20,600) (13,385) -- Unrealized gain on marketable securities, net of income tax expense of $31 in 2001 and $100 in 2000........................ -- 61 194 Unrealized gain on foreign currency....................... 86 -- -- -------- -------- -------- Comprehensive (loss) income....... $ (9,885) $ 1,628 $ 1,515 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS EDO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES: Earnings from operations.................................. $ 10,629 $ 14,679 $ 1,321 Adjustments to earnings to arrive at cash provided by operations: Depreciation........................................... 10,365 9,686 7,740 Amortization........................................... 956 1,710 1,701 Deferred tax (benefit) expense......................... (2,984) 5,941 1,292 Write-off of purchased in-process research and development.......................................... 150 -- 6,700 Real estate tax assessment adjustment.................. -- 7,846 -- Bad debt expense....................................... 407 220 287 Gain on repurchase of debentures....................... -- (171) (215) Loss (gain) on sale of property, plant and equipment... 53 (76) (7) Gain on sale of marketable securities.................. -- (81) -- Deferred compensation expense.......................... 201 271 738 Non-cash Employee Stock Ownership Plan compensation expense.............................................. 4,043 1,781 1,843 Dividends on unallocated Employee Stock Ownership Plan shares............................................... 312 80 -- Non-cash compensation expense.......................... -- 276 -- Common shares issued for directors' fees............... 142 157 126 Income tax benefit from stock options and Long-Term Incentive Plan....................................... 713 1,118 42 Cumulative effect of a change in accounting principle............................................ 3,363 -- -- Changes in operating assets and liabilities, excluding effects of acquisitions: Accounts receivable.................................. (2,519) (10,753) (4,388) Inventories.......................................... (2,926) 2,033 (2,214) Prepayments and other assets......................... 220 (629) (1,825) Accounts payable, accrued liabilities and other...... 5,217 (4,974) (11,923) Contract advances and deposits....................... 3,575 (15,017) 8,116 -------- -------- -------- Cash provided by operations................................. 31,917 14,097 9,334 INVESTING ACTIVITIES: Purchase of plant and equipment........................... (7,093) (14,298) (3,861) Payments received on notes receivable..................... 350 347 168 Proceeds from sale of property, plant and equipment....... 1 280 4,569 Purchase of marketable securities......................... (3) (59) (818) Sale or redemption of marketable securities............... -- 14,455 2,541 Proceeds from sale of discontinued operations............. -- -- 8,641 Restricted cash........................................... (27,347) -- -- Cash paid for acquisitions, net of cash acquired.......... (59,024) (13,938) (15,004) -------- -------- -------- Cash used by investing activities........................... (93,116) (13,213) (3,764)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) EDO CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, ------------------------------ 2002 2001 2000 -------- -------- -------- (IN THOUSANDS) FINANCING ACTIVITIES: Issuance of convertible subordinated notes................ 137,800 -- -- Proceeds from exercise of stock options................... 486 1,892 97 Proceeds from management group receivables................ 252 375 -- Proceeds from sale of stock in public offering, net of expenses............................................... -- 81,491 -- Borrowings under revolver................................. -- 20,800 9,000 Repayments of borrowings under revolver................... -- (20,800) (18,000) Repayments of long-term debt.............................. -- (17,300) (3,570) Repurchase of debentures.................................. -- (3,184) (1,879) Purchase of treasury shares............................... -- (1,020) -- Payment of EDO ESOP loan obligation....................... -- (4,891) -- Payment made on note payable.............................. (500) (500) (500) Payment of common share cash dividends.................... (2,360) (1,920) (1,428) Payment of preferred share cash dividends................. -- (194) (881) -------- -------- -------- Cash provided (used) by financing activities................ 135,678 54,749 (17,161) -------- -------- -------- Net increase (decrease) in cash and cash equivalents........ 74,479 55,633 (11,591) Cash and cash equivalents at beginning of year.............. 57,841 2,208 13,799 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $132,320 $ 57,841 $ 2,208 ======== ======== ======== Supplemental disclosures: Cash paid for: Interest............................................... $ 3,878 $ 2,166 $ 3,500 Income taxes........................................... $ 14,063 $ 5,913 $ 3,756 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002, 2001 AND 2000 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) PRINCIPLES OF CONSOLIDATION AND BUSINESS The consolidated financial statements include the accounts of EDO Corporation and all wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company operates in three segments: Defense, Communications and Space Products, and Engineered Materials. The Company discontinued its former satellite products business (Barnes Engineering Company) in 1999. (b) RESTRICTED CASH At December 31, 2002, there is restricted cash of $27.3 million, which relates to amounts collateralizing the outstanding letters of credit assumed as part of the acquisition of Condor Systems, Inc. (Note 2). As the letters of credit expire or are cancelled, collateral is released. On November 8, 2002, the Company increased its credit facility from $69.0 million to $140.0 million and again, on December 20, 2002, from $140.0 million to $200.0 million, which will allow the Company to replace the letters of credit under the amended facility and release the restricted cash. (c) CASH EQUIVALENTS The Company considers all securities with an original maturity of three months or less at the date of acquisition to be cash equivalents. (d) REVENUE RECOGNITION Sales under long-term, fixed-price contracts, including pro-rata profits, are generally recorded based on the relationship of costs incurred to date to total projected final costs or, alternatively, as deliveries and other milestones are achieved or services are provided. These projections are revised throughout the lives of the contracts. Adjustments to profits resulting from such revisions are made cumulative to the date of change and may affect current period earnings. Gross profit is affected by a variety of factors, including the mix of products, systems and services sold or provided, production efficiencies, price competition and general economic conditions. Estimated losses on long-term contracts are recorded when identified. Sales under cost reimbursement contracts are recorded as costs are incurred. Sales on other than long-term contract orders (principally commercial products) are recorded as shipments are made. (e) INVENTORIES Inventories under long-term contracts and programs reflect all accumulated production costs, including factory overhead, initial tooling and other related costs (including general and administrative expenses relating to certain of the Company's defense contracts), less the portion of such costs charged to cost of sales. Inventory costs in excess of amounts recoverable under contracts and which relate to a specific technology or application and which may not have alternative uses are charged to cost of sales when such circumstances are identified. All other inventories are stated at the lower of cost (principally first-in, first-out method) or market. From time to time, the Company manufactures certain products prior to receiving firm contracts in anticipation of future demand. Such costs are inventoried and are incurred to help maintain stable and efficient production schedules. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 Several factors may influence the sale and use of the Company's inventories, including the decision to exit a product line, technological change, new product development and/or revised estimates of future product demand. If inventory is determined to be overvalued due to one or more of the above factors, the Company would recognize such loss in value at the time of such determination. Under the contractual arrangements by which progress payments are received, the United States Government has a title to or a security interest in the inventories identified with related contracts. (f) LONG-LIVED ASSETS, OTHER THAN GOODWILL AND OTHER INTANGIBLES Property, plant and equipment are stated at cost. Depreciation and amortization have been provided primarily using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease periods. In those cases where the Company determines that the useful life should be shortened, the Company would depreciate the net book value in excess of salvage value over its revised remaining useful life thereby increasing depreciation expense. Factors such as technological advances, changes to the Company's business model, changes in the Company's capital strategy, changes in the planned use of equipment, fixtures, software or changes in the planned use of facilities could result in shortened useful lives. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the undiscounted cash flows, excluding interest, is less than the asset's carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. The estimate of cash flow is based upon, among other things, certain assumptions about expected future operating performance. The Company's estimates of undiscounted cash flow may differ from actual cash flow due to such factors as those listed above. Costs associated with the acquisition and development of software for internal use are recognized in accordance with Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." In 2002 and 2001, the Company capitalized approximately $0.3 million and $1.7 million, respectively, of such costs. These costs are being amortized on a straight-line basis over a period of four years. Deferred financing costs are amortized on a straight-line basis over the life of the related financing. The unamortized balances of $5.5 million and $0.5 million are included in other assets at December 31, 2002 and 2001, respectively. (g) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") Nos. 141, "Business Combinations," and 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 EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 goodwill acquired in connection with the purchase of Dynamic Systems, Inc. in October 2001 and Condor Systems, Inc. in July 2002 is not being amortized. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and a material decrease in the fair value of some or all of the assets. The Company performed the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 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 charge, net of a tax benefit of $0.8 million, 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 the acquisition of Specialty Plastics and $0.1 million of impaired goodwill related to the acquisition of Zenix. 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. The changes in the carrying amount of goodwill by segment for the year ended December 31, 2002 are as follows:
COMMUNI- CATIONS AND SPACE ENGINEERED DEFENSE PRODUCTS MATERIALS 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........... 37,060 3,692 -- 40,752 ------- ------ ------- ------- Balance as of December 31, 2002.............. $57,660 $3,692 $ -- $61,352 ======= ====== ======= =======
Summarized below are intangible assets subject to amortization as of December 31:
2002 2001 ------- ----- (IN THOUSANDS) Capitalized non-compete agreements related to the acquisition of Dynamic Systems, Inc. ..................... $ 200 $ 200 Capitalized technical rights related to the acquisition of Zenix..................................................... -- 300 Purchased technologies related to the acquisition of Condor Systems, Inc. ............................................ 11,648 -- Other intangible assets related to the acquisition of Condor Systems, Inc. ............................................ 916 -- ------- ----- 12,764 500 Less accumulated amortization............................... (897) (175) ------- ----- $11,867 $ 325 ======= =====
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 years ended December 31, 2002, 2001 and 2000 amounted to $0.9 million, $0.1 million and $0.1 million, respectively. Amortization expense for 2003, 2004, 2005, 2006, EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 2007 and thereafter related to these intangible assets are estimated to be $2.0 million, $1.7 million, $1.5 million, $1.5 million, $1.5 million and $3.7 million, respectively. Since the total trademark carrying amount of $1.9 million was written off in 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 December 31, 2002. Net earnings for the year ended December 31, 2001 included goodwill and trademark amortization expense of approximately $0.9 million before tax. Excluding this amount net of tax would have resulted in basic net earnings per common share and diluted net earnings per common share of $1.18 and $1.13, respectively, for the year ended December 31, 2001. Net earnings for the year ended December 31, 2000 included goodwill and trademark amortization expense of $1.0 million before tax. Excluding this amount net of tax would have resulted in basic net earnings per common share and diluted net earnings per common share of $0.10 and $0.10, respectively, for the year ended December 31, 2000. (h) INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (i) TREASURY SHARES Common shares held as treasury shares are recorded at cost, with issuances from treasury recorded at average cost. Treasury shares issued for directors' fees are recorded as an expense for an amount equal to the fair market value of the common shares on the issuance date. (j) FINANCIAL INSTRUMENTS The net carrying value of notes receivable approximates fair value based on current rates for comparable commercial mortgages. The fair value of the Company's 5.25% Convertible Subordinated Notes due 2007 (the "Notes") at December 31, 2002 approximates its carrying value based on recent market transactions. The fair value of the environmental obligation approximates its carrying value since it has been discounted. The fair values of all other financial instruments approximate book values because of the short-term maturities of these instruments. (k) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from these and other estimates. (l) STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Under APB No. 25, because the exercise price of the Company's stock options is set equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 (m) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and on June 15, 2000, issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment to FASB Statement No. 133." These statements establish methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. The Company adopted these statements in the first quarter of 2001. The effect of the adoption of these statements was not material to the Company's operating results or financial position. (n) RECLASSIFICATIONS Certain reclassifications have been made to prior year presentations to conform to current year presentations. (o) NEW ACCOUNTING STANDARDS 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 APB 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 SFAS 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 or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146, effective January 1, 2003, did not have a material effect on the Company's operating results or financial position. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an Amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires more prominent and more frequent disclosures in both annual and interim financial statements about the method of accounting used for stock-based compensation and the effect of the method used on reported results. The disclosure provisions of SFAS No. 148 are effective for years ending after December 15, 2002 and accordingly are reflected in Note 14. Presently, the Company does not plan to voluntarily change its method of accounting for stock-based compensation. However, should the Company change its method of accounting for stock-based compensation in the future, that change would fall under the provisions of SFAS Nos. 123 and 148. (2) ACQUISITIONS 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, in addition to transaction costs of $4.1 million, 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 $28.0 million of outstanding letters of credit and deposited $5.0 million into an escrow account to be released upon settlement of the closing Condor EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 balance sheet. 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 reconnaissance and surveillance systems. The acquisition was accounted for as a purchase and, accordingly, Condor's operating results are included in the Company's consolidated financial statements since the acquisition date. Condor became part of the Company's Defense and Communications and Space Products segments. Associated with the acquisition and included in operating earnings for 2002 is $0.6 million of merger-related costs, of which $0.2 million represents the write-off of purchased in-process research and development ("IPR&D"). This IPR&D was determined by an independent third party appraiser to not have reached technological feasibility and to not have alternative future use. The development project related to detecting and locating weak modulated continuous wave signals. Unaudited pro forma results of operations, assuming the acquisition of Condor had been completed at the beginning of each period, which include adjustments to net sales, cost of sales, interest income and expense, amortization expense, purchased IPR&D and other merger-related costs, income tax expense and assuming a retroactive effect of a change in accounting principle upon adoption of SFAS No. 142 are as follows:
2002 2001 ----------- ----------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales................................................... $383,057 $337,048 Net earnings (loss) before cumulative effect of a change in accounting principle...................................... $ 11,360 $(25,794) Net earnings (loss) available for common shares............. $ 7,997 $(29,569) Diluted earnings (loss) per common share.................... $ 0.46 $ (2.31) ======== ========
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. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition. The excess of the purchase price over the net assets acquired recorded as goodwill, IPR&D and other intangible assets is deductible for tax purposes over 15 years.
