Page 1 of 13 Pages
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 June 25, 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 JUNE 25, 1994
Common shares, par value $1 per share 5,589,333
<PAGE>
Page 2
EDO CORPORATION
INDEX
Page No.
Face Sheet................................ 1
Index..................................... 2
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 25, 1994 and
December 31, 1993........................ 3
Consolidated Statements of
Earnings - Three Months Ended
June 25, 1994 and
June 26, 1993............................ 4
Consolidated Statements of
Earnings - Six Months Ended
June 25, 1994 and
June 26, 1993............................ 5
Consolidated Statements of Cash Flows -
Six Months Ended
June 25, 1994 and
June 26, 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.............................. 11-12
Signature................................................. 13
<PAGE>
Page 3
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
ASSETS June 25, 1994 Dec. 31, 1993
(unaudited)
Current assets:
Cash and cash equivalents $ 3,305 $ 9,284
Recoverable Federal income taxes 2,082 2,322
Accounts receivable 38,560 38,283
Inventory 19,023 18,155
Prepayments 1,949 1,139
---------- ----------
Total current assets 64,919 69,363
---------- ----------
Property, plant and equipment, at cost 89,523 92,389
Less accumulated depreciation and
amortization 59,589 58,512
---------- ----------
Net property, plant and equipment 29,934 33,877
Cost in excess of fair value of net
assets acquired 11,134 11,415
Deferred Federal and foreign taxes 2,193 1,011
Other assets 7,529 7,739
---------- ----------
Total assets $ 115,709 $ 123,405
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued liabilities $ 20,341 $ 21,019
Contract advances and deposits 3,497 7,279
---------- ----------
Total current liabilities 23,838 28,298
---------- ----------
Long-term debt 29,317 29,317
ESOT loan obligation 14,526 15,045
Postretirement obligation 13,719 13,492
Minority interest 2,726 2,967
SHAREHOLDERS' EQUITY
Preferred shares, par value $1 per share,
authorized 500,000 shares, issued 76,518 shares
at 6/25/94 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 39,147 42,350
---------- ----------
87,787 92,668
Less: Treasury shares at cost
(2,864,569 shares at 6/25/94
and 2,982,853 shares at 12/31/93) <40,712> <42,393>
Translation adjustment <870> <749>
ESOT loan obligation <14,526> <15,045>
Deferral under Long-Term Incentive Plans < 96> <195>
---------- ----------
Total shareholders' equity 31,583 34,286
---------- ----------
Total liabilities & shareholders' equity $ 115,709 $ 123,405
========== ==========
<PAGE>
Page 4
EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
June 25, 1994 June 26, 1993
(unaudited)
Income
Net sales $ 24,205 $ 26,764
Other 19 178
---------- ----------
24,224 26,942
Costs and Expenses
Cost of sales 20,777 21,255
Selling, general and administrative 4,671 3,860
Research and development 1,190 1,872
---------- ----------
26,638 26,987
---------- ----------
Operating Earnings (loss) <2,414> <45>
---------- ----------
Non-Operating Income (Expense)
Interest income 50 70
Interest expense <595> <637>
Litigation settlement - <1,212>
Other, net <42> <136>
---------- ----------
<587> <1,915>
---------- ----------
Earnings (loss) before Federal income taxes <3,001> <1,960>
Provision for (Recovery of) Federal income taxes <934> <812>
---------- ----------
Net earnings (loss) before minority interest <2,067> <1,148>
Minority interest 130 212
---------- ----------
Net earnings (loss) <1,937> <936>
Dividends on preferred shares 342 359
---------- ----------
Net earnings (loss) available for Common Shares $ <2,279> $ <1,295>
========== ==========
Earnings (loss) per Common Share:
Net earnings (loss) available for Common Shares $ <0.42> $ <0.24>
========== ==========
Average shares outstanding 5,487 5,371
========== ==========
Cash dividends per Common Share $ 0.07 $ 0.07
========== ==========
<PAGE>
Page 5
EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the six months ended
June 25, 1994 June 26, 1993
(unaudited)
Income
Net sales $ 45,455 $ 54,237
Other 99 274
---------- ----------
45,554 54,511
Costs and Expenses
Cost of sales 37,009 43,044
Selling, general and administrative 8,488 7,241
Research and development 2,360 3,066
---------- ----------
47,857 53,351
Operating Earnings (loss) <2,303> 1,160
---------- ----------
Non-Operating Income (Expense)
Interest income 106 122
Interest expense <1,186> <1,265>
Litigation settlement - <1,212>
Other, net 343 <154>
---------- ----------
< 737> <2,509>
---------- ----------
Earnings (loss) before Federal income taxes <3,040> <1,349>
