EX-99 3 a4509445ex991.txt EXHIBIT 99.1 PRESS RELEASE Exhibit 99.1 EDO Reports Solid Revenue and Earnings Growth While Integrating Acquisitions; Revenues up 40 Percent, Earnings Up 65 Percent NEW YORK--(BUSINESS WIRE)--Nov. 5, 2003--EDO Corporation (NYSE: EDO) recorded revenue of $118.8 million for the third quarter ended Sept. 27, 2003, up $33.7 million or 39.6 percent from the $85.1 million recorded in the third quarter of 2002. Net earnings for the quarter were $5.6 million, up 64.9 percent from the $3.4 million recorded in the prior year. On a diluted per-share basis, earnings for the quarter were $0.30, up 57.9 percent from the $0.19 recorded in the third quarter of 2002. In the third quarter of 2003, the convertible notes had a $0.02 per share dilutive effect. "These results reflect another quarter of substantial progress in the integration of our newly acquired businesses," said Chief Executive Officer James M. Smith. "As we absorb the four acquisitions made since the second quarter of 2002, representing nearly $200 million in annual revenue, our management team has been successfully integrating our financial, physical, and intellectual assets, while maintaining our quality and profitability standards." For the nine-month period ended Sept. 27, 2003, revenue was $324.9 million, up $99.2 million or 43.9 percent from the $225.7 million recorded in the comparable period of 2002. Net earnings for the first nine months of 2003 were $8.3 million, up 41.1 percent from the $5.9 million recorded in the same period last year. On a diluted per-share basis, earnings for the first nine months of 2003 were $0.47, up 38.2 percent from the $0.34 recorded in the same period last year. As previously disclosed, nine-month results in 2003 included a pre-tax impairment charge of $9.2 million related to the sale of property in Deer Park, N.Y. This transaction closed on Oct. 10, and therefore $26.9 million appears as "assets held for sale" on the balance sheet as of Sept. 27. Approximately $21.3 million of the sale proceeds, net of expenses, were received by the company on Oct. 10. The remainder will be received when EDO vacates the property, which will be no later than October 2005. As of Sept. 27, the company's cash balance shows a slight decline to $60.0 million, from $60.2 million at the end of the second quarter. This was due to a $5 million cash contribution to the employee pension fund that had previously been expected to occur in early 2004. This contribution was almost entirely offset by cash flow from operating activities. Non-GAAP Financial Measures In addition to the financial results contained on the attached statements of earnings, which are presented according to Generally Accepted Accounting Principles, or GAAP, we are providing pro forma earnings and adjusted EBITDA. Management believes that such adjustments to earnings will help investors understand the underlying trends in the business, and give a clearer picture of the financial condition and results of operations. As detailed on the attached reconciliation schedule, pro forma earnings for the third quarter of 2003 were $5.7 million, or $0.31 per diluted share, versus $3.6 million, or $0.21 per diluted share, in the third quarter of 2002. For the 2003 year-to-date, pro forma earnings were $12.7 million, or $0.72 per diluted share, versus $9.5 million, or $0.54 per diluted share, in the corresponding nine-month period of 2002. EBITDA was $16.2 million for the third quarter of 2003, versus $10.6 million in the third quarter of 2002. For the year-to-date, EBITDA was $30.8 million in 2003, versus $27.0 million in 2002. Adjusting for the pro forma items, as well as ESOP compensation and pension expense, EBITDA was $18.3 million in the third quarter of 2003, up 42.8 percent from $12.8 million in the prior year. For the year-to-date, EBITDA, as adjusted, was $46.3 million, up 37.7 percent from $33.6 million in 2002. EBITDA, as adjusted, is a generally accepted metric employed by our industry. Backlog The total funded backlog of unfilled orders at Sept. 27, 2003 increased to a record $449.6 million from $447.4 million at June 28, 2003 and $407.5 million at Sept. 28, 2002. This does not include unfunded options in current contracts that have not yet been exercised by customers. Unfunded options total approximately $545 million. There are also a number of pending contract awards that are expected in the fourth quarter. Backlog has been negatively impacted