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 =====================================================================