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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1995 1-3985
EDO CORPORATION
Exact name of Registrant as specified in its charter.
State of Incorporation: IRS Employer Identification No.:
New York 11-0707740
Address of principal executive offices:
14-04 111th Street, College Point, New York 11356-1434
Telephone No.:
(718) 321-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares New York Stock Exchange
par value $1 per share
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 by check mark if disclosure by delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 5, 1996 ......... $28,341,474
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 5, 1996 ................................. 5,940,539
Documents Incorporated by Reference
Portions of the Definitive Proxy Statement of the Registrant, dated March 22,
1996, are incorporated by reference into Part III.
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Table of Contents
PART I .............................................................. 1
ITEM 1. BUSINESS .................................................... 1
DEFENSE AND SPACE SYSTEMS .......................................... 1
Marine and Aircraft Systems ....................................... 1
Aircraft Stores Suspension and Ejection Systems .................. 1
Airborne Mine Countermeasures Systems ............................ 1
Combat Systems .................................................... 2
Command and Control Systems ...................................... 2
Antisubmarine Warfare Sonar ...................................... 2
Electro-Optics Systems ............................................ 2
INDUSTRIAL PRODUCTS ................................................ 2
Acoustic Products ................................................. 2
Ceramics .......................................................... 3
Fiber Science ..................................................... 3
EDO Energy ........................................................ 3
RESEARCH AND DEVELOPMENT ........................................... 3
MARKETING AND INTERNATIONAL SALES .................................. 4
BACKLOG ............................................................ 4
GOVERNMENT CONTRACTS ............................................... 5
COMPETITION AND OTHER FACTORS ...................................... 5
EMPLOYEES .......................................................... 5
ITEM 2. PROPERTIES .................................................. 6
ITEM 3. LEGAL PROCEEDINGS ........................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......... 6
PART II ............................................................. 6
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ......................................... 6
ITEM 6. SELECTED FINANCIAL DATA ..................................... 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................... 6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................. 6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE .................................... 6
PART III ............................................................ 6
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ......... 6
ITEM 11. EXECUTIVE COMPENSATION ..................................... 6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ............................................. 7
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............. 7
PART IV ............................................................ 7
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K ........................................ 7
SIGNATURES .......................................................... 9
Selected Financial Data ............................................. 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 11
Consolidated Statements of Operations ............................... 15
Consolidated Balance Sheets ......................................... 16
Consolidated Statements of Shareholders' Equity ..................... 17
Consolidated Statements of Cash Flows ............................... 18
Notes to Consolidated Financial Statements .......................... 19
INDEPENDENT AUDITORS' REPORT ........................................ 27
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) ......................... 28
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PART I
ITEM 1. BUSINESS
The term "Registrant" as used in this Annual Report refers to EDO Corporation.
The term "Company" as used in this Annual Report, except where the context
otherwise requires, includes the Registrant and its subsidiaries.
EDO Corporation was incorporated in New York in 1925 by Earl Dodge Osborn, from
whose initials "EDO" is derived.
Principally a designer and manufacturer of advanced electronic, acoustic,
aerodynamic and hydrodynamic equipment for military applications and marine and
aviation markets, the Company has been pursuing the application of its
sophisticated and diverse defense-related technologies to civilian and
commercial markets.
The Company organizes its business into two segments: Defense and Space
Systems; and Industrial Products. A description of the principal products of
the Company within the two industry segments is set forth below. During 1993
and 1994, the Company adopted and implemented a restructuring plan which
consisted of the discontinuance of the Company's defense business in Canada,
the relocation of some United States production from New York to less costly
locations, the related disposition of non-productive assets (principally land
and buildings), and work force reductions. Additionally, information about the
Company's restructuring plan is contained in Note 2 on page 20 of this Report.
Certain business segment information on the Company's operations is set forth
in Note 18 on page 26 of this Report.
DEFENSE AND SPACE SYSTEMS
The Company's defense and space operations, which accounted for 57%, 62% and
69% of sales for 1995, 1994 and 1993, respectively, are conducted by three
separate business units which comprise the division. These business units are
Marine and Aircraft Systems located in College Point, New York, Combat Systems
located in Chesapeake, Virginia, and Electro-Optics located in Shelton,
Connecticut. In 1994 all sonar related business was transferred from the Marine
and Aircraft unit to the Combat Systems unit. As a result, the Marine and
Aircraft unit in New York is now dedicated to mechanical and structural
products and the military electronics/software design business is conducted at
Combat Systems.
Marine and Aircraft Systems
The Marine and Aircraft business unit designs, develops and manufactures
sophisticated mechanical, electromechanical, structural, hydrodynamic and
aerodynamic systems for military use. Additionally, the business unit provides
logistics support for its products following initial hardware deliveries
including spare and repair parts, training and technical services. The revenue
from these support functions are a significant portion of sales. The major
products of the Marine and Aircraft business unit are Aircraft Stores
Suspension and Ejection Systems and Airborne Mine Countermeasure Systems. This
business unit also continues to manufacture and support general aviation
floats, and also designs and manufactures speed measuring equipment for
municipal rapid transit trains.
Aircraft Stores Suspension and Ejection Systems
The Company developed and manufactured bomb release units (BRU) for the U.S.
Air Force F-15E, ejection release units (ERU) for the Tornado Multirole Combat
Aircraft and jettison release mechanisms (JRM) for the U.S. Navy F-14 aircraft.
In 1995 the Company continued production of BRUs for the F-15E under new orders
received at the end of 1993 and in 1995, provided spare parts support for
Tornado ERUs previously produced and completed delivery of the prototype of a
new BRU for an international customer. In addition, the Company completed its
efforts on a technology program for the U.S. Air Force for a dual mode launcher
and continued the development of the Advanced Medium Range Air To Air Missile
(AMRAAM) missile launcher for the F-22 air superiority fighter. Funded
development for this missile launcher, which employs new internal carriage
technology, is expected to continue throughout 1996. For 1995, 1994 and 1993,
respectively, sales of aircraft stores suspension and ejection systems
represented 17%, 18%, and 12% of consolidated net sales.
Airborne Mine Countermeasures Systems
The Company is the only manufacturer of the MK 105 helicopter towed magnetic
minesweeping system designed and developed by the Company in conjunction with
the U.S. Navy. In 1994, the Company completed development of a funded upgrade
to the MK 105. The upgraded system was delivered to the U.S. Navy for testing
and evaluation. These tests were completed in the first half of 1995. The first
production contract for this upgrade was received at the end of 1995. In 1994,
the Company began work on a new U.S. Navy funded contract to develop a
lightweight self contained helicopter towed magnetic sweep for shallow water
applications. This develop-
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ment continued throughout 1995 and is scheduled for U.S. Navy test and
evaluation in 1996.
In addition, the Company continued to provide logistic support for MK 105
systems previously provided to both the U.S. Navy and an international
customer. For 1995, 1994 and 1993, respectively, sales of airborne mine
countermeasures systems represented 4%, 12% and 13% of consolidated net sales.
Combat Systems
The Combat Systems business unit designs, develops and produces combat systems
equipment including command, control and communications systems, and
antisubmarine warfare (ASW) systems. In addition, the business unit provides
logistic support including spare and repair parts, training and technical
services for its products.
Command and Control Systems
This business designs, develops and produces command, control and
communications systems such as digital tactical data links for domestic and
international military customers. In 1995 Combat Systems completed deliveries
of tactical data links to an international navy customer. Additionally in 1995,
the business unit continued development of an integrated command and control
system for the U.S. Air Force, with final delivery of that system scheduled in
1996. The business unit was awarded new contracts for new command and control
systems for two international military customers in 1995.
Antisubmarine Warfare Sonar
The Company has been a supplier of ASW systems for more than forty years. In
1994 this business was transferred from the New York business unit to the
business unit in Virginia. In 1995, efforts were completed on the production,
delivery and installation of a surface ship sonar for an international
customer. Additionally in 1995, development and testing continued for a new
passive/active sonar system variation of the AN/SQR-18A(V) for the U.S. Navy.
This program is scheduled for continued work in 1996 and 1997. Logistic,
maintenance and training support was provided for EDO sonar systems installed
in the now decommissioned U.S. Navy FF-1052-class ships which are in service
with several international navies through the foreign military sales (FMS)
program. For 1995, 1994 and 1993, respectively, sales of sonar systems
represented 9%, 10% and 15% of consolidated net sales.
Electro-Optics Systems
The Electro-Optics business unit primarily designs, develops and manufactures
electro-optical products and systems for satellites. The primary products are
infrared earth sensors which are used to provide satellites with information
relative to stabilization and orbit position. In 1995, Electro-Optics continued
to provide earth sensor assemblies for Hughes communication satellites, the
U.S. Air Force Global Positioning Satellite System, Orbital Science's ORBCOM
digital data transmission system and NASA's Tropical Rainfall Measurement
System. In addition, Electro-Optics continued development of an earth sensor
assembly for the Motorola/Lockheed Iridium (TM) communication satellite
constellation and was awarded a contract to develop and produce sensors for the
Loral/DASA Globalstar (TM) communication satellite. For 1995, 1994 and 1993,
respectively, sales of spaceflight systems represented 12%, 8% and 13% of
consolidated net sales. Electro-Optics also manufactures a line of imaging
instruments for design and quality analysis of semiconductors.
INDUSTRIAL PRODUCTS
In 1994, the business units that are primarily related to non-military markets
were reorganized into one division, the Industrial Products Division. Included
in the division are Acoustic Products, Ceramics, Fiber Science, and the two
energy-related operations, EDO (Canada) Ltd. and EDO ANGI. The Acoustic
Products business unit, located in Salt Lake City, supplies all the other
Industrial Products Division business units with support services as required.
EDO Sports, a business unit dedicated to the production of composite sporting
products, was discontinued in late 1994. The Industrial Products Division
accounted for 43%, 38% and 31% of sales for 1995, 1994 and 1993, respectively.
Acoustic Products
The Acoustic Products business unit concentrates on industrial/commercial
applications of acoustic technology. Standard product lines are focused on the
precision measurement of velocity of objects in water or fluid streams. The
Company has invested in recent years in this technology. Most undersea
vehicles, both military and commercial, now carry the Company's velocity
measurement instruments.
The Company has entered production of a new instrument product line, a
precision Current Profiler, which will be used by the environmental sciences
industry to map ocean and river currents. It was developed in a joint program
with a major European company. Military transducer design and production also
continues to be done at the Acoustic Products busi-
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ness unit that provides all of the Company's commercial transducers as well.
The Acoustic Products unit is developing products for the active noise and
vibration control marketplace. This new initiative, started in 1993, is
intended to apply the Company's expertise in piezoceramic materials and
transducers to the problems of vibration reduction emanating from industrial
machinery. The Company is currently working on a partially government funded
program for vibration reduction in precision machine tools, specifically
cylindrical grinders.
Ceramics
The Division's Ceramics business unit, located in Salt Lake City, is one of
North America's largest manufacturers of piezoceramics components. Piezoceramic
elements convert acoustic to electrical energy and form the basis of many
industrial and commercial products ranging from military sonars to ink jet
printers. The Company has automated and improved this unit's production process
and converted from its military orientation of the mid 80s to its current
position as a leading supplier to the industrial market.
Fiber Science
In 1994, the Company decided to focus its Fiber Science business unit on the
development and production of its traditional composite water and waste tanks
for the commercial aviation market. This concentrated technical and marketing
effort yielded long term production contracts from Boeing and Airbus plus the
Company's first conformal water tank for a Canadair regional aircraft. This new
product line provides Fiber Science an entree into a new and potentially
larger, worldwide market for regional aircraft.