by the completion and final product delivery of the EA-6B Prowler's Universal Exciter Upgrade program. This has been partially offset by a new $1.6 million contract to provide post-production support for the UEU, which enables EDO to assist in planning future upgrades to the aircraft's defensive system. Backlog is also impacted by the company's increasing proportion of service-related revenues, which are now more than 15 percent of total revenues. Service-related contracts generally involve shorter delivery schedules, and thus have less impact on the backlog amount. Organic Revenue Growth Excluding the impact of acquisitions made since the second quarter of 2002, year-to-date revenues declined by approximately $8 million compared to last year. The decline is due primarily to the completion of the Universal Exciter Upgrade program, which generated sales of approximately $35.6 million in the first nine months of 2002, but only $10.2 million in 2003. Thus, organic growth in 2003 has offset most of the revenue decline resulting from completion of the UEU program. Excluding UEU revenue from both years and thus fully reflecting the remaining operations, organic revenue growth was approximately 9.5 percent for the first nine months of 2003. Third quarter revenue was less than the company's expectations due primarily to lower sales in professional services. These declines were partially related to military training services that were cancelled due to the conflict in Iraq. We do not expect this shortfall to be recovered in the fourth quarter. Given the current contract base and internal projections, the company believes that long-term organic revenue growth of seven to nine percent is sustainable. Margins Gross margins have improved in 2003 for both the third quarter and year-to-date. For the quarter, the gross profit margin was 28.6 percent of revenue, versus 26.5 percent in the prior year. For the year-to-date, the gross profit margin was 28.0 percent of revenue, versus 25.0 percent in the prior year. This improvement was due to a number of factors, including the closeout of several major production activities, such as the UEU. The completion of these activities often results in earnings at relatively high margins and is viewed as a normal part of long-term contract cycles. Operating margins rose to 10.0 percent of revenue in the third quarter, versus 8.7 percent in the prior year. This increase reflects the program closeouts discussed above and manufacturing efficiencies due to increased production volumes of our flight-line test equipment. For the year-to-date, operating margins, excluding the impairment loss on assets held for sale, were 8.4 percent of revenue, equal to the 8.4 percent reported in the prior year. Operating margins were negatively impacted by increased acquisition-related amortization of intangible assets of approximately $3.4 million versus $0.5 million in 2002. Regarding EBITDA margins, the third quarter EBITDA, as adjusted, was 15.4 percent of revenue, up from 15.1 percent in the prior year. For the year-to-date, EBITDA, as adjusted, was 14.2 percent of revenue in 2003, versus 14.9 percent in the prior year. While the third quarter margin was higher than normal, the company expects the fourth-quarter margins, and continues to project year-end margins, to be within our 2003 target range of 13 to 14 percent. Revenue Guidance The following statement is based on current expectations. This statement is forward-looking, and actual results may differ materially. EDO continues to estimate that revenue for the full year 2003, excluding any additional acquisitions, will exceed $460 million, compared to $328.9 million in 2002. This is consistent with the company's prior revenue guidance. Conference Call EDO will conduct a conference call at 10:30 a.m. EST on Nov. 5 to review these results in more detail. A live web cast of the conference call will be available at www.EDOcorp.com or www.fulldisclosure.com. For those who cannot listen to the live broadcast, a replay of the call will be available on the corporate site. There will also be a telephone replay of the call available until Nov. 12. To listen to the telephone replay, dial 1-800-633-8284 (outside the U.S. dial 1-402-977-9140), and enter reservation #21154797. About EDO Corporation EDO Corporation provides military products and professional services to the United States and allied governments, and their prime defense contractors. EDO