EX-99 2 a5197092ex99a.txt EXHIBIT 99A Exhibit 99a EDO Reports Second Quarter Results; Signs Two Acquisition Agreements NEW YORK--(BUSINESS WIRE)--July 27, 2006--EDO Corporation (NYSE: EDO) recorded revenue of $152.4 million in the second quarter of 2006, a decline of 2.4 percent from the $156.1 million recorded in the second quarter of 2005. Net earnings for the quarter were $6.3 million, up 3.0 percent from $6.1 million in the prior year's quarter. On a diluted per-share basis, earnings were $0.30 for the second quarter of 2006, versus $0.31 in the second quarter of 2005. Results were impacted by a decline in revenue related to electronic-force-protection products. During the second quarter of 2005, EDO was in accelerated production of a large order that generated $27.6 million in revenue. Corresponding electronic-force-protection revenue in the second quarter of 2006 was $4.5 million. Excluding this product, revenue for the quarter was $147.9 million versus $128.5 million in 2005, an increase of 15 percent. Results for the quarter were also impacted by a $3.7 million benefit due to the reversal of income-tax-contingency reserves related to the resolution of an outstanding tax matter. For the six-month period ended June 24, 2006, revenue was $272.1 million, versus $272.6 million recorded in the first half of 2005. This included $9.5 million in sales of electronic force protection products for the first half of 2006 versus $38.3 million in the first half of 2005. Net earnings for the first half of 2006 were $5.3 million, versus $9.0 million in the same period last year. On a diluted per-share basis, earnings were $0.29, versus $0.49 in the first half of 2005. "We expect improvement in revenue and earnings during the second half of 2006," said Chief Executive Officer James M. Smith. "A key driver in this improvement will be revenue growth from our communications and networking products. Additionally, we expect both of our announced acquisitions to be accretive to earnings." Acquisitions On July 26, EDO agreed to acquire CAS Inc, a privately-held company that provides engineering services and weapons-systems analysis to the Department of Defense. This acquisition is expected to be completed by September and will triple the size of EDO's Professional and Engineering Services. The CAS financial results will be included in EDO's Engineered Systems and Services reporting segment, adding approximately $65 million to revenue in 2006. Also on July 26, EDO agreed to acquire Impact Science & Technology Inc, a privately-held company that provides signal intelligence services and systems to the intelligence community, and advanced countermeasures and electronic attack systems to the Department of Defense and various government agencies. This acquisition is expected to be completed by September and will add approximately $20 million to revenue in 2006. Impact Science & Technology will be included in EDO's Electronic Systems and Communications reporting segment. Organic Revenue Growth Organic revenue, which excludes revenue from acquisitions owned less than one year, declined by $12.0 million, or 7.5 percent. This is due to higher revenue in 2005 driven by significantly accelerated deliveries in order to meet the force protection needs of our soldiers. Excluding revenue related to electronic-force-protection products, organic growth was 9.2 percent, and will be approximately 15 percent for the full year. For 2007, we expect to return to our organic-revenue-growth target of 8 to 10 percent annually. Increased Revenue Guidance In anticipation of acquiring CAS and Impact Science & Technology by September, the 2006 revenue forecast is being increased to a range of $735 million to $750 million, compared to $648 million achieved in 2005. This takes into account a reduced revenue forecast for electronic-force-protection products following the government's decision to conduct a new competition for counter-IED systems. Margins Operating margins for the three months ended June 24, 2006 were 3.8 percent of net sales, versus 8.0 percent in the second quarter of 2005. This decline was due primarily to the lower sales related to electronic-force-protection products. Margins this year also have been reduced by certain low-margin developmental contracts. As is typical of such developmental work, these contracts should result in high-revenue contracts at normal production margins in future years. In particular during the second quarter, margins were impacted by higher than expected development costs for sonar and aircraft-armament-system contracts. EBITDA, as adjusted, was $12.8 million, or 8.4 percent of revenue in the second quarter of 2006, versus $18.4 million, or 11.8 percent of revenue in the prior year's quarter. For the year-to-date, EBITDA, as adjusted, was $19.3 million, or 7.1 percent of revenue in the first half of 2006, versus $31.4 million, or 11.5 percent of revenue in the prior year. For the full year of 2006, adjusted EBITDA margin is expected to be approximately 10 percent. This is lower than previously estimated due to the impact of the developmental contracts discussed above. 