While concentration on water and waste tanks is the primary mission of Fiber
Science, the Company continues to pursue programs in new expanding commercial
markets. This resulted, in 1994, in receipt of a contract to provide composite
blades for wind powered electrical generating turbines. Production under this
program is scheduled through 1996.
Fiber Science has introduced a new line of composite pressure vessels for use
in air start reservoirs on large trucks. This product will be marketed in
conjunction with a large, U.S. manufacturer of truck air-start systems.
EDO Energy
The Company's principal thrust into energy markets relates to the use of
natural gas as an alternative vehicle fuel. EDO Energy was formed to focus the
Company's efforts and coordinate the activities of its two energy-related
operations: EDO (Canada) Ltd. and EDO ANGI. The Company is approaching the
market from several directions: EDO Energy provides complete turnkey integrated
natural gas vehicle (NGV) conversion systems to large commercial fleets, EDO
ANGI supplies complete natural gas refueling stations and engine conversion
systems, and EDO (Canada) Ltd. designs and manufactures the LiteRider (R)
cylinder, a composite, lightweight pressure tank for natural gas.
EDO Energy continues to pursue the conversion of large taxi fleets to natural
gas. The Company received in 1995 a demonstration program to convert
twenty-five New York City taxis to natural gas. This program will continue
through 1996. EDO Energy is now pursuing international programs for the
conversion of bus fleets.
EDO (Canada) Ltd. is dedicated to the production of all composite NGV fuel
tanks. Using basic technology transferred under license from the Company's
Fiber Science business unit, EDO (Canada) Ltd. developed and is now producing
what the Company believes to be the safest and lightest NGV fuel tank on the
market, the EDO LiteRider (R) cylinder. The LiteRider (R) cylinder has received
significant acceptance in the marketplace, especially in applications where
weight is a premium. The natural gas transit bus market is an application
where the Company continues to make substantial sales.
In late 1995, EDO (Canada) Ltd., previously a 60% common share-owned subsidiary
of the Company, sold common and preferred shares representing approximately a
16.5% common share interest in EDO (Canada) Ltd., to three companies for
CAN$5,000,000 reducing the Company's common-share ownership to just over 50%.
RESEARCH AND DEVELOPMENT
Research and development, performed both under development contracts with
customers and at Company expense, are important factors in the Company's
business. The Company's research and development efforts involve approximately
92 employees in the fields of acoustic, electronic, hydrodynamic, aerodynamic,
structural and material engineering. Research and development programs are
designed to develop technology for new products or to extend the capability of
existing products and to assess their commercial potential.
Customer-sponsored research and development programs are principally related to
military programs in the Defense and Space Systems segment. Major
customer-sponsored research and development programs include: continued
development of improvements to the AN/SQR-18A(V) TACTAS system,
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improvements to the MK 105 mine countermeasures system, development of a new
shallow-water mine countermeasure system, development of a combat integration
system, development of new and improved stores launchers, and development of
new earth and sun sensors for satellites.
Expenditures under development contracts with customers vary in amount from
year to year because of the timing of contract funding. During 1994,
expenditures for customer-sponsored research and development rose 30% over 1993
due primarily to increased funding in aircraft stores launching systems and
satellite earth sensors. In 1995 expenditures declined 26% from1994, primarily
as a result of less available funding, consistent with the general decline in
military spending.
Company-sponsored research and development has contributed to a number of
advances in sonar systems, transducers, stores release systems, mine
countermeasure systems, digital data links, filament-wound structures, and
compressed natural gas composite fuel tanks.
Principal current research and development involves: image and signal
processing and other improvements for combat systems, improvements to
minesweeping technology, continued development of satellite-based sensors,
composite fuel cylinders and refueling equipment for the compressed natural gas
vehicle market, and development of composite pressure vessels for the truck and
train market.
The following table sets forth research and development expenditures for the
periods presented.
Year Ended December 31,
1995 1994 1993
(in thousands)
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Customer-sponsored $ 13,600 $ 18,400 $ 14,100
Company-sponsored 1,500 3,200 6,000
Total $ 15,100 $ 21,600 $ 20,100
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MARKETING AND INTERNATIONAL SALES
Military sales of the Company's products to both the U.S. and foreign
governments are usually made under negotiated long-term contracts or
subcontracts covering one or more years of production. The Company believes
that its long history of association with its military customers is an
important factor in the Company's overall business, and that the experience
gained through this history has enhanced the Company's ability to anticipate
its customers' needs. The Company's approach to its military business is to
anticipate specific customer needs and to develop systems to meet those needs
either at its own expense or pursuant to research and development contracts.
The Company sells products in its Defense and Space Systems segment as a prime
contractor and through subcontracts with other military prime contractors. In
addition to military sales to the U.S. Department of Defense, the Company also
sells Defense and Space Systems segment equipment to the U.S. Government for
resale to foreign governments under the Foreign Military Sales program and,
subject to approval by the U.S. Department of State, directly to foreign
governments.
Products within the Industrial Products segment are sold in industrial and
commercial markets. In foreign markets, piezoelectric and electronic products
are generally sold commercially through a network of sales representatives.
Fiber-reinforced composite products are sold, in certain product areas, on a
direct basis and, in other product areas, through sales representatives. The
Company's NGV products are generally sold through independent distributors and
dealers to end users, and by Company personnel to original equipment
manufacturers. The Company's EDO Energy subsidiary provides marketing for
integrated NGV programs.
It is the Company's policy to denominate all foreign contracts from its U.S.
operations in U.S. dollars and generally to incur no significant costs in
connection with long-term foreign contracts until the Company has received
advance payments or letters of credit on amounts due under the contracts. The
Company's only significant asset outside the United States is its
majority-owned subsidiary, EDO (Canada) Ltd., which represents approximately 7%
of the Company's total consolidated assets.
BACKLOG
A significant portion of the Company's sales are made to the U.S. armed
services and foreign governments pursuant to long-term contracts. Accordingly,
the Company's backlog of unfilled orders consists in large part of orders under
these government contracts. As of December 31, 1995, the Company's total
backlog was approximately $89.7 million, as compared with $79.6 million on
December 31, 1994. Of the total backlog as of December 31, 1995, approximately
70% was scheduled for delivery in 1996. Total backlog as of December 31, 1995,
divided between the Company's two industry segments, was Defense and Space
Systems, $64.1 million, and Industrial Products, $25.6 million, as compared,
respectively, with $52.4 million and $27.2 million as of December 31, 1994.
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GOVERNMENT CONTRACTS
Sales to the U.S. Government, as a prime contractor and through subcontracts
with other prime contractors, accounted for 37% of the Company's 1995 net sales
compared with 53% in 1994 and 56% in 1993, and consisted primarily of sales to
the Department of Defense. Such sales do not include sales of military
equipment to the U.S. Government for resale to foreign governments under the
Foreign Military Sales program.
The Company's military business can be and has been significantly affected by
changes in national defense policy and spending. The Company's U.S. Government
contracts and subcontracts and certain foreign government contracts contain the
usual required provisions permitting termination at any time for the
convenience of the government with payment for work completed and committed
along with associated profit at the time of termination.
The Company's contracts with the Department of Defense consist of fixed price
contracts, cost-reimbursable contracts and incentive contracts of both types.
Fixed-price contracts provide fixed compensation for specified work.
Cost-reimbursable contracts require the Company to perform specified work in
return for reimbursement of costs (to the extent allowable under government
regulations) and a specified fee. In general, while the risk of loss is greater
under fixed-price contracts than under cost-reimbursable contracts, the
potential for profit under such contracts is greater than under
cost-reimbursable contracts. Under both fixed-price incentive contracts and
cost-reimbursable incentive contracts, an incentive adjustment is made in the
Company's fee based on attainment of scheduling, cost, quality or other goals.
The distribution of the Company's government contracts among the categories of
contracts referred to above varies from time to time, although in recent years
only a small percentage of the Company's contracts have been on a
cost-reimbursable or incentive basis.
COMPETITION AND OTHER FACTORS
Some of the Company's products are sold in markets containing a number of
competitors substantially larger than the Company and with greater financial
resources. Direct sales of military products to U.S. and foreign governments
are based principally on product performance and reliability. Such products are
generally sold in competition with products of other manufacturers that may
fulfill an equivalent function, but which are not direct substitutes.
The Company purchases certain materials and components used in its systems and
equipment from independent suppliers. These materials and components are
normally not purchased under long-term contracts unless the Company has
actually received a long-term sales contract requiring them. The Company
believes that most of the items it purchases are obtainable from a variety of
suppliers and it normally obtains alternative sources for major items, although
the Company is sometimes dependent on a single supplier or a few suppliers for
some items. EDO (Canada) Ltd. is largely dependent on a single supplier for its
carbon fiber although the Company is currently evaluating other sources.
It is difficult to state precisely the Company's market position in all of its
market segments because information as to the volume of sales of similar
products by its competitors is not generally available and the relevant markets
are often not precisely defined. However, the Company believes that it is a
significant factor in the markets for stores ejectors for military aircraft,
military sonar systems, military data links, helicopter-towed mine
countermeasure systems, piezoelectric ceramics, satellite attitude and
position sensors, and composite natural gas vehicle tanks.
Although the Company owns some patents and has filed applications for
additional patents, it does not believe that its operations depend upon its
patents. In addition, most of the Company's U.S. Government contracts license
it to use patents owned by others. Similar provisions in the U.S. Government
contracts awarded to other companies make it impossible for the Company to
prevent the use by other companies of its patents in most domestic defense
work.
EMPLOYEES
As of December 31, 1995, the Company employed 846 persons.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position and Term of Office
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Robert M. Hanisee 57 Chairman of the Board since 1994 and Director since
1992.
Frank A. Fariello 61 President since 1993, Chief Executive Officer since
1994 and Director since 1982.
William J. Frost 54 Vice President, Administration since 1994.
Marvin D. Genzer 55 Vice President since 1990, General Counsel since
1988, and Secretary since 1995.
Ira Kaplan 60 Vice President since 1995,
J. Douglas Moore 50 Vice President since 1995,
Kenneth A. Paladino 38 Vice President-Finance and Treasurer since 1995,
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Each executive officer is appointed by the Board of Directors (the "Board"),
and holds office until the first meeting of the Board following the next
succeed-
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ing annual meeting of shareholders, and thereafter until a successor is
appointed and qualified, unless the executive officer dies, is disqualified,
resigns or is removed in accordance with the Company's By-Laws.
ITEM 2. PROPERTIES
All operating properties are leased facilities. The College Point corporate
headquarters and manufacturing facility had been owned until early 1996 when it
was sold. The Company's facilities are adequate for present purposes. All
facilities in the following listing are suitable for expansion by using
available but unused space, leasing additional available space, or by physical
expansion of leased buildings. The Company's obligations under the various
leases are set forth in Note 16 on page 26 of this Report.
Set forth below is a listing of the Company's principal plants and other
materially important physical properties.
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Approximate
Floor Area
Location (in sq. ft.)
