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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 June 30, 1995
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 30, 1995
Common shares, par value $1 per share 5,785,204
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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 -
June 30, 1995 and
December 31, 1994 3
Consolidated Statements of
Earnings - Three Months Ended
June 30, 1995 and
June 25, 1994 4
Consolidated Statements of
Earnings - Six Months Ended
June 30, 1995 and
June 25, 1994 5
Consolidated Statements of Cash Flows -
Six Months Ended
June 30, 1995 and
June 25, 1994 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
Signature 12
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Assets June 30, 1995 Dec. 31, 1994
(unaudited)
Current assets:
Cash and cash equivalents $ 21,038 $ 18,076
Recoverable Federal income taxes 264 3,649
Accounts receivable 27,030 24,175
Inventory 9,489 11,607
Prepayments 1,728 1,623
Total current assets 59,549 59,130
-------- --------
Property, plant and equipment, at cost 87,953 87,467
Less accumulated depreciation and amortization 63,558 61,622
-------- --------
Net property, plant and equipment 24,395 25,845
Cost in excess of fair value of net
assets acquired 10,547 10,837
Other assets 6,298 6,265
-------- --------
Total assets $100,789 $102,077
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable & accrued liabilities $ 22,292 $ 23,502
Contract advances and deposits 4,537 4,478
-------- --------
Total current liabilities 26,829 27,980
Long-term debt 29,317 29,317
ESOT loan obligation 13,447 14,007
Postretirement obligation 13,465 13,465
Environmental Obligation 3,955 4,405
Minority interest 2,042 2,153
Shareholders' Equity
Preferred shares, par value $1 per share,
authorized 500,000 shares, issued 71,779 shares
at 6/30/95 and 75,292 shares at 12/31/94 72 75
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 37,352 39,330
Retained earnings 18,087 17,695
-------- --------
63,965 65,554
Less: Treasury shares at cost
(2,668,698 shares at 6/30/95 and
2,809,965 shares at 12/31/94) <37,929> <39,937>
Translation adjustment <855> <860>
ESOT loan obligation <13,447> <14,007>
-------- --------
Total shareholders' equity 11,734 10,750
-------- --------
Total liabilities & shareholders' equity $100,789 $102,077
======== ========
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the three months ended
June 30, 1995 June 25, 1994
(unaudited)
Income
Net sales $ 24,879 $ 24,205
Other 129 19
-------- --------
25,008 24,224
Costs and Expenses
Cost of sales 19,670 20,777
Selling, general and administrative 4,049 4,671
Research and development 336 1,190
-------- --------
24,055 26,638
-------- --------
Operating Earnings (loss) 953 <2,414>
-------- --------
Non-Operating Income (Expense)
Interest income 248 50
Interest expense <568> <595>
Other, net <25> <42>
-------- --------
<345> <587>
-------- --------
Earnings (loss) before Federal
income taxes 608 <3,001>
Provision for (Recovery of) Federal
income taxes - <934>
-------- --------
Net earnings (loss) before
minority interest 608 <2,067>
Minority interest <18> 130
-------- --------
Net earnings (loss) 590 <1,937>
Dividends on preferred shares 307 342
-------- --------
Net earnings (loss) available for Common Shares $ 283 $ <2,279>
======== ========
Earnings (loss) per Common Share:
Primary $ 0.05 $ <0.42>
Fully diluted $ 0.04 $ (*)
Average shares outstanding 5,708 5,487
======== ========
Cash dividends per Common Share $ -0- $ 0.07
======== ========
(*) Anti-Dilutive in 1994.
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EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands except per share amounts)
For the six months ended
June 30, 1995 June 25, 1994
(unaudited)
Income
Net sales $ 45,797 $ 45,455
Other 293 99
-------- --------
46,090 45,554
Costs and Expenses
Cost of sales 35,406 37,009
Selling, general and administrative 8,440 8,488
Research and development 658 2,360
-------- --------
44,504 47,857
Operating Earnings (loss) 1,586 <2,303>
-------- --------
Non-Operating Income (Expense)
Interest income 510 106
Interest expense <1,136> <1,186>
Other, net <50> 343
-------- --------
< 676> < 737>
-------- --------
Earnings (loss) before Federal income taxes 910 <3,040>
Provision for (Recovery of) Federal
income taxes - <878>
-------- --------
Net earnings (loss) before minority
interest 910 <2,162>
Minority interest 111 241
-------- --------
Net earnings (loss) 1,021 <1,921>
Dividends on preferred shares 629 684
-------- --------
Net earnings (loss) available for
Common Shares $ 392 $ <2,605>
======== ========
Earnings (loss) per Common Share:
Primary: $ 0.07 $ <0.48>
Fully diluted $ 0.06 $ (*)
Average shares outstanding 5,676 5,482
======== ========
Cash dividends per Common Share $ -0- $ 0.14
======== ========
(*) Anti-Dilutive in 1994.