focuses on systems and subsystems that are integral to the success of long-term military platforms, such as the B-1B bomber, the F/A-22, the Joint Strike Fighter, and the Comanche helicopter. Examples of the company's highly engineered products include aircraft weapon-release systems, ship and aircraft self-protect systems, and high-performance composite structures. The company also has a number of commercial product lines. A disciplined acquisition program is diversifying the base of major platforms and customers. EDO is at the core of the transformation to a lighter, faster, and smarter national defense capability. EDO (www.edocorp.com) was founded in 1925, and is headquartered in New York City. The company had revenues last year of $329 million, and employs 2,800 people. Forward-Looking Statements Certain statements made in this release, including statements about future revenue from acquisitions and contract awards, as well as annual revenue expectations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections about the Company's business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including those described above and the following: changes in demand for the Company's products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, difficulties encountered in the integration of acquired businesses and other risks discussed from time to time in the Company's Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release. EDO Corporation and Subsidiaries Condensed Consolidated Statements of Earnings ($000's omitted, except per share data) Three months ended Nine months ended Sept 27, Sept 28, Sept 27, Sept 28, 2003 2002 2003 2002 ----------- -------- ----------- --------- (unaudited) (unaudited) Net sales $118,783 $85,104 $324,896 $225,732 Costs and expenses: Cost of sales 84,818 62,541 233,838 169,387 Selling, general and administrative 20,388 12,766 57,088 31,107 Research and development 1,450 2,080 5,938 5,941 Acquisition-related costs 249 354 669 354 Impairment loss on assets held for sale - - 9,160 - ----------- -------- ----------- --------- 106,905 77,741 306,693 206,789 ----------- -------- ----------- --------- Operating earnings 11,878 7,363 18,203 18,943 Non-operating income (expense): Interest income 273 512 673 1,284 Interest expense (2,295) (2,046) (6,769) (4,171) Other, net (103) 34 25 40 ----------- -------- ----------- --------- Interest & other (2,125) (1,500) (6,071) (2,847) ----------- -------- ----------- --------- Earnings from continuing operations before income taxes and cumulative effect of a change in accounting principle 9,753 5,863 12,132 16,096 Income tax expense (4,194) (2,492) (5,217) (6,841) Earnings from discontinued operations, net of tax - - 1,398 - Cumulative effect of a change in accounting principle, net of tax - - - (3,363) ----------- -------- ----------- --------- Net earnings $5,559 $3,371 $8,313 $5,892 =========== ======== =========== ========= Earnings (loss) per common share: Basic: Continuing operations $0.32 $0.20 $0.40 $0.54 Discontinued operations - - 0.08 - Cumulative effect of a change in accounting principle - - - (0.19) ----------- -------- ----------- --------- Net basic earnings per common share $0.32 $0.20 $0.48 $0.35 =========== ======== =========== ========= Diluted: (a) Continuing operations $0.30 $0.19 $0.39 $0.53 Discontinued operations - - 0.08 - Cumulative effect of a change in accounting principle - - - (0.19) ----------- -------- ----------- --------- Net diluted earnings per common share $0.30 $0.19 $0.47 $0.34 =========== ======== =========== ========= Weighted average shares outstanding Basic 17,336 17,120 17,281 17,050 =========== ======== =========== ========= Diluted (a) 21,999 17,401 17,526 17,362 =========== ======== =========== ========= Backlog of unfilled orders $449,553 $407,455 =========== ========= (a) Assumes exercise of dilutive stock options. The 5.25% Convertible Subordinated Notes were dilutive only for the three months ended Sept. 27, 2003. EDO Corporation and Subsidiaries Condensed Consolidated Balance Sheets ($000's omitted) Sept 27, Dec 31, 2003 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 & 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 57,196 11,867 Deferred income tax asset, net 23,256 20,439 Other assets 25,528 21,673 ----------------------------- Total Assets $483,069 $481,574 ============================= Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $78,438 $74,556 