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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For Quarter Ended September 24, 1994
Commission File Number 1-3985
EDO CORPORATION
(Exact name of registrant as specified in its charter)
New York No. 11-0707740
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
14-04 111th Street, College Point, New York 11356-1434
(Address of principal executive offices) (Zip Code)
Telephone Number (718) 321-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at Sept. 24, 1994
Common shares, par value $1 per share 5,589,333
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EDO CORPORATION
INDEX
Page No.
Face Sheet 1
Index 2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
Sept. 24, 1994 and
December 31, 1993 3
Consolidated Statements of
Operations - Three Months Ended
Sept. 24, 1994 and
Sept. 25, 1993 4
Consolidated Statements of
Operations - Nine Months Ended
Sept. 24, 1994 and
Sept. 25, 1993 5
Consolidated Statements of Cash Flows -
Nine Months Ended
Sept. 24, 1994 and
Sept. 25, 1993 6
Other Financial Information 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8-10
Part II Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8K 11-12
Signature 13
Exhibit Index 14
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Assets Sept. 24, 1994 Dec. 31, 1993
(unaudited)
Current assets:
Cash and cash equivalents $ 7,881 $ 9,284
Recoverable Federal income taxes 5,250 2,322
Accounts receivable 34,879 38,283
Inventory 13,136 18,155
Prepayments 2,025 1,139
-------- --------
Total current assets 63,171 69,363
-------- --------
Property, plant and equipment, at cost 88,402 92,389
Less accumulated depreciation and
amortization 60,387 58,512
-------- --------
Net property, plant and equipment 28,015 33,877
Cost in excess of fair value of net
assets acquired 10,988 11,415
Deferred Federal and foreign taxes - 1,011
Other assets 11,853 7,739
-------- --------
Total assets $114,027 $123,405
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable & accrued
liabilities $ 21,313 $ 21,019
Contract advances and deposits 3,046 7,279
-------- --------
Total current liabilities 24,359 28,298
-------- --------
Long-term debt 29,317 29,317
ESOT loan obligation 14,266 15,045
Environmental obligation 4,548 -
Postretirement obligation 13,832 13,492
Minority interest 2,967 2,967
Shareholders' Equity
Preferred shares, par value $1 per share,
authorized 500,000 shares, issued 76,518
shares at 9/24/94 and 80,056 shares at
12/31/93 77 80
Common shares, par value $1 per share,
authorized 25,000,000 shares,
issued 8,453,902 shares (both periods) 8,454 8,454
Additional paid-in capital 40,109 41,784
Retained earnings 31,908 42,350
-------- --------
80,548 92,668
Less: Treasury shares at cost
(2,864,569 shares at 9/24/94
and 2,982,853 shares at 12/31/93) (40,712) (42,393)
Translation adjustment (786) (749)
ESOT loan obligation (14,266) (15,045)
Deferral under Long-Term
Incentive Plans (46) (195)
-------- --------
Total shareholders' equity 24,738 34,286
-------- --------
Total liabilities & shareholders' equity $114,027 $123,405
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share amounts)
For the three months ended
Sept. 24, 1994 Sept. 25, 1993
(unaudited)
Income
Net sales $ 22,677 $ 22,450
Other 179 59
-------- --------
22,856 22,509
Costs and Expenses
Cost of sales 26,714 17,130
Selling, general and administrative 3,583 4,361
Research and development 795 1,544
-------- --------
31,092 23,035
Operating Loss (8,236) (526)
-------- --------
Non-Operating Income (Expense)
Interest income 41 93
Interest expense (588) (594)
Other, net 84 (111)
-------- --------
(589) (612)
Loss before Federal income taxes (8,825) (1,138)
Recovery of Federal income taxes (2,322) (527)
-------- --------
Net loss before minority interest (6,503) (611)
Minority interest (241) 214
-------- --------
Net loss (6,744) (387)
Dividends on preferred shares 327 346
-------- --------
Net loss available for Common Shares $ (7,071) $ (733)
======== ========
Loss per Common Share:
Net loss available for Common Shares $ (1.26) $ (0.14)
======== ========
Average shares outstanding 5,600 5,450
======== ========
Cash dividends per Common Share $ None $ 0.07
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share amounts)
For the nine months ended
Sept. 24, 1994 Sept. 25, 1993
(unaudited)
Income
Net sales $ 68,132 $ 76,687
Other 278 333
-------- --------
68,410 77,020
Costs and Expenses
Cost of sales 63,723 60,174
Selling, general and administrative 12,071 11,602
Research and development 3,155 4,610
Litigation settlement - 1,212
-------- --------
78,949 77,598
Operating loss (10,539) (578)
-------- --------
Non-Operating Income (Expense)
Interest income 147 215
Interest expense (1,774) (1,859)
Other, net 301 (265)