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EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the six months ended
June 30, 1995 June 25, 1994
(unaudited)
Operating Activities:
Net earnings (loss) $ 1,021 $ <1,921>
Adjustments to net earnings (loss) to arrive
at cash from operations:
Gain on sale of building - <427>
Depreciation and amortization 2,990 2,959
<Increase> decrease in recoverable and
deferred income taxes 3,385 <942>
Common shares issued for employee benefits - 102
Changes in:
Accounts receivable <2,855> <277>
Inventories 2,118 <1,327>
Prepayments, other assets and other <667> <365>
Accounts payable and accrued liabilities <1,210> <409>
Contract advances and deposits 59 <3,782>
-------- --------
Cash provided (used) by operations 4,841 <6,389>
Investing Activities:
Purchase of property, plant and equipment <1,250> <1,392>
Proceeds from sale of building - 3,084
-------- --------
Cash provided (used) by investing activities <1,250> 1,692
Financing Activities:
Payment of Common Share cash dividends - <766>
Payment of preferred share cash dividends <629> <684>
Tax benefit on preferred dividends paid
on unallocated ESOP preferred shares - 168
-------- --------
Cash used by financing activities <629> <1,282>
Net increase (decrease)in cash and cash
equivalents 2,962 <5,979>
Cash and cash equivalents at beginning of
period 18,076 9,284
-------- --------
Cash and cash equivalents at end of period $ 21,038 $ 3,305
======== ========
Supplemental disclosures:
Cash paid for: Interest $ 1,076 $ 1,036
Income taxes $ 209 $ 196
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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 six months ended June 30, 1995 and June 25, 1994.
Backlog Data
The dollar amount of backlog of firm orders at June 30, 1995 was $82,517,000
compared to $79,050,000 at June 25, 1994.
Inventories
Inventories are summarized by major classification as follows.
June 30, 1995 Dec. 31, 1994
(in thousands)
Raw material and supplies $ 5,366 $ 5,671
Work in process 2,917 4,762
Finished goods 1,206 1,174
-------- --------
$ 9,489 $ 11,607
Reclassifications
Certain reclassifications of 1994 amounts have been made to conform with the
1995 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: Defense and Space Systems; and Industrial Products.
Results of Operations
First Six Months of 1995 Compared with First Six Months of 1994
Sales in the first six months of 1995 were $45.8 million compared with $45.5
million in 1994. Sales in the Defense and Space Systems segment decreased by 8%
to $26.9 million. A decrease in airborne mine countermeasure systems sales in
the Marine and Aircraft unit and lower sales in our Electro-Optics unit were
partially offset by higher command and control systems and sonar sales in the
Combat Systems unit. The Industrial Products segment sales increased 16% to
$18.9 million. The higher sales were recorded in our EDO Canada LiteRider NGV
cylinder product line.
Earnings from operations (before general corporate expense allocations) in the
first 6 months of 1995 were $3.4 million, compared with a loss of $0.2 million
in the first six months of 1994. Included in the first six months results were
pension plan curtailment gains of $645,000 and $352,000 for 1995 and 1994,
respectively, resulting from the Company's smaller consolidated work force.
Operating earnings in the Defense and Space systems segment declined to $1.9
million in the first 6 months of 1995 from $3.0 million for the same period in
1994. This decrease resulted from losses on certain development activities at
our Electro-Optics unit, partially offset by higher margins at the Combat
Systems unit. The Industrial Products segment recorded operating earnings of
$1.5 million in the first six months of 1995, compared with a loss of $3.2
million for the same period in 1994. The increase was due primarily to higher
margins in all business units and the termination in the same period in 1994 of
the marketing and production activities at the Company's EDO Sports subsidiary
resulting in operating losses and costs of $2.2 million.