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 178,176 168,273 ----------------------------- Total Liabilities & Shareholders' Equity $483,069 $481,574 ============================= EDO Corporation and Subsidiaries SEGMENT DATA ($000's omitted) Three months ended Nine months ended Sept 27, Sept 28, Sept 27, Sept 28, 2003 2002 2003 2002 --------- -------- --------- --------- (unaudited) (unaudited) 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 (1) $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 from continuing operations before income taxes and the cumulative effect of a change in accounting principle $9,753 $5,863 $12,132 $16,096 ========= ======== ========= ========= (1) Acquisition-related costs included above. 249 354 669 354 EDO Corporation and Subsidiaries Reconciliation from GAAP to Pro Forma Earnings ($000's omitted, except per share data) (Before Discontinued Operations in 2003 and Cumulative Effect of Change in Accounting Principle in 2002) Three months ended Nine months ended Sept 27, Sept 28, Sept 27, Sept 28, 2003 2002 2003 2002 ----------- -------- ---------- -------- (unaudited) (unaudited) Earnings from continuing operations before income taxes $9,753 $5,863 $12,132 $16,096 Impairment loss on assets held for sale - - 9,160 - Acquisition-related costs 249 354 669 354 Compensation expense re: accelerated options - - 292 - ----------- -------- ---------- -------- Pro forma earnings before income taxes 10,002 6,217 22,253 16,450 Income tax expense (4,301) (2,642) (9,569) (6,991) ----------- -------- ---------- -------- Pro forma net earnings $5,701 $3,575 $12,684 $9,459 ----------- -------- ---------- -------- Calculation of pro forma diluted earnings per share: Interest expense avoided on convertible notes, net of tax 1,031 - - - ----------- -------- ---------- -------- Pro forma net earnings available for common shares 6,732 3,575 12,684 9,459 Diluted shares outstanding 21,999 17,401 17,526 17,362 Pro forma diluted earnings per share $0.31 $0.21 $0.72 $0.54 =========== ======== ========== ======== Calculation of EBITDA Three months ended Nine months ended Sept 27, Sept 28, Sept 27, Sept 28, 2003 2002 2003 2002 ----------- -------- ---------- -------- (unaudited) (unaudited) Earnings from continuing operations before income taxes $9,753 $5,863 $12,132 $16,096 Interest expense 2,295 2,046 6,769 4,171 Interest income (273) (512) (673) (1,284) ----------- -------- ---------- -------- Net interest expense 2,022 1,534 6,096 2,887 Depreciation 3,019 2,728 9,017 7,478 Amortization 1,424 429 3,529 549 ----------- -------- ---------- -------- Total depreciation & amortization 4,443 3,157 12,546 8,027 ----------- -------- ---------- -------- EBITDA 16,218 10,554 30,774 27,010 Impairment loss on assets held for sale - - 9,160 - Acquisition-related costs 249 354 669 354 Compensation expense re: accelerated options - - 292 - ESOP compensation expense 846 915 2,356 3,230 Pension expense 1,000 1,000 3,000 3,000 ----------- -------- ---------- -------- EBITDA, as adjusted $18,313 $12,823 $46,251 $33,594 Diluted shares outstanding 17,591 17,401 17,526 17,362 EBITDA, as adjusted, per diluted share* $1.04 $0.74 $2.64 $1.93 =========== ======== ========== ======== * Excludes potential impact of subordinated note conversion. EDO Corporation and Subsidiaries GUIDANCE DATA ESTIMATES Fiscal 2003 ------------- Revenue range $460 million - $470 million Pension costs $4 million Current-year Condor acquisition-related charge $800,000 Effective operating tax rate 42.5% - 43.0% EBITDA, as adjusted, margin range 13.0% - 14.0% ESOP shares issued per quarter 42,376 Average shares outstanding (excluding Note conversion* and unallocated ESOP shares) 17.6 million * "If-converted method" (FAS 128) to determine diluted EPS: (Using the third quarter's representative numbers) - Shares to be issued if 5.25% Notes are converted at $31.26/share would be 4,408,189. - Quarterly interest on Notes reduced Net Earnings by $1,030,916. The decision point for the dilution test was $1,030,916 / 4,408,189, or $0.2339 per share. Since EPS was otherwise more than $0.2339, the impact of the Notes was dilutive, thus conversion of the Notes was assumed in calculating diluted EPS this quarter. This table contains estimates based on management's current expectations. This information is forward-looking, and actual results may differ materially. CONTACT: EDO Corporation, New York William A. Walkowiak, 212-716-2038 ir@edocorp.com