AT JULY 26, 2002 ---------------- (IN THOUSANDS) Current assets.............................................. $ 29,964 Property, plant and equipment............................... 5,543 Goodwill.................................................... 40,752 Purchased in-process research and development............... 150 Purchased technologies (eight-year life).................... 11,648 Other intangible assets subject to amortization (two-year life)..................................................... 916 Other assets................................................ 76 Current liabilities......................................... (22,907) -------- Net assets acquired......................................... $ 66,142 ========
In October 2001, the Company acquired all of the stock of Dynamic Systems, Inc., a privately-held company based in Alexandria, Virginia, which provides professional and information technology services primarily to the 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 EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 Company paid $13.7 million, including transaction costs and subsequent to a $0.2 million reduction in the purchase price, and accounted for the acquisition as a purchase. Accordingly, the operating results of Dynamic Systems, Inc. have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the purchase price over the fair market value of net assets acquired was approximately $12.2 million, which is not deductible for income tax purposes. On a pro forma basis, had the acquisition taken place as of the beginning of each respective year, the results of operations would not have been materially affected for 2001 and 2000. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition.
AT OCTOBER 8, 2001 ------------------ (IN THOUSANDS) Current assets.............................................. $ 3,250 Property, plant and equipment............................... 363 Goodwill.................................................... 12,191 Other intangible assets subject to amortization (two-year life)..................................................... 200 Other assets................................................ 214 Current liabilities......................................... (2,515) ------- Net assets acquired......................................... $13,703 =======
In April 2000, a wholly-owned subsidiary of the Company merged with AIL Technologies, Inc. ("AIL") (the "EDO-AIL merger"). In connection with the EDO-AIL merger, the Company issued 6,553,194 of its common shares valued at $39.4 million, and made cash payments aggregating $13.3 million in exchange for all of the outstanding common and preferred shares of AIL. In addition, the Company incurred $2.7 million of transaction costs. The merger was accounted for as a purchase and is included in the Company's results of operations since the date of acquisition. The transaction resulted in goodwill of $3.6 million. Associated with this merger and included in operating earnings in 2000 are a $6.7 million write-off of purchased IPR&D, described more fully below, $1.5 million of severance costs and $3.3 million of other merger-related costs. Such costs are included in write-off of purchased in-process research and development and merger-related costs in the accompanying consolidated statements of earnings. The $1.5 million of severance costs pertain to an AIL employee group of approximately 200, all of which was paid as of December 31, 2001. The IPR&D related to a project that had not reached technological feasibility and that had no alternative future uses. The amount allocated to the project was expensed as of the date of acquisition. The development project related to a generic satellite subsystem called a Ku-Ku Band Down Converter for a fixed satellite service market. The converter represents a single channel providing signal conversion from uplink frequencies in the 14GHz range to the downlink frequencies in the 12GHz range. The income approach was utilized for the valuation analysis of the IPR&D. This approach focused on the income-producing capability of the asset, which was based on relative market sizes, growth factors and expected trends in technology. This approach also included analysis of the stage of completion of the project, estimating the costs to develop the purchased in-process technology into commercially viable products, estimating the resulting net cash flows from such projects and discounting the net cash flows back to their present value using a rate commensurate with the relative risk levels. The rate used in discounting the net cash flows from the IPR&D was 25%. The efforts then required to develop the in-process technology of this project into commercially viable products principally related to the completion of planning, designing, prototyping, and testing functions that are necessary to establish that the down converter produced will meet its design specifications, including EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 technical performance features and function requirements. At the time of the EDO-AIL merger, it was estimated that 90% of the development effort had been completed and the remaining development effort would take approximately six months to complete, with a cost of approximately $1.0 million. This project is now completed resulting in sales in 2001 of Ku-Ku Band Converters. Unaudited pro forma results of operations, assuming the EDO-AIL merger had been completed at the beginning of 2000, which include adjustments to interest expense, amortization expense and income tax expense are as follows:
2000 ------------------------- (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales from continuing operations........................ $250,080 Net loss from continuing operations available for common shares.................................................... $ (1,961) Basic loss per common share from continuing operations...... $ (0.18) ========
The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had this merger been completed at the beginning of the period, or of the results which may occur in the future. In November 1999, the Company acquired the outstanding stock of M.Technologies Inc., an integrator of aircraft weapons and avionics systems, for $3.0 million in cash paid at closing and a $1.5 million note to be paid over three years. The note payable (fully paid as of December 31, 2002 and $0.5 million at December 31, 2001) has been recorded at its present value in the accompanying consolidated balance sheet at an interest rate of 8%. The acquisition has been accounted for as a purchase, and accordingly, the operating results of M. Technologies have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the purchase price over the fair market value of net assets acquired was approximately $4.4 million. SUBSEQUENT EVENTS (UNAUDITED) In February 2003, a wholly-owned subsidiary of the Company acquired all of the stock of Advanced Engineering & Research Associates, Inc. ("AERA"), a privately-held company located in Alexandria, Virginia, which provides professional and information technology services primarily to the Department of Defense and other government agencies. The acquisition is expected to strengthen and expand the range of such services the Company offers. The preliminary purchase price was $38.0 million, which included an amount placed in escrow. The acquisition will be accounted for as a purchase, and the operating results of AERA will be included in the Company's consolidated financial statements from the date of the acquisition. In March 2003, a wholly-owned subsidiary of the Company acquired all of the stock of Darlington, Inc., a privately-held defense communications company based in Alexandria, Virginia, which designs, manufactures and supports military communications equipment and information networking systems. The acquisition is expected to enhance the Company's existing positions on long-range platforms and programs across the U.S. military services and in particular the U.S. Marine Corps. The preliminary purchase price was $28.5 million, which included an amount placed in escrow. The acquisition will be accounted for as a purchase, and the operating results of Darlington, Inc. will be included in the Company's consolidated financial statements from the date of the acquisition. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 (3) DISCONTINUED OPERATIONS In November 1999, the Board of Directors of the Company approved the decision to sell its satellite products business (Barnes Engineering Company), which sale was completed in January 2000. The Company agreed to indemnify the buyer for certain contract-related costs originally estimated at $2.3 million. In 2001, a change in the estimate of remaining costs to be incurred resulted in earnings from discontinued operations of $0.3 million, net of income taxes. The revenues, costs and expenses, assets and liabilities, and cash flows associated with the satellite products business have been excluded from the respective captions in the accompanying consolidated financial statements. (4) MARKETABLE SECURITIES The Company determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. All marketable securities are classified as available-for-sale securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. Realized gains and losses, interest and dividends and declines in value judged to be other-than-temporary declines are included in interest income (expense). The cost of securities sold is based on the specific identification method. At December 31, 2002 and 2001, the marketable securities balance represents amounts in mutual funds. (5) ACCOUNTS AND NOTES RECEIVABLE Accounts receivable included $43.0 million and $39.1 million at December 31, 2002 and 2001, respectively, of unbilled revenues. Substantially all of the unbilled balances at December 31, 2002 will be billed and are expected to be collected during 2003. Total billed receivables due from the United States Government, either directly or as a subcontractor to a prime contractor with the Government, were $31.0 million and $26.2 million at December 31, 2002 and 2001, respectively. Notes receivable at December 31, 2002 include $1.9 million which relates to the sale of the Company's College Point facility in January 1996, of which $0.4 million is included in current assets. The notes are due in equal quarterly 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 notes receivable are secured by a mortgage on the facility. Also included in notes receivable at December 31, 2002 is $1.1 million related to the sale in June 2000 of certain parcels of land and a building at the Company's Deer Park facility, of which $0.1 million is included in current assets. The gain on the sale was not material as the carrying value approximated the sales value. (6) INVENTORIES Inventories are summarized by major classification as follows at December 31:
2002 2001 ------- ------- (IN THOUSANDS) Raw material and supplies................................... $ 7,804 $ 6,539 Work-in-process............................................. 22,561 14,680 Finished goods.............................................. 2,041 1,718 ------- ------- $32,406 $22,937 ======= =======
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 (7) PROPERTY, PLANT AND EQUIPMENT, NET The Company's property, plant and equipment at December 31 and their related useful lives are summarized as follows:
2002 2001 LIFE -------- -------- ----------- (IN THOUSANDS) Land.............................................. $ 18,080 $ 18,080 Buildings and improvements........................ 33,842 26,297 10-30 years Machinery and equipment........................... 44,585 45,271 3-19 years Software.......................................... 2,031 1,723 4 years Leasehold improvements............................ 13,150 10,934 Lease terms -------- -------- 111,688 102,305 Less accumulated depreciation and amortization.... (47,216) (40,050) -------- -------- $ 64,472 $ 62,255 ======== ========
(8) ACCRUED LIABILITIES Accrued liabilities consisted of the following at December 31:
2002 2001 ------- ------- (IN THOUSANDS) Employee compensation and benefits.......................... $16,744 $13,664 Deferred revenue and accrual for future costs related to acquired contracts........................................ 11,562 -- Income taxes payable........................................ 3,991 5,096 Accrued interest............................................ 1,782 -- Warranty.................................................... 1,622 803 Current portion of environmental obligation................. 250 395 Indemnification liability................................... -- 80 Other....................................................... 19,497 14,616 ------- ------- $55,448 $34,654 ======= =======
(9) LONG-TERM DEBT AND CREDIT FACILITY CREDIT FACILITY At December 31, 2002, the Company has a $200.0 million credit facility with a consortium of banks, led by Citibank, N.A. as the administrative agent, Fleet National Bank as the syndication agent and Wachovia Bank, N.A. as the documentation agent. The facility expires in November 2005 and amended the $69.0 million credit facility in place at December 31, 2001. In connection with the amended facility, $1.2 million of deferred finance costs are included in other assets on the accompanying consolidated balance sheet and are being amortized using the straight-line method over the term of the agreement. The credit facility provides sub-limits of borrowing up to $125.0 million for acquisition-related financing and up to $125.0 million in standby letters of credit financing. The potential cash borrowing under the facility is reduced by the amount of outstanding letters of credit. Borrowings under the facility will be priced initially at LIBOR plus a predetermined amount, ranging from 1.25% to 1.75%, depending on the Company's consolidated leverage ratio at the time of the borrowing. At December 31, 2002, LIBOR was approximately EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 1.4% and the applicable adjustment to LIBOR was 1.25%. The facility requires the Company to pay each lender in the consortium a commitment fee on the average daily unused portion of their respective commitment at a rate equal to 0.25%. There were no direct borrowings outstanding under the credit facility at December 31, 2002 or 2001. Letters of credit outstanding at December 31, 2002 pertaining to the credit facility were $31.5 million, resulting in $93.5 million available for additional letters of credit, if needed. In connection with the credit facility, the Company is required to maintain both financial and non-financial covenants and ratios, including but not limited to minimum tangible net worth plus subordinated debt, leverage ratio, fixed charge coverage ratio, earnings before interest and taxes to interest expense ratio, total unsubordinated debt to tangible net worth, net income and dividends. As of December 31, 2002, the Company was in compliance with its covenants. The credit facility is secured by the Company's accounts receivables, inventory and machinery and equipment. 5.25% CONVERTIBLE SUBORDINATED NOTES DUE 2007 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 the Notes are due April 15 and October 15 of each year, commencing on October 15, 2002. Accrued interest payable, included in accrued liabilities on the accompanying consolidated balance sheet, at December 31, 2002 was $1.5 million. In connection with the offering of the Notes, there are $4.1 million of unamortized debt issuance costs at December 31, 2002, which are included in other assets on the accompanying consolidated balance sheet and are being amortized using the straight-line method through April 2007. The Notes are convertible, unless previously redeemed or repurchased by the Company, at the option of the holder at any time prior to maturity, into the Company's common stock at an initial conversion price of $31.26 per share, subject to adjustment in certain events. As of December 31, 2002, there had been no such conversions. 7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011 During the fourth quarter of 2001, the Company redeemed all of its outstanding 7% Convertible Subordinated Debentures due 2011 (the "Debentures"). As a result of the redemption, $22.1 million face value of the Debentures were converted into 1,005,250 common shares and $0.2 million face value were redeemed for cash. During 2001, the Company also purchased $3.4 million of the Debentures for $3.2 million and recognized a gain of $0.2 million, which is included in other non-operating income in the accompanying consolidated statement of earnings. (10) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST The Company sponsored two employee stock ownership plans: the existing EDO Employee Stock Ownership Plan ("EDO ESOP"); and the AIL Employee Stock Ownership Plan ("AIL ESOP") that was acquired in connection with the EDO-AIL merger. These two plans were merged into a single plan effective as of January 1, 2001 ("merged ESOP"), and the preferred shares from the EDO ESOP were converted into 1,067,281 common shares as of March 8, 2001. The merged ESOP provides retirement benefits to substantially all employees. Prior to the EDO-AIL merger, the EDO ESOP was being accounted for under Statement of Position ("SOP") No. 