Selling, general and administrative expenses in the first six months of 1995
were $8.4 million, essentially the same as the $8.5 million for the same period
in 1994.
Company sponsored research and development expenditures decreased 72% from the
like 1994 period to $0.7 million. This reduction was approximately the same in
each segment and resulted from the termination in 1994 of research and
development at EDO Sports, a shift from Company sponsored to customer sponsored
research and development at the Marine and Aircraft Systems unit, and a more
selective approach to development efforts at all business units.
Interest expense, net of interest income, declined to $0.6 million in the first
six months of 1995, compared with $1.1 million in the like period of 1994,
resulting from higher interest income in 1995.
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The Company reported net earnings available to common shares of $392,000, or
$0.07 per share in the first 6 months of 1995, compared to a net loss of
$2,605,000 or $(0.48) per share a year ago. Results in the 1994 first 6 month
period included 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. Earnings per share
calculations were based on a weighted average of 5.7 million shares outstanding
for the first six months of 1995, and 5.5 million shares for the like period in
1994.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased $3.0 million from December
31, 1994 to $21.0 million at June 30, 1995. The increase was primarily
attributable to Federal Income Tax refunds.
The Company has an ESOT loan obligation that is currently $13.4 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 has acquired $5.7
million of such debentures through June 30, 1995 at prevailing market prices.
These debentures will be used to satisfy approximately three years of sinking
fund requirements that commence in 1996.
In February 1995, the Company renegotiated its ESOT obligation agreement with a
bank to waive and or amend the covenants with which the Company was
non-compliant at December 31, 1994, extend the effective date of the option to
cancel or refinance the obligation to April 1, 1996, and secure the debt with
its accounts receivable, inventory, machinery and equipment. In addition, the
bank provided the Company a $5 million secured line of credit. In June 1995,
the Company further renegotiated the effective date of the option mentioned
above to April 1, 1997.
Capital expenditures in the first six months of 1995 amounted to $1.3 million.
The total expenditure for 1995 is expected to be about the same as 1994.
In August 1994, the Board of Directors of the Company suspended payment of cash
dividends on its common shares to preserve cash and to facilitate funding of
the Company's strategic business plan.
As explained in the Company's 1994 Annual Report, the Company is involved in an
environmental matter for which management believes it should recover all
remediation costs it incurs. The liability of the Company at June 30, 1995
associated with this matter is $6.4 million. The majority of such costs will be
expended over the next two years.
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The Company modified its post retirement health care benefit plan in 1995, has
an unrecognized net gain from 1994, and has adjusted the discount rate used to
calculate the obligation. The effect of these changes will be to reduce its
post retirement liability in the future by approximately $8.0 million.
The Company believes it has adequate liquidity and sufficient capital resources
to fund its plans.
Backlog
The backlog of unfilled orders at June 30, 1995 stood at $82.5 million compared
with $79.1 million a year ago and $79.6 million at December 31, 1994. The
increased backlog occurred primarily in the Company's Defense and Space systems
segment.
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PART II - OTHER INFORMATION
Item 4. Submission of matters to vote of security holders.
(A) EDO's Annual Meeting of Shareholders was held on April 25, 1995.
(B) & (C) Items held for vote:
Number of Shares Voted
For Against Abstentions
1. Election of Directors
Robert E. Allen 5,727,998 342,131
Robert Alvine 5,733,254 336,875
Mellon C. Baird 5,732,547 337,582
George M. Ball 5,729,659 340,470
Joseph E. Engelberger 5,732,708 337,421
2. Ratify appointment of 5,776,155 200,983 92,991
KPMG Peat Marwick as
independent auditors
for the year 1995.
Item 5. Other Information
None
Item 6.(a) Exhibits
4(a) - Amendment No. 9 to the Guarantee Agreement referred to
in Exhibit 4(b) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994,
effective as of June 30, 1995.