-------- --------
(1,326) (1,909)
Loss before Federal income taxes (11,865) (2,487)
Recovery of Federal income taxes (3,200) (1,235)
-------- --------
Net loss before cumulative effect
of accounting change and minority
interest (8,665) (1,252)
Cumulative effect of change in accounting
for postretirement health benefits
(net of taxes of $4,000) - (9,400)
-------- --------
Net loss before minority interest (8,665) (10,652)
Minority interest - 495
-------- --------
Net loss (8,665) (10,157)
Dividends on preferred shares 1,011 1,064
-------- --------
Net loss available for
Common Shares $ (9,676) $(11,221)
======== ========
Loss per Common Share:
Net loss available for Common Shares
before accounting change $ (1.75) $ (0.34)
Cumulative effect of change in
accounting for postretirement
health benefits - (1.74)
-------- --------
Net loss $ (1.75) $ (2.08)
======== ========
Average shares outstanding 5,522 5,395
======== ========
Cash dividends per Common Share $ 0.14 $ 0.21
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the nine months ended
Sept. 24, 1994 Sept. 25, 1993
(unaudited)
Operating Activities:
Net loss $ (8,665) $(10,157)
Adjustments to net loss to arrive
at cash from operations:
Gain on sale of building (427) -
Depreciation and amortization 5,470 5,046
Decrease in current and deferred
income taxes (1,917) (4,091)
Common shares issued for employee benefits 152 156
Cumulative effect of change in accounting
for postretirement health benefits - 13,400
Changes in:
Accounts receivable 3,404 11,219
Inventories 5,019 2,007
Prepayments, other assets and other 31 (2,504)
Accounts payable and accrued liabilities 294 (1,643)
Contract advances and deposits (4,233) (1,753)
-------- --------
Cash provided (used) by operations (872) 11,680
Investing Activities:
Purchase of property, plant and equipment (1,838) (1,919)
Proceeds from sale of building 3,084 -
-------- --------
Cash provided (used) by investing activities 1,246 (1,919)
Financing Activities:
Reduction of long-term debt - (1,261)
Payment of Common Share cash dividends (766) (1,131)
Payment of preferred share cash dividends (1,011) (1,064)
Tax benefit on preferred dividends paid
on unallocated ESOP preferred shares - 264
-------- --------
Cash (used) by financing activities (1,777) (3,192)
Net increase (decrease) in cash and
cash equivalents (1,403) 6,569
Cash and cash equivalents at beginning of
period 9,284 4,597
-------- --------
Cash and cash equivalents at end of period $ 7,881 $ 11,166
======== ========
Supplemental disclosures:
Cash paid for: Interest $ 1,131 $ 1,147
Income taxes $ 290 $ 492
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Other Financial Information
Unaudited Financial Statements
The accompanying unaudited financial statements and other related financial
information furnished reflect all adjustments which are, in the opinion of
management, necessary to present a fair statement of the operating results for
the nine months ended September 24, 1994 and September 25, 1993.
Backlog Data
The dollar amount of backlog of firm orders at September 24, 1994 was
$77,738,000 compared to $83,766,000 at September 25, 1993.
Inventories
Inventories are summarized by major classification as follows:
Sept. 24, 1994 Dec. 31, 1993
(in thousands)
Raw material and supplies $ 6,220 $ 8,343
Work in process 5,560 8,713
Finished goods 1,356 1,099
-------- --------
$ 13,136 $ 18,155
======== ========
Reclassifications
Certain reclassifications of 1993 amounts have been made to conform with the
1994 presentation.
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Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion relates to the operations of EDO Corporation in its
two business segments: Military Systems; and Commercial and Other Products.
Results of Operations
- - ---------------------
First Nine Months of 1994 Compared with First Nine Months of 1993
- - -------------------------------------------------------------------
Sales in the first nine months of 1994 were $68.1 million compared with $76.7
million in 1993. The sales decrease of 11% reflects continuing reductions in
military spending in general, and the slippage in U.S. Government contract
awards due to changing Administration priorities. Sales in the Military Systems
segment decreased by 20% to $41.1 million due primarily to reductions of sonar,
ceramic and fiber reinforced composite sales. Sales in the Commercial and Other
Products segment increased by 8% to $27.0 million. A decrease in
satellite-system product sales at the Electro-Optics division was more than
offset by increased natural gas vehicle tank sales and by sales at the EDO ANGI
Division, which was acquired in the fourth quarter of 1993. There were no sales
included in the comparable first nine months of 1993 for EDO ANGI.
