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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 March 26, 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 March 26, 1994
- - ------------------------------------- -----------------------------
Common shares, par value $1 per share 5,473,955
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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 -
March 26, 1994 and
December 31, 1993...................... 3
Consolidated Statements of
Earnings - Three Months Ended
March 26, 1994 and
March 27, 1993......................... 4
Consolidated Statements of Cash
Flows - Three Months Ended
March 26, 1994 and
March 27, 1993......................... 5
Other Financial Information............. 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............. 7-9
Part II Other Information....................... 10-11
Signature.............................................. 12
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PART I - FINANCIAL INFORMATION Page 3
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
March 26, 1994 Dec. 31, 1993
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 8,591 $ 9,284
Recoverable Federal income taxes 2,082 2,322
Accounts receivable 36,953 38,283
Inventory 19,769 18,155
Prepayments 2,923 1,319
-------- --------
Total current assets 70,318 69,363
-------- --------
Property, plant and equipment, at cost 89,255 92,389
Less accumulated depreciation and amortization 58,965 58,512
-------- --------
Net property, plant and equipment 30,290 33,877
Cost in excess of fair value of net assets acquired 11,278 11,415
Deferred Federal and foreign taxes 955 1,011
Other assets 8,127 7,739
-------- --------
Total assets $120,968 $123,405
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued liabilities $ 21,374 $ 21,019
Contract advances and deposits 5,160 7,279
-------- --------
Total current liabilities 26,534 28,298
-------- --------
Long-term debt 29,317 29,317
ESOT loan obligation 14,786 15,045
Postretirement obligation 13,607 13,492
Minority interest 2,856 2,967
SHAREHOLDERS' EQUITY
Preferred shares, par value $1 per share, authorized
500,000 shares, issued 79,971 shares at 3/26/94 80 80
and 80,056 shares at 12/31/93
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 41,745 41,784
Retained earnings 41,722 42,350
-------- --------
92,001 92,668
92,668 Less: Treasury shares at cost
(2,979,947 shares at 3/26/94
and 2,982,853 shares at 12/31/93) <42,352> <42,393>
Translation adjustment <850> <749>
ESOT loan obligation <14,786> <15,045>
Deferral under Long-Term Incentive Plans <145> <195>
-------- --------
Total shareholders' equity 33,868 34,286
-------- --------
Total liabilities & shareholders' equity $120,968 $123,405
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
Mar. 26, 1994 Mar. 27, 1993
(unaudited)
Income
Net sales $ 21,250 $ 27,473
Other 80 96
-------- --------
21,330 27,569
Costs and Expenses
Cost of sales 16,232 21,789
Selling, general and administrative 3,817 3,381
Research and development 1,170 1,194
-------- --------
21,219 26,364
Operating Earnings 111 1,205
-------- --------
Non-Operating Income (Expense)
Interest income 56 52
Interest expense <591> <628>
Other, net 385 <18>
-------- --------
<150> <594>
-------- --------
Earnings (loss) before Federal income taxes <39> 611
Provision for Federal income taxes 56 104
-------- --------
Net earnings (loss) before cumulative effect
of accounting change and minority interest <95> 507
Cumulative effect of change in accounting
for postretirement health benefits
(net of taxes of $4,000) - <9,400>
-------- --------
Net earnings (loss) before minority
interest <95> <8,893>
Minority interest 111 59
-------- --------
Net earnings (loss) 16 <8,834>
Dividends on preferred shares 342 359
-------- --------
Net earnings (loss)available for
Common Shares $ <326> $ <9,193>
======== ========
Earnings (loss) per Common Share:
Primary:
Net earnings (loss) available for Common
Shares before accounting change $ <0.06> $ 0.04
Cumulative effect of change in
accounting for postretirement
health benefits - <1.75>
-------- --------
Net earnings (loss) $ <0.06> $ <1.71>
Average shares outstanding 5,477 5,364
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Cash dividends per Common Share $ 0.07 $ 0.07
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EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the three months ended
Mar. 26, 1994 Mar. 27, 1993
(unaudited)
Operating Activities:
Net earnings (loss) $ 16 $ <8,834>
Adjustments to net earnings (loss) to arrive
at cash from operations:
Gain on sale of building <427> -
Depreciation and amortization 1,628 1,694
Increase (Decrease) in current and deferred
income taxes and other non-cash items
in income 296 <4,005>
Common shares issued for employee benefits 50 55
Cumulative effect of change in accounting
for post retirement health benefits - 13,400
Changes in:
Accounts receivable 1,330 <1,570>
Inventories <1,614> 1,410
Prepayments, other assets and other <2,088> <1,787>
Accounts payable and accrued liabilities 355 <371>
Contract advances and deposits <2,119> 816
-------- --------
Cash (used) provided by operations <2,573> 808
Investing Activities:
Purchase of property, plant and equipment <561> <664>
Proceeds from sale of building 3,084 -
-------- --------
Cash provided (used) by investing activities 2,523 <664>
Financing Activities:
Reduction of long-term debt - <9>
Payment of common share cash dividends <382> <375>
Payment of preferred share cash dividends <342> <359>
Tax benefit associated with dividends paid
on unallocated ESOP preferred shares 81 89
-------- --------
Cash (used) by financing activities <643> <654>
Net (decrease) in cash and cash equivalents <693> <510>
Cash and cash equivalents at beginning of period 9,284 4,597
-------- --------
Cash and cash equivalents at end of period $ 8,591 $ 4,087
======== ========
Supplemental disclosures:
Cash paid for: Interest $ 75 $ 36
Income taxes $ 27 $ 81
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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 three months ended March 26, 1994 and March 27, 1993.