27 - Financial Data Schedule
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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: F. A. Fariello
-------------------------------------
President & Chief Executive Officer
(Principal Financial Officer)
Dated: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 21,038
<SECURITIES> 0
<RECEIVABLES> 27,294
<ALLOWANCES> 494
<INVENTORY> 9,489
<CURRENT-ASSETS> 59,549
<PP&E> 87,953
<DEPRECIATION> 63,558
<TOTAL-ASSETS> 100,789
<CURRENT-LIABILITIES> 26,829
<BONDS> 42,764
<COMMON> 8,454
0
72
<OTHER-SE> 3,208
<TOTAL-LIABILITY-AND-EQUITY> 100,789
<SALES> 45,797
<TOTAL-REVENUES> 46,090
<CGS> 35,406
<TOTAL-COSTS> 44,504
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,136
<INCOME-PRETAX> 910
<INCOME-TAX> 0
<INCOME-CONTINUING> 392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 392
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
AMENDMENT NO. 9 TO GUARANTEE AGREEMENT
AMENDMENT NO. 9 (the "Amendment") dated as of June 30, 1995 to that certain
Guarantee Agreement dated as of July 12, 1988 as amended by Amendment and
Waiver dated as of April 12, 1990, Amendment No. 2 dated as of October 9, 1990,
Amendment No. 3 dated as of April 8, 1991, Amendment No. 4 dated March 26,
1992, Amendment No. 5 dated June 9, 1992, Amendment No. 6 dated July 30, 1993,
Amendment No. 7 dated March 3, 1994, effective as of December 31, 1993 and
Waiver and Amendment No. 8 to Guarantee Agreement dated February 10, 1995 (as
so amended, the "Existing Guarantee") made by EDO Corporation, a New York
corporation (the "Guarantor") in favor of NatWest Bank N.A. (formerly National
Westminster Bank USA) (the "Bank") (as successor in interest to Manufacturers
Hanover Trust Company ("Manufacturers").
W I T N E S S E T H :
WHEREAS, the Guarantor and Manufacturers were parties to the Existing
Guarantee;
WHEREAS, the Bank succeeded to all of Manufacturers' right, title and interest
under the Existing Guarantee pursuant to that certain Assignment and Assumption
Agreement dated as of June 8, 1990 between Manufacturers and the Bank;
WHEREAS, the Guarantor has requested that the Bank amend certain provisions of
the Existing Guarantee;
WHEREAS, the Bank has agreed to such request subject to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Existing Guarantee is hereby amended as follows:
(a) Subsection 10(b)(vi)(Liabilities to Net Worth) is amended by adding the
following proviso at the end thereof:
"provided, however, for purposes of this subsection 10(b)(vi), as at any date
of determination thereof, Consolidated Total Liabilities shall not include the
customer advance payment in connection with a future contract between the
Government of Brazil and the Borrower's Defense and Space Division.
(b) Subsection 10(b)(x) is amended by deleting clauses (ii) and (iii) thereof
in their entirety and substituting therefor the following:
"(ii) $3,500,000 for the fiscal year ending December 31, 1995, (iii) $3,000,000
for the fiscal year ending December 31, 1996, and (iv) $4,000,000 in any fiscal
year thereafter."
(c) Subsection 12(a) is amended by deleting the clause "At any time on or after
April 1, 1996," and substituting therefor the clause "At any time on or after
April 1, 1997,".
2. In order to induce the Bank to execute and deliver this Amendment, the
Guarantor hereby represents and warrants to the Bank that the representations
and warranties set forth in Section 9 of the Existing Guarantee are true and
correct as if made on the date hereof except for changes in the ordinary course
of business, none of which, singly or in the aggregate, have had a material
adverse effect on the business, operations or financial condition of the
Guarantor or on the ability of the Guarantor to perform its obligations under
the Existing Guarantee and other than as has been publicly reported by the
Guarantor in its announcements, releases or filings with the Securities and
Exchange Commission; provided, however, that all references to the term
"Guarantee" shall be deemed to be references to the Existing Guarantee as
amended by this Amendment.
3. Defined terms used in this Amendment not otherwise defined herein shall have
the meanings set forth in the Existing Guarantee unless the context otherwise
requires. Except as expressly amended hereby, all of the terms and conditions
of the Existing Guarantee shall remain in full force and effect.
4. This Amendment shall be governed by and construed in accordance with the
laws of the State of New York and may be executed in any number of
counterparts, all of which taken together, shall constitute one and the same
document.
IN WITNESS WHEREOF, the parties hereto have set their signatures as of the date
first above written.
EDO CORPORATION
By: Marvin D. Genzer
Title: Secretary
NATWEST BANK N.A.
By: Richard S. Ferrari
Title: Vice President