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans" and the AIL ESOP was being accounted for under SOP No. 93-6, "Employers' Accounting for Employee Stock EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 Ownership Plans." The merged ESOP is being accounted for under SOP No. 93-6. Accordingly, 328,993 unallocated shares of common stock related to the EDO ESOP and now held by the merged ESOP are not considered outstanding for the purposes of computing earnings per share in 2002 and 2001, respectively. In prior years, such shares were considered outstanding in accordance with SOP No. 76-3. As of June 30, 2001, the merged ESOP restructured its indirect loan from the Company to extend the maturity date to December 31, 2017. As part of this restructuring, the EDO ESOP bank loan obligation was paid in full on July 30, 2001. As quarterly payments are made under the indirect loan, unallocated common shares in the merged ESOP are committed-to-be-released. The allocation to participants is based on (i) a match of 50% of the first 6% of the participants' 401(k) contributions; (ii) $600 per participant; and (iii) any remaining distribution is based on participants' relative compensation. The cost basis of the unearned/unallocated shares is initially recorded as a reduction to shareholders' equity. Compensation expense is recorded based on the market value of the Company's common shares as they are committed-to-be-released. The difference between the market value and the cost basis of the shares is recorded as additional paid-in capital. Dividends on unallocated shares are recorded as compensation expense. In 2002, 2001 and 2000, respectively, non-cash ESOP compensation expense recorded by the Company amounted to $4.0 million, $1.8 million and $1.8 million. At December 31, 2002, there are 2,500,188 unearned/unallocated shares which have an aggregate market value of $52.0 million and 1,751,605 allocated shares. Total principal and interest payments made in 2002 and 2001 under the merged ESOP indirect loan amounted to $1.7 million and $1.1 million, respectively. A discussion of each plan prior to the merger follows. EDO ESOP During 1988, the EDO Employee Stock Ownership Trust ("EDO ESOT") purchased 89,772 preferred shares from the Company for approximately $19.2 million. The preferred shares were being allocated to employees on the basis of compensation. The preferred shares provided for dividends of 8% per annum, which were deductible by the Company for Federal and state income tax purposes. The tax benefit that was attributable to unallocated preferred shares was reflected as an increase to retained earnings. Each unallocated preferred share was convertible at its stated conversion rate into 10 common shares. Allocated preferred shares were convertible at the greater of the stated conversion rate or the fair value of each preferred share divided by the current market price of each common share. The EDO ESOT purchased the preferred shares from the Company using the proceeds of a bank borrowing guaranteed by the Company. The EDO ESOT serviced this obligation with the dividends received on the preferred shares and any additional contributions from the Company as required. Principal and interest payments on the note of the EDO ESOT were to be made in quarterly installments through 2003. Interest was charged at 82% of the prime lending rate. During 2001 and 2000, respectively, the Company's cash contributions and dividends on the preferred shares were used to repay principal of $0.9 million and $1.6 million and pay interest of $0.2 million and $0.5 million. During 2001 and 2000, respectively, cash contributions of $0.7 million and $1.2 million were made to the EDO ESOP and were recorded as compensation expense. The EDO ESOT's borrowing guaranteed by the Company was reflected as a liability on the consolidated balance sheets with an equal amount as a reduction to shareholders' equity, offsetting the increase in the capital stock accounts. As the principal portion of the note was repaid, the liability and the EDO ESOT loan obligation, included in shareholder's equity, were reduced concurrently. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 AIL ESOP The AIL ESOP held AIL common shares prior to the EDO-AIL merger which were converted to EDO common shares. The cost basis of the unearned AIL ESOP shares were recorded as a reduction to shareholders' equity, offsetting the increase in the capital stock accounts. As AIL ESOP shares were committed-to-be-released to plan participants, the earned AIL ESOP shares were released from the unearned AIL ESOP shares account based on the cost of the shares to the AIL ESOP. The allocation to participants was based on (i) $600 per employee at the market value of the common shares and (ii) pro rata based on compensation. Compensation expense was recorded based on the market value of the Company's common shares. The Company recorded the difference between the market value of the shares committed-to-be-released and the cost of these shares to the AIL ESOP to additional paid-in capital. In 2000, the Company recorded compensation expense of approximately $1.8 million subsequent to the EDO-AIL merger and contributed approximately $2.0 million to the AIL ESOP to cover the AIL ESOP's indirect loan service requirements. (11) INCOME TAXES The 2002, 2001 and 2000 significant components of the provision for income taxes attributable to continuing operations are as follows:
2002 2001 2000 ------- ------ ------ (IN THOUSANDS) Federal Current................................................. $10,659 $2,345 $3,042 Deferred................................................ (2,503) 5,598 1,313 ------- ------ ------ $ 8,156 $7,943 $4,355 ------- ------ ------ State Current................................................. $ 2,667 $1,097 $ 683 Deferred................................................ (481) 170 226 ------- ------ ------ $ 2,186 $1,267 $ 909 ------- ------ ------ Total..................................................... $10,342 $9,210 $5,264 ======= ====== ======
The reconciliation of income tax attributable to continuing operations computed at the U.S. Federal tax rate to income tax expense is:
PERCENT OF PRETAX EARNINGS ------------------ 2002 2001 2000 ---- ---- ---- Tax at statutory rate....................................... 35.0% 35.0% 35.0% State taxes, net of Federal benefit......................... 5.0 3.0 3.6 Write-off of purchased in-process research and development............................................... -- -- 35.6 Non-deductible goodwill amortization........................ -- 1.0 3.9 Non-cash ESOP compensation expense.......................... 3.0 0.5 1.0 Foreign sales benefit....................................... (1.4) (1.4) (2.1) Other, net.................................................. 0.9 0.5 2.9 ---- ---- ---- Effective income tax rate................................... 42.5% 38.6% 79.9% ==== ==== ====
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 The significant components of deferred tax assets and liabilities as of December 31 are as follows:
2002 2001 ------- ------- (IN THOUSANDS) DEFERRED TAX ASSETS Retirement plans' additional minimum liability.............. $23,617 $ 9,302 Post-retirement benefits obligation other than pensions..... 5,001 5,091 Deferred revenue............................................ 980 873 Deferred compensation....................................... 2,843 2,612 Inventory valuation......................................... 2,242 1,777 Other....................................................... 99 281 ------- ------- Total deferred tax assets................................... 34,782 19,936 ======= ======= DEFERRED TAX LIABILITIES Depreciation and amortization............................... 7,946 7,964 Prepaid pension asset....................................... 3,175 5,619 Identifiable intangible asset............................... -- 782 ------- ------- Total deferred tax liabilities.............................. 11,121 14,365 ------- ------- Net deferred tax asset...................................... $23,661 $ 5,571 ======= =======
(12) SHAREHOLDERS' EQUITY On October 31, 2001, the Company completed the public sale of 3,716,100 of its common shares and received net proceeds of approximately $81.5 million. At various times beginning in 1983, the Board of Directors has authorized and subsequently increased by amendments, a plan to purchase an aggregate amount of 4,190,000 common shares. As of December 31, 2002, the Company had acquired approximately 4,091,000 common shares in open market transactions at prevailing market prices. Approximately 4,026,000 of these shares have been used for various purposes, including: conversion of preferred shares; contributions of common shares to the EDO ESOP; grants pursuant to the Company's Long-Term Incentive Plans; payment of directors' fees; partial payment of a 50% stock dividend; and stock options exercised. As of December 31, 2002 and 2001, respectively, the Company held 94,322 and 182,459 common shares in its treasury for future use. At December 31, 2002, the Company had reserved 6,161,473 authorized and unissued common shares for stock option and long-term incentive plans and conversion of the Notes. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 (13) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
2002 2001 2000 ------- ------- ------- (IN THOUSANDS) Numerator: Earnings from continuing operations available for common shares for basic calculation................ $10,629 $14,485 $ 440 Effect of dilutive securities: Convertible debentures............................. -- 998 -- Convertible preferred shares....................... -- 5 119 ------- ------- ------- Numerator for diluted calculation..................... $10,629 $15,488 $ 559 ======= ======= ======= Denominator: Denominator for basic calculation..................... 17,080 12,776 9,601 Effect of dilutive securities: Stock options...................................... 299 270 68 Convertible preferred shares....................... -- 153 993 Convertible debentures............................. -- 1,055 -- ------- ------- ------- Denominator for diluted calculation................... 17,379 14,254 10,662 ======= ======= =======
The assumed conversion of the Notes was anti-dilutive for 2002. The assumed conversion of the Debentures was anti-dilutive for 2000. (14) STOCK PLANS The Company has granted nonqualified stock options to officers, directors and other key employees under plans approved by the shareholders in 2002 for the purchase of its common shares at the fair market value of the common shares on the dates of grant. Options under the 2002 Long-Term Incentive Plan ("LTIP") generally become exercisable on the third anniversary of the date of the grant and expire on the tenth anniversary of the date of the grant. The 2002 LTIP will expire in 2012. Options under the 2002 Non-Employee Director Stock Option Plan ("NEDSOP"), which pertains only to non-employee directors, are immediately exercisable and expire on the tenth anniversary of the date of the grant. The 2002 NEDSOP will also expire in 2012. Changes in options outstanding are as follows:
2002 2001 2000 -------------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE SHARES AVERAGE SHARES AVERAGE SHARES EXERCISE SUBJECT EXERCISE SUBJECT EXERCISE SUBJECT PRICE TO OPTION PRICE TO OPTION PRICE TO OPTION --------- -------------- --------- --------- --------- --------- Beginning of year....................... $ 7.75 805,876 $6.46 848,211 $6.61 612,350 Options granted......................... 26.72 327,850 9.76 275,350 6.58 428,121 Options exercised....................... 6.98 (69,433) 6.02 (314,458) 4.87 (19,775) Options expired/cancelled............... 22.02 (7,150) 7.08 (3,227) 7.46 (172,485) ------ --------- ----- -------- ----- -------- End of year............................. $13.59 1,057,143 $7.75 805,876 $6.46 848,211 ------ --------- ----- -------- ----- -------- Exercisable at year end................. $10.70 490,243 $6.76 455,426 $6.03 517,795 ====== ========= ===== ======== ===== ========
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 The options outstanding as of December 31, 2002 are summarized as follows:
WEIGHTED- NUMBER OF WEIGHTED- RANGE OF AVERAGE OPTIONS AVERAGE EXERCISE PRICES EXERCISE PRICE OUTSTANDING REMAINING LIFE - --------------- -------------- ----------- -------------- $ 3.07-5.69.................................... $3.96 35,500 2 years 6.13-9.60.................................... 7.89 694,668 7 years 17.10-31.40................................... 26.74 326,975 9 years --------- 1,057,143 =========
The 2002 plan also provides for restricted common share long-term incentive awards as defined under the plan. As of December 31, 2002 plan participants had been awarded 392,000 restricted common shares. Deferred compensation is recorded for the fair value of the restricted common share awards on the date of grant and is amortized over the five-year period the related services are provided. The amount charged to operations in 2002, 2001 and 2000 was $0.2 million, $0.3 million and $0.7 million, respectively. As of December 31, 2002, 696,141 shares are available for additional awards. The per share weighted-average fair value of stock options granted was $15.28, $4.88 and $3.22 in 2002, 2001 and 2000, respectively, on the dates of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2002 -- expected dividend yield of 1%, risk free interest rate of 4.8%, expected stock volatility of 51%, and an expected option life of 7 1/2 years; 2001 -- expected dividend yield of 1%, risk free interest rate of 4.9%, expected stock volatility of 47%, and an expected option life of 7 1/2 years; and 2000 -- expected dividend yield of 1.3%, risk free interest rate of 6.5%, expected stock volatility of 42%, and an expected option life of 7 1/2 years. The Company applies APB Opinion No. 25 in accounting for its stock option grants and, accordingly, no compensation cost has been recognized in the consolidated financial statements for its stock options which have exercise prices equal to or greater than the fair values of the common shares on the dates of the grant. Had the Company determined compensation cost based on the fair values at the grant dates for its stock options under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's earnings from continuing operations, and basic and diluted earnings from continuing operations per common share would have been reduced to the pro forma amounts indicated below:
2002 2001 2000 ------- ------- ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Earnings: As reported............................................ $10,629 $14,679 $1,321 Stock option compensation expense based on fair value method, net of tax.................................. (1,155) (475) (186) ------- ------- ------ Pro forma.............................................. $ 9,474 $14,204 $1,135 Basic earnings per common share: As reported............................................ $ 0.62 $ 1.14 $ 0.05 Pro forma.............................................. 0.55 1.10 0.03 Diluted earnings per common share: As reported............................................ $ 0.61 $ 1.09 $ 0.05 Pro forma.............................................. 0.55 1.05 0.03 ======= ======= ======
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 (15) OTHER EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PLANS The Company maintains a noncontributory defined benefit pension plan covering substantially all of its employees. In November 2002, the plan was amended whereby benefits accrued under the plan were frozen as of December 31, 2002. The Company's funding policy is to make annual contributions to the extent such contributions are actuarially determined and tax deductible. In 2002, the Company recorded pension expense of $6.0 million, which includes a curtailment loss of $2.0 million resulting from the aforementioned amendment to the plan. In 2001 and 2000, the Company recorded pension income of $2.8 million and $4.6 million, respectively. The expected long-term rate of return on plan assets was 9.5% in 2002 and 2001 and 9% in 2000. For 2003 pension expense, the expected return on plan assets has been reduced to 8.75%. The actuarial computations assumed a discount rate on benefit obligations at December 31, 2002 and 2001 of 6.75% and 7.25%, respectively. The assumed rate of compensation increase of 4.95% for 2002 and 2001 approximated the Company's previous experience. No compensation increase will be assumed after 2002 due to the aforementioned freezing of the plan. The assets of the pension plan consist primarily of equity and fixed income securities, which are readily marketable. A summary of the components of net periodic pension (expense) income follows:
2002 2001 2000 -------- -------- -------- (IN THOUSANDS) Service cost......................................... $ (4,353) $ (3,693) $ (2,819) Interest on projected benefit obligation............. (15,091) (14,281) (11,361) Expected return on plan assets....................... 17,217 20,820 17,616 Amortization of transitional assets.................. -- 8 8 Amortization of prior service cost................... (261) (85) (101) Recognized net actuarial (loss) gain................. (1,476) -- 1,277 Curtailment loss..................................... (1,998) -- -- -------- -------- -------- Net pension (expense) income......................... $ (5,962) $ 2,769 $ 4,620 ======== ======== ========
The following sets forth the funded status of the plan as of December 31:
2002 2001 -------- -------- (IN THOUSANDS) Change in projected benefit obligation: Projected benefit obligation at beginning of year........... $214,273 $196,700 Service cost................................................ 4,353 3,693 Interest cost............................................... 15,091 14,281 Benefits paid............................................... (17,279) (12,228) Actuarial loss.............................................. 12 11,827 Effect of curtailment....................................... (19,262) -- -------- -------- Projected benefit obligation at end of year................. $197,188 $214,273 -------- --------
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
