EX-99 3 a4752789ex99.txt PRESS RELEASE Exhibit 99.1 EDO Reports 24 Percent Growth in Net Earnings; Organic Revenue Growth Exceeds 9 Percent NEW YORK--(BUSINESS WIRE)--Oct. 28, 2004--For the third quarter of 2004, EDO Corporation (NYSE: EDO) has reported revenue of $129.9 million, an increase of $11.1 million, or 9.3 percent, from the $118.8 million recorded in the third quarter of 2003. Net earnings for the quarter were $6.9 million, up 23.7 percent from $5.6 million in the prior year's quarter. On a diluted per-share basis, earnings rose 16.7 percent, to $0.35, from $0.30 in the prior year. For the nine-month period ended Sept. 25, 2004, revenue was $367.0 million, up $42.1 million, or 13.0 percent, from the $324.9 million recorded in the comparable period in 2003. Net earnings for the first nine months of 2004 were $14.9 million, or $0.81 per diluted share, versus $8.3 million, or $0.47 per diluted share, for the same period last year. "EDO has posted another quarter of substantial growth in revenue and earnings," said Chief Executive Officer James M. Smith. "Cash flow was also strong, and we added $19.1 million to our cash balance. As expected, we achieved substantial improvements in profit margins compared to the first half of the year. We remain confident of achieving our forecasted 13 to 14 percent adjusted-EBITDA margin on full-year revenue of $525 million to $535 million." Revenue Growth All of the revenue growth in the third quarter is organic, since there is no acquisition-related revenue increase in this quarter's comparison. This growth was aided by strong sales in force-protection and communications-related products. For the year to date, organic revenue growth has improved to approximately 6.3 percent. Based on management's expectations for the final quarter, the company expects to achieve its original forecast of 7 to 9 percent organic revenue growth for the full year. Cash Flow Cash flow from operations for the third quarter was $22.1 million, bringing the year-to-date total to $20.3 million. At the end of the third quarter, the cash balance was $99.8 million, up from $80.7 million at the end of the second quarter. Backlog The funded backlog at the end of the third quarter stood at $501.3 million, down $34.6 million from the end of the second quarter, but up $39.0 million since year-end. Backlog fluctuates significantly on a short-term basis due to the timing of new contracts and the exercise of contract options. The company believes that backlog should be considered in terms of long-term growth trends. Since the end of 1999, EDO's backlog has grown at an average compounded rate of 30 percent per year. Backlog does not include portions of contracts for which the U.S. government has not yet appropriated funds, nor does it include unexercised options in any contract. Such unfunded contracts and unexercised contract options add more than $645 million in high-confidence future revenue, versus $570 million on June 29, for a total of more than $1.1 billion. Additions to backlog during the third quarter include a $14 million contract for interference-cancellation electronics on the EA-18G aircraft and $13 million in new contracts related to the electronic self-protect systems on the B-1B bomber. EDO has also received new contracts valued at approximately $4.2 million for classified projects. Also important for long-term growth are development contracts in our core technologies, such as antennas and aircraft armament. EDO has received contracts to develop anti-jam GPS antennas for the Advanced Digital Antenna production Program (ADAP) and for the Global Hawk's navigation system. In aircraft armament, the U.S. Air Force has awarded EDO a contract to study the possibility of increasing the weapons load out of the Joint Strike Fighter. Business Integration EDO continues to make progress in the integration of recently acquired businesses. This includes the integration of operating units as well as facilities. The consolidation of facilities in the Washington DC area is now essentially complete, and financial benefits are being reflected in reduced operating expense. Similar business integration is in progress on Long Island, including two new facilities under construction, as well as the consolidation of two operations into a new, larger facility in Southern California. These initiatives are expected to generate further efficiencies over the next two years. 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 adjusted EBITDA, as well as pro-forma earnings for the comparative periods. Management believes that such adjustments will help investors to compare results to the prior year and to understand the underlying trends in the business. As detailed on the attached reconciliation schedule, pro-forma earnings for the third quarter of 2004 were $6.9 million, or $0.35 per diluted share, versus $5.7 million, or $0.31 per diluted share, in the third quarter of 2003. For the year-to-date, pro-forma earnings for 2004 were $14.9 million, or $0.81 per diluted share, versus $12.7 million, or $0.72 per diluted share, in 2003. EBITDA, as adjusted, (see attached "Calculation of EBITDA" worksheet) was $19.5 million, or 15.0 percent of