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Defense and Space Systems:
Marine and Aircraft College Point, NY 100,000
Combat Systems Chesapeake, VA 17,000
Electro-Optics Shelton, CT 72,000
Industrial Products:
Acoustic Products
and Ceramics Salt Lake City, UT 117,000
Fiber Science Salt Lake City, UT 105,000
EDO (Canada) Ltd. Calgary, Alberta, Canada 65,000
EDO ANGI Milton, WI 31,000
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ITEM 3. LEGAL PROCEEDINGS
The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 through 14, and in Note 17 on page 26 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information responsive to this item is set forth under the headings "Common
Share Prices" and "Dividends" on page 14, together with dividend information
contained in the "Consolidated Statements of Shareholders' Equity" on page 17
and Notes 9 and 10 on page 21 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
The information responsive to this item is set forth under the heading
"Selected Financial Data" on page 10 of this Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 through 14 of this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, together with the
Independent Auditors' Report thereon of KPMG Peat Marwick LLP and the unaudited
"Quarterly Financial Information" are set forth on pages 15 through 28 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is set forth under "Election of Directors" and
"The Board of Directors and Its Committees" on pages 1 through 3 of the
Company's Proxy Statement dated March 22, 1996, which is incorporated by
reference.
Information regarding executive officers is set forth in Part I of this Report
under "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Company's executive officers is set
forth under "Compensation of Executive Officers" on pages 5 through 9 of the
Company's Proxy Statement dated March 22, 1996, which is incorporated by
reference, except for such information required by Item 402(k) and (l) of
Regulation S-K, which shall not be deemed to be filed as part of this Report.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth on pages 4 and 15 of the Company's Proxy Statement
dated March 22, 1996, which is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information responsive to this item is set forth under the headings "The
Board of Directors and Its Committees" on page 3, and "Compensation Committee
Interlocks and Insider Participation" on page 7 of the Company's Proxy
Statement dated March 22, 1996, which is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules and Exhibits
1. Financial Statements.
The consolidated financial statements as of December 31, 1995 and 1994 and for
the years ended December 31, 1995, 1994 and 1993, together with the report
thereon of KPMG Peat Marwick LLP, independent auditors, dated February 14,
1996, appear on pages 15 through 28 of this Report.
2. Financial Statement Schedules.
Schedules have been omitted either because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. Exhibits.
Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.
3(i) Certificate of Incorporation of the Company and amendments thereto dated
June 14, 1984, July 18, 1988 and July 22, 1988. Incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
3(ii) By-Laws of the Company. Incorporated by reference to Exhibit 3(ii) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
4(a) Indenture dated December 1, 1986 between Chemical Bank as successor in
interest to 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) Guarantee Agreement, dated as of July 22, 1988, as amended, made by the
Company in favor of NatWest Bank NA 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(c) 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 NatWest Bank NA 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(d) 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 NatWest Bank NA 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(e) 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 NatWest Bank NA 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(f) Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(b)
above. Incorporated by reference to Exhibit 4(i) to the Company's Annual Report
on Form 10-Q for the fiscal year ended December 31, 1992.
4(g) Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(b)
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.
Page 7
<PAGE>
4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective February 10, 1995. Incorporated by reference to Exhibit 4(h)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
4(i) Amendment No. 9 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective June 30, 1995.
10(a)* EDO Corporation 1980 Stock Option Plan, as amended through July 22,
1988. Incorporated by reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10(b)* EDO Corporation 1985 Stock Option Plan, as amended through January 24,
1989. Incorporated by reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
10(c)* EDO Corporation 1988 Stock Option Plan as amended through July 22, 1988.
Incorporated by reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10(d)* EDO Corporation 1983 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(e)* EDO Corporation 1988 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(f)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and two employees. Incorporated by
reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(g)* Executive Life Insurance Plan Agreements, as amended through January 23,
1990, between the Company and 31 employees and retirees. Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(h)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and fifteen current Company directors and officers. Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10(i) Consent Decree, entered on November 25, 1992, amongst the United States,
EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc.
Incorporated by reference to Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.
21 List of Subsidiaries.
23 Consent of Independent Auditors to the incorporation by reference in the
Company's Registration Statements on Form S-8 of their report included in Item
14(a)1 hereto.
24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the three months ended
December 31, 1995.
Page 8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Dated: March 22, 1996 By: Kenneth A. Paladino
------------------------------
Vice President-Finance
Pursuant to the requirements of Instruction D to Form 10-K under the Securities
Exchange Act of 1934, this Report has been signed below on March 22, 1996 by
the following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
Kenneth A. Paladino Vice President-
Finance and Treasurer
Robert M. Hanisee Chairman of the Board
Frank A. Fariello President, Chief Executive
Officer and Director
William J. Frost Vice President-
Administration
Marvin D. Genzer Vice President, General
Counsel and Secretary
Ira Kaplan Vice President-Defense Kenneth A. Paladino
and Space Systems Division ---------------------
J. Douglas Moore Vice President-Industrial Attorney-in-Fact
Products Division
Robert E. Allen Director
Robert Alvine Director
Mellon C. Baird Director
George M. Ball Director
Alfred Brittain III Director
Joseph F. Engelberger Director
Michael J. Hegarty Director
George A. Strutz, Jr. Director
Page 9
<PAGE>
Selected Financial Data
EDO Corporation and Subsidiaries
(Not Covered by Independent Auditors' Report)
- -------------------------------------------------------------------------------
1995 1994 1993 1992 1991
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
Summary of Operations
Net sales:
Defense and
Space Systems $ 52,055 56,568 71,944 92,964 109,074
Industrial
Products 39,058 34,034 32,194 32,807 36,619
- -------------------------------------------------------------------------------
$ 91,113 90,602 104,138 125,771 145,693
===============================================================================
Operating earnings
(loss):
Defense and
Space Systems $ 5,779 (6,546)a (6,908)a 12,140 12,020
Industrial Products 1,600 (14,139)b 460 2,499 (2,716)
General corporate
expense (3,806) (4,711) (4,146) (4,281) (3,785)
- -------------------------------------------------------------------------------
3,573 (25,396) (10,594) 10,358 5,519
Net interest expense (1,179) (2,109) (2,201) (2,504) (2,404)
Other income
(expense), net (41) 335 (1,390) (443) (585)
- -------------------------------------------------------------------------------
Earnings (loss)
before Federal and
foreign income taxes,
cumulative effect of
accounting change,
minority interest
and extraordinary gain 2,353 (27,170) (14,185) 7,411 2,530
Provision (benefit) for
Federal and foreign
income taxes - (3,800) (4,901) 1,684 458
- -------------------------------------------------------------------------------
Net Earnings (loss)
before cumulative
effect of accounting
change, minority
interest and
extraordinary gain 2,353 (23,370) (9,284) 5,727 2,072
===============================================================================
Net Earnings (loss) 2,660 (22,556)a,b (16,348)a,c 5,677 1,809
Dividends on
Preferred Shares 1,239 1,333 1,406 1,455 1,495
- -------------------------------------------------------------------------------
Net Earnings (loss)
available for
common shares $ 1,421 (23,889)a,b (17,754)a,c 4,222 314
===============================================================================
Per Common Share Data
Primary net
earnings (loss) $ 0.25 (4.30)a,b (3.28)a,c 0.78 0.05
Fully diluted
net earnings $ 0.20 (4.30)a,b (3.28)a,c 0.69 0.05
Average number of
shares outstanding-
primary 5,768 5,551 5,415 5,389 5,298
Cash dividends
per common share $ - 0.14 0.28 0.28 0.28
Other Information
Working capital $ 37,672 31,150 41,065 52,022 47,468
Depreciation and
amortization of
fixed assets $ 4,955 6,047 6,451 6,460 6,196
Plant and equipment
expenditures, net $ 1,943 2,411 4,517 4,566 5,609
Total assets $103,499 102,077 123,405 133,348 137,098
Long-term debt $ 29,317 29,317 29,317 30,544 30,577
ESOT loan obligation $ 12,887 14,007 15,045 16,005 16,895
Shareholders' equity $ 14,162 10,750 34,286 52,369 50,032
Backlog of
unfilled orders $ 89,658 79,569 89,203 94,200 116,279
- -------------------------------------------------------------------------------
a Includes restructuring charges of $1,127 and $9,800 in 1994 and 1993,
respectively, relating to the discontinuance, relocation and downsizing of
certain operations.
b Includes a $5,400 write off of a previously established receivable in
anticipation of the recovery of remediation costs related to a superfund site.
c Includes the cumulative effect of change in accounting for postretirement
health benefits, as required by the adoption of SAFS No. 106, of $9,400, net of
taxes, or $1.74 per share on primary net earnings.
Page 10
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Business Environment
In 1995 the Company returned to profitability after two consecutive years of
losses. The effects of cost reduction, consolidation of operations, and the
containment of development costs on certain programs all contributed to the
improved operating results.
Revenues derived from the defense business base continued to decline in 1995;
however, at year end, the backlog of unfilled orders in this area increased
$11.7 million over that at year end 1994. Additionally, overall backlog
increased 13% over that of 1994.
Consistent with the Company's continuing efforts to consolidate operations and
eliminate excess facilities, the Company sold its College Point, NY facility in
January 1996.
Results of Operations - 1995 Compared to 1994
Sales for 1995 were $91.1 million, a 1% increase when compared with sales of
$90.6 million in 1994. Sales in the Defense and Space Systems segment decreased
8% to $52.1 million, due primarily to delays in expected awards in some
military programs offset in part by increases in satellite system product
sales. Sales in the Industrial Products segment increased by 15% to $39.1
million where increases were recorded in each of the business units.
A profit from operations of $3.6 million was recorded in 1995 as compared to a
loss of $25.4 million in 1994. Included in 1994 results were charges, net of a
pension curtailment gain of $1.4 million, that amounted to approximately $17.4
million as described below in the comparison of 1994 results to 1993. Exclusive
of the effects of these net charges, the Company in general experienced
improvements in all of its operations. In addition, significant losses
previously incurred on certain fixed-price development contracts, which
included one for the development of a new earth sensor, did not recur in 1995.
While in 1995 the revenues in the energy business units increased over 1994,
operating results continue to be adversely affected by the length of time it is
taking for the markets to grow to the anticipated levels.
The results of operations of the Defense and Space Systems segment were a
profit, before general corporate expense allocations, of $5.8 million as
compared to a loss of $1.0 million (excluding the net charges mentioned above)
in 1994. The improvement in earnings, exclusive of the net charges, results
primarily from an improvement in the Electro-Optics business unit, higher
margins in the segment in general and inclusion of a pension curtailment gain
of $0.6 million.
The Industrial Products segment recorded a profit, before general corporate
expense allocations, of $1.6 million as compared to a loss of $0.8 million
(excluding the net charges mentioned above) in 1994. The improvement in
earnings, exclusive of the net charges, results primarily from improved margins
on increased sales of fiber composite and acoustic products.
Selling, general and administrative expenses decreased to $17.0 million from
$18.7 million, (excluding a $3.6 million reserve on a foreign receivable) in
1994 principally as a result of the effects of cost reduction efforts. Company
sponsored research and development expenditures decreased 53% to $1.5 million.
Reductions occurred in both segments, primarily as a result of a more selective
approach to, and customer sponsoring of, important Company development
programs. Customer-sponsored research and development included in cost of
sales, which occurs primarily in the Defense and Space Systems segment,
declined $4.8 million to $13.6 million consistent with the general decline in
available government development programs.
Interest expense, net of interest income, decreased 43% to $1.2 million from
$2.1 million in 1994 primarily due to increased interest income on higher
average balances of interest earning assets. Interest expense primarily
represents the interest paid on the 7% Convertible Subordinated Debentures due
2011.
In 1995, the Company did not have a provision for Federal and foreign income
taxes due to the realization of benefits related to certain deductible
temporary differences and preferred stock dividends.