2002 2001 -------- -------- (IN THOUSANDS) Change in plan assets: Fair value of plan assets at beginning of year.............. $187,350 $214,418 Actual loss on plan assets.................................. (21,436) (14,840) Benefits paid............................................... (17,279) (12,228) -------- -------- Fair value of plan assets at end of year.................... $148,635 $187,350 -------- -------- Funded status............................................... $(48,553) $(26,923) Unrecognized net loss....................................... 55,432 37,505 Unrecognized prior service cost............................. -- 2,259 -------- -------- Prepaid pension cost........................................ $ 6,879 $ 12,841 ======== ========
In accordance with the provisions of SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits," since the curtailment of $19.3 million did not exceed the previous unrecognized net loss, no portion of the $19.3 million curtailment was recognized in earnings for 2002. Accordingly, the remaining unrecognized net loss will be accounted for in future pension plan expense consistent with SFAS No. 87, "Employers' Accounting for Pensions." Due to the lower discount rate and a decline in the fair market value of plan assets during 2002 and 2001, the accumulated benefit obligation at December 31, 2002 and 2001 exceeded the fair value of plan assets by $48.6 million and $11.3 million, respectively. Consequently, a net of tax comprehensive loss of $19.8 million and $12.9 million was charged against shareholders' equity in 2002 and 2001, respectively. Amounts recognized in the consolidated balance sheets at December 31 are as follows:
2002 2001 -------- -------- (IN THOUSANDS) Prepaid pension cost (included in other assets)............. $ 6,879 $ 12,841 Intangible asset (included in other assets)................. $ -- $ 2,259 Additional minimum liability (included in post-retirement benefits obligations)..................................... $(55,432) $(24,094) Accumulated other comprehensive loss (included in shareholders' equity)..................................... $ 55,432 $ 21,835 -------- --------
NON-QUALIFIED PLANS The Company has a supplemental defined benefit plan for substantially all employees under which employees may receive an amount by which benefits earned under the pension plan exceed the limitations imposed by the Internal Revenue Code. The Company also has a supplemental retirement plan for officers and certain employees. Benefits are based on years of service and certain compensation that is excluded under the qualified plan. Total expenses under the non-qualified plans in 2002, 2001 and 2000 were $1.4 million, $0.7 million and $0.9 million, respectively. The supplemental plans of EDO and AIL were combined in 2001. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 A summary of the components of net periodic pension expense follows:
2002 -------------- (IN THOUSANDS) Service cost................................................ $ 190 Interest on projected benefit obligation.................... 815 Amortization of transitional assets......................... 32 Amortization of prior service cost.......................... 141 Recognized net actuarial loss............................... 225 ------ Net pension expense......................................... $1,403 ======
Summarized below is the funded status of the combined supplemental plans as of December 31:
2002 2001 -------- -------- (IN THOUSANDS) Change in projected benefit obligation: Projected benefit obligation at beginning of year........... $ 11,538 $ 9,747 Service cost................................................ 190 84 Interest cost............................................... 815 700 Benefits paid............................................... (847) (760) Actuarial loss.............................................. 951 297 Plan amendments............................................. 400 1,470 -------- -------- Projected benefit obligation at end of year................. $ 13,047 $ 11,538 -------- -------- Change in plan assets: Fair value of plan assets at beginning of the year.......... $ -- $ -- Employer contribution....................................... 847 760 Benefits paid............................................... (847) (760) -------- -------- Fair value of plan assets at end of year.................... $ -- $ -- -------- -------- Funded status............................................... $(13,047) $(11,538) Unrecognized net loss....................................... 4,204 3,525 Unrecognized prior service cost............................. 1,684 1,377 Unrecognized net obligation................................. 10 42 -------- -------- Accrued benefit cost........................................ $ (7,149) $ (6,594) ======== ========
Due to the lower discount rate during 2002 and 2001, the accumulated benefit obligation at December 31, 2002 and 2001 exceeded the fair value of plan assets by $11.0 million and $8.9 million, respectively. Consequently, a net of tax comprehensive loss of $0.8 million and $0.5 million was charged against EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 shareholders' equity in 2002 and 2001, respectively. Amounts recognized in the consolidated balance sheets at December 31 are as follows:
2002 2001 ------- ------- (IN THOUSANDS) Accrued benefit cost (included in post-retirement benefits obligation)............................................... $(7,149) $(6,594) Intangible asset (included in other assets)................. $ 1,694 $ 1,419 Additional minimum liability (included in post-retirement benefits obligations)..................................... $(3,864) $(2,270) Accumulated other comprehensive loss (included in shareholders' equity)..................................... $ 2,170 $ 851 ======= =======
401(K) PLANS In 2000, there were four 401(k) plans sponsored by the Company covering substantially all employees. These plans were merged as of January 1, 2001. The current merged plan provides for matching by the Company of 50% of the first 6% of employee contributions. The match is provided in the Company's common stock under the ESOP plan. In 2000, matching contributions under the original plans were not material. (16) POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Company provides certain health care and life insurance benefits to qualified retired employees and dependents at certain locations. These benefits are funded as benefits are provided, with the retiree paying a portion of the cost through contributions, deductibles and coinsurance provisions. The Company has always retained the right to modify or terminate the plans providing these benefits. In accordance with SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions," the Company recognizes these benefit expenses on an accrual basis as the employees earn them during their employment rather than when they are actually paid. EDO POST-RETIREMENT BENEFIT PLAN Post-retirement health care and life insurance expense (income) included the following components:
2002 2001 2000 ---- ----- ---- (IN THOUSANDS) Service cost................................................ $ -- $ 69 $ 57 Interest cost............................................... 171 229 239 Curtailment gain............................................ -- (929) -- ---- ----- ---- Total post-retirement health care and life insurance expense (income).................................................. $171 $(631) $296 ==== ===== ====
In 2001, the Company recognized a curtailment gain as a result of a plan amendment whereby coverage will not be provided for future retirees. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 The funded status of the EDO post-retirement health care and life insurance benefits plan is as follows as of December 31:
2002 2001 ------ ------ (IN THOUSANDS) Change in accumulated post-retirement benefit obligation: Accumulated benefit obligation at beginning of year....... $2,317 $3,227 Service cost.............................................. -- 69 Interest cost............................................. 171 229 Benefits paid............................................. (448) (354) Participant contributions................................. 31 32 Actuarial loss............................................ 42 43 Effect of curtailment..................................... -- (929) ------ ------ Unfunded accumulated post-retirement benefit obligation at end of year............................................... $2,113 $2,317 Unrecognized net gain....................................... 39 81 ------ ------ Accrued post-retirement benefit cost........................ $2,152 $2,398 ====== ======
Actuarial assumptions used in determining the accumulated post-retirement benefit obligation include a discount rate of 6.75% and 7.25% at December 31, 2002 and 2001, respectively, and estimated increases in health care costs. The Company has limited its increase in health care costs to 5% per year by requiring the retirees to absorb any costs in excess of 5% and has used such rate to measure its obligation. AIL POST-RETIREMENT BENEFIT PLAN Post-retirement expense included in the consolidated financial statements comprised the following:
2002 2001 2000 ----- ---- ---- (IN THOUSANDS) Service cost................................................ $ 313 $ 86 $ 53 Interest cost............................................... 431 663 468 Recognized net actuarial gain............................... (269) (11) -- ----- ---- ---- Total post-retirement expense............................... $ 475 $738 $521 ===== ==== ====
The funded status of the AIL post-retirement benefit plan is as follows as of December 31:
2002 2001 ------- ------- (IN THOUSANDS) Change in accumulated post-retirement benefit obligation: Accumulated benefit obligation.............................. $ 8,737 $ 8,876 Service cost................................................ 313 86 Interest cost............................................... 431 663 Benefits paid............................................... (449) (591) Actuarial loss (gain)....................................... 2,739 (297) ------- ------- Unfunded accumulated post-retirement benefit obligation at end of year............................................... $11,771 $ 8,737 Unrecognized (loss) gain.................................... (1,725) 1,282 ------- ------- Accrued post-retirement benefit cost........................ $10,046 $10,019 ======= =======
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 Actuarial assumptions used in determining the accumulated post-retirement benefit obligation include a discount rate of 6.75% and 7.25% at December 31, 2002 and 2001, respectively. The accumulated benefit obligation would not be affected by increases in healthcare costs since such costs are funded by the participants. (17) COMMITMENTS AND CONTINGENCIES The Company is contingently liable under the terms of letters of credit aggregating approximately $86.9 million at December 31, 2002, should it fail to perform in accordance with the terms of its contracts with foreign customers. At December 31, 2002, the Company and its subsidiaries were obligated under building and equipment leases expiring between 2003 and 2012. The aggregate future minimum lease commitments under those obligations with noncancellable terms in excess of one year are as follows: - 2003 - $7,995 - 2004 - $6,432 - 2005 - $5,467 - 2006 - $4,448 - 2007 - $4,011 - Thereafter - $18,919 Rental expense for continuing operations under such leases for the years ended December 31, 2002, 2001 and 2000 amounted to $5.2 million, $4.7 million and $3.9 million, respectively. (18) LEGAL MATTERS The Company and three other companies entered into a consent decree in 1990 with the Federal government for the remediation of a Superfund site. The Superfund site has been divided into three operable units. The consent decree relates to two of the operable units. The third operable unit has not been formally studied and, accordingly, no liability has been recorded by the Company. The Company believes that the aggregate amount of the obligation and timing of cash payments associated with the two operable units subject to the consent decree are reasonably fixed and determinable. Accordingly, the environmental obligation has been discounted at five percent. Management estimates that as of December 31, 2002, the discounted liability over the remainder of the twenty three years related to these two operable units is approximately $2.3 million of which approximately $0.3 million has been classified as current and is included in accrued liabilities. Approximately $0.6 million of the $2.3 million liability will be incurred over the next five years. The Company is also involved in other environmental cleanup efforts, none of which management believes is likely to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. Additionally, the Company and its subsidiaries are subject to certain legal actions that arise out of the normal course of business. It is management's belief that the ultimate outcome of these actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (19) BUSINESS SEGMENTS The Company determines its operating segments based upon an analysis of its products and services, production processes, types of customers, economic characteristics and the related regulatory environment, EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 which is consistent with how management operates the Company. The Company's continuing operations are conducted in three business segments: Defense, Communications and Space Products, and Engineered Materials. Our Defense segment provides integrated front-line warfighting systems and components including electronic warfare, radar countermeasures systems, reconnaissance and surveillance systems, aircraft weapons suspension and release systems, airborne mine countermeasures systems, integrated combat and sonar systems, command, control and communications systems and professional, operational, technical and information technology services for military forces and governments worldwide. Our Communications and Space Products segment supplies antenna products and ultra-miniature electronics and systems for the remote sensing and electronic warfare industries. Our Engineered Materials segment supplies commercial and military piezo-electric ceramic products and advanced fiber composite structural products for the aircraft, communication, navigation, chemical, petrochemical, paper and oil industries. Domestic U.S. Government sales, which include sales to prime contractors of the U.S. Government, amounted to 75%, 69% and 63% of net sales, which were 82%, 77% and 69% of Defense's net sales, 62%, 55% and 66% of Communications and Space Products' net sales and 42%, 41% and 33% of Engineered Materials' net sales for 2002, 2001 and 2000, respectively. Export sales comprised 15%, 15% and 18% of net sales for 2002, 2001 and 2000, respectively. In addition, the Universal Exciter Upgrade program in the Defense segment comprised approximately 14%, 15% and 15% of net sales for 2002, 2001 and 2000, respectively. Principal products and services by segment are as follows: Defense Segment - Electronic Warfare - Radar Countermeasures Systems - Reconnaissance and Surveillance Systems - Aircraft Weapons Suspension and Release Systems - Airborne Mine Countermeasures Systems - Integrated Combat Systems - Command, Control and Communications Systems - Undersea Systems - Professional, Operational, Technical and Information Technology Services Communications and Space Products Segment - Antenna Products - Communications and Countermeasures Systems - Space Products Engineered Materials Segment - Electro-Ceramic Products - Advanced Fiber Composite Structural Products EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 Information by segment on sales, operating earnings, identifiable assets, depreciation and amortization, and capital expenditures is as follows for each of the three years ended December 31:
2002 2001 2000 -------- -------- -------- (IN THOUSANDS) Net sales: Defense............................................ $243,447 $183,454 $142,044 Communications and Space Products.................. 47,262 39,998 30,027 Engineered Materials............................... 38,167 36,509 34,751 -------- -------- -------- $328,876 $259,961 $206,822 -------- -------- -------- Operating earnings: Defense............................................ $ 28,674 $ 21,927 $ 17,117 Communications and Space Products.................. (441) (383) (11,176) Engineered Materials............................... 3,150 4,603 3,298 Curtailment (loss) gain............................ (1,998) 929 -- -------- -------- -------- $ 29,385 $ 27,076 $ 9,239 Net interest expense................................. (4,956) (2,216) (2,438) Other expense, net................................... (95) (971) (216) -------- -------- -------- Earnings before income taxes and cumulative effect of a change in accounting principle................... $ 24,334 $ 23,889 $ 6,585 -------- -------- -------- Identifiable assets: Defense............................................ $224,017 $129,631 $106,958 Communications and Space Products.................. 40,001 49,769 37,576 Engineered Materials............................... 28,496 27,690 29,139 Corporate.......................................... 189,060 78,540 40,581 -------- -------- -------- $481,574 $285,630 $214,254 -------- -------- -------- Depreciation and amortization: Defense............................................ $ 7,440 $ 6,081 $ 5,047 Communications and Space Products.................. 1,895 2,438 1,960 Engineered Materials............................... 1,800 2,029 1,882 Corporate.......................................... 186 848 552 -------- -------- -------- $ 11,321 $ 11,396 $ 9,441 -------- -------- -------- Capital expenditures: Defense............................................ $ 3,587 $ 7,896 $ 1,559 Communications and Space Products.................. 816 4,308 570 Engineered Materials............................... 1,819 1,479 1,705 Corporate.......................................... 871 615 27 -------- -------- -------- $ 7,093 $ 14,298 $ 3,861 ======== ======== ========