revenue, for the third quarter of 2004, versus $18.3 million in the third quarter of 2003. For the year-to-date, EBITDA was $49.0 million, or 13.3 percent of revenue, versus $46.3 million in 2003. Conference Call EDO will conduct a conference call at 10:30 a.m. EDT on October 28 to review these results in more detail. A live web cast of the conference call will be available at www.edocorp.com or www.vcall.com. For those who cannot listen to the live broadcast, a replay of the call will be available on those sites. There will also be a telephone replay of the call available until November 4. To listen to the telephone replay, dial 1-800-633-8284 (outside the U.S. dial 1-402-977-9140) and enter reservation #21210350. About EDO Corporation EDO Corporation designs and manufactures a diverse range of products for the defense industry and commercial markets, and provides related engineering and professional services. Major product groups include: Aircraft Armament, Defense Electronics, Communications, Undersea Warfare, and Integrated Structures. EDO's advanced systems are at the core of the transformation to lighter, faster, and smarter defense capabilities. EDO (www.edocorp.com) was founded in 1925, and is headquartered in New York City. The company employs 2,700 people. Forward-Looking Statements Certain statements made in this release, including statements about future profitability, future revenues and long-term organic revenue growth, as well as annual revenue and earnings 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, changes in the government's funding priorities, the impact of competitive products and pricing, the inability to successfully execute business strategies, difficulties encountered in the integration of acquired businesses, the inability to secure required regulatory approvals 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 25, Sept 27, Sept 25, Sept 27, 2004 2003 2004 2003 ----------- --------- ----------- --------- (unaudited) (unaudited) Net sales $129,875 $118,783 $367,042 $324,896 Costs and expenses: Cost of sales 94,168 84,818 270,090 233,838 Selling, general and administrative 18,326 20,388 57,237 57,088 Research and development 3,333 1,450 7,649 5,938 Acquisition-related costs - 249 - 669 Impairment loss on assets held for sale - - - 9,160 ----------- --------- ----------- --------- 115,827 106,905 334,976 306,693 ----------- --------- ----------- --------- Operating earnings 14,048 11,878 32,066 18,203 Interest income 337 273 781 673 Interest expense (2,304) (2,295) (6,771) (6,769) Other, net (126) (103) (151) 25 ----------- --------- ----------- --------- Non-operating expense, net (2,093) (2,125) (6,141) (6,071) ----------- --------- ----------- --------- Earnings before income taxes and discontinued operations 11,955 9,753 25,925 12,132 Income tax expense (5,081) (4,194) (11,018) (5,217) ----------- --------- ----------- --------- Earnings before discontinued operations 6,874 5,559 14,907 6,915 Earnings from discontinued operations, net of tax - - - 1,398 ----------- --------- ----------- --------- Net earnings $ 6,874 $ 5,559 $ 14,907 $ 8,313 =========== ========= =========== ========= Earnings per common share: Basic: Continuing operations $ 0.39 $ 0.32 $ 0.84 $ 0.40 Discontinued operations - - - 0.08 ----------- --------- ----------- --------- Net basic earnings per common share $ 0.39 $ 0.32 $ 0.84 $ 0.48 =========== ========= =========== ========= Diluted: (a) Continuing operations $ 0.35 $ 0.30 $ 0.81 $ 0.39 Discontinued operations - - - 0.08 ----------- --------- ----------- --------- Net diluted earnings per common share $ 0.35 $ 0.30 $ 0.81 $ 0.47 =========== ========= =========== ========= Weighted average shares outstanding Basic 17,737 17,336 17,652 17,281 =========== ========= =========== ========= Diluted (a) 22,406 21,999 22,328 17,526 =========== ========= =========== ========= Backlog of unfilled orders $501,320 $449,553 =========== ========= (a) Assumes exercise of dilutive stock options, and conversion of the 5.25% Convertible Subordinated Notes into 4.4 million common shares. The Notes were dilutive in the third quarter of 2003 and 2004 and YTD 2004. EDO Corporation and Subsidiaries Condensed Consolidated Balance Sheets ($000's omitted) Sept 25, Dec 31, 2004 2003 --------------------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 99,825 $ 86,632 Accounts receivable, net 131,298 134,303 Inventories 51,294 34,733 Deferred income tax asset, net 3,594 3,594 Prepayments & other 4,170 5,954 --------------------------- Total Current Assets 290,181 265,216 Property, plant and equipment, net 30,255 31,355 Notes receivable 6,736 6,538 Goodwill 92,249 92,527 Other intangible assets 51,661 55,898 Deferred income tax asset, net 21,610 21,774 Other assets 19,547 21,388 --------------------------- Total Assets $ 512,239 $ 494,696 =========================== Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $ 77,248 $ 84,743 Contract advances and deposits 13,548 8,195 -------------------------- Total Current Liabilities 90,796 92,938 Long-term debt 137,800 137,800 Post-retirement benefits obligations 72,704 71,898 Environmental obligation 1,686 1,728 Shareholders' equity 209,253 190,332 -------------------------- Total Liabilities & Shareholders' Equity $ 512,239 $ 494,696 =========================== EDO Corporation and Subsidiaries SEGMENT DATA ($000's omitted) Three months ended Nine months ended Sept 25, Sept 27, Sept 25, Sept 27, 2004 2003 2004 2003 ------------------ ----------------- (unaudited) (unaudited) Net sales: Defense $ 98,781 $ 94,108 $286,248 $251,051 Communications and Space Products 20,485 13,308 46,547 41,011 Engineered Materials 10,609 11,367 34,247 32,834 ----------------- ----------------- $129,875 $118,783 $367,042 $324,896 ================== ================= Operating earnings (loss): Defense (1) $ 9,503 $ 10,781 $ 27,503 $ 23,520 Communications and Space Products 2,633 295 1,639 2,346 Engineered Materials 1,912 802 2,924 1,497 Impairment loss on assets held for sale - - - (9,160) ------------------ ---------------- 14,048 11,878 32,066 18,203 Net interest expense (1,967) (2,022) (5,990) (6,096) Other, net (126) (103) (151) 25 ------------------ ----------------- Earnings before income taxes $ 11,955 $ 9,753 $ 25,925 $ 12,132 ================== ================= (1) Acquisition-related costs included above. - 249 - 669 EDO Corporation and Subsidiaries Reconciliation from GAAP to Pro Forma Earnings ($000's omitted, except per share data) (Before Discontinued Operations in 2003) Three months ended Nine months ended Sept 25, Sept 27, Sept 25, Sept 27, 2004 2003 2004 2003 -------- --------- -------- -------- (unaudited) (unaudited) Earnings from continuing operations before income taxes $ 11,955 $ 9,753 $ 25,925 $ 12,132 Impairment loss on assets held for sale - - - 9,160 Acquisition-related costs - 249 - 669 Compensation expense re: accelerated options - - - 292 -------- --------- -------- -------- Pro forma earnings before income taxes 11,955 10,002 25,925 22,253 Income tax expense (5,081) (4,301) (11,018) (9,569) --------- --------- -------- -------- Pro forma net earnings $ 6,874 $ 5,701 $ 14,907 $ 12,684 --------- --------- -------- -------- Calculation of pro forma diluted earnings per share: Interest expense avoided on convertible notes, net of tax 1,040 1,031 3,120 - --------- --------- -------- -------- Pro forma net earnings available for common shares 7,914 6,732 18,027 12,684 Diluted shares outstanding 22,406 21,999 22,328 17,526 Pro forma diluted earnings per share $ 0.35 $ 0.31 $ 0.81 $ 0.72 ========= ========= ======== ======== Calculation of EBITDA Three months ended Nine months ended Sept 25, Sept 27, Sept 25, Sept 27, 2004 2003 2004 2003 --------- --------- -------- -------- (unaudited) (unaudited) Earnings from continuing operations before income taxes $ 11,955 $ 9,753 $ 25,925 $ 12,132 Interest expense 2,304 2,295 6,771 6,769 Interest income (337) (273) (781) (673) --------- --------- -------- -------- Net interest expense 1,967 2,022 5,990 6,096 Depreciation 2,618 3,019 8,073 9,017 Amortization 1,369 1,424 4,254 3,529 --------- --------- -------- -------- Total depreciation & amortization 3,987 4,443 12,327 12,546 --------- --------- -------- -------- EBITDA 17,909 16,218 44,242 30,774 Impairment loss on assets held for sale - - - 9,160 Acquisition-related costs - 249 - 669 Compensation expense re: accelerated options - - - 292 ESOP compensation expense 1,058 846 3,086 2,356 Pension expense 550 1,000 1,650 3,000 --------- --------- -------- -------- EBITDA, as adjusted $ 19,517 $18,313 $ 48,978 $ 46,251 Diluted shares outstanding 17,998 17,591 17,919 17,526 EBITDA, as adjusted, per share* $ 1.08 $ 1.04 $ 2.73 $ 2.64 ========= ========= ======== ======== *Excludes potential impact of subordinated note conversion. EDO Corporation and Subsidiaries GUIDANCE DATA ESTIMATES Fiscal 2004 ------------- Revenue range $525 million - $535 million Pension costs $2.2 million Effective operating tax rate 42.0% - 43.0% EBITDA, as adjusted, margin range 13.0% - 14.0% ESOP shares issued per quarter 42,376 Average diluted shares outstanding*: - If Note conversion is NOT dilutive 17.9 million - If Note conversion is dilutive 22.3 million * "If-converted method" (FAS 128) to determine diluted EPS: (Shares to be issued if 5.25% Notes are converted at $31.26/share would be 4,408,189.) - Quarterly Dilution Test Since the after-tax interest on Notes reduces Net Earnings by $1,039,959 per quarter, the decision point for the dilution test is $1,039,959 / 4,408,189, or $0.2359 per share. When basic EPS for a quarter are more than $0.2359, the impact of the Notes is dilutive. The Notes were dilutive to EPS this quarter and for the year to date. - Annual Dilution Test Since the after-tax interest on Notes reduces Net Earnings by $4,159,838 per year, the decision point for the dilution test is $4,159,838 / 4,408,189, or $0.9437 per share. When basic EPS for the year are more than $0.9437, the impact of the Notes is dilutive. Based on current projections, the Notes are expected to be dilutive for the 2004 full-year. If so, the EPS calculation will be based on about 22.3 million shares. This table contains estimates based on management's current expectations. This information is forward-looking, and actual results may differ materially. CONTACT: EDO Corp. William A. Walkowiak, 212-716-2038 ir@edocorp.com