The net earnings, before the minority interest, in 1995 of $2.4 million
compares to a net loss in 1994 of $23.4 million. The primary net earnings per
share was $.25 as compared to a net loss of $4.30 in 1994. Primary earnings per
share calculations were based on a weighted average of 5.8 million and 5.6
million shares outstanding in 1995 and 1994, respectively. The Company's 1995
year end backlog was $89.7 million compared to $79.6 million in 1994. The
increase occurred principally in the Defense and Space Systems segment.
Page 11
<PAGE>
Liquidity and Capital Resources
The Company's cash and cash equivalents increased $7.5 million in 1995 to $25.6
million at December 31, 1995 which was the third consecutive year the Company
generated positive cash flow. This increase primarily resulted from $7.2
million of cash generated from operations, which included the receipt of $3.6
million for a refund of prior year Federal income taxes. In addition, $3.5
million was received from the sale of newly-issued capital stock of the
Company's subsidiary, EDO (Canada) Ltd. These cash flows were partially offset
by $3.2 million of cash outflows used for capital expenditures and payment of
preferred share dividends.
The Company 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 these debentures through
December 31, 1995 at prevailing market prices. These debentures will be used to
satisfy approximately three years of sinking fund requirements that commence in
1996.
The Company also has an ESOT loan obligation with a balance of $12.9 million at
December 31, 1995. The repayment of this obligation is funded principally
through dividends on the Company's preferred shares. During 1995, the Company
renegotiated the ESOT obligation agreement to extend the effective date of the
option to cancel or refinance the obligation to April 1, 1997. Also in 1995,
the Company negotiated an increase in its $5.0 million secured line of credit
which expires on June 30, 1996 to $15.0 million. No borrowings are outstanding
under the line of credit as of December 31, 1995.
In January of 1996 the Company completed the sale of its College Point
corporate headquarters and manufacturing facilities. Net proceeds of the sale
approximated the carrying value of the related net assets and were comprised of
cash of approximately $2.0 million, net of expenses, notes of $4.6 million and
other consideration including prepaid rent for the portion of the facility
currently utilized, approximately one-third of the 320,000-square foot
facility. Net capital expenditures in 1995 were $1.9 million as compared to
$2.4 million in 1994.
The Company is incurring costs in connection with the remediation of a
superfund site. The Company has recovered some of the costs from its insurance
carriers and other parties (note 17). The Company has expensed all of the costs
it has incurred, as well as a discounted estimate of all future costs related
to this matter. The liability for these future costs at December 31, 1995 is
$5.7 million of which $1.9 million is classified as a current obligation.
Approximately half of the $5.7 million liability will be expended over the next
two years.
As described in Note 15, during 1995, the Company modified its postretirement
healthcare plan which has resulted in an unrecognized gain of approximately $5
million. This gain will be recognized over a period of approximately 6 years as
a reduction of the annual charge for postretirement healthcare costs.
The Company believes that it has adequate liquidity and sufficient capital
resources to fund its current operating plans.
Impact of New Accounting Standards
In October of 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation," which must be
adopted by the Company in 1996. The Company has elected not to implement the
fair value based accounting method for employee stock options, but has elected
to disclose, commencing in 1996, the pro forma net income and earnings per
share as if such method had been used to account for stock-based compensation
cost as described in Statement No. 123.
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," must be adopted by the Company in
1996. Statement No. 121 requires, among other things, that long-lived assets
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Management does not believe that the implementation of
Statement No. 121 will have a material impact on the Company's financial
position or results of operations.
Results of Operations - 1994 Compared to 1993
Sales for 1994 were $90.6 million, which represents a decline of 13% when
compared with sales of $104.1 million in 1993. Sales in the Defense and Space
Systems segment decreased 21% to $56.6 million due primarily to continuing
reductions in military spending in general and decreases in space product
sales. Sales in the Industrial Products segment increased by 6% to $34.0
million where increases in energy product sales, which include revenues of EDO
ANGI which was acquired in December 1993, were partially offset by decreases
in piezo ceramic and acoustic system sales.
A loss from operations of $25.4 million was recorded in 1994 as compared to a
loss of $10.6 million in 1993. Included in 1994 results in the Industrial
Products segment is the write off of a
Page 12
<PAGE>
receivable of $5.4 million established in anticipation of the recovery of
remediation costs related to a superfund site as explained in Note 17. Also
included in 1994 and 1993 operating results are restructuring charges of $1.1
and $9.8 million, respectively, which are more fully explained in Note 2 to the
Consolidated Financial Statements.
In addition to the charges mentioned above, the 1994 operating results include
$12.3 million of charges as follows: $2.9 million related principally to the
write-down of non-productive assets; $2.2 million of inventory write-downs;
$4.9 million for reserves against various receivables deemed uncollectible; and
$2.3 million for the discontinuance of commercial product initiatives,
principally EDO Sports. In addition, a significant portion of the remaining
operating loss the Company incurred was due to unabsorbed overhead as a result
of lower than expected revenue combined with cost overruns on certain fixed
price development programs, principally in the satellite systems unit. These
losses should not recur since the major technical hurdles associated with these
development programs have substantially been overcome and revenue levels in
this unit are expected to improve. Start up costs in the energy business units
further contributed to the overall operating loss. Future operating results of
the energy business units will continue to be affected by the length of time it
takes for markets to further develop for the Company's products.
Excluding restructuring charges the results of operations of the Defense and
Space Systems segment are a $5.5 million loss, before general corporate expense
allocations, in 1994 as compared to earnings of $2.9 million in 1993. The 1994
loss is primarily due to lower sales volumes, write-downs of non-productive
assets, inventory write-downs and cost overruns on fixed price development
programs. Excluding the write off of the remediation receivable, the Industrial
Products segment recorded an operating loss of, before general corporate
expense allocations, $8.7 million compared to an operating profit of $0.5
million in 1993. This loss was primarily due to lower sales volumes,
consolidation of facilities and write-offs of fixed assets, as well as reserves
for accounts receivable, the discontinuance of EDO Sports and continuing start
up costs in the energy business units.
Selling, general and administrative expenses increased to $18.7 million
(excluding a $3.6 million reserve on a foreign receivable) from $17.2 million
in 1993 principally due to expenses at EDO ANGI which was acquired in December
1993. Company sponsored research and development expenditures decreased 47% to
$3.2 million primarily as a result of a more selective approach to development
programs. While reductions occurred in both segments, they were due primarily
to reductions in the Industrial Products segment in sports, fiber reinforced
composites and acoustic systems. Customer sponsored research and development
included in cost of sales, which occurs primarily in the Defense and Space
Systems segment, increased $4.3 million to $18.4 million primarily in the
satellite systems business.
Interest expense, net of interest income, decreased $0.1 million from $2.2
million in 1993. Interest expense primarily represents the interest paid on the
7% Convertible Subordinated Debentures due 2011. Included in "Other, net" is a
gain on the sale of a building.
Income tax benefits associated with the Company's loss for the year 1994 have
been provided to the extent of available refunds. Benefits relating to the
remaining carry over net operating losses will be recorded in 1995 to the
extent realized. See Note 11 for a discussion of the current year's tax
benefit.
The net loss, before the cumulative effect of accounting change and minority
interest, in 1994 of $23.4 million compares to a net loss in 1993 of $9.3
million. The primary net loss per share before the cumulative effect of the
accounting change was $4.30 as compared to a net loss of $1.54 in 1993. Primary
earnings per share calculations were based on a weighted average of 5.5 million
and 5.4 million shares outstanding in 1994 and 1993 respectively.
The Company's 1994 year end backlog was $79.6 million compared to $89.2 million
at the end of 1993. The reduction reflects an overall decline in military
spending which has been partially offset by an increase in backlog orders for
energy related products. In order to offset these continuing declines in
military business, the Company continues to emphasize a strategy of preserving
liquidity and solidifying our core business while expanding into new commercial
markets at an appropriate pace.
Page 13
<PAGE>
Common Share Prices
EDO common shares are traded on the New York Stock Exchange. As of February 5,
1996, there were 2,722 shareholders of record (brokers and nominees counted as
one each).
The price range in 1995 and 1994 was as follows:
---------------------------------------------------
1995 1994
High Low High Low
---------------------------------------------------
1st Quarter 3-7/8 3 7-1/4 5-3/4
2nd Quarter 3-1/2 3 6-1/8 4-1/4
3rd Quarter 5-7/8 3 4-7/8 2-7/8
4th Quarter 6 4-3/8 4 3
---------------------------------------------------
Dividends
In the third quarter of 1994, the Board of Directors suspended cash dividends
on the Company's common shares. The Company had paid quarterly cash dividends
since the fourth quarter of 1976. Payments of future dividends rests within the
discretion of the Board of Directors and will be considered once sustained
profitability and adequate cash flow are achieved. The Company's ESOT guarantee
agreement presently limits the payment of cash dividends. See Note 10 of the
Consolidated Financial Statements.
Page 14
<PAGE>
Consolidated Statements of Operations
EDO Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Years Ended December 31
1995 1994 1993
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
Income
Net sales $ 91,113 $ 90,602 $104,138
Other 537 380 556
- -------------------------------------------------------------------------------
91,650 90,982 104,694
- -------------------------------------------------------------------------------
Costs and Expenses
Cost of sales 69,531 84,355 81,097
Selling, general and administrative 17,043 22,291 17,181
Research and development 1,503 3,205 6,044
Write off of environmental
insurance receivable - 5,400 -
Litigation settlement - - 1,166
Restructuring charges - 1,127 9,800
- -------------------------------------------------------------------------------
88,077 116,378 115,288
- -------------------------------------------------------------------------------
Operating Earnings (Loss) 3,573 (25,396) (10,594)
Non-operating Income (Expense)
- -------------------------------------------------------------------------------
Interest income 1,122 318 291
Interest expense (2,301) (2,427) (2,492)
Other, net (41) 335 (1,390)
- -------------------------------------------------------------------------------
(1,220) (1,774) (3,591)
- -------------------------------------------------------------------------------
Earnings (loss) before Federal
and foreign income taxes,
cumulative effect of accounting
change and minority interest 2,353 (27,170) (14,185)
Federal and foreign income tax benefit - (3,800) (4,901)
- -------------------------------------------------------------------------------
Net Earnings (Loss) Before Cumulative
Effect of Accounting Change and
Minority Interest 2,353 (23,370) (9,284)
Minority interest 307 814 2,336
Cumulative effect of change in
accounting for postretirement
health and other benefits (net of
taxes of $3,958) - - (9,400)
- -------------------------------------------------------------------------------
Net Earnings (Loss) 2,660 (22,556) (16,348)
Dividends on preferred shares 1,239 1,333 1,406
- -------------------------------------------------------------------------------
Net Earnings (Loss) Available
for Common Shares $ 1,421 $ (23,889) $ (17,754)
===============================================================================
Earnings (Loss) Per Common Share:
Primary:
Net earnings (loss) before
cumulative effect of change
in accounting $ 0.25 $ (4.30) $ (1.54)
Cumulative effect of change
in accounting - - (1.74)
- -------------------------------------------------------------------------------
Net Earnings (Loss) $ 0.25 $ (4.30) $ (3.28)
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Fully diluted net earnings per share were $0.20 for 1995 and the same amounts
as primary for 1994 and 1993.