Results of operations (before general corporate expense allocations) in the
first nine months of 1994 reflected a loss of $7.4 million compared with a
profit of $2.6 million in the first nine months of 1993. The 1994 results
reflect both the negative effect on earnings from the declining revenue base as
well as charges to earnings primarily for non-recurring items that the Company
has recorded in the Commercial and Other Products segment as it continues to
evaluate its operations and assets. The nature of the more significant items
are discussed below.
Operating earnings in the Military Systems segment increased from $3.5 to $4.0
million where expense reductions and a better mix of high and low margin
product sales more than offset additional costs associated with the
consolidation of the College Point facilities.
The Commercial and Other Products segment recorded an operating loss of $11.4
million compared with a $0.9 million profit for the same period in 1993. The
loss in the segment occurred principally in the Electro-Optics division from
lower sales levels, cost overruns on earth sensor development programs, costs
associated with the development of new commercial instruments, and reserves
established for obsolete inventories.
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In addition to the losses that occurred in the Electro-Optics division there
were other non-recurring charges associated with the commercial composites
products where approximately $2.6 million was reserved for assets associated
with products that will no longer be pursued, and a portion of foreign
receivable. Additionally, adding to the loss in the Commercial Products segment
was the second quarter charge associated with the curtailment of activities at
EDO Sports which is estimated at $1.2 million, and less than anticipated sales
at EDO Energy.
Also included in the first nine months of 1994 was a $1.4 million pension plan
curtailment gain, and a reduction in current year pension expense of
approximately $0.6 million, resulting from personnel reductions as the Company
reduces its work force in reaction to the declining sales volume. These
benefits were primarily reflected in the Military Systems segment results.
Selling, general and administrative expenses in the first nine months of 1994
were $12.1 million, compared with $11.6 million in the first nine months of
1993. This increase is primarily attributable to higher expenditures in the new
commercial initiatives at EDO Energy. Additionally, this increase in selling,
general and administrative expenses does not reflect reductions within the
Military Systems segment where these expenses are generally reported in cost of
sales.
Company-sponsored research and development expenditures decreased 32% from the
like 1993 period to $3.2 million. This reduction was approximately the same in
each segment and reflects a more selective approach to development efforts.
Interest expense, net of interest income was $1.6 million in the first nine
months of 1994, the same as in the like period of 1993.
The Company reported a net loss of $9,676,000, or $1.75 per share in the first
nine months of 1994, compared to a net loss of $11,221,000, or $2.08 per share
a year ago. The net loss per common share was $0.34 for the first nine months
of 1993 before giving consideration to the cumulative effect of a change in
accounting of $9.4 million net of taxes, equal to $1.74 per share, to reflect
post- retirement benefits other than pensions. Earnings per share calculations
were based on a weighted average of 5.5 million shares outstanding for the
first nine months of 1994, and 5.4 million shares for the like period in 1993.
Liquidity and Capital Resources
- - -------------------------------
The Company's cash and cash equivalents decreased $1.4 million from December
31, 1993 to $7.9 million at September 24, 1994.
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The Company has an ESOT obligation that is currently $14.5 million. The
repayment of this obligation is funded principally through dividends on the
Company's preferred shares. The Company also has outstanding $29.3 million of
7% Convertible Subordinated Debentures Due 2011. In accordance with
authorization from the Board of Directors, the Company had acquired $5.7
million of such debentures as of June 25, 1994 at prevailing market prices.
These debentures will be used to satisfy sinking fund requirements commencing
in 1996.
The Company has received a commitment from the bank holding its ESOT obligation
to restructure the agreement to waive and or amend the covenants with which
the Company was non-compliant and for the Company to provide security. In
addition, the bank will provide the Company with a $5 million line of credit.
Both obligations will be secured under terms of the formal agreements which are
expected to be signed in the next month. Additionally, the Company has
terminated its $15 million revolving credit agreement with a bank syndicate.
There were no borrowings under this agreement as of September 24, 1994.
Capital expenditures in the first nine months of 1994 amounted to $1.8 million.
The total expenditure for 1994 is expected to be less than the amount spent in
1993.