Provision for (Recovery of) Federal income taxes <878> <708>
---------- ----------
Net earnings (loss) before cumulative effect
of accounting change and minority interest <2,162> <641>
Cumulative effect of change in accounting
for postretirement health benefits
(net of taxes of $4,000) - (9,400>
---------- ----------
Net earnings (loss) before minority interest <2,162> <10,041>
Minority interest 241 271
---------- ----------
Net earnings (loss) <1,921> <9,770>
Dividends on preferred shares 684 718
---------- ----------
Net earnings (loss) available for Common Shares $ < 2,605> $ <10,488>
========== ==========
Earnings (loss) per Common Share:
Primary:
Net earnings (loss) available for Common
Shares before accounting change $ <0.48> $ <0.20>
Cumulative effect of change in accounting
for postretirement health benefits - <1.75>
---------- ----------
Net earnings (loss) $ <0.48> $ <1.95>
========== ==========
Average shares outstanding 5,482 5,367
========== ==========
Cash dividends per Common Share $ 0.14 $ 0.14
========== ==========
<PAGE>
Page 6
EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the six months ended
June 25, 1994 June 26, 1993
(unaudited)
Operating Activities:
Net earnings (loss) $ <1,921> $ <9,770>
Adjustments to net earnings (loss) to arrive
at cash from operations:
Gain on sale of building <427> -
Depreciation and amortization 2,959 3,545
Increase (decrease) in current and
deferred income taxes <942> <4,078>
Common shares issued for employee benefits 102 102
Cumulative effect of change in accounting
for postretirement health benefits - 13,400
Changes in:
Accounts receivable <277> 6,788
Inventories <1,327> 2,371
Prepayments, other assets and other <365> <2,635>
Accounts payable and accrued liabilities <409> <271>
Contract advances and deposits <3,782> <351>
---------- ----------
Cash provided (used) by operations <6,389> 9,104
Investing Activities:
Purchase of property, plant and equipment <1,392> <927>
Proceeds from sale of building 3,084 -
---------- ----------
Cash provided (used) by investing activities 1,692 <927>
Financing Activities:
Reduction of long-term debt - <1,261>
Payment of Common Share cash dividends <766> <750>
Payment of preferred share cash dividends <684> <718>
Tax benefit on preferred dividends paid
on unallocated ESOP preferred shares 168 182
---------- ----------
Cash (used) by financing activities <1,282> <2,547>
Net increase in cash and cash equivalents <5,979> 5,630
Cash and cash equivalents at beginning of period 9,284 4,597
---------- ----------
Cash and cash equivalents at end of period $ 3,305 $ 10,227
========== ==========
Supplemental disclosures:
Cash paid for: Interest $ 1,036 $ 1,137
Income taxes $ 196 $ 410
<PAGE>
Page 7
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 six months ended June 25, 1994 and June 26, 1993.
Backlog Data
The dollar amount of backlog of firm orders at June 25, 1994 was $79,050,000
compared to $79,831,000 at June 26, 1993.
Inventories
Inventories are summarized by major classification as follows.
June 25, 1994 Dec. 31, 1993
(in thousands)
Raw material and supplies $ 6,888 $ 8,343
Work in process 10,579 8,713
Finished goods 1,556 1,099
---------- ----------
$ 19,023 $ 18,155
========== ==========
<PAGE>
Page 8
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 Six Months of 1994 Compared with First Six Months of 1993
- - ---------------------------------------------------------------
Sales in the first six months of 1994 were $45.5 million compared with $54.2
million in 1993. The sales decrease of 16% percent 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 32% to $25.5 million due primarily to
reductions of sonar, ceramic and fiber reinforced composite sales. Sales in the
Commercial and Other Products segment increased by 20% to $19.9 million. A
decrease in satellite-system product sales at the Electro-Optics division was
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. Accordingly, there
were no sales included in the comparable first six months of 1993 for EDO ANGI.
Earnings from operations (before general corporate expense allocations) in the
first six months of 1994 were about break-even compared with $3.3 million in
the first six months of 1993. Included in the first six months of 1994 results,
was a $1.8 million charge to restructure the commercial business operations.
This charge included $1.4 million for change in direction of the Company's EDO
Sports subsidiary because of the costs associated with bringing its new sports
products to market and continuing development. Most current production
will cease, while certain high promise development will continue. The Company
may also seek a strategic alliance for its sports initiative.