Backlog Data
The dollar amount of backlog of firm orders at March 26, 1994 was $76,897,000
compared to $91,570,000 at March 27, 1993.
Inventories
Inventories are summarized by major classification as follows.
March 26, 1994 Dec. 31, 1993
(in thousands)
Raw material and supplies $ 7,345 $ 8,343
Work in process 11,208 8,713
Finished goods 1,216 1,099
-------- --------
$ 19,769 $ 18,155
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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 Three Months of 1994 Compared with First Three Months of 1993
- - -------------------------------------------------------------------
Sales in the first three months of 1994 were $21.3 million compared with $27.5
million in 1993. The sales decrease of 23% 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 39% to $11.7 million due primarily to
reductions of sonar, ceramic and fiber reinforced composite sales. Sales in the
Commercial and Other Products segment increased by 13% to $9.6 million. A
decrease in satellite-system product sales at the Electro- Optics division was
offset 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 quarter of 1993 for EDO ANGI.
Earnings from operations (before general corporate expense allocations) in the
first three months of 1994 were $1.3 million, compared with $2.2 million in the
first three months of 1993. Included in the first quarter of 1994 results 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 $1.3 to $1.4 million
due primarily to higher margins. The Commercial and Other Products segment was
essentially break-even as compared with $1.0 million for the same period in
1993. This reduction is due to higher than anticipated contract costs on a
program at the Electro-Optics Division, which are not expected to re- occur,
and losses at EDO Energy and EDO Sports resulting from less than anticipated
sales, and higher selling administrative and research and development costs.
Selling, general and administrative expenses in the first three months of 1994
were $3.8 million, compared with $3.4 million in the first three months of
1993. This increase is primarily attributable to higher expenditures in the new
commercial initiatives at EDO Energy and EDO Sports. 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.
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Company-sponsored research and development expenditures were the same level as
the comparable 1993 period at $1.2 million. A slight decrease in the Military
Systems segment was offset by an increase in the Commercial and Other Products
segment as the Company continues to emphasize its commercial initiatives.
Interest expense, net of interest income, declined slightly to $0.5 million in
the first three months of 1994, compared with $0.6 million in the like period
of 1993.
The Company reported a net loss of $326,000, or $0.06 per share in the first
quarter of 1994, compared to a net loss of $9,193,000, or $1.71 per share a
year ago. Results in the 1994 first quarter period include 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. Primary net earnings per common share were $0.04 for the first
quarter 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 quarter 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 $0.7 million from December
31, 1993 to $8.6 million at March 26, 1994.
The Company has an ESOT obligation that is currently $14.8 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 March 26, 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. At
March 26, 1994, the Company had no borrowings outstanding under this agreement.
The Company believes it has sufficient capital resources to fund its future
expansion 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 March 26, 1994, the Company had acquired
approximately 3,957,000 Common Shares in open market or privately negotiated
transactions at prevailing market prices. Approximately 977,000 of these shares
have been used for various corporate purposes.
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Capital expenditures in the first three months of 1994 amounted to $0.6
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 $2,364,000 of costs incurred
to date are included in other assets in the accompanying March 26, 1994
Consolidated Balance Sheet.
Backlog
- - -------
The backlog of unfilled orders at March 26, 1994 stood at $76.9 million
compared with $91.6 million at March 27, 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 the fiscal year ended December 31, 1992.
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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.
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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
M. J. Hegarty, Vice President
Finance and Treasurer
(Principal Financial Officer)
Dated: May 6, 1994