Page 15
<PAGE>
Consolidated Balance Sheets
EDO Corporation and Subsidiaries
- -------------------------------------------------------------------------------
December 31
1995 1994
(in thousands, except share amounts)
- -------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 25,609 $ 18,076
Recoverable Federal income taxes - 3,649
Accounts receivable 26,786 24,175
Inventories 10,330 11,607
Prepayments 1,381 1,623
- -------------------------------------------------------------------------------
Total current assets 64,106 59,130
- -------------------------------------------------------------------------------
Property, plant and equipment, net 14,133 25,845
Assets held for sale, net 8,700 -
Cost in excess of fair value of net
assets acquired, net 10,258 10,837
Other assets 6,302 6,265
- -------------------------------------------------------------------------------
$ 103,499 $ 102,077
===============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 20,581 $ 23,502
Contract advances and deposits 5,853 4,478
- -------------------------------------------------------------------------------
Total current liabilities 26,434 27,980
- -------------------------------------------------------------------------------
Long-term debt 29,317 29,317
ESOT loan obligation 12,887 14,007
Postretirement obligation 12,348 13,465
Environmental obligation 3,769 4,405
Minority interest 4,582 2,153
Shareholders' Equity:
8% convertible preferred shares,
par value $1 per share (liquidation
preference $213.71 per share), authorized
500,000 shares (71,001 issued in
1995 and 75,292 in 1994) 71 75
Common shares, par value $1 per share,
authorized 25,000,000 shares
(8,453,902 issued in both years) 8,454 8,454
Additional paid-in capital 37,847 39,330
Retained earnings 19,116 17,695
- -------------------------------------------------------------------------------
65,488 65,554
Less: Treasury shares at cost (2,645,863
shares in 1995 and 2,809,965
shares in 1994) (37,604) (39,937)
Translation adjustment (835) (860)
ESOT loan obligation (12,887) (14,007)
- -------------------------------------------------------------------------------
Total shareholders' equity 14,162 10,750
- -------------------------------------------------------------------------------
$ 103,499 $ 102,077
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Page 16
<PAGE>
Consolidated Statements of Shareholders' Equity
EDO Corporation and Subsidiaries
- -------------------------------------------------------------------------------
1995 1994 1993
(in thousands)
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- -------------------------------------------------------------------------------
Preferred shares
Balance at beginning
of year $ 75 75 $ 80 80 $ 84 84
Par value of shares
converted (4) (4) (5) (5) (4) (4)
- -------------------------------------------------------------------------------
Balance at end of year 71 71 75 75 80 80
- -------------------------------------------------------------------------------
Common shares
- -------------------------------------------------------------------------------
Par value of
shares issued 8,454 8,454 8,454 8,454 8,454 8,454
- -------------------------------------------------------------------------------
Additional paid-in
capital
Balance at beginning
of year 39,330 41,784 43,366
Exercise of stock
options - (5) (9)
Shares used for
payment of directors'
fees (137) - -
Effect of sale of
subsidiary's (EDO
(Canada) Ltd.)
capital stock 795 - -
Shares used for
Long-Term
Incentive Plans - 6 11
Conversion of
preferred shares to
common shares (2,141) (2,455) (1,584)
- -------------------------------------------------------------------------------
Balance at end of year 37,847 39,330 41,784
- -------------------------------------------------------------------------------
Retained earnings
Balance at beginning
of year 17,695 42,350 61,274
Net earnings (loss) 2,660 (22,556) (16,348)
Common stock
dividends: ($0.14 per
share in 1994;
$0.28 in 1993) - (766) (1,514)
Dividends on
preferred shares (1,239) (1,333) (1,406)
Tax benefit associated
with dividends paid
on unallocated
preferred shares - - 344
- -------------------------------------------------------------------------------
Balance at end of year 19,116 17,695 42,350
- -------------------------------------------------------------------------------
Treasury shares at cost
Balance at beginning
of year (39,937) (2,810) (42,393) (2,983) (43,973) (3,094)
Shares used for
exercise of stock
options - - 7 - 14 1
Shares used for
payment of
directors' fees 188 13 - - - -
Shares used for
Long-Term Incentive
Plans - - (11) (1) (22) (2)
Shares used for
conversion of
preferred shares 2,145 151 2,460 174 1,588 112
- -------------------------------------------------------------------------------
Balance at end of year (37,604) (2,646) (39,937) (2,810) (42,393) (2,983)
- -------------------------------------------------------------------------------
Translation adjustment
Balance at beginning
of year (860) (749) (428)
Adjustment during
the year 25 (111) (321)
- -------------------------------------------------------------------------------
Balance at end of year (835) (860) (749)
- -------------------------------------------------------------------------------
ESOT loan obligation
Balance at
beginning of year (14,007) (15,045) (16,005)
Repayments made
during year 1,120 1,038 960
- -------------------------------------------------------------------------------
Balance at end of year (12,887) (14,007) (15,045)
- -------------------------------------------------------------------------------
Deferral under long-
term incentive plans
Balance at beginning
of year - (195) (403)
Shares used for
Long-Term Incentive
Plans - 5 12
Amortization of
Long-Term Incentive
Plan deferred expense - 190 196
- -------------------------------------------------------------------------------
Balance at end of year - - (195)
- -------------------------------------------------------------------------------
Total Shareholders'
Equity $14,162 $10,750 $34,286
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
Page 17
<PAGE>
Consolidated Statements of Cash Flows
EDO Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Years Ended December 31
1995 1994 1993
(in thousands)
- -------------------------------------------------------------------------------
Operating Activities:
Net earnings (loss) $ 2,660 $ (22,556) $ (16,348)
Adjustments to net earnings (loss) to
arrive at cash provided by operations:
Gain on sale of building - (427) -
Write off of environmental
insurance receivable - 5,400 -
Write off of nonproductive fixed assets - 1,739 -
Restructuring charge - 1,127 9,800
Cumulative effect of change in accounting
for postretirement benefits - - 9,400
Depreciation and amortization 5,534 6,625 6,836
Investments in technology companies - - 1,000
Common shares issued for employee
benefits and directors' fees 51 193 201
Minority interest (307) (814) (2,336)
Changes in:
Accounts receivable (2,611) 14,108 11,072
Inventories 1,277 6,548 3,840
Prepayments, other assets and other (1,523) 36 493
Decrease (Increase) in recoverable
and deferred income taxes 3,649 (316) (9,578)
Accounts payable and accrued liabilities (2,921) 1,356 79
Contract advances and deposits 1,375 (2,801) 159
- -------------------------------------------------------------------------------
Cash provided by operations 7,184 10,218 14,618
Investing Activities:
Purchase of property, plant and
equipment, net (1,943) (2,411) (4,517)
Proceeds from sale of subsidiary's
(EDO (Canada) Ltd.) capital stock 3,531 - -
Acquisition of ANGI, net of cash acquired - - (44)
Proceeds from sale of building - 3,084 -
- -------------------------------------------------------------------------------
Cash provided (used) by investing activities 1,588 673 (4,561)
Financing Activities:
Payments of notes payable - - (1,189)
Reduction of long-term debt - - (1,261)
Payment of common share cash dividends - (766) (1,514)
Payment of preferred share cash dividends (1,239) (1,333) (1,406)
- -------------------------------------------------------------------------------
Cash used by financing activities (1,239) (2,099) (5,370)
===============================================================================
Net increase in cash and cash equivalents 7,533 8,792 4,687
Cash and cash equivalents at
beginning of year 18,076 9,284 4,597
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 25,609 $ 18,076 $ 9,284
===============================================================================
Supplemental disclosures:
Cash paid for:
Interest $ 2,143 $ 2,198 $ 2,243
Income taxes $ 345 $ 297 $ 608
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
Page 18
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
EDO Corporation and Subsidiaries
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EDO Corporation
and all majority-owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) Cash Equivalents
The Company considers all securities with an original maturity of three months
or less at the date of acquisition to be cash equivalents.
(c) Revenue Recognition
Sales under long-term, fixed price contracts, including pro-rata profits, are
generally recorded based on the relationship of costs incurred to date to total
projected final costs or, alternatively, as deliveries are made. Estimated
losses on long-term contracts are recorded when identified. Sales under cost
reimbursement contracts are recorded as costs are incurred. Sales on other than
long-term contract orders (principally commercial products) are recorded as
shipments are made.
(d) Inventories
Inventories under long-term contracts and programs reflect all accumulated
production costs, including factory overhead, initial tooling and other related
costs (including general and administrative expenses relating to certain of the
Company's defense contracts), less the portion of such costs charged to cost of
sales. Inventory costs in excess of amounts recoverable under contracts are
charged to cost of sales when they become known. All other inventories are
stated at the lower of cost (principally first -in, first-out method) or
market.
(e) Depreciation and Amortization
Depreciation and amortization of property, plant and equipment have been
provided primarily using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are being amortized over the lesser
of their estimated useful lives or their respective lease periods.
Deferred financing costs are amortized on a straight-line basis over the life
of the related financing. The unamortized balance of $1,286,000 and $1,395,000
is included in other assets at December 31, 1995 and 1994, respectively.
(f) Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)
The excess of the total acquisition cost of Barnes Engineering Company over the
fair value of net assets acquired of approximately $11 million ($7.6 million,
net of accumulated amortization at December 31, 1995) is being amortized on a
straight-line basis over thirty years. The excess of the total acquisition
costs of ANGI over the fair value of net assets acquired of approximately $3
million ($2.7 million, net of accumulated amortization at December 31, 1995) is
being amortized on a straight-line basis over fifteen years. The Company
assesses the recoverability of unamortized goodwill using the undiscounted
projected future earnings from the related businesses.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Treasury Stock
Treasury stock is recorded at cost, with issuances from treasury stock recorded
at average cost. Treasury stock issued for directors' fees is recorded as an
expense for the fair market value of the stock on the issuance date.
(i) Earnings Per Share
Primary earnings per share amounts are determined by using the weighted average
number of common shares and dilutive common share equivalents (stock options)
outstanding during the year. Primary earnings per share amounts were based on
5,768,189, 5,550,868 and 5,415,046 shares outstanding for 1995, 1994 and 1993,
respectively.
Fully diluted earnings per share are based on the assumption that the
convertible debentures and pre-
Page 19
<PAGE>
ferred shares, in the periods in which such securities are dilutive, are
converted into common shares and their related interest and dividends are added
back to net earnings, net of applicable income taxes. Fully diluted earnings
per share were based on 7,037,876 shares outstanding for 1995. In 1993 and 1994
both the convertible debentures and preferred shares were antidilutive.
(j) Financial Instruments
The fair values of all financial instruments, other than long-term debt and the
ESOT obligation (which have an aggregate fair value of $34,887,000),
approximate book values because of the short maturity of these instruments
(notes 9 and 10).
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Among the more
significant estimates included in these financial statements are the estimated
costs to complete contracts in process and the estimated remediation costs
related to the environmental matter discussed in note 17. Actual results could
differ from those and other estimates.
(2) Restructuring of Operations
During the fourth quarter of 1993, the Company adopted a restructuring plan to
address the continuing worldwide decline in the defense and aerospace business,
reduce costs and improve its competitiveness. This restructuring plan included
the discontinuance of the defense portion of its business in Canada, the
relocation of some United States production from New York to less costly
locations, the related disposition of nonproductive assets (principally land
and buildings) and work force reductions. The accompanying consolidated
statements of operations reflect pretax charges of $1,127,000 and $9,800,000
for 1994 and 1993, respectively, relating to this plan, including approximately
$3,620,000 in 1993 related to the discontinuance of the defense-related
business in the Canadian operations and approximately $5,200,000 in 1993
relating to a write-down of a major portion of the Company's College Point
production facility, which was the portion that had been placed for sale, and
which sale was completed in January 1996 (note 7). The increase to the
restructuring charge in 1994 principally resulted from a longer than
anticipated holding period associated with the College Point production
facility held for sale and severance costs.
As of December 31, 1995, substantially all expenditures related to the
restructuring have been made and were consistent in all material respects with
the original charges taken.