Also included in the first six months was a $352,000 pension plan curtailment
gain resulting from personnel reductions as the Company reduces its work force
in reaction to the declining sales volume. For similar reasons such gains are
likely in future years. Operating earnings in the Military Systems segment
increased slightly from $2.6 to $2.9 million due primarily to higher margins.
The Commercial and Other Products segment recorded an operating loss of $2.9
million compared with a $0.7 million profit for the same period in 1993. This
reduction is due principally to the decision regarding the EDO Sports
initiative. Operating losses and costs associated with EDO Sports totalled $2.2
million in 1994 compared with $0.9 million for the 1993 comparable period. This
increase is also due to higher than anticipated contract costs on a program at
the Electro-Optics Division, and losses at EDO Energy resulting from less than
anticipated sales.
<PAGE>
Page 9
Selling, general and administrative expenses in the first six months of 1994
were $8.5 million, compared with $7.2 million in the first six 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 23% from the
like 1993 period to $2.4 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 $1.1 million in the first six
months of 1994, the same as in the like period of 1993.
The Company reported a net loss of $2,605,000, or $0.48 per share in the first
six months of 1994, compared to a net loss of $10,488,000, or $1.95 per share a
year ago. Results in the 1994 first six month period include a loss to
restructure the commercial business operation, principally the change in
direction of its EDO Sports initiative, the pro forma after tax effect of which
was equal to $1,200,000 or $0.22 per share, and a gain on the sale of real
estate, which is included in "Other, net" in the Consolidated Statement of
Earnings, the pro forma after tax effect of which was equal to $282,000, or
$0.05 per share. The net loss per common share was $0.20 for the first six
months of 1993 before giving consideration to the cumulative effect of a change
in accounting of $9.4 million net of taxes, equal to $1.75 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 six 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 $6.0 million from December
31, 1993 to $3.3 million at June 25, 1994.
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 a $15 million unsecured revolving credit agreement with a bank
syndicate. Covenants under both the ESOT obligation and revolving credit
agreement may restrict dividend payments on common stock commencing in 1995.
<PAGE>
Page 10
Losses from operations to date in 1994, together with the further restructuring
actions have caused the Company to be in technical default of certain covenants
under the ESOT and bank loan agreements. All principal and interest payments
under these agreements have been made in a timely fashion and the Company
continues to be current in its payments. EDO is currently in negotiation with
the banks to resolve the technical default and to restructure the terms and
conditions of and provide security for its lending agreements. Because of the
Company's default, the banks are not permitting further borrowings under the
revolving credit agreement, but at June 25, 1994, the Company had no borrowings
outstanding under the revolving credit agreement.
The Company believes it would have adequate liquidity to meet its needs to fund
its future plans.
At various times beginning in 1983, the Board of Directors has authorized and
subsequently increased by amendments a plan to purchase 4,190,000 of the
Company's Common Shares. As of June 25, 1994, the Company had acquired
approximately 3,957,000 Common Shares in open market or privately negotiated
transactions at prevailing market prices. Approximately 1,092,000 of these
shares have been used for various corporate purposes.
Capital expenditures in the first six months of 1994 amounted to $1.4 million.
The total expenditure for 1994 is expected to be less than the amount spent in
1993.
As explained in the Company's 1993 Annual Report, the Company is involved in an
environmental matter for which management believes it is covered by liability
insurance for all costs it incurs. Approxi- mately $2,500,000 of costs incurred
to date are included in other assets in the accompanying June 25, 1994
Consolidated Balance Sheet.
Backlog
- - -------
The backlog of unfilled orders at June 25, 1994 stood at $79.0 million compared
with $79.8 million at June 26, 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.
<PAGE>
Page 11
PART II - OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders.
(A) EDO's Annual Meeting of Shareholders was held on April 26, 1994.
(B) & (C) Items held for vote:
Number of Shares Voted
For Against Abstensions
1. Election of Directors
Alfred Brittain III 5,440,590 286,100
Michael J. Hegarty 5,454,179 272,511
2. Ratify appointment of
KPMG Peat Marwick as
independent auditors
for the year 1994 5,477,338 168,837 80,514
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.
<PAGE>
Page 12
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.
4(g) - First Amended and Restated Credit Agreement, dated as of March 3, 1994,
amongst The Bank of New York, individually and as agent, Chemical Banking
Corporation, National Westminster Bank USA and EDO Corporation. Incorporated by
reference to Exhibit 4(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
4(h) - 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(i) - 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.
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.
<PAGE>
Page 13
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
M. J. Hegarty - Vice President
Finance and Treasurer
(Principal Financial Officer)
Dated: August 8, 1994
