EX-99 2 a4940336ex99.txt EDO CORPORATION EXHIBIT 99 Exhibit 99 EDO Earnings Rise 46 Percent in Second Quarter; Revenue Increases 24 Percent; 2005 Revenue Guidance Increased NEW YORK--(BUSINESS WIRE)--July 28, 2005--EDO Corporation (NYSE: EDO) recorded revenue of $156.1 million in the second quarter of 2005, up 23.6 percent from the $126.3 million recorded in the second quarter of 2004. Net earnings for the quarter were $6.1 million, up 45.8 percent from $4.2 million in the prior year's quarter. On a diluted per-share basis, earnings were $0.31, up 34.8 percent from $0.23 in the second quarter of 2004. This quarter's results include an environmental charge of $1.25 million for remediation needed at our recently vacated facility in Deer Park, N.Y. Excluding this charge, diluted earnings were $0.35 per share. For the six-month period ended June 25, 2005, revenue was $272.6 million, up 14.9 percent from the $237.2 million recorded in the first half of 2004. Net earnings for the first half of 2005 were $9.0 million, up 12.0 percent from $8.0 million in the same period last year. On a diluted per-share basis, earnings were $0.49, up 8.9 percent from $0.45 in the first half of 2004. Excluding the environmental charge, diluted earnings were $0.52 per share. "We continue to expect 2005 to be a year of substantial growth, with our second quarter clearly demonstrating strong increases in both revenue and net income," said Chief Executive Officer James M. Smith. "In addition to our strong financial results, second quarter highlights included resolving the protest of a $240 million contract from the Marine Corps for battlefield-communications equipment, an additional order of up to $69 million for Warlock electronic-force-protection equipment, and a $28 million order for electronic-surveillance systems." Organic Revenue Growth Organic revenue growth, which excludes acquisitions owned for less than one year, exceeded 20 percent for the quarter, and 13 percent for the year-to-date. For the full year, the company expects organic revenue growth to exceed 14 percent, substantially above our long-term target rate of 8 to 10 percent. This is due primarily to revenue from electronic-force-protection systems anticipated in the second half. Margins Operating margins were 8.0 percent versus 7.4 percent in the second quarter of 2004. This operating margin increase was achieved despite the environmental charge and $2.4 million of facilities consolidation expenses. Excluding the impact of these two facilities-related items, operating margins would be approximately 10.3 percent. EBITDA, as adjusted, was $18.4 million, or 11.8 percent of revenue in the second quarter of 2005, versus $15.1 million, or 12.0 percent of revenue in the prior year's quarter. For the year-to-date, EBITDA, as adjusted, was $31.4 million, or 11.5 percent of revenue in the first half of 2005, versus $29.5 million, or 12.4 percent of revenue in the prior year. The company expects EBITDA margins to reach or exceed the target range of 13 to 14 percent by year end. EBITDA is a generally accepted metric employed by our industry. Our adjustments include primarily ESOP and pension expenses, and are identified in detail on the attached reconciliation schedule. Impact of Undefinitized Letter Contracts In support of current military operations and the Army's urgent need for electronic-force-protection equipment, EDO has been manufacturing certain equipment without final, definitized contracts. Authority to operate in this manner was provided by undefinitized "letter" contracts, which guarantee a defined minimum funding amount pending the completion of negotiations. On January 13, 2005, EDO received an undefinitized contract for up to $74.8 million, with funding authorized at $56.1 million, or 75 percent of the ceiling price. This contract was definitized on July 13 in the amount of $64.2 million. The $10.6 million savings from the ceiling price was made possible by manufacturing and supply-chain management efficiencies that EDO and our suppliers have achieved and have passed on to the government. This undefinitized contract had a significant impact on cash flow during the second quarter, because the full sales amount could not be billed and collected until the contract was finalized. Although this created timing delays in receiving payment, it did not affect revenue recognition. More important, the letter contract expedited delivery of this urgently-needed equipment to our troops much sooner than the normal