In August 1994, the Board of Directors of the Company suspended payment of cash
dividends to preserve cash and to facilitate funding of the Company's strategic
business plan.
As explained in the Company's 1993 Annual Report, the Company is involved in an
environmental matter for which management believes it is probable that it will
recover all costs it incurs. The liability of the Company at September 24, 1994
associated with this matter is $6,548,000 and the total expected recovery of
all costs is $9,728,000. Both items are reflected in the accompanying Balance
Sheet. Approximately $4.4 million of the recovery is expected to be received
before the end of 1994 based upon a recently executed settlement agreement with
certain potentially responsible parties. Approximately $3.2 million of costs
have been incurred to date.
The Company believes it has adequate liquidity and sufficient capital resources
to fund its plans.
Backlog
- - -------
The backlog of unfilled orders at September 24, 1994 stood at $77.7 million
compared with $83.8 million at September 25, 1993 and $89.2 million at December
31, 1993. The reduced backlog reflects the overall decline in military
spending. In order to offset these declines the Company is emphasizing its
strategy of diversifying into commercial markets.
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PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. (a) Exhibits
4(a) - Indenture dated December 1, 1986 between Manufacturers Hanover Trust
Company, as Trustee, and EDO Corporation. Incorporated by reference to Exhibit
4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992.
4(b) - Certificate of Amendment of the Certificate of Incorporation, dated and
as filed by the Department of State of the State of New York on July 22, 1988.
This Certificate of Amendment adds provisions immediately following Paragraph A
of Article THIRD of the Certificate of Incorporation. These provisions state
the number, designation, relative rights, preferences and limitations of the
EDO Corporation Employee Stock Ownership Plan Convertible Cumulative Preferred
Shares, Series A. Incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
4(c) - Guarantee Agreement, dated as of July 22, 1988, as amended, made by the
Company in favor of National Westminster Bank USA as successor in interest to
Manufacturers Hanover Trust Company. Incorporated by reference to Exhibit 4(c)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
4(d) - Term Loan Agreement, dated as of July 22, 1988, as amended between The
Bank of New York, as trustee of the trust established under the EDO Corporation
Employee Stock Ownership Plan, and National Westminster Bank USA as successor
in interest to Manufacturers Hanover Trust Company. Incorporated by reference
to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
4(e) - Term Note, dated July 22, 1988, as amended, between The Bank of New
York, as trustee of the trust established under the EDO Corporation Employee
Stock Ownership Plan, and National Westminster Bank USA as successor in
interest to Manufacturers Hanover Trust Company. Incorporated by reference to
Exhibit 4(e) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
4(f) - Pledge and Security Agreement, dated as of July 22, 1988, as amended,
between The Bank of New York, as trustee of the trust established under the EDO
Corporation Employee Stock Ownership Plan, and National Westminster Bank USA as
successor in interest to Manufacturers Hanover Trust Company. Incorporated by
reference to Exhibit 4(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
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4(g) - Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(c)
above. Incorporated by reference to Exhibit 4(i) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 26, 1993.
4(h) - Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(c)
above, effective March 3, 1994. Incorporated by reference to Exhibit 4(h) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
27 - Financial Data Schedule
Item 6(b) Form 8-K Reports
No current reports on Form 8-K were filed by the Registrant during the fiscal
quarter for which this report is filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDO Corporation
(Registrant)
by: M. J. Hegarty
Vice President
Finance and Treasurer
(Principal Financial Officer)
Dated: November 7, 1994
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EXHIBIT INDEX
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-24-1994
<CASH> 1,594
<SECURITIES> 6,287
<RECEIVABLES> 34,879
<ALLOWANCES> 399
<INVENTORY> 13,136
<CURRENT-ASSETS> 63,171
<PP&E> 88,402
<DEPRECIATION> 60,387
<TOTAL-ASSETS> 114,027
<CURRENT-LIABILITIES> 24,359
<BONDS> 43,583
<COMMON> 8,454
77
0
<OTHER-SE> 16,207
<TOTAL-LIABILITY-AND-EQUITY> 114,027
<SALES> 68,132
<TOTAL-REVENUES> 68,410
<CGS> 63,723
<TOTAL-COSTS> 78,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,235
<INTEREST-EXPENSE> 1,774
<INCOME-PRETAX> (11,865)
<INCOME-TAX> (3,200)
<INCOME-CONTINUING> (9,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,676)
<EPS-PRIMARY> (1.75)
<EPS-DILUTED> 0
</TABLE>