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 Merger-related costs, including IPR&D, attributable to the Condor acquisition and the EDO-AIL merger are included in the segments as follows:
2002 2001 2000 ---- ------ ------- (IN THOUSANDS) Defense..................................................... $567 $ 937 $ 3,342 Communications and Space Products........................... -- 184 7,595 Engineered Materials........................................ -- 197 558 ---- ------ ------- Total....................................................... $567 $1,318 $11,495 ==== ====== =======
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000 (20) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES The Company may, from time to time, issue indebtedness, a condition of which would be the guarantee of this indebtedness by certain of its subsidiaries. Presented below is condensed consolidating financial information for the Company and the contemplated subsidiary guarantors at December 31, 2001 and 2002, and for each of the three years in the period ended December 31, 2002. There were no subsidiaries that would have been non-guarantor subsidiaries for these same periods. Each contemplated subsidiary guarantor is 100% owned, directly or indirectly, by the Company. Any guarantees that may be issued will be full and unconditional, as well as joint and several. In connection with the Company's credit facility, the Company cannot declare or pay any dividend on its outstanding common stock in an amount that exceeds fifty percent of its consolidated net income for the immediately preceding quarter. EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2001 EDO Corporation Parent Company Subsidiary Eliminations Only Guarantors /Reclasses Consolidated --------------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents....................................... $ 49,517 $ 8,324 -- $ 57,841 Marketable securities........................................... 190 -- -- 190 Accounts receivable, net........................................ 24,390 59,017 -- 83,407 Inventories..................................................... 2,038 20,899 -- 22,937 Deferred income tax asset, net.................................. (10,406) 13,424 -- 3,018 Prepayments and other........................................... 1,079 1,267 -- 2,346 --------------- ---------- ------------ ------------ Total current assets............................................ 66,808 102,931 -- 169,739 Investment in subsidiaries...................................... 127,997 -- (127,997) -- Property, plant and equipment, net.............................. 4,146 58,109 -- 62,255 Notes receivable................................................ 1,825 1,085 -- 2,910 Goodwill........................................................ -- 22,874 -- 22,874 Deferred income tax asset, net.................................. 2,553 -- -- 2,553 Other assets.................................................... 26,527 3,820 (5,048) 25,299 --------------- ---------- ------------ ------------ $ 229,856 $ 188,819 $ (133,045) $ 285,630 =============== ========== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities........................ $ 17,221 $ 30,176 -- $ 47,397 Contract advances and deposits.................................. 14,568 2,134 -- 16,702 Current portion of note payable................................. 463 -- -- 463 --------------- ---------- ------------ ------------ Total current liabilities....................................... 32,252 32,310 -- 64,562 Deferred income tax liabilities, net............................ (12,227) 12,227 -- -- Post retirement benefits obligations............................ 32,593 17,130 (5,048) 44,675 Environmental obligation........................................ 1,895 -- -- 1,895 Intercompany accounts........................................... -- 70,166 (70,166) -- Shareholders' equity: Preferred shares................................................ -- -- -- -- Common shares................................................... 19,790 93 (93) 19,790 Additional paid-in capital...................................... 143,747 2,604 (2,604) 143,747 Retained earnings............................................... 47,744 55,258 (55,258) 47,744 Accumulated other comprehensive loss, net of income tax benefit. (13,385) -- -- (13,385) Treasury shares................................................. (2,461) (124) 124 (2,461) Unearned ESOP shares............................................ (19,792) -- -- (19,792) Management group receivables.................................... -- (845) -- (845) Deferred compensation under Long-Term Incentive Plan............ (300) -- -- (300) --------------- ---------- ------------ ------------ Total shareholders' equity...................................... 175,343 56,986 (57,831) 174,498 --------------- ---------- ------------ ------------ $ 229,856 $ 188,819 $ (133,045) $ 285,630 =============== ========== ============ ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2002 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents....................................... $ 115,160 $ 17,160 -- $ 132,320 Restricted cash................................................. 27,347 -- -- 27,347 Marketable securities........................................... 193 -- -- 193 Accounts receivable, net........................................ 24,587 76,001 6 100,594 Inventories..................................................... 1,092 31,314 -- 32,406 Deferred income tax asset, net.................................. (10,202) 13,424 -- 3,222 Prepayments and other........................................... 1,296 1,837 -- 3,133 --------------- ---------- ------------ ------------ Total current assets............................................ 159,473 139,736 6 299,215 Investment in subsidiaries...................................... 192,099 -- (192,099) -- Property, plant and equipment, net.............................. 5,495 58,977 -- 64,472 Notes receivable................................................ 1,525 1,031 -- 2,556 Goodwill........................................................ -- 61,352 -- 61,352 Other intangible assets, net.................................... -- 11,867 -- 11,867 Deferred income tax asset, net.................................. 20,439 -- -- 20,439 Other assets.................................................... 20,467 1,206 -- 21,673 --------------- ---------- ------------ ------------ $ 399,498 $ 274,169 $ (192,093) $ 481,574 =============== ========== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities........................ $ 23,438 $ 51,112 $ 6 $ 74,556 Contract advances and deposits.................................. 11,085 9,192 -- 20,277 --------------- ---------- ------------ ------------ Total current liabilities....................................... 34,523 60,304 6 94,833 Long-term debt.................................................. 137,800 -- -- 137,800 Deferred income tax liabilities, net............................ (12,227) 12,227 -- -- Post retirement benefits obligations............................ 68,597 10,046 -- 78,643 Environmental obligation........................................ 2,025 -- -- 2,025 Intercompany accounts........................................... -- 111,690 (111,690) -- Shareholders' equity: Preferred shares................................................ -- -- -- -- Common shares................................................... 19,790 93 (93) 19,790 Additional paid-in capital...................................... 147,091 14,708 (14,708) 147,091 Retained earnings............................................... 56,325 65,732 (65,732) 56,325 Accumulated other comprehensive loss, net of income tax benefit. (33,985) 86 -- (33,899) Treasury shares................................................. (1,321) (124) 124 (1,321) Unearned ESOP shares............................................ (18,541) -- -- (18,541) Management group receivables.................................... -- (593) -- (593) Deferred compensation under Long-Term Incentive Plan............ (579) -- -- (579) --------------- ---------- ------------ ------------ Total shareholders' equity...................................... 168,780 79,902 (80,409) 168,273 --------------- ---------- ------------ ------------ $ 399,498 $ 274,169 $ (192,093) $ 481,574 =============== ========== ============ ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2000 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ Continuing Operations: Net Sales........................................................ $ 74,614 $ 134,308 $ (2,100) $ 206,822 Costs and expenses:.............................................. Cost of sales.................................................... 54,374 99,238 (2,100) 151,512 Selling, general and administrative.............................. 4,234 24,971 -- 29,205 Research and development......................................... 1,877 3,494 -- 5,371 Write-off of purchased in-process research and development and merger-related costs........................................... 4,795 6,700 -- 11,495 --------------- ---------- ------------ ------------ 65,280 134,403 (2,100) 197,583 --------------- ---------- ------------ ------------ Operating Earnings............................................... 9,334 (95) -- 9,239 Non-operating income (expense) Interest income.................................................. 1,428 453 -- 1,881 Interest expense................................................. (2,500) (1,819) -- (4,319) Other, net....................................................... (382) 166 -- (216) --------------- ---------- ------------ ------------ (1,454) (1,200) -- (2,654) Earnings (loss) from continuing operations before income taxes... 7,880 (1,295) -- 6,585 Income tax expense............................................... 4,641 623 -- 5,264 --------------- ---------- ------------ ------------ Earnings from continuing operations.............................. 3,239 (1,918) -- 1,321 Equity in undistributed loss of subsidiaries..................... (1,918) -- 1,918 -- --------------- ---------- ------------ ------------ Net earnings (loss).............................................. $ 1,321 $ (1,918) $ 1,918 $ 1,321 =============== ========== ============ ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2001 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ Continuing Operations: Net Sales $ 86,752 $ 181,406 $ (8,197) $ 259,961 Costs and expenses: Cost of sales .................................................. 62,392 135,538 (8,197) 189,733 Selling, general and administrative ............................ 4,351 29,662 -- 34,013 Research and development ....................................... 3,803 4,947 -- 8,750 Write-off of merger-related costs .............................. 1,318 -- -- 1,318 Postretirement curtailment gain ................................ (929) -- -- (929) --------------- ---------- ------------ ------------ 70,935 170,147 (8,197) 232,885 --------------- ---------- ------------ ------------ Operating Earnings ............................................. 15,817 11,259 -- 27,076 Non-operating income (expense) Interest income ................................................ 670 245 -- 915 Interest expense ............................................... (2,456) (675) -- (3,131) Other, net ..................................................... (955) (16) -- (971) --------------- ---------- ------------ ------------ (2,741) (446) -- (3,187) Earnings from continuing operations before income taxes ........ 13,076 10,813 -- 23,889 Income tax expense ............................................. 4,940 4,270 -- 9,210 --------------- ---------- ------------ ------------ Earnings from continuing operations ............................ 8,136 6,543 -- 14,679 Equity in undistributed earnings of subsidiaries ............... 6,543 -- (6,543) -- --------------- ---------- ------------ ------------ 14,679 6,543 (6,543) 14,679 Discontinued operations ........................................ 273 -- -- 273 --------------- ---------- ------------ ------------ Net earnings ................................................... $ 14,952 $ 6,543 $ (6,543) $ 14,952 =============== ========== ============= ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 2002 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ Continuing Operations: Net Sales ....................................................... $ 87,154 $ 254,772 $ (13,050) $ 328,876 Costs and expenses: Cost of sales ................................................... 68,827 185,073 (13,050) 240,850 Selling, general and administrative ............................. 5,891 41,693 -- 47,584 Research and development ........................................ 3,698 4,794 -- 8,492 Write-off of purchased in-process research and development and acquisition-related costs ...................................... 42 525 -- 567 Defined benefit pension plan curtailment loss ................... 1,998 -- -- 1,998 --------------- ---------- ------------ ------------ 80,456 232,085 (13,050) 299,491 --------------- ---------- ------------ ------------ Operating Earnings .............................................. 6,698 22,687 -- 29,385 Non-operating income (expense) Interest income.................................................. 1,515 214 -- 1,729 Interest expense................................................. (6,685) -- -- (6,685) Other, net....................................................... (301) 206 -- (95) --------------- ---------- ------------ ------------ (5,471) 420 -- (5,051) Earnings from continuing operations before income taxes.......... 1,227 23,107 -- 24,334 Income tax expense............................................... 1,048 9,294 -- 10,342 --------------- ---------- ------------ ------------ Earnings from continuing operations.............................. 179 13,813 -- 13,992 Equity in undistributed earnings of subsidiaries................. 10,450 -- (10,450) -- --------------- ---------- ------------ ------------ 10,629 13,813 (10,450) 13,992 Cumulative effect of a change in accounting principle, net of tax -- (3,363) -- (3,363) --------------- ---------- ------------ ------------ Net earnings..................................................... $ 10,629 $ 10,450 $ (10,450) $ 10,629 =============== ========== ============= ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ Operating Activities: Earnings (loss) from operations .............................. $ 1,321 $ (1,918) $ 1,918 $ 1,321 Adjustments to earnings (loss) to arrive at cash provided by operations: Depreciation ................................................. 1,475 6,265 -- 7,740 Amortization ................................................. 475 1,226 -- 1,701 Deferred tax expense ......................................... 1,292 -- -- 1,292 Write-off of purchased in-process research and development ... -- 6,700 -- 6,700 Bad debt expense ............................................. 4 283 -- 287 Gain on repurchase of debentures ............................. (215) -- -- (215) Gain on sale of property, plant and equipment ................ -- (7) -- (7) Deferred compensation expense ................................ 738 -- -- 738 Non-cash Employee Stock Ownership Plan compensation expense .. -- 1,843 -- 1,843 Common shares issued for directors' fees ..................... 126 -- -- 126 Income tax benefit from stock options and Long-Term Incentive Plan ....................................................... 42 -- -- 42 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in loss of subsidiaries ............................... 1,918 -- (1,918) -- Intercompany ................................................. (11,153) 11,153 -- -- Accounts receivable .......................................... (1,280) (3,108) -- (4,388) Inventories .................................................. 2,136 (4,350) -- (2,214) Prepayments and other assets ................................. (4,621) 2,796 -- (1,825) Accounts payable, accrued liabilities and other .............. 908 (12,831) -- (11,923) Contract advances and deposits ............................... 8,136 (20) -- 8,116 --------------- ---------- ------------ ------------ Cash provided by operations .................................. 1,302 8,032 -- 9,334 Investing Activities: Purchase of plant and equipment .............................. (1,070) (2,791) -- (3,861) Payments received on notes receivable ....................... 150 18 -- 168 Proceeds from sale of property, plant and equipment .......... 12 4,557 -- 4,569 Purchase of marketable securities ............................ (818) -- -- (818) Sale or redemption of marketable securities .................. 2,541 -- -- 2,541 Proceeds from sale of discontinued operations ................ 8,641 -- -- 8,641 Cash paid for acquisitions, net of cash acquired ............. (15,004) -- -- (15,004) --------------- ---------- ------------ ------------ Cash (used) provided by investing activities ................. (5,548) 1,784 -- (3,764) Financing Activities: Proceeds from exercise of stock options ...................... 97 -- -- 97 Borrowings under revolver .................................... -- 9,000 -- 9,000 Repayments of borrowings under revolver ...................... -- (18,000) -- (18,000) Repayments of long-term debt ................................. -- (3,570) -- (3,570) Repurchase of debentures ..................................... (1,879) -- -- (1,879) Payment made on note payable ................................. (500) -- -- (500) Payment of common share cash dividends ....................... (1,428) -- -- (1,428) Payment of preferred share cash dividends .................... (881) -- -- (881) --------------- ---------- ------------ ------------ Cash used by financing activities ............................ (4,591) (12,570) -- (17,161) --------------- ---------- ------------ ------------ Net decrease in cash and cash equivalents .................... (8,837) (2,754) -- (11,591) Cash and cash equivalents at beginning of year ............... 13,099 700 -- 13,799 --------------- ---------- ------------ ------------ Cash and cash equivalents at end of year ..................... $ 4,262 $ (2,054) $ -- $ 2,208 =============== =========== ============ ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ Operating Activities: Earnings from operations......................................... $ 14,679 $ 6,543 $ (6,543) $ 14,679 Adjustments to earnings to arrive at cash (used) provided by operations: Depreciation..................................................... 1,529 8,157 -- 9,686 Amortization..................................................... 717 993 -- 1,710 Deferred tax expense............................................. 5,941 5,941 Real estate tax assessment adjustment............................ -- 7,846 -- 7,846 Bad debt expense................................................. 30 190 -- 220 Gain on repurchase of debentures................................. (171) -- -- (171) Gain on sale of property, plant and equipment.................... -- (76) -- (76) Gain on sale of marketable securities............................ (81) -- -- (81) Deferred compensation expense.................................... 271 -- -- 271 Non-cash Employee Stock Ownership Plan compensation expense...... 1,781 -- -- 1,781 Dividends on unallocated Employee Stock Ownership Plan shares.... 80 -- -- 80 Non-cash compensation expense.................................... 276 -- -- 276 Common shares issued for directors' fees......................... 157 -- -- 157 Income tax benefit from stock options and Long-Term Incentive Plan........................................................... 1,118 -- -- 1,118 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in earnings of subsidiaries............................... (6,543) -- 6,543 -- Intercompany..................................................... (12,383) 12,383 -- -- Accounts receivable.............................................. (2,880) (7,873) -- (10,753) Inventories...................................................... 4,352 (2,319) -- 2,033 Prepayments and other assets..................................... (6,243) 5,614 -- (629) Accounts payable, accrued liabilities and other.................. (890) (4,084) -- (4,974) Contract advances and deposits................................... (12,713) (2,304) -- (15,017) --------------- ---------- ------------ ------------ Cash (used) provided by operations............................... (10,973) 25,070 -- 14,097 Investing Activities: Purchase of plant and equipment.................................. (1,754) (12,544) -- (14,298) Payments received on notes receivable............................ 300 47 -- 347 Proceeds from sale of property, plant and equipment.............. -- 280 -- 280 Purchase of marketable securities................................ (59) -- -- (59) Sale or redemption of marketable securities...................... 14,455 -- -- 14,455 Cash paid for acquisitions, net of cash acquired................. (13,938) -- -- (13,938) --------------- ---------- ------------ ------------ Cash used by investing activities................................ (996) (12,217) -- (13,213) Financing Activities: Proceeds from exercise of stock options.......................... 1,892 -- -- 1,892 Proceeds from management group receivables....................... -- 375 -- 375 Proceeds from sale of stock in public offering, net of expenses.. 81,491 -- -- 81,491 Borrowings under revolver........................................ 20,800 -- -- 20,800 Repayments of borrowings under revolver.......................... (20,800) -- -- (20,800) Repayments of long-term debt..................................... (14,450) (2,850) -- (17,300) Repurchase of debentures......................................... (3,184) -- -- (3,184) Purchase of treasury shares...................................... (1,020) -- -- (1,020) Payment of EDO ESOP loan obligation.............................. (4,891) -- -- (4,891) Payment made on note payable..................................... (500) -- -- (500) Payment of common share cash dividends........................... (1,920) -- -- (1,920) Payment of preferred share cash dividends........................ (194) -- -- (194) --------------- ---------- ------------ ------------ Cash provided (used) by financing activities..................... 57,224 (2,475) -- 54,749 --------------- ---------- ------------ ------------ Net increase in cash and cash equivalents........................ 45,255 10,378 -- 55,633 Cash and cash equivalents at beginning of year................... 4,262 (2,054) -- 2,208 --------------- ---------- ------------ ------------ Cash and cash equivalents at end of year......................... $ 49,517 $ 8,324 $ -- $ 57,841 =============== ========== ============ ============
EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 2002, 2001 AND 2000
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2002 EDO Corporation Parent Company Subsidiary Only Guarantors Eliminations Consolidated --------------- ---------- ------------ ------------ Operating Activities: Earnings from continuing operations............................ $ 10,629 $ 10,450 $ (10,450) $ 10,629 Adjustments to earnings to arrive at cash provided by continuing operations: Depreciation................................................... 1,751 8,614 -- 10,365 Amortization................................................... -- 956 -- 956 Deferred tax benefit........................................... (2,984) -- -- (2,984) Write-off of purchased in-process research and development..... -- 150 -- 150 Bad debt expense............................................... -- 407 -- 407 Loss on sale of property, plant and equipment.................. -- 53 -- 53 Deferred compensation expense.................................. 201 -- -- 201 Non-cash Employee Stock Ownership Plan compensation expense.... 4,043 -- -- 4,043 Dividends on unallocated Employee Stock Ownership Plan shares.. 312 -- -- 312 Common shares issued for directors' fees....................... 142 -- -- 142 Income tax benefit from stock options and Long-Term Incentive Plan......................................................... 713 -- -- 713 Cumulative effect of a change in accounting principle.......... 3,363 -- -- 3,363 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in earnings of subsidiaries............................. (10,450) -- 10,450 -- Intercompany................................................... 1,412 (1,412) -- -- Accounts receivable............................................ (197) (2,322) -- (2,519) Inventories.................................................... 944 (3,870) -- (2,926) Prepayments and other assets................................... 3,859 (3,639) -- 220 Accounts payable, accrued liabilities and other................ 9,136 (3,919) -- 5,217 Contract advances and deposits................................. (3,484) 7,059 -- 3,575 --------------- ---------- ------------ ------------ Cash provided by operations.................................... 19,390 12,527 -- 31,917 Investing Activities: Purchase of plant and equipment................................ (3,099) (3,994) -- (7,093) Payments received on notes receivable.......................... 300 50 -- 350 Proceeds from sale of property, plant and equipment............ -- 1 -- 1 Purchase of marketable securities.............................. (3) -- -- (3) Restricted cash................................................ (27,347) -- -- (27,347) Cash paid for acquisitions, net of cash acquired............... (59,024) -- -- (59,024) --------------- ---------- ------------ ------------ Cash used by investing activities.............................. (89,173) (3,943) -- (93,116) Financing Activities: Issuance of convertible subordinated notes..................... 137,800 -- -- 137,800 Proceeds from exercise of stock options........................ 486 -- -- 486 Proceeds from management group receivables..................... -- 252 -- 252 Payment made on note payable................................... (500) -- -- (500) Payment of common share cash dividends......................... (2,360) -- -- (2,360) Payment of preferred share cash dividends...................... -- --------------- ---------- ------------ ------------ Cash provided by financing activities.......................... 135,426 252 -- 135,678 --------------- ---------- ------------ ------------ Net increase in cash and cash equivalents...................... 65,643 8,836 -- 74,479 Cash and cash equivalents at beginning of year................. 49,517 8,324 -- 57,841 --------------- ---------- ------------ ------------ Cash and cash equivalents at end of year....................... $ 115,160 $ 17,160 $ -- $ 132,320 =============== ========== ============ ============
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders EDO Corporation We have audited the accompanying consolidated balance sheets of EDO Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EDO Corporation and subsidiaries at December 31, 2002 and 2001 and the results of their operations and their 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. As discussed in Note 1(g) to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill to conform with Statement of Financial Accounting Standard No. 142,"Goodwill and Other Intangible Assets." /s/ Ernst & Young LLP New York, New York February 11, 2003 EX-99.2 5 y92123exv99w2.txt CONSOLIDATED FINANCIAL STATEMENTS Exhibit 99.2 EDO Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share amounts)
September 27, 2003 December 31, 2002 (unaudited) Assets Current assets: Cash and cash equivalents $ 59,998 $ 132,320 Restricted cash - 27,347 Marketable securities 216 193 Accounts receivable, net 117,919 100,594 Inventories 35,265 32,406 Assets held for sale 26,892 - Deferred income tax asset, net 3,222 3,222 Prepayments and other 6,240 3,133 --------- --------- Total current assets 249,752 299,215 Property, plant and equipment, net 32,059 64,472 Notes receivable 1,375 2,556 Goodwill 93,903 61,352 Other intangible assets, net 57,196 11,867 Deferred income tax asset, net 23,256 20,439 Other assets 25,528 21,673 --------- --------- $ 483,069 $ 481,574 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 14,776 $ 19,108 Accrued liabilities 63,662 55,448 Contract advances and deposits 7,236 20,277 --------- --------- Total current liabilities 85,674 94,833 Long-term debt 137,800 137,800 Post-retirement benefits obligations 79,478 78,643 Environmental obligation 1,941 2,025 Shareholders' equity: Preferred shares, par value $1 per share, authorized 500,000 shares - - Common shares, par value $1 per share, authorized 50,000,000 shares in 2003,issued 19,828,727 in 2003 and 19,790,477 in 2002 19,829 19,790 Additional paid-in capital 149,255 147,091 Retained earnings 63,084 56,325 Accumulated other comprehensive loss, net of income tax benefit (34,178) (33,899) Treasury shares at cost (89,482 shares in 2003 and 94,322 shares in 2002) (1,274) (1,321) Unearned Employee Stock Ownership Plan shares (17,603) (18,541) Deferred compensation under Long-Term Incentive Plan (586) (579) Management group receivables (351) (593) --------- --------- Total shareholders' equity 178,176 168,273 --------- --------- $ 483,069 $ 481,574 ========= =========
See accompanying Notes to Consolidated Financial Statements. EDO Corporation and Subsidiaries Consolidated Statements of Earnings (in thousands, except per share amounts)
For the three months ended September 27, 2003 September 28, 2002 (unaudited) Net sales $ 118,783 $ 85,104 Costs and expenses Cost of sales 84,818 62,541 Selling, general and administrative 20,388 12,766 Research and development 1,450 2,080 Write-off of purchased in-process research and development - 150 Acquisition-related costs 249 204 --------- --------- 106,905 77,741 --------- --------- Operating earnings 11,878 7,363 Non-operating income (expense) Interest income 273 512 Interest expense (2,295) (2,046) Other, net (103) 34 --------- --------- (2,125) (1,500) --------- --------- Earnings before income taxes 9,753 5,863 Income tax expense (4,194) (2,492) --------- --------- Net earnings $ 5,559 $ 3,371 ========= ========= Earnings per common share: Basic $ 0.32 $ 0.20 ========= ========= Diluted $ 0.30 $ 0.19 ========= ========= Weighted-average common shares outstanding: Basic 17,336 17,120 ========= ========= Diluted 21,999 17,401 ========= =========
See accompanying Notes to Consolidated Financial Statements. EDO Corporation and Subsidiaries Consolidated Statements of Earnings (in thousands, except per share amounts)
For the nine months ended September 27, 2003 September 28, 2002 (unaudited) Continuing Operations: Net sales $ 324,896 $ 225,732 Costs and expenses Cost of sales 233,838 169,387 Selling, general and administrative 57,088 31,107 Research and development 5,938 5,941 Write-off of purchased in-process research and development - 150 Impairment loss on assets held for sale 9,160 - Acquisition-related costs 669 204 --------- --------- 306,693 206,789 --------- --------- Operating earnings 18,203 18,943 Non-operating income (expense) Interest income 673 1,284 Interest expense (6,769) (4,171) Other, net 25 40 --------- --------- (6,071) (2,847) --------- --------- Earnings from continuing operations before income taxes, discontinued operations and cumulative effect of a change in accounting principle 12,132 16,096 Income tax expense (5,217) (6,841) --------- --------- Earnings from continuing operations before discontinued operations and cumulative effect of a change in accounting principle 6,915 9,255 Earnings from discontinued operations, net of tax 1,398 - Cumulative effect of a change in accounting principle, net of tax - (3,363) --------- --------- Net earnings $ 8,313 $ 5,892 ========= ========= Earnings (loss) per common share: Basic: Continuing operations $ 0.40 $ 0.54 Discontinued operations 0.08 - Cumulative effect of a change in accounting principle - (0.19) --------- --------- $ 0.48 $ 0.35 ========= ========= Diluted: Continuing operations $ 0.39 $ 0.53 Discontinued operations 0.08 - Cumulative effect of a change in accounting principle - (0.19) --------- --------- $ 0.47 $ 0.34 ========= ========= Weighted-average common shares outstanding: Basic 17,281 17,050 ========= ========= Diluted 17,526 17,362 ========= =========
See accompanying Notes to Consolidated Financial Statements. EDO Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands)
For the nine months ended September 27, 2003 September 28, 2002 (unaudited) Operating activities: Net earnings from continuing operations $ 6,915 $ 5,892 Adjustments to net earnings from continuing operations to arrive at cash provided by operations: Depreciation 9,017 7,478 Amortization 3,529 549 Bad debt expense 170 - Write-off of purchased in-process research and development - 150 Deferred tax benefit (3,756) - Loss on sale of plant and equipment 92 13 Impairment loss on assets held for sale 9,160 - Deferred compensation expense 182 143 Non-cash Employee Stock Ownership Plan expense 2,356 3,230 Non-cash stock option compensation expense 292 - Dividends on unallocated ESOP shares 221 236 Common shares issued for directors' fees 79 119 Income tax benefit from stock options 147 426 Cumulative effect of a change in accounting principle - 3,363 Changes in operating assets and liabilities, excluding effects of acquisitions: Accounts receivable 13,579 75 Inventories 874 (4,258) Prepayments and other assets (126) (3,108) Contribution to defined benefit pension plan (5,000) - Accounts payable, accrued liabilities and other (17,804) 1,803 Contract advances and deposits (13,041) 2,099 --------- --------- Cash provided by continuing operations 6,886 18,210 Net cash provided by discontinued operations 47 - Investing activities: Cash paid for acquisitions, net of cash acquired (87,647) (58,543) Restricted cash 27,347 (28,238) Payments received on notes receivable 1,310 262 Purchase of plant and equipment (6,938) (4,094) Proceeds from the sale of plant and equipment - 6 Purchase of marketable securities (23) (3) --------- --------- Cash used by investing activities (65,951) (90,610) Financing activities: Repayment of acquired debt (11,998) - Proceeds from exercise of stock options 226 411 Proceeds from management group receivables 242 252 Issuance of convertible subordinated notes - 137,800 Payment of common share cash dividends (1,774) (1,770) --------- --------- Cash (used) provided by financing activities (13,304) 136,693 Net change in cash and cash equivalents (72,322) 64,293 Cash and cash equivalents at beginning of year 132,320 57,841 --------- --------- Cash and cash equivalents at end of period $ 59,998 $ 122,134 ========= ========= Supplemental disclosures: Cash paid for: Interest $ 3,617 $ - Income taxes $ 10,621 $ 11,949
See accompanying Notes to Consolidated Financial Statements. 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 accounting principles generally accepted in the United States. They should be read in conjunction with the consolidated financial statements and notes thereto of EDO Corporation and Subsidiaries (the "Company") for the year ended December 31, 2002 filed by the Company on Form 10-K with the Securities and Exchange Commission on March 14, 2003. The accompanying consolidated financial statements include all adjustments (consisting of normal recurring adjustments) 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. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share.