(3) Automotive Natural Gas, Inc. (ANGI) Acquisition
During December 1993, the Company acquired substantially all the assets and
certain liabilities of ANGI. ANGI manufactures and installs pumping stations
for natural gas refueling and vehicle conversion kits to allow the use of
natural gas as an alternative fuel source.
The purchase price was $68,000 plus the assumption of certain liabilities that
were in excess of the value of assets acquired by approximately $2,600,000.
Additional costs incurred as a result of the acquisition were approximately
$422,000. The acquisition was accounted for as a purchase and operating results
for ANGI are included in the consolidated statements of operations from the
purchase date. ANGI's results had a minimal impact on consolidated operating
results for the year ended December 31, 1993.
The following unaudited pro-forma consolidated results of operations assume
that the purchase occurred on January 1, 1993 and reflect the historical
operations of the Company and ANGI adjusted for reduced interest income as a
result of the use of cash to acquire ANGI and the amortization of goodwill.
------------------------------------------------------------
December 31
1993
------------------------------------------------------------
Net Sales $ 116,662
Net loss available for common shareholders (19,076)
------------------------------------------------------------
Loss available for common shareholders per share $ (3.52)
------------------------------------------------------------
(4) Canadian Subsidiary
In December 1995, EDO (Canada) Ltd. received $3.5 million from the sale of its
capital stock to three companies. As a result, the Company's ownership of EDO
(Canada) Ltd. was reduced from approximately 60% to approximately 50.4% with
approximately 33% owned by the Province of Alberta and approximately 17% owned
by three other minority shareholders. EDO's additional paid-in capital was
increased by $795,000, representing EDO's equity in EDO (Canada)'s capital
transactions in 1995. In 1993, the Company discontinued its defense business in
Canada; however, it has continued its commercial business.
Page 20
<PAGE>
(5) Accounts Receivable
Accounts receivable included $9,742,000 and $9,821,000 at December 31, 1995 and
1994, respectively, representing unbilled revenues. Substantially all of the
unbilled balances at December 31, 1995 will be billed and collected during
1996. Total receivables due from the United States government, either directly
or as a subcontractor to a prime contractor with the government, were
$9,562,000 at December 31, 1995, and $10,629,000 at December 31, 1994.
(6) Inventories
Inventories are summarized by major classification as follows at December 31,
1995 and 1994:
-----------------------------------------------
1995 1994
(in thousands)
-----------------------------------------------
Raw material and supplies $ 6,186 $ 5,671
Work-in-process 3,023 4,762
Finished goods 1,121 1,174
-----------------------------------------------
$10,330 $ 11,607
-----------------------------------------------
(7) Property, Plant and Equipment, Net
The Company's property, plant and equipment at December 31, 1995 and 1994, and
their related useful lives are summarized as follows:
- -------------------------------------------------------------------------------
1995 1994 Range in
(in thousands) Years
- -------------------------------------------------------------------------------
Land and land improvements $ - $ 1,814 8 - 30
Buildings and building improvements - 25,179 8 - 45
Machinery and equipment 50,674 50,620 3 - 10
Leasehold improvements 11,094 9,854 lease terms
- -------------------------------------------------------------------------------
61,768 87,467
Less accumulated depreciation and amortization 47,635 61,622
- -------------------------------------------------------------------------------
$14,133 $25,845
- -------------------------------------------------------------------------------
Assets held for sale, amounting to $8.7 million, represent buildings, building
improvements and land at the Company's College Point facility, net of related
accumulated depreciation. In January 1996, such assets were sold for $2.0
million of cash, net of expenses, $4.6 million of notes, and other
consideration including prepaid rent. The total consideration received
approximated the carrying value of the assets held for sale.
(8) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at December
31, 1995 and 1994:
----------------------------------------------------------
1995 1994
(in thousands)
----------------------------------------------------------
Trade payables $ 4,301 $ 6,930
Employee compensation and benefits 2,470 2,521
Employee retirement plans 299 220
Taxes on income other than Federal
and foreign income taxes 1,671 1,954
Other 11,840 11,877
----------------------------------------------------------
$ 20,581 $ 23,502
----------------------------------------------------------
(9) Long-Term Debt and Line of Credit
Long-term debt of the Company at December 31, 1995 and 1994 consisted of the 7%
Convertible Subordinated Debentures Due 2011 that were issued in November 1986.
The debentures are convertible at the rate of 45.45 common shares for each
$1,000 principal amount, which is equivalent to $22 per share. Debentures are
redeemable at the option of the Company at par plus (until December 15, 1996) a
stated premium. Debentures are redeemable at the option of the holder under
certain circumstances involving a change in control of the Company at par plus
(until December 15, 1996) a stated premium. Annual sinking fund payments of
$1,750,000 until retirement are due commencing in 1996. Prior to 1992, the
Company purchased $5,683,000 of these debentures which will be used by the
Company to satisfy annual sinking fund requirements. The carrying value of the
debentures as of December 31, 1995 is $29,317,000. The Company estimates the
fair value of the debentures as of December 31, 1995 to be approximately
$22,000,000 based on trades during late 1995.
In February 1995, the Company entered into a $5 million line of credit
agreement with a bank for both short-term borrowings and letters of credit.
During the year, the Company renegotiated this line of credit to increase the
cash and letter of credit availability to $15 million, with the cash portion
limited to $5 million, and extend the expiration date to June 30, 1996.
Borrowings under the agreement will bear interest based on the bank's prime
rate plus 0.5% and will be secured by the Company's accounts receivable,
inventory, machinery and equipment. A condition to this agreement is compliance
with the Company's Employee Stock Ownership Trust guarantee agreement that is
described in Note 10. There have not been any borrowings under this agreement.
(10) Employee Stock Ownership Plan and Trust
The Company's Employee Stock Ownership Plan (ESOP) provides retirement benefits
to substantially all employees. During 1995, 1994 and 1993, respec-
Page 21
<PAGE>
tively, cash contributions of $839,000, $497,000 and $314,000 were made to the
ESOP. As of December 31, 1995, there were 337,286 common shares in the ESOP.
During 1988, the Employee Stock Ownership Trust (ESOT) purchased 89,772
convertible preferred shares from the Company for approximately $19,185,000.
The shares are being allocated to employees through 2003 on the basis of
compensation. The preferred shares provide for dividends of 8% per annum, which
are deductible by the Company for Federal and state income tax purposes. The
tax benefit that is attributable to unallocated shares is reflected as an
increase to retained earnings. Each unallocated preferred share is convertible
at its stated conversion rate into 10 common shares. Allocated shares are
convertible at the greater of the stated conversion rate or the fair value of
each preferred share ($165 at December 31, 1995) divided by the current market
price of each common share. As of December 31, 1995, 41,517 shares have been
allocated, 48,255 shares remained unallocated and 18,771 shares have been
converted into 551,396 common shares. Until converted, each preferred share is
entitled to 12.3 votes. The preferred shares are entitled to vote on all
matters presented to holders of common shares voting together as a class,
except that certain amendments and mergers could entitle the holders of
preferred shares to vote separately as a class. The ESOP provides for
pass-through of voting rights to the ESOP participants and beneficiaries.
The ESOT purchased the preferred shares from the Company using the proceeds of
a borrowing guaranteed by the Company. The ESOT services this obligation with
the dividends received on the preferred shares and any additional contributions
from the Company as required. Principal and interest payments on the note of
the ESOT are to be made in quarterly installments through 2003. Interest is
charged at 82% of the prime lending rate. During 1995, 1994 and 1993,
respectively, the Company's cash contributions and preferred dividends were
used to repay principal of $1,120,000, $1,038,000 and $960,000 and pay interest
of $982,000 $816,000 and $780,000. Both the Company and the lender have the
option to cancel or refinance the borrowing on or after April 1, 1997. The
guarantee agreement also provides that the Company may be obligated to prepay
the ESOT loan through redemption of the preferred shares at $213.71 per share
upon the occurrence of certain prepayment events.
In addition to these prepayment events, there are certain covenants placed on
the Company that require that several predetermined ratios be maintained. At
December 31, 1995, the Company was in compliance with such covenants. In
addition, payments of common stock dividends in 1996 and beyond will be limited
to each year's net income in excess of net income for that year required for
the Company to be in compliance with its net worth debt covenant (approximately
$3.4 million in 1996) up to $0.28 per common share. During 1995, the Company
secured this obligation with its accounts receivable, inventory, machinery and
equipment. The fair value of the ESOT obligation approximates book value since
the interest rate is prime-based and accordingly is adjusted for market rate
fluctuations.
The ESOT's borrowing guaranteed by the Company is reflected as a liability on
the balance sheet with an equal amount as a reduction of shareholders' equity,
offsetting the increase in the capital stock accounts. As the principal portion
of the note is repaid through 2003, the liability and the ESOT loan obligation
will be reduced concurrently.
(11) Federal and Foreign Income Taxes
The 1995, 1994 and 1993 (benefit) provision for Federal and foreign income
taxes, excluding the cumulative effect of the change in accounting in 1993, was
comprised of the following amounts:
--------------------------------------------
1995 1994 1993
(in thousands)
--------------------------------------------
Federal
Current $ - $ (2,809) $ (877)
Deferred - (991) (3,317)
--------------------------------------------
- (3,800) (4,194)
Foreign
Current - - 28
Deferred - - (735)
--------------------------------------------
- - (707)
--------------------------------------------
Total $ - $ (3,800) $ (4,901)*
--------------------------------------------
* Excludes a tax benefit of $3,958 relating
to the cumulative effect of the change to
the accrual method of accounting for
postretirement benefits.
State income taxes of $295,000, $192,000 and $178,000 in 1995, 1994 and 1993,
respectively, are included in general and administrative expenses.
The effective Federal income tax rate, excluding the tax benefit relating to
the cumulative effect of the change in accounting in 1993, differed from the
stat-
Page 22
<PAGE>
utory Federal income tax rate for the following reasons:
-------------------------------------------------------------------------
Percent of Pretax Earnings
1995 1994 1993
-------------------------------------------------------------------------
Tax at statutory rate 34.0% (34.0%) (34.0%)
Foreign Sales Corporation benefit - - (0.9)
Preferred stock dividends (6.5) - (0.9)
Earnings taxed at foreign tax rates - (0.4) (2.3)
(Decrease) increase in valuation allowance (26.3) 24.0 13.2
Adjustment of prior year accruals - (3.7) (12.1)
Other, net (1.2) - 2.5
-------------------------------------------------------------------------
Effective Federal income tax rate - (14.1%) (34.5%)
-------------------------------------------------------------------------
The items that comprise the significant portions of deferred tax assets and
liabilities as of December 31, 1995 and 1994 are as follows:
------------------------------------------------------------------
December 31
Deferred Tax Assets 1995 1994
------------------------------------------------------------------
Postretirement benefits other than pensions $ 4,198 $ 4,578
Foreign Net Operating loss carry forwards 2,071 3,374
U.S. Net Operating loss carry forwards 4,422 4,067
Restructuring costs 1,847 2,264
Environmental obligation 1,641 1,836
R&D and Alternative minimum
tax credits 2,023 1,337
Deferred compensation 1,123 1,093
Capital loss carry forwards 1,207 1,059
Other 392 586
------------------------------------------------------------------
Total deferred tax assets 18,924 20,194
Less: Valuation allowance (6,586) (10,218)
------------------------------------------------------------------
12,338 9,976
Deferred Tax Liabilities
------------------------------------------------------------------
Depreciation and amortization 8,381 7,008
Contract tax accounting 753 855
Prepaid pension asset 956 1,063
Other 2,248 1,050
------------------------------------------------------------------
Total deferred tax liabilities 12,338 9,976
------------------------------------------------------------------
Net deferred tax asset (liability) $ 0 $ 0
------------------------------------------------------------------
Deferred income tax assets as of December 31, 1995 include U.S. net operating
loss carry forwards, Canadian net operating loss carry forwards and capital
loss carry forwards for income tax purposes of $13,006,000, $5,310,000 and
$3,550,000, respectively, primarily expiring in 2009, of which approximately
$608,000 of the U.S. tax benefits will be allocated to retained earnings. R&D
credits expire in years 2008 and 2009. Realization of these assets is dependent
on future taxable earnings and capital gains. A valuation allowance has been
established at December 31, 1995 for the Company's net deferred tax asset
since, based on the Company's recent cumulative losses, management cannot
conclude that it is more likely than not that the deferred tax assets will be
realized.