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. Cash Flow Cash used by operations was $4.1 million, versus $2.5 million in the second quarter of 2005. Year-to-date, positive cash flow from operations was $9.9 million, versus $7.9 million of cash used by operations in the prior year. For the full year, we expect to generate positive cash flow from operations in a range consistent with our historical performance, which over the long term is in excess of net earnings. EDO's cash balance at the end of the second quarter was $109.1 million, versus $108.7 million at the end of 2005. Most of this cash will be used in funding the acquisitions that are expected to close by September. Backlog The total funded backlog of unfilled orders as of June 24 stood at $608.0 million, versus $585.5 million on March 25; $558.7 on Dec. 31, 2005; and $535.1 million at the end of the second quarter of 2005. 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 $642 million in what we view as high-confidence future revenue, for a total of more than $1.2 billion. Backlog does not include any amounts related to the pending acquisition of CAS or Impact Science & Technology. Conference Call EDO will conduct a conference call at 10:30 a.m. EDT on July 27 to review these results in more detail. A live webcast of the conference call will be available at www.edocorp.com or www.InvestorCalendar.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 3. To listen to the telephone replay, dial 1-877-660-6853, account #286, and conference ID #207052 (outside the U.S. dial 1-201-612-7415). About EDO Corporation EDO Corporation designs and manufactures a diverse range of products for defense, intelligence, and commercial markets, and provides related engineering and professional services. Major product groups include: Defense Electronics, Communications, Aircraft Armament Systems, Undersea Warfare, Integrated Composite Structures, and Professional and Engineering Services. EDO's advanced systems are at the core of the transformation to lighter, faster, and smarter defense capabilities. With headquarters in New York, EDO Corporation (www.edocorp.com) employs 3,000 people worldwide. The company was founded in 1925 and had revenues of $648 million in 2005. Forward-Looking Statements Certain statements made in this release, including statements about future revenues, long-term organic revenue growth, annual revenue expectations, future earnings, and EBITDA margins, 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, 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 24, June 25, June 24, June 25, 2006 2005 2006 2005 ----------- --------- ----------- --------- (unaudited) (unaudited) Net sales $152,398 $156,112 $272,107 $272,620 Costs and expenses: Cost of sales 119,657 118,360 210,901 203,414 Selling, general and administrative 23,903 20,014 49,261 40,302 Research and development 3,006 3,994 6,212 8,412 Environmental cost provision - 1,250 - 1,250 ----------- --------- ----------- --------- 146,566 143,618 266,374 253,378 ----------- --------- ----------- --------- Operating earnings 5,832 12,494 5,733 19,242 Interest income 1,101 294 2,122 795 Interest expense (2,237) (2,274) (4,661) (4,465) Other, net (111) (15) (257) (60) ----------- --------- ----------- --------- Non-operating expense, net (1,247) (1,995) (2,796) (3,730) ----------- --------- ----------- --------- Net earnings before income taxes 4,585 10,499 2,937 15,512 Income tax benefit (expense) 1,686 (4,410) 2,395 (6,515) ----------- --------- ----------- --------- Net earnings $ 6,271 $ 6,089 $ 5,332 $ 8,997 =========== ========= =========== ========= Net earnings per common share: Basic: $ 0.35 $ 0.34 $ 0.30 $ 0.50 Diluted: $ 0.30 $ 0.31 $ 0.29 $ 0.49 =========== ========= =========== ========= Weighted average shares outstanding Basic 18,099 18,065 18,055 17,998 Diluted (a) 24,467 22,741 18,538 22,690 =========== ========= =========== ========= Backlog of unfilled orders $608,034 $535,091 =========== ========= (a) Assumes exercise of dilutive stock options. The convertible notes were dilutive in the second quarter of both years, as well as the first half of 2005. They were anti-dilutive in the first half of 2006. EDO Corporation and Subsidiaries Condensed Consolidated Balance Sheets ($000's omitted) June 24, Dec 31, 2006 2005 ---------------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 109,092 $ 108,731 Accounts receivable, net 168,015 189,190 Inventories 70,761 56,567 Deferred income tax asset, net 9,090 8,946 Notes receivable 7,000 7,100 Prepayments & other 13,159 3,809 ---------------------- Total Current Assets 377,117 374,343 Property, plant and equipment, net 52,013 49,574 Goodwill 149,419 152,347 Other