Three months ended Nine months ended Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2003 2002 2003 2002 (in thousands) Numerator: Net earnings for basic and diluted calculations $ 5,559 $ 3,371 $ 8,313 $ 5,892 Effect of dilutive securities: 5.25% Convertible Subordinated Notes due 2007 1,031 - - - ------- ------- ------- ------- $ 6,590 $ 3,371 $ 8,313 $ 5,892 ======= ======= ======= ======= Denominator: Denominator for basic calculation 17,336 17,120 17,281 17,050 Effect of dilutive securities: 5.25% Convertible Subordinated Notes due 2007 4,408 - - - Stock options 255 281 245 312 ------- ------- ------- ------- Denominator for diluted calculation 21,999 17,401 17,526 17,362 ======= ======= ======= =======
The following table summarizes, for each period presented, the number of shares excluded from the computation of diluted earnings per share, as their effect upon potential issuance was antidilutive:
Three months ended Nine months ended Sept. 27, 2003 Sept. 28, 2002 Sept. 27, 2003 Sept. 28, 2002 (in thousands) 5.25% Convertible Subordinated Notes due 2007 - 4,408 4,408 2,928 Stock Options 361 305 471 104 --- ----- ----- ----- 361 4,713 4,879 3,032 === ===== ===== =====
Stock-Based Compensation The company accounts for its stock-based compensation plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Under APB No. 25, because the exercise price of the Company's stock options is set equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," whereby compensation expense would be recognized as incurred for stock-based employee compensation.
Three months ended Nine months ended Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2003 2002 2003 2002 (in thousands, except per share amounts) Net earnings: As reported $ 5,559 $ 3,371 $ 8,313 $ 5,892 Stock option compensation expense based on fair value method, net of tax (384) (346) (1,208) (747) --------- --------- --------- --------- Pro forma $ 5,175 $ 3,025 $ 7,105 $ 5,145 ========= ========= ========= ========= Basic earnings per common share: As reported $ 0.32 $ 0.20 $ 0.48 $ 0.35 Pro forma $ 0.30 $ 0.18 $ 0.41 $ 0.30 Diluted earnings per common share: As reported $ 0.30 $ 0.19 $ 0.47 $ 0.34 Pro forma $ 0.28 $ 0.17 $ 0.41 $ 0.30
Acquisitions On June 16, 2003, the Company acquired for cash all of the stock of Emblem Group Ltd. ("Emblem"), a privately-held company based in Brighton, England. Emblem is a supplier of aerospace and defense products and services, primarily through its MBM Technology unit in England and Artisan Technologies Inc. subsidiary in the United States. Emblem has a core competency in aircraft weapons-carriage and interfacing systems that will reinforce EDO's position as a global leader in aircraft armament release systems. Emblem is expected to broaden the Company's customer base in Europe. The preliminary purchase price was (pound)13.26 million ($22.3 million), excluding transaction costs of approximately $1.9 million. In addition, the Company acquired and immediately paid off debt of (pound)1.99 million ($3.3 million). Emblem became part of the Company's Defense segment. On March 10, 2003, the Company acquired for cash all of the stock of Darlington, Inc. ("Darlington"), a privately-held defense communications company based in Alexandria, Virginia. Darlington designs, manufactures and supports military communications equipment and information networking systems. The acquisition is expected to enhance the Company's existing positions on long-range platforms and programs across the U.S. military services and in particular the U.S. Marine Corps. The purchase price was $25.6 million, excluding transaction costs of approximately $0.3 million. In addition, the Company acquired and immediately paid off debt of $4.9 million. Darlington became part of the Company's Defense segment. On February 5, 2003, a wholly-owned subsidiary of the Company acquired for cash all of the stock of Advanced Engineering and Research Associates, Inc.("AERA"), a privately-held company located in Alexandria, Virginia. AERA provides professional and information technology services primarily to the Department of Defense and other government agencies. The acquisition is expected to strengthen and expand the range of such services that the Company offers. The purchase price was $38.1 million, excluding transaction costs of $0.3 million. In addition, the Company acquired and immediately paid off debt of $3.8 million. AERA became part of the Company's Defense segment. On July 26, 2002, a wholly-owned subsidiary of the Company acquired substantially all of the assets and assumed certain liabilities of Condor Systems, Inc., a privately-held defense electronics company and its domestic subsidiary (together, "Condor") for $62.5 million in cash, in addition to transaction costs of $5.0 million. The acquisition expands the Company's electronic warfare business in the areas of reconnaissance and surveillance systems. The assets became part of the Company's Defense and Communications and Space Products segments. These acquisitions were accounted for as purchases and, accordingly, their operating results are included in the Company's consolidated financial statements since their respective acquisition dates. Unaudited pro forma results of operations, assuming the acquisitions of Emblem, Darlington, AERA and Condor had been completed at the beginning of each period are summarized below. The results reflect adjustments to net sales, cost of sales, amortization expense, compensation expense, purchased in-process research and development costs, interest income and expense and income tax expense. The interest rate used in determining pro forma adjustments to interest income or expense was based on the average yield of the Company's invested cash and cash equivalents and approximated 1.0% for each of the respective periods presented below.
Nine months ended September 27, 2003 September 28, 2002 (in thousands, except per share amounts) Net sales $ 353,313 $ 370,040 Earnings available for common shares, before discontinued operations and cumulative effect of a change in accounting principle $ 8,473 $ 3,961 Diluted earnings per common share $ 0.48 $ 0.23
The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had these acquisitions been completed at the beginning of the periods, or of the results which may occur in the future. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition.
Emblem Darlington AERA Condor At June 16, At March 10, At February 5, At July 26, 2003 2003 2003 2002 Current assets $ 9,649 $ 11,942 $ 13,262 $ 31,775 Plant and equipment 3,228 1,534 1,048 5,543 Customer contracts and relationships 7,200 14,400 17,100 - Purchased in-process research and development - - - 150 Purchased technologies 5,120 - - 11,648 Purchased backlog - - - 916 Non-compete agreements 336 30 2,420 - Tradename 960 400 500 - Trademark 320 - - - Goodwill 6,433 13,463 11,672 41,734 Other assets 85 446 174 76 Liabilities (9,179) (16,326) (7,815) (24,351) -------- -------- -------- -------- Total purchase price $ 24,152 $ 25,889 $ 38,361 $ 67,491 ======== ======== ======== ========
Adjustments resulting from the settlement of purchase prices on Condor, AERA and Darlington have been made. In addition, there were adjustments due to the settlement of certain pre-acquisition Condor liabilities. Adjustments related to the settlement of the Emblem purchase price are expected to be determined in the fourth quarter of 2003. Business Combinations and Goodwill and Other Intangibles In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS Nos. 141, "Business Combinations," and 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. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and a material decrease in the fair value of some or all of the assets. The Company performed the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 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 charge, which is net of a tax benefit of $0.8 million, occurred in the Engineered Materials segment and was comprised of $2.3 million and $1.9 million of pre-tax impaired goodwill and trademark, respectively. The changes in the carrying amount of goodwill by segment for the nine months ended September 27, 2003 are as follows:
Communications and Space Engineered Defense Products Materials Total (in thousands) Balance at January 1, 2003 $ 57,660 $ 3,692 $ - $ 61,352 Adjustment of Condor purchase price accounting 3,014 (2,031) - 983 Acquisition of AERA 11,672 - - 11,672 Acquisition of Darlington 13,463 - - 13,463 Acquisition of Emblem 6,433 - - 6,433 --------------------------------------------------------------------- Balance at September 27, 2003 $ 92,242 $ 1,661 $ - $ 93,903 =====================================================================
Summarized below are intangible assets subject to amortization:
Estimated September 27, December 31, Useful Lives 2003 2002 (years) (in thousands) Customer contracts and relationships $ 38,700 $ - 10-20 Purchased technologies 16,768 11,648 8-20 Non-compete agreements 2,986 200 1-5 Tradename/trademark 2,180 - 5-35 Purchased backlog 916 916 2 --------------------------------- 61,550 12,764 Less accumulated amortization (4,354) (897) --------------------------------- $ 57,196 $ 11,867 =================================
The amortization expense for the three months ended September 27, 2003 and September 28, 2002 amounted to $1.4 million and $0.4 million, respectively. The amortization expense for the nine months ended September 27, 2003 and September 28, 2002 amounted to $3.5 million and $0.5 million, respectively. Total amortization expense for the years 2003, 2004, 2005, 2006, 2007 and thereafter related to intangible assets are estimated to be $4.8 million, $5.4 million, $5.1 million, $5.1 million, $5.1 million and $35.1 million, respectively. Since the total carrying amount of a trademark was written off in 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 27, 2003. Assets Held For Sale On June 24, 2003, the Board of Directors of the Company approved the decision to sell the Company's 726,000 square foot facility in Deer Park, NY. As of September 27, 2003, the facility is reflected on the accompanying consolidated balance sheet as assets held for sale at its fair value less costs to sell, including commissions and transfer taxes. The Company recorded a pre-tax impairment loss of $9.2 million in the second quarter of 2003, as the net book value of the assets exceeded the fair value less the costs to sell. The fair value was based on a $29.0 million sales price per the sales agreement entered into in July 2003. This impairment charge represented the entire loss the Company expects to incur. Of the $29.0 million sales price, $22.0 million is in cash and $7.0 million is in the form of a purchase money mortgage and note. The Company closed on the sale in October 2003 and received the cash less closing payments. The note receivable is due when the Company vacates the facility. As part of the agreement, the Company will lease the facility for a period not to exceed two years. The lease agreement does not have any renewal or buyout options. Inventories Inventories are summarized by major classification as follows:
September 27, 2003 December 31, 2002 (in thousands) Raw materials and supplies $ 8,847 $ 7,804 Work-in-process 40,606 27,024 Finished goods 2,149 2,041 Less: Unliquidated progress payments (16,337) (4,463) -------- -------- $ 35,265 $ 32,406 ======== ========
Credit Facility At September 27, 2003, the Company has a $200.0 million credit facility with a consortium of banks, led by Citibank, N.A. as the administrative agent, Fleet National Bank as the syndication agent and Wachovia Bank, N.A. as the documentation agent. The facility expires in November 2005. In connection with the amended facility, $1.0 million of deferred finance costs is included in other assets on the accompanying consolidated balance sheet and is being amortized using the straight-line method over the term of the agreement. The credit facility provides the Company with sub-limits of borrowing up to $125.0 million for acquisition-related financing and up to $125.0 million in stand-by letters of credit financing. The potential cash borrowing under the facility is reduced by the amount of outstanding letters of credit. There were no direct borrowings outstanding under the credit facility at September 27, 2003. Letters of credit outstanding at September 27, 2003 pertaining to the credit facility were $54.3 million, resulting in $70.7 million available at September 27, 2003 for stand-by letters of credit. Any future borrowings under the facility would be priced initially at LIBOR plus a predetermined amount, ranging from 1.25% to 1.75%, dependent on the Company's consolidated leverage ratio at the time of the borrowing. At September 27, 2003, LIBOR was approximately 1.2% and the applicable adjustment to LIBOR was 1.25%. The facility requires a commitment fee of 0.25% on the average daily unused portion of the facility. In connection with the credit facility, the Company is required to maintain both financial and non-financial covenants and ratios. Also, the Company cannot declare or pay any dividend on its outstanding common stock in an amount that exceeds fifty percent of its consolidated net income for the immediately preceding quarter. As of September 27, 2003, the Company was in compliance with its covenants. The credit facility is secured by the Company's accounts receivable, inventory and machinery and equipment. 5.25% Convertible Subordinated Notes due 2007 In April 2002, the Company completed the offering of its 5.25% Convertible Subordinated Notes due 2007 (the "Notes") and received proceeds of $133.7 million, net of $4.1 million of commissions paid. Interest payments on the Notes are due April 15 and October 15 of each year. The Notes are convertible, unless previously redeemed or repurchased by the Company, 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. As of September 27, 2003, there had been no conversions. Comprehensive Income As of September 27, 2003, accumulated other comprehensive loss included in the accompanying consolidated balance sheet primarily represents additional minimum liabilities on benefit plans. Comprehensive income from continuing operations for the three and nine month periods ended September 27, 2003 was $5.5 million and $6.8 million, respectively, compared to comprehensive income, before cumulative effect of a change in accounting principle, for the three and nine month periods ended September 28, 2002 of $3.4 million and $9.3 million, respectively. Business Segments EDO Corporation is a leading supplier of sophisticated, highly engineered products and systems for defense, aerospace and industrial applications. The Company's advanced electronic, electromechanical and information systems and engineered materials are mission-critical, standard equipment on a wide range of military platforms. The Company has three reporting segments: Defense, Communications and Space Products and Engineered Materials. The Defense segment provides integrated, front-line, warfighting systems and components including electronic warfare, radar countermeasures systems, reconnaissance and surveillance systems, aircraft weapons suspension and release systems, airborne mine countermeasures systems, integrated combat and sonar systems, command, control and communications systems and professional, operational, technical and information technology services for military forces and governments worldwide. The Communications and Space Products segment supplies antenna products and ultra-miniature electronics and systems for the remote sensing and electronic warfare industries. The Engineered Materials segment supplies commercial and military piezo-electric ceramic products and advanced fiber composite structural products for the aircraft, communication, navigation, chemical, petrochemical, paper and oil industries.