(12) Shareholders' Equity
At various times beginning in 1983, the Board of Directors has authorized and
subsequently increased by amendments, a plan to purchase an aggregate amount of
4,190,000 shares of the Company's common stock. As of December 31, 1995, the
Company had acquired approximately 3,957,000 shares in open market transactions
at prevailing market prices. Approximately 1,311,000 of these shares have been
used for various purposes, including: conversion of preferred shares;
contributions of shares to the EDO Corporation Employee Stock Ownership Plan;
grants pursuant to the Company's Long-Term Incentive Plans; partial payment of
a 50% stock dividend; and stock options exercised. As of December 31, 1995 and
1994, the Company held 2,645,863 and 2,809,965 treasury shares, respectively,
for future use.
At December 31, 1995, the Company had reserved, authorized and unissued common
shares for the following purposes:
---------------------------------------------
Shares
---------------------------------------------
Conversion of 7% Convertible
Subordinated Debentures Due 2011 1,332,590
Stock option plans 826,213
Long-Term Incentive Plans 15,140
Conversion of preferred shares 1,233,168
---------------------------------------------
3,407,111
---------------------------------------------
(13) Stock Plans
The Company has granted nonqualified stock options to officers, directors and
other key employees, under plans approved by the shareholders in 1988, 1985 and
1980, for the purchase of its common shares at the fair market value of the
shares on the date of grant. Options become exercisable in four substantially
equal annual installments beginning on the first anniversary of the date of the
grant and expire on the tenth anniversary of the date of the grant.
Changes in options outstanding are as follows:
Page 23
<PAGE>
- -------------------------------------------------------------------------------
1995 1994 1993
Shares Shares Shares
Subject Subject Subject
Price to Price to Price to
Range Option Range Option Range Option
- -------------------------------------------------------------------------------
Beginning
of year $3.44-12.31 790,238 $4.31-16.94 791,693 $4.31-21.79 807,413
Options
granted 3.07- 5.44 96,750 3.44- 4.63 126,000 5.69- 6.94 20,000
Options
exercised - - 4.31 (500) 4.31 (1,000)
Options
cancelled 3.07-12.31 (119,188) 4.63-16.94 (127,225) 7.00-21.79 (34,450)
- -------------------------------------------------------------------------------
End of year $3.07-11.56 767,800 $3.44-12.31 790,238 $4.31-16.94 791,963
- -------------------------------------------------------------------------------
Exercisable
at year end 576,800 623,657 596,407
- -------------------------------------------------------------------------------
In 1983 and 1988, the shareholders of the Company approved the adoption of
Long-Term Incentive Plans (the Plans) for key executives. The Plans provide for
the awarding of up to 318,750 restricted common shares of the Company, and
performance units which are payable in cash.
As of December 31, 1995, Plan participants had been awarded 303,610 restricted
common shares and performance units. The restrictions on 237,060 shares have
previously lapsed. Restrictions on the remaining 66,550 shares will lapse in
1996. The value of the performance units is based upon the market value of the
Company's common shares at the end of the defined performance period and the
attainment of predetermined operating goals. The cost of this award charged to
operations in 1994 and 1993 was $166,000 and $191,000, respectively. There were
no such costs in 1995.
Additional Plan awards, if made, will be based upon the future performance of
the Company. The 1983 Plan expired in 1992 and the 1988 Plan will expire in
1997.
In October of 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which must be adopted by
the Company in 1996. The Company has elected not to implement the fair value
based accounting method for employee stock options, but has elected to
disclose, commencing in 1996, the pro forma net income and earnings per share
as if such method had been used to account for stock-based compensation cost as
described in the Statement.
(14) Other Employee Benefit Plans
The Company maintains a noncontributory defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and the employees' highest five-year average base salary in the final ten years
of employment. The Company's funding policy is to make annual contributions to
the extent such contributions are actuarially determined and tax deductible.
The net pension expense for 1995, 1994 and 1993 was $316,000, $73,000 and
$732,000, respectively. In addition, during 1995 and 1994, the Company
experienced curtailment gains of $645,000 and $1,394,000, respectively, which
reduced cost of sales in the consolidated statements of operations, as a result
of its continued downsizing and reduction in the number of employees. The
expected long-term rate of return on plan assets was 9.0% in 1995, 1994 and
1993. The actuarial computations assumed a discount rate on benefit obligations
at December 31, 1995 and 1994 of 7.25% and 9.00%, respectively. The assumed
rate of compensation increase approximates the Company's previous experience.
The assets of the pension plan consist primarily of fixed income and equity
securities which are readily marketable.
A summary of the components of net periodic pension expense follows:
- -------------------------------------------------------------------------------
1995 1994 1993
(in thousands)
- -------------------------------------------------------------------------------
Service cost $ 1,192 $ 1,784 $ 1,931
Interest cost on projected benefit obligation 5,469 5,138 5,209
Actual return on plan assets (18,791) 1,180 (9,078)
Net amortization and deferral 12,446 (8,029) 2,670
- -------------------------------------------------------------------------------
Net pension expense $ 316 $ 73 $ 732
- -------------------------------------------------------------------------------
Page 24
<PAGE>
The funded status of the plan as of December 31 was as follows:
- -------------------------------------------------------------------------------
1995 1994
(in thousands)
- -------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $68,656 and $57,466 for
1995 and 1994, respectively $ (70,926) $ (59,300)
- -------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date $ (77,009) $ (64,087)
Plan assets at fair value 87,456 73,840
- -------------------------------------------------------------------------------
Funded status of plan 10,447 9,753
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (7,940) (7,011)
Unrecognized prior service cost at December 31,
being amortized over 5 years through 2000 354 443
Unrecognized net asset at December 31, being
amortized over 15 years through 2001 (50) (58)
- -------------------------------------------------------------------------------
Prepaid pension cost (in other assets) $ 2,811 $ 3,127
- -------------------------------------------------------------------------------
In addition, the Company established in 1988 a supplemental defined benefit
plan for substantially all employees. In 1995, 1994 and 1993, the net pension
expense for this plan was approximately $58,300, $104,900 and $36,000,
respectively.
The Company also has a supplemental retirement plan for officers and certain
employees under which the Company has agreed to pay, at the option of the
individual, either a predetermined retirement benefit or a fully paid up life
insurance policy. In the event of preretirement death or disability, the plan
provides for similar benefits. Total expenses under this plan in 1995, 1994 and
1993 were $468,000, $404,000 and $332,000, respectively.
(15) Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits to
qualified retired employees and dependents at certain locations. These benefits
are funded on a pay-as-you-go basis, with the retiree paying a portion of the
cost through contributions, deductibles and coinsurance provisions. The Company
has always retained the right to modify or terminate the plans providing these
benefits.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires recognition of these
benefit expenses on an accrual basis as the employees earn them during their
employment rather than when they are actually paid. The adoption resulted in a
onetime noncash charge of $13.4 million before income tax benefits ($9.4
million after income tax benefits, or $1.74 per common share) for the
accumulated postretirement obligation recognized as a cumulative effect of
accounting change.
Cash outlays relating to retiree health care and life insurance benefits
amounted to $1,131,000, $1,017,000 and $1,086,000 for 1995, 1994 and 1993,
respectively.
Postretirement health care and life insurance expense included the following
components:
- -------------------------------------------------------------------------------
1995 1994
(In thousands)
- -------------------------------------------------------------------------------
Service cost $ 53 $ 93
Interest cost 694 884
Amortization of prior service cost (662) -
Amortization of net unrecognized gain (71) -
- -------------------------------------------------------------------------------
Total postretirement health care and life insurance expense $ 14 $ 977
- -------------------------------------------------------------------------------
The funded status and breakdown of the postretirement health care and life
insurance benefits are as follows as of December 31:
- -------------------------------------------------------------------------------
1995 1994
(In thousands)
- -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 5,787 $ 9,092
Eligible active employees 857 783
Other ineligible active employees 962 893
- -------------------------------------------------------------------------------
Unfunded accumulated postretirement benefit obligation $ 7,606 $ 10,768
Unrecognized prior service cost 4,801 -
Unrecognized net (loss) gain (59) 2,697
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 12,348 $ 13,465
- -------------------------------------------------------------------------------
Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 7.25% and 9.00% at December 31,
1995 and 1994, respectively. Effective January 1, 1993, the Company modified
these benefit plans to significantly limit the annual increase of these costs
to the Company to a maximum of 5 percent per year through use of copayments
from the employees and retirees. As a result, the Company's exposure to
increases in the health care cost trend rate will be limited to this 5 percent
ceiling.
Effective April 1, 1995 the Company further modified these benefit plans to
shift the cost for certain participants over age 65 to Medicare HMO type plans.
The effect of this change was to reduce the postretirement obligation by
approximately $5.0 mil-
Page 25
<PAGE>
lion which will be recognized as a reduction in this expense over the next six
years. Such change is reflected above as unrecognized prior service cost net of
the related amortization.
(16) Commitments and Contingencies
The Company is contingently liable under the terms of letters of credit (Note
9) aggregating approximately $1,540,000 at December 31, 1995, should it fail to
perform in accordance with the terms of its contracts with foreign customers.
At December 31, 1995, the Company and its subsidiaries were obligated under
building and equipment leases expiring between 1996 and 2005. Rental expense
under such leases for the years ended December 31, 1995, 1994 and 1993 amounted
to $2,200,000, $2,200,000 and $2,900,000, respectively. Minimum future rentals
under those obligations with noncancellable terms in excess of one year are as
follows:
1996 - $2,300,000
1997 - $2,200,000
1998 - $2,000,000
1999 - $1,600,000
2000 - $1,500,000
Thereafter - $6,850,000
(17) Legal Matters
The Company and three other companies have entered into a consent decree with
the Federal government for the remediation of a Superfund site. Management
estimates that the remaining discounted liability over thirty years related to
this matter as of December 31, 1995 is approximately $5.7 million of which
approximately $1.9 million has been classified as current and is included in
accounts payable and accrued liabilities. This amount includes $0.5 million in
estimated cost growth which was accrued in 1995. Approximately half of the $5.7
million liability will be expended over the next two years. Management believes
it is covered by liability insurance for all of the unreimbursed costs it
incurs. Its insurance carriers have neither agreed nor disagreed with the
Company's position, but the matter is in court to determine the insurers'
defense and indemnification obligations to the Company. Although the Company
intends to continue to pursue its liability insurance carriers, as well as
other parties, as a result of an unfavorable, partial ruling from the court in
this case, in 1994 the Company recognized an expense of $5.4 million when it
wrote off a previously recorded receivable relating to the amount the Company
believes is covered by its insurance policies.