procurement process would have allowed. On June 20, EDO received an additional undefinitized contract for up to $69.4 million, with funding authorized at $34.0 million, or 49 percent of the ceiling price. Most of the equipment ordered through this contract is expected to be delivered within 2005. However, until the contract is definitized, there may be similar delays in receiving full payment. Acquisitions During the second quarter, EDO acquired a privately-held designer, manufacturer, and integrator of classified intelligence systems. The acquired company became part of EDO's Defense segment and added $4.3 million to revenue in the second quarter. This acquisition is expected to add approximately $15 million to revenue in 2005. Cash Flow Cash used by operations was $2.2 million in the second quarter. It should be noted that this included about $24 million of increases in inventories and accounts receivable, primarily related to the undefinitized contract discussed above. These temporary increases are expected to be reversed in the third quarter, now that the contract has been definitized. For the full year, we expect to generate positive cash flow from operations in a range consistent with our historical performance. EDO's cash balance at the end of the first quarter was $37.9 million, versus $86.8 million at the end of the first quarter, and $98.9 million at the end of 2004. The decrease was due primarily to the acquisition, as well as previously disclosed capital investments, expenditures related to major facilities projects, and the temporary use of cash due to the undefinitized contract. Backlog The total funded backlog of unfilled orders as of June 25 stood at $535.1 million, up from $505.5 million at the end of the first quarter, and $474.6 million on Dec. 31, 2004. 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 options add approximately $568 million in what we view as high-confidence future revenue, for a total of more than $1.1 billion. Increased Revenue Guidance On April 24, EDO raised its full-year revenue guidance to the range of $600 million to $610 million. As a result of higher expectations for electronic-force protection equipment, as well as our recent acquisition, EDO is now forecasting a range of $630 million to $640 million for 2005. Conference Call EDO will conduct a conference call at 10:30 a.m. EDT on July 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 these websites. There will also be a telephone replay available until August 4. To listen to the telephone replay, dial 1-877-660-6853 (outside the U.S. dial 1-201-612-7415), account #286, and conference ID #159115. 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 revenue, organic revenue growth, annual revenue, net income, and EBITDA margin expectations, and future cash flow from operations, 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 and services, product mix, the timing of customer orders and deliveries, changes in the government's funding priorities, the impact of competitive products and pricing, the negotiation of undefinitized contracts, 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 (In thousands, except per share amounts) Three months ended Six months ended June 25, June 26, June 25, June 26, 2005 2004 2005 2004 ----------- --------- ---------- --------- (unaudited) (unaudited) Net sales $156,112 $126,290 $272,620 $237,167 Costs and expenses: Cost of sales 118,360 95,264 203,414 175,922 Selling, general and administrative 20,014 18,824 40,302 38,911 Research and development 3,994 2,851 8,412 4,316 Environmental cost provision 1,250 - 1,250 - ----------- --------- ---------- --------- 143,618 116,939 253,378 219,149 ----------- --------- ---------- --------- Operating earnings 12,494 9,351 19,242 18,018 Interest income 294 202 795 444 Interest expense (2,274) (2,244) (4,465) (4,467) Other, net (15) (47) (60) (25) ----------- --------- ---------- --------- Non-operating expense, net (1,995) (2,089) (3,730) (4,048) ----------- --------- ---------- --------- Net earnings before income taxes 10,499 7,262 15,512 13,970 Income tax expense (4,410) (3,086) (6,515) (5,937) ----------- --------- ---------- --------- Net earnings $6,089 $4,176 $8,997 $8,033 =========== ========= ========== ========= Net earnings per common share: Basic: $0.34 $0.24 $0.50 $0.46 Diluted: $0.31 $0.23 $0.49 $0.45 =========== ========= ========== ========= Weighted average shares outstanding Basic 18,065 17,670 17,998 17,610 Diluted (a) 22,741 17,927 22,690 17,880 =========== ========= ========== ========= Backlog of unfilled orders $535,091 $535,901 ========== ========= (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 second quarter and YTD of 2005. EDO Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts) June 25, Dec 31, 2005 2004 --------------------- (unaudited) Assets Current Assets: Cash and cash equivalents $37,928 $98,884 Accounts receivable, net 171,797 153,810 Inventories 74,483 52,867 Deferred income tax asset, net 4,933 5,046 Notes receivable 7,184 7,202 Prepayments & other 4,316 3,493 --------------------- Total Current Assets 300,641 321,302 Property, plant and equipment, net 43,299 34,830 Goodwill 128,941 91,651 Other intangible assets 47,735 50,356 Deferred income tax asset, net 30,241 30,241 Other assets 15,693 18,309 --------------------- Total Assets $566,550 $546,689 ===================== Liabilities and Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $83,517 $80,898 Contract advances and deposits 17,739 13,696 --------------------- Total Current Liabilities 101,256 94,594 Income taxes payable 5,768 5,768 Long-term debt 137,800 137,800 Post-retirement benefits obligations 95,714 94,936 Environmental obligation 1,659 1,663 Shareholders' equity 224,353 211,928 --------------------- Total Liabilities & Shareholders' Equity $566,550 $546,689 ===================== EDO Corporation and Subsidiaries SEGMENT DATA (In thousands) Three months ended Six months ended June 25, June 26, June 25, June 25, 2005 2004 2005 2004 ------------------ ------------------ (unaudited) (unaudited) Net sales: Defense $104,036 $99,427 $190,163 $187,467 Communications and Space Products 41,315 14,510 61,115 26,062 Engineered Materials 10,761 12,353 21,342 23,638 ------------------ ------------------ $156,112 $126,290 $272,620 $237,167 ================== ================== Operating earnings (loss): Defense $8,954 $8,970 $15,341 $18,000 Communications and Space Products 4,948 97 4,833 (994) Engineered Materials (158) 284 318 1,012 Environmental cost provision (1,250) - (1,250) - ------------------ ------------------ 12,494 9,351 19,242 18,018 Net interest expense (1,980) (2,042) (3,670) (4,023) Other, net (15) (47) (60) (25) ------------------ ------------------ Net earnings before income taxes $10,499 $7,262 $15,512 $13,970 ================== ================== EDO Corporation and Subsidiaries Calculation of EBITDA (In thousands, except per share amounts) Three months ended Six months ended June 25, June 26, June 25, June 26, 2005 2004 2005 2004 ----------- -------- ---------- -------- (unaudited) (unaudited) Net earnings before income taxes $10,499 $7,262 $15,512 $13,970 Interest expense 2,274 2,244 4,465 4,467 Interest income (294) (202) (795) (444) ----------- -------- ---------- -------- Net interest expense 1,980 2,042 3,670 4,023 Depreciation 2,265 2,870 4,907 5,455 Amortization 1,311 1,444 2,621 2,885 ----------- -------- ---------- -------- Total depreciation & amortization 3,576 4,314 7,528 8,340 ----------- -------- ---------- -------- EBITDA 16,055 13,618 26,710 26,333 ESOP compensation expense 1,236 977 2,550 2,028 Pension expense 1,069 550 2,139 1,100 ----------- -------- ---------- -------- EBITDA, as adjusted $18,360 $15,145 $31,399 $29,461 Diluted shares outstanding * 18,333 17,927 18,282 17,880 EBITDA, as adjusted, per share * $1.00 $0.84 $1.72 $1.65 =========== ======== ========== ======== * Excludes potential impact of subordinated note conversion. EDO Corporation and Subsidiaries GUIDANCE DATA ESTIMATES Fiscal 2005 ----------------------------- Revised revenue range $630 million - $640 million Pension costs $4.3 million Effective operating tax rate 42% 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 18.4 million - If Note conversion is dilutive 22.8 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 $1,067,089 per quarter, the decision point for the dilution test is $1,067,089 / 4,408,189, or $0.2421 per share. When basic EPS for a quarter are more than $0.2421, 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 $4,268,355 per year, the decision point for the dilution test is $4,268,355 / 4,408,189, or $0.9683 per share. When basic EPS for the year are more than $0.9683, the impact of the Notes is dilutive. Based on current projections, the Notes are expected to be dilutive for the 2005 full-year. If so, the EPS calculation will be based on about 22.8 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 Corporation William A. Walkowiak, CFA, 212-716-2038 ir@edocorp.com