Three months ended Nine months ended Sept. 27, Sept. 28, Sept. 27, Sept. 28, 2003 2002 2003 2002 (in thousands) Net sales: Defense $ 94,108 $ 62,760 $ 251,051 $ 166,119 Communications and Space Products 13,308 12,444 41,011 31,560 Engineered Materials 11,367 9,900 32,834 28,053 --------- -------- --------- --------- $ 118,783 $ 85,104 $ 324,896 $ 225,732 ========= ======== ========= ========= Operating earnings (loss): Defense $ 10,781 $ 6,009 $ 23,520 $ 18,475 Communications and Space Products 295 366 2,346 (1,667) Engineered Materials 802 988 1,497 2,135 Impairment loss on assets held for sale - - (9,160) - --------- -------- --------- --------- 11,878 7,363 18,203 18,943 Net interest expense (2,022) (1,534) (6,096) (2,887) Other, net (103) 34 25 40 --------- -------- --------- --------- Earnings before income taxes, discontinued operations and cumulative effect of a change in accounting principle $ 9,753 $ 5,863 $ 12,132 $ 16,096 ========= ======== ========= =========
New Accounting Standards In July 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 or disposal activities initiated after December 31, 2002. The effect of the adoption of this statement on January 1, 2003 was not material to the Company's operating results or financial position. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The disclosure provisions of SFAS No. 148 were effective for years ending after December 15, 2002. Presently, the Company does not plan to voluntarily change its method of accounting for stock-based compensation. Guarantor and Non-Guarantor Subsidiaries The Company may, from time to time, issue indebtedness, a condition of which would be the guarantee of this indebtedness by certain of its subsidiaries. Presented below is condensed consolidating financial information for the Company, the contemplated subsidiary guarantors and the contemplated non-guarantor subsidiaries at September 27, 2003, and for the nine-month period ended September 27, 2003. Each contemplated subsidiary guarantor is 100% owned, directly or indirectly, by the Company. Any guarantees that may be issued will be full and unconditional, as well as joint and several. Refer to the note "Credit Facility" for restrictions limiting the payment of dividends by the Company.
EDO CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 27, 2003 EDO Corporation Parent Subsidiary Non-Guarantor Company Only Guarantors Subsidiaries Eliminations Consolidated -------------- ---------- -------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 49,442 $ 6,927 $ 3,629 -- $ 59,998 Marketable securities 216 -- -- -- 216 Accounts receivable, net 21,230 92,395 5,149 (855) 117,919 Inventories 3,800 28,085 3,380 -- 35,265 Assets held for sale -- 26,892 -- -- 26,892 Deferred income tax asset, net (10,202) 13,424 -- -- 3,222 Prepayments and other 4,271 1,418 551 -- 6,240 ------------ ---------- -------------- ------------ ------------ Total current assets 68,757 169,141 12,709 (855) 249,752 Investment in subsidiaries 238,670 -- -- (238,670) -- Property, plant and equipment, net 6,973 21,689 3,397 -- 32,059 Notes receivable 1,375 -- -- -- 1,375 Goodwill -- 87,470 6,433 -- 93,903 Other intangible assets, net -- 43,487 13,709 -- 57,196 Deferred income tax asset, net 23,256 -- -- -- 23,256 Other assets 53,641 1,629 166 (29,908) 25,528 ------------ ---------- -------------- ------------ ------------ $ 392,672 $ 323,416 $ 36,414 $ (269,433) $ 483,069 ============ ========== ============== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 14,075 $ 60,355 $ 5,924 $ (1,916) $ 78,438 Contract advances and deposits 3,545 3,691 -- -- 7,236 ------------ ---------- -------------- ------------ ------------ Total current liabilities 17,620 64,046 5,924 (1,916) 85,674 Long-term debt 137,800 -- -- -- 137,800 Deferred income tax liabilities, net (12,227) 12,227 -- -- -- Post retirement benefits obligations 68,818 10,660 -- -- 79,478 Environmental obligation 1,941 -- -- -- 1,941 Intercompany accounts -- 142,770 26,241 (169,011) -- Shareholders' equity: Preferred shares -- -- -- -- -- Common shares 19,829 99 761 (860) 19,829 Additional paid-in capital 149,255 18,565 -- (18,565) 149,255 Retained earnings 63,084 79,432 3,600 (83,032) 63,084 Accumulated other comprehensive loss, net of income tax benefit (33,985) 20 (112) (101) (34,178) Treasury shares (1,274) (4,052) -- 4,052 (1,274) Unearned ESOP shares (17,603) -- -- -- (17,603) Management group receivables -- (351) -- -- (351) Deferred compensation under Long-Term Incentive Plan (586) -- -- -- (586) ------------ ---------- -------------- ------------ ------------ Total shareholders' equity 178,720 93,713 4,249 (98,506) 178,176 ------------ ---------- -------------- ------------ ------------ $ 392,672 $ 323,416 $ 36,414 $ (269,433) $ 483,069 ============ ========== ============== ============ ============
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS SEPTEMBER 27, 2003 EDO Corporation Parent Subsidiary Subsidiary Company Only Guarantors Guarantors Eliminations Consolidated --------------- ---------- -------------- ------------ ------------ Continuing Operations: Net Sales $ 63,997 $ 265,335 $ 9,117 $ (13,553) $ 324,896 Costs and expenses: Cost of sales 54,569 188,240 4,582 (13,553) 233,838 Selling, general and administrative 4,186 49,445 3,457 -- 57,088 Research and development 2,153 3,785 -- -- 5,938 Acquisition-related costs 187 482 -- -- 669 Impairment loss on assets held for sale 9,160 -- -- 9,160 ------------ ---------- -------------- ------------ ------------ 61,095 251,112 8,039 (13,553) 306,693 ------------ ---------- -------------- ------------ ------------ Operating Earnings 2,902 14,223 1,078 -- 18,203 Non-operating income (expense) Interest income 431 232 10 -- 673 Interest expense (6,769) -- -- -- (6,769) Other, net (87) 112 -- -- 25 ------------ ---------- -------------- ------------ ------------ (6,425) 344 10 -- (6,071) (Loss) earnings from continuing operations before income taxes (3,523) 14,567 1,088 -- 12,132 Income tax (benefit) expense (1,331) 6,038 510 -- 5,217 ------------ ---------- -------------- ------------ ------------ (Loss) earnings from continuing operations (2,192) 8,529 578 -- 6,915 Equity in undistributed earnings of subsidiaries 9,107 -- -- (9,107) -- ------------ ---------- -------------- ------------ ------------ 6,915 8,529 578 (9,107) 6,915 Earnings from discontinued operations 1,398 -- -- -- 1,398 ------------ ---------- -------------- ------------ ------------ Net earnings $ 8,313 $ 8,529 $ 578 $ (9,107) $ 8,313 ============ ========== ============== ============ ============
EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS SEPTEMBER 27, 2003 EDO Corporation Parent Company Subsidiary Only Guarantors Non-Guarantors Eliminations Consolidated --------------- ---------- -------------- ------------ ------------ Operating Activities: Earnings from continuing operations $ 6,915 $ 8,529 $ 578 $ (9,107) $ 6,915 Adjustments to earnings to arrive at cash provided (used) by continuing operations: Depreciation 1,315 7,558 144 -- 9,017 Amortization -- 3,302 227 -- 3,529 Deferred tax benefit (3,756) -- -- -- (3,756) Bad debt expense -- 170 -- -- 170 Loss on sale of property, plant and equipment -- 92 -- -- 92 Impairment loss on assets held for sale -- 9,160 -- -- 9,160 Deferred compensation expense 182 -- -- -- 182 Non-cash Employee Stock Ownership Plan compensation expense 2,356 -- -- -- 2,356 Non-cash stock option compensation expense 292 -- -- -- 292 Dividends on unallocated Employee Stock Ownership Plan shares 221 -- -- -- 221 Common shares issued for directors' fees 79 -- -- -- 79 Income tax benefit from stock options 147 -- -- -- 147 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in earnings of subsidiaries (9,107) -- -- 9,107 -- Intercompany 55,476 (31,776) 6,208 (29,908) -- Accounts receivable 5,250 8,414 (85) -- 13,579 Inventories (2,707) 3,228 353 -- 874 Prepayments and other assets (31,223) 1,163 26 29,908 (126) Contribution to defined benefit pension plan (5,000) -- -- -- (5,000) Accounts payable, accrued liabilities and other (2,226) (12,069) (3,509) -- (17,804) Contract advances and deposits (7,540) (5,501) (13,041) --------------------------------------------------------------------- Cash provided (used) by continuing operations 10,674 (7,730) 3,942 -- 6,886 Net cash provided by discontinued operations 47 -- -- -- 47 Investing Activities: Purchase of plant and equipment (2,795) (3,830) (313) -- (6,938) Payments received on notes receivable 225 1,085 -- -- 1,310 Purchase of marketable securities (23) -- -- -- (23) Restricted cash 27,347 -- -- -- 27,347 Cash paid for acquisitions, net of cash acquired (87,647) -- -- -- (87,647) --------------------------------------------------------------------- Cash used by investing activities (62,893) (2,745) (313) -- (65,951) Financing Activities: Proceeds from exercise of stock options 226 -- -- -- 226 Proceeds from management group receivables -- 242 -- -- 242 Repayments of acquired debt (11,998) -- -- -- (11,998) Payment of common share cash dividends (1,774) -- -- -- (1,774) --------------------------------------------------------------------- Cash (used) provided by financing activities (13,546) 242 -- -- (13,304) --------------------------------------------------------------------- Net decrease in cash and cash equivalents (65,718) (10,233) 3,629 -- (72,322) Cash and cash equivalents at beginning of year 115,160 17,160 -- -- 132,320 --------------------------------------------------------------------- Cash and cash equivalents at end of year $ 49,442 $ 6,927 $ 3,629 $ -- $ 59,998 =====================================================================
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