In 1993, the Company reached an out-of-court settlement in connection with a
real estate contract dispute. As a result, the Company recorded a pre-tax
charge of approximately $1.2 million.
Additionally, the Company and its subsidiaries are subject to certain legal
actions that arise out of the normal course of business. It is management's
belief that the ultimate outcome of these actions will not have a material
effect on the Company's consolidated financial position or results of
operations.
(18) Business Segments
The Company operates in two industry segments: Defense and Space Systems, and
Industrial Products. Sales between industry segments approximate market price.
Sales are made and credit is granted generally to the U.S. Government or to
customers in the defense or aerospace industry. The Company considers the risks
associated with such customers to be minimal.
Domestic government sales, which include sales where the Company is a
subcontractor to a prime contractor with the government, amounted to 37%, 53%
and 56% of net sales, which were 46%, 66% and 60% of Defense and Space Systems
sales and 26%, 31% and 49% of Industrial Products sales for 1995, 1994 and
1993, respectively.
Export sales comprised 28%, 20% and 22% of net sales for 1995, 1994 and 1993,
respectively.
Principal products and systems by industry segment are as follows:
Defense and Space Systems
* Ejection Release Units
* Sonar Systems
* Spaceflight Systems
* Infrared Instrumentation
* Airborne Mine Countermeasure Systems
* Command, Control, Communications & Intelligence Systems
Industrial Products
* Electroceramic Components
* Acoustic Instrument Systems
* Acoustic Systems
* Fiber-Reinforced Structures
* Natural Gas Vehicle Products
Page 26
<PAGE>
The distribution of sales, operating earnings and identifiable assets of the
Company's business segments follows:
- -------------------------------------------------------------------------------
1995 1994 1993
(in thousands)
- -------------------------------------------------------------------------------
Sales:
Defense and Space Systems:
Unaffiliated customers $ 52,055 $ 56,568 $ 71,944
Industrial Products:
Unaffiliated customers 39,058 34,034 32,194
Intersegment sales 1,026 776 589
- -------------------------------------------------------------------------------
92,139 91,378 104,727
Less intersegment sales 1,026 776 589
- -------------------------------------------------------------------------------
Net sales $ 91,113 $ 90,602 $104,138
- -------------------------------------------------------------------------------
Operating (loss) earnings:
Defense and Space Systems $ 5,779 $ (6,546) $ (6,908)
Industrial Products 1,600 (14,139) 460
General corporate expenses (3,806) (4,711) (4,146)
- -------------------------------------------------------------------------------
3,573 (25,396) (10,594)
Net interest expense (1,179) (2,109) (2,201)
Other income (expense), net (41) 335 (1,390)
- -------------------------------------------------------------------------------
Earnings (loss) before Federal and
foreign income taxes, cumulative effect
of accounting change and
minority interest $ 2,353 $(27,170) $(14,185)
- -------------------------------------------------------------------------------
Identifiable assets:
Defense and Space Systems $ 40,187 $ 43,404 $ 62,499
Industrial Products 32,663 30,108 42,817
Corporate 30,649 28,565 18,089
- -------------------------------------------------------------------------------
$103,499 $102,077 $123,405
- -------------------------------------------------------------------------------
Depreciation expense:
Defense and Space Systems $ 3,233 $ 3,412 $ 4,190
Industrial Products 1,722 2,635 2,261
- -------------------------------------------------------------------------------
$ 4,955 $ 6,047 $ 6,451
- -------------------------------------------------------------------------------
Capital expenditures:
Defense and Space Systems $ 1,567 $ 953 $ 3,121
Industrial Products 376 1,458 1,396
- -------------------------------------------------------------------------------
$ 1,943 $ 2,411 $ 4,517
- -------------------------------------------------------------------------------
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
EDO Corporation
We have audited the accompanying consolidated balance sheets of EDO Corporation
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EDO Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statements
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and No. 109, "Accounting for
Income Taxes," in 1993.
KPMG Peat Marwick LLP
Jericho, New York
February 14, 1996
Page 27
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth unaudited quarterly financial information for
1995 and 1994 (in thousands, except per share amounts).
- -------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1994 1995 1994 1995 1994 1995 1994
- -------------------------------------------------------------------------------
Net
sales $20,918 $21,250 $24,879 $24,205 $21,899 $22,677 $23,417 $ 22,470
Gross
profit
(loss)c 4,860 3,848 4,873 2,238 4,487 (4,832) 5,859 1,788
Net
earnings
(loss) 431 16 590 (1,937) 784 (6,744)a 855 (13,891)b
Earnings
(loss)
per
share:
Primary 0.02 (0.06) 0.05 (0.42) 0.08 (1.26) 0.10 (2.52)
Fully
Diluted 0.02 (0.06) 0.04 (0.42) 0.07 (1.26) 0.08 (2.52)
Cash
dividends
per
common
share - 0.07 - 0.07 - - - -
Preferred
dividends
paid 322 342 307 342 307 327 303 322
- -------------------------------------------------------------------------------
a The 1994 third quarter results include a $1,400 write off of a foreign
receivable, a $1,127 restructuring charge and a $1,100 write off of
non-productive fixed assets.
b The 1994 fourth quarter results include a $5,400 write off of an
environmental insurance receivable and a $3,175 write off of a foreign
receivable
c Gross profit (loss) represents net sales less cost of sales and
Company-sponsored research and development.
Page 28
<PAGE>
EXHIBIT INDEX
Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.
3(i) Certificate of Incorporation of the Company and amendments thereto dated
June 14, 1984, July 18, 1988 and July 22, 1988. Incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
3(ii) By-Laws of the Company. Incorporated by reference to Exhibit 3(ii) to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
4(a) Indenture dated December 1, 1986 between Chemical Bank as successor in
interest to 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) Guarantee Agreement, dated as of July 22, 1988, as amended, made by the
Company in favor of NatWest Bank NA 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(c) 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 NatWest Bank NA 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(d) 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 NatWest Bank NA 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(e) 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 NatWest Bank NA 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(f) Amendment No. 6 to the Guarantee Agreement referred to in Exhibit 4(b)
above. Incorporated by reference to Exhibit 4(i) to the Company's Annual Report
on Form 10-Q for the fiscal year ended December 31, 1992.
4(g) Amendment No. 7 to the Guarantee Agreement referred to in Exhibit 4(b)
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.
4(h) Amendment No. 8 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective February 10, 1995. Incorporated by reference to Exhibit 4(h)
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
4(i) Amendment No. 9 to the Guarantee Agreement referred to in Exhibit 4(b)
above, effective June 30, 1995.
10(a)* EDO Corporation 1980 Stock Option Plan, as amended through July 22,
1988. Incorporated by reference to Exhibit 10(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
10(b)* EDO Corporation 1985 Stock Option Plan, as amended through January 24,
1989. Incorporated by reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
10(c)* EDO Corporation 1988 Stock Option Plan as amended through July 22, 1988.
Incorporated by reference to Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.
10(d)* EDO Corporation 1983 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(e)* EDO Corporation 1988 Long-Term Incentive Plan as amended through July
22, 1988. Incorporated by reference to Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
10(f)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and two employees. Incorporated by
reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(g)* Executive Life Insurance Plan Agreements, as amended through January 23,
1990, between the Company and 31 employees and retirees. Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10(h)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and fifteen current Company directors and officers. Incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10(i) Consent Decree, entered on November 25, 1992, amongst the United States,
EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc.
Incorporated by reference to Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.
21 List of Subsidiaries.
23 Consent of Independent Auditors to the incorporation by reference in the
Company's Registration Statements on Form S-8 of their report included in Item
14(a)1 hereto.
24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.
27 Financial Data Schedule.
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__________________________
Title
NATWEST BANK N.A.
By__________________________
Title
EXHIBIT 21
LIST OF SUBSIDIARIES
The following are subsidiaries of the Company, the respective jurisdictions of
their incorporation and names (if any) under which they do business. The
Company owns all of the voting securities (including directors' qualifying
shares owned beneficially by the Company) of each such subsidiary except the
Company owns only approximately 50% of EDO (Canada) Limited.
The names of particular subsidiaries of the Company have been omitted. When
considered in the aggregate as a single subsidiary, these omitted subsidiaries
do not constitute a "significant subsidiary" as such term is defined in Rule
1-02(v) of Regulation S-X of the Securities Exchange Act of 1934, as amended.
Jurisdiction Name Under Which
of Subsidiary
Name Incorporation Does Business
EDO Western Corporation Utah EDO Acoustics, and
EDO Ceramics
Barnes Engineering Company Delaware EDO Electro Optics
EDO (Canada) Limited Canada
EDO Operations (Israel) Ltd. Israel
EDO Foreign Sales Corporation U.S. Virgin Islands
EDO Sports, Inc. Delaware
EDO Western International Corporation Delaware
EDO International Corporation Delaware
VT Technologies, Inc. Delaware
EDO Energy Corporation Delaware
EDO Automotive Natural Gas, Inc. Delaware
Exhibit 23
KPMG Peat Marwick LLP
Consent of Independent Auditors
The Board of Directors
EDO Corporation:
We consent to incorporation by reference in Registration Statement Nos.2-69243,
33-1526 and 33-28020 on Form S-8 of EDO Corporation of our report dated
February 14, 1996, relating to the consolidated balance sheets of EDO
Corporation and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995, which
report appears in the December 31, 1995 annual report on Form 10-K of EDO
Corporation.
Our report refers to changes in the methods of accounting for income taxes and
postretirement health care and life insurance benefits.
KPMG PEAT MARWICK LLP
Jericho, New York
March 19, 1996
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Kenneth A. Paladino and Marvin
D. Genzer, and each of them, with full power of substitution, the undersigned's
true and lawful attorneys and agents to execute in his name and on his behalf,
in any and all capabilities, the Annual Report on Form 10-K of EDO Corporation
(the "Company"), a New York corporation, for the fiscal year ended December 31,
1995, and any and all other instruments which such attorneys and agents, or
either of them, deem necessary or advisable to enable the Company to comply
with the annual reporting requirements of the Securities Exchange Act of 1934,
as amended, and the rules, regulations and requirements of the Securities and
Exchange Commission; and the undersigned hereby ratifies and confirms as his
own act and deed all that such attorneys and agents, and each of them, shall do
or cause to be done by virtue hereof. Either of such attorneys and agents shall
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned have subscribed their signatures this 22nd
day of March, 1996.
Robert E. Allen
Robert Alvine
Mellon C. Baird
George M. Ball
Alfred Brittain III
Joseph F. Engelberger
Frank A. Fariello
William J. Frost
Marvin D. Genzer
Robert M. Hanisee
Michael J. Hegarty
Ira Kaplan
J. Douglas Moore
Kenneth A. Paladino
George A. Strutz, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 25,609
<SECURITIES> 0
<RECEIVABLES> 26,786
<ALLOWANCES> 486
<INVENTORY> 10,330
<CURRENT-ASSETS> 64,106
<PP&E> 61,764
<DEPRECIATION> 47,631
<TOTAL-ASSETS> 103,499
<CURRENT-LIABILITIES> 26,434
<BONDS> 42,204
<COMMON> 8,454
0
71
<OTHER-SE> 5,637
<TOTAL-LIABILITY-AND-EQUITY> 103,499
<SALES> 91,113
<TOTAL-REVENUES> 91,650
<CGS> 69,531
<TOTAL-COSTS> 88,077
<OTHER-EXPENSES> 41
<LOSS-PROVISION> 177
<INTEREST-EXPENSE> 2,301
<INCOME-PRETAX> 2,353
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,421
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.20
</TABLE>