intangible assets 58,211 55,925 Deferred income tax asset, net 27,300 29,637 Other assets 25,217 25,573 ---------------------- Total Assets $ 689,277 $ 687,399 ====================== Liabilities & Shareholders' Equity Current Liabilities: Accounts payable and accrued liabilities $ 72,845 $ 85,237 Contract advances and deposits 45,405 42,244 Note payable, current 2,000 2,000 ---------------------- Total Current Liabilities 120,250 129,481 Income taxes payable 6,513 6,513 Note payable, long term 5,000 5,000 Long-term debt 201,250 201,250 Post-retirement benefits obligations 104,268 103,815 Environmental obligation 1,386 1,392 Other long-term liabilities 48 55 Shareholders' equity 250,562 239,893 ---------------------- Total Liabilities & Shareholders' Equity $ 689,277 $ 687,399 ====================== EDO Corporation and Subsidiaries SEGMENT DATA (In thousands) Three months ended Six months ended June 24, June 25, June 24, June 25, 2006 2005 2006 2005 ------------------ ------------------ (unaudited) (unaudited) Net sales: Engineered Systems & Services $ 62,164 $ 61,638 $121,430 $112,661 Electronic Systems & Communications 90,234 94,474 150,677 159,959 ------------------ ------------------- $152,398 $156,112 $272,107 $272,620 ================== =================== Operating earnings: Engineered Systems & Services $ 1,588 $ 2,396 $ 3,217 $ 6,163 Electronic Systems & Communications 4,244 11,348 2,516 14,329 Environmental cost provision - (1,250) (1,250) ------------------ ------------------- 5,832 12,494 5,733 19,242 Net interest expense (1,136) (1,980) (2,539) (3,670) Other, net (111) (15) (257) (60) ------------------ ------------------- Earnings before income taxes $ 4,585 $ 10,499 $ 2,937 $ 15,512 ================== =================== EDO Corporation and Subsidiaries Calculation of EBITDA (In thousands, except per share amounts) Three months ended Six months ended June 24, June 25, June 24, June 25, 2006 2005 2006 2005 ---------- -------- ---------- -------- (unaudited) (unaudited) Net earnings before income taxes $ 4,585 $ 10,499 $ 2,937 $ 15,512 Interest expense 2,237 2,274 4,661 4,465 Interest (income) (1,101) (294) (2,122) (795) ---------- -------- ---------- -------- Net interest expense 1,136 1,980 2,539 3,670 Depreciation 2,958 2,300 5,736 4,942 Amortization 1,800 1,311 3,414 2,621 ---------- -------- ---------- -------- Total depreciation & amortization 4,758 3,611 9,150 7,563 ----------- --------- ----------- --------- EBITDA 10,479 16,090 14,626 26,745 ESOP compensation expense 1,149 1,236 2,335 2,550 Pension expense 1,194 1,069 2,388 2,139 ---------- -------- ---------- -------- EBITDA, as adjusted $ 12,822 $ 18,395 $ 19,349 $ 31,434 Diluted shares outstanding * 18,581 18,333 18,538 18,282 EBITDA, as adjusted, per share * $ 0.69 $ 1.00 $ 1.04 $ 1.72 ========== ======== ========== ======== * Excludes potential impact of subordinated note conversion. Summary of Cash Flows (In thousands) Three months ended Six months ended June 24, June 25, June 24, June 25, 2006 2005 2006 2005 ---------- -------- ---------- -------- (unaudited) (unaudited) Cash provided (used) by operations $ (4,105) $ (2,474) $ 9,912 $ (7,887) Cash (used) by investing activities $ (4,317) $(41,616) $ (9,541) $(48,011) Cash provided (used) by financing activities $ 27 $ (4,752) $ (10) $ (5,058) ---------- -------- ---------- -------- $ (8,395) $(48,842) $ 361 $(60,956) ========== ======== ========== ======== EDO Corporation and Subsidiaries GUIDANCE DATA ESTIMATES Fiscal 2006 ------------ Revenue range $735 million - $750 million Pension expense $4.8 million FAS 123(R) Option Expense $0.9 million Effective operating tax rate range 42% - 43% Adjusted EBITDA margin 10.00% ESOP shares issued per quarter 42,376 Average diluted shares outstanding*: - If Note conversion is NOT dilutive 18.1 million - If Note conversion is dilutive 24.5 million * "If-converted method" (FAS 128) to determine diluted EPS: (Shares to be issued if 4.00% Notes are converted at $34.19/share would be 5,886,422.) - Quarterly Dilution Test Since the after-tax interest on Notes reduces Net Earnings by $1,187,375 per quarter, the decision point for the dilution test is $1,187,375 / 5,886,422 shares, or $0.20 per share. When basic EPS for a quarter are more than $0.20, the impact of the Notes is dilutive. The Notes were dilutive to EPS this quarter but not for the year to date. Annual Dilution Test Since the after-tax interest on Notes reduces Net Earnings by $4,749,500 per year, the decision point for the dilution test is $4,749,500 / 5,886,422 shares, or $0.81 per share. When basic EPS for the year are more than $0.81, the impact of the Notes is dilutive. Based on current projections, the Notes are expected to be dilutive for the 2006 full-year. If so, the EPS calculation will be based on about 24.5 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 Investor Relations: William A. Walkowiak, 212-716-2038 